EN Official Journal of the European Union C 237/8

Summary of Commission Decision

of 14 May 2008

declaring a concentration compatible with the common market and the functioning of the EEA Agreement

(Case COMP/M.4854 — TomTom/Tele Atlas)

(Only the English version is authentic)

(Text with EEA relevance)

(2008/C 237/12)

On 14 May 2008, the Commission adopted a Decision in a merger case under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, and in particular Article 8(1) of that Regulation. A non-confidential version of the full decision can be found in the authentic language of the case and in the working languages of the Commission on the website of the Directorate-General for Competition, at the following address:

http://ec.europa.eu/comm/competition/index_en.html

1. THE PARTIES

(1) TomTom NV, headquartered in Amsterdam, Netherlands, is a manufacturer of portable navigation devices (PNDs) and a supplier of navigation software for use in navigation devices.

(2) Tele Atlas NV, headquartered in 's-Hertogenbosch, Netherlands, is one of two main suppliers (in Europe and North America) of digital map databases for navigation and other end-uses.

2. THE OPERATION

(3) On 22 October 2007, the Commission received a formal notification pursuant to Article 4 of the Merger Regulation by which TomTom acquires within the meaning of Article 3(1)(b) of the Merger Regulation control of the whole of Tele Atlas by way of a public bid.

3. ARTICLE 4(5) REFERRAL

(4) The parties to the proposed concentration do not meet either of the alternative thresholds set out in Article 1(2) and (3) of the Merger Regulation. The proposed transaction would have been subject to mandatory scrutiny under national merger control law in four Member States; Germany, the Netherlands, Spain and Portugal.

(5) On 24 August 2007, the Commission received a reasoned submission by TomTom in which the company requested a referral to the Commission pursuant to Article 4(5) of the Merger Regulation. No Member State objected to the referral of the proposed transaction to the Commission. The proposed transaction is therefore deemed to have a Community dimension and has been examined by the Commission.

4. RELEVANT MARKETS

4.1. The Upstream Market — Navigable Digital Map Databases

Definition of the relevant product market

(6) A digital map database is a compilation of digital data which typically includes (i) geographic information about the position and shape of each feature on a map; (ii) information about additional features of the map (e.g. street names, addresses, driving directions, turn restrictions and speed limits); and (iii) display information. In addition to the core database, several layers of add-on information are provided by the providers of digital map databases.

(7) Digital map databases are sold to manufacturers of navigation devices, producers of navigation software and providers of non-navigation applications (e.g. Internet maps). Digital map databases are used for a variety of purposes, the most important being address location, route planning and navigation.

(8) The Commission considered it inappropriate to delineate separate product markets for digital map databases depending on the format in which the data is delivered to the customers or depending on the type of navigation device they are used in.

(9) The Commission considered whether or not digital map databases for navigation purposes and non-navigation purposes constitute separate relevant product markets. Given the lack of demand-side as well as supply-side substitutability, the Commission concluded that digital map databases for navigation and non-navigation applications constitute separate product markets.

(10) Finally, the Commission considered whether the market for the provision of navigable digital map databases should be sub-divided according to the geographic coverage of the databases sold (1). From the demand side, the substitutability of navigable digital map databases with different geographic coverage is limited. The degree of supply-side substitutability of navigable digital map databases with different geographic coverage is also limited, because of the resources and time required to build a navigable digital map database from ‘scratch’. The Commission therefore concluded that separate relevant product markets should be defined depending on the geographic coverage of each navigable digital map database. The exact delineation of the relevant product markets (i.e. whether or not individual country or regional licences constitute separate product markets) was left open, since it did not affect the Commission's assessment of the proposed transaction.

Definition of the relevant geographic market

(11) Tele Atlas distributes its products from the Netherlands to device makers and software providers located elsewhere in the EEA and in other parts of the world. NAVTEQ distributes its databases from the US to the EEA and other parts of the world. Major device makers and software developers are located in the EU, the US, Japan and South Korea. No quotas, tariffs or other trade barriers limit these imports and exports of digital data of this kind. There are no material differences in the way in which navigable digital map databases are sold or distributed within the EEA and in other parts of the world. The Commission concluded that the relevant geographic market for the provision of navigable digital map databases is worldwide.

4.2. The Intermediate Market — Navigation Software

Definition of the relevant product market

(12) Navigation software combines geographic positioning from a GPS-receiver and data contained in a navigable digital map database to provide navigation functionality. The navigation software calculates routes and provides real time turn-by-turn directions. Navigation software is either sold as a stand-alone product or as a bundle with the map database. There are three main types of navigation software; on-board systems, off-board systems and hybrid systems. The question whether separate relevant product markets should be defined depending on the type of navigation software was left open, since TomTom only provides on-board systems.

(13) The Commission considered it inappropriate to delineate separate product markets depending on the database formats used to integrate the data with the navigation software or depending on the type of navigation device the navigation software is installed in.

Definition of the relevant geographic market

(14) Navigation software is created and distributed throughout the world and licensed to customers wherever the customer is located. There are no technological differences, trade barriers or legal barriers that could justify a narrower scope of the geographic market. The Commission therefore concluded that the relevant geographic market for the provision of navigation software is worldwide in scope.

4.3. The Downstream Market — PNDs

Definition of the relevant product market

(15) At present, four main types of navigation devices may be identified: (i) Portable Navigation Devices (PNDs); (ii) Personal Digital Assistants (PDAs); (iii) mobile telephones with navigation functionality and (iv) in-dash navigation devices.

(16) The Commission's market investigation indicated that a number of circumstances distinguish PNDs from other types of navigation devices. A PND is primarily a navigation device while a mobile telephone with navigation capability usually comes with a wide range of functions. The different functionalities are reflected in prices. The Commission considered that PNDs and mobile telephones with navigation capability constitute separate relevant product markets. For similar reasons — i.e. different functionalities, different prices and different degrees of adaptation to automotive use — the Commission considered that PNDs and PDAs constitute separate product markets. PNDs are sold and marketed as normal consumer electronics in retail outlets while in-dash systems are pre-installed in new cars at the time of production. In-dash devices have more features, larger screens and may be integrated with car safety systems. These differences are reflected in prices. The suppliers of PNDs and in-dash devices are largely different, although a few in-dash providers have attempted to enter the PND market. For these reasons, the Commission considered that PNDs and in-dash devices constitute separate relevant product markets.

(17) For the purposes of this decision, the relevant product market downstream is the market for the provision of PNDs.

Definition of the relevant geographic market

(18) PNDs used in different EEA countries require substantially the same hardware and software to operate. The largest PND suppliers operate and compete for customers on an EEA-wide basis. Most brands are sold throughout the EEA and the relative strength of the main players is broadly similar in most national markets. There is also scope for significant supply-side substitution. On this basis, the Commission concluded that the geographic market is at least EEA-wide.

5. MARKET CONDITIONS

5.1. Navigable Digital Map Databases

Market shares

(19) There are two main providers of navigable digital map databases which cover countries situated in the EEA; Tele Atlas and NAVTEQ. The market(s) for the provision of navigable digital map databases covering EEA-countries may therefore be regarded as a duopoly. Depending on the product market definition, Tele Atlas has a market share of [40-60] % and NAVTEQ [40-60] %.

Market entry

(20) There are no indications that any of the current providers of navigable digital map databases active outside the EEA plan to enter the markets for databases with coverage of countries in the EEA. Entry by US firm Facet is uncertain and would in any case not be timely enough to constrain the behaviour of the incumbent providers. ‘Greenfield’ entry by firms offering internet-based map applications must also be regarded as unlikely. Apart from AND — whose products are clearly inferior to those of Tele Atlas and NAVTEQ — the market investigation contains no indications that any of the producers currently producing non-navigable digital map databases with European coverage intends to upgrade its databases to make them navigable. Even if they did have intentions to enter, the substantial time-lag involved in producing from ‘scratch’ a navigable digital map database covering the EEA would prevent any potential future entry from being timely enough to constrain the competitive behaviour of the incumbents in the short or medium term.

(21) While marginal entry may not be excluded, the Commission concluded that entry into the markets for the provision of navigable digital map databases with EEA-coverage would be neither timely (i.e. sufficiently swift and sustained), nor sufficient (in scope and magnitude) to deter or defeat any potential anti-competitive effects of the merger.

5.2. Navigation Software

(22) Tele Atlas is not active in the market for the provision of navigation software. Only a minor part TomTom's production of navigation software is supplied to third parties. In the merchant market for navigation software the largest providers are Navigon with an estimated market share of 25 %, Navn'Go with 18 % and Destinator with 15 %. TomTom's market share is estimated to 6 %.

(23) The Commission market investigation indicated that barriers to entry are surmountable. The vast majority of the PND-manufacturers which participated in the Commission market investigation responded that they were already able or would be able to develop their own navigation software in-house.

5.3. PNDs

Market shares

Volume market shares EEA (units) All portable end-uses PNDs TomTom [30-40] [30-50] Mio Tech & Navman [10-20] [10-20] Garmin [10-20] [10-20] MEDION [0-10] [0-10] MyGuide [0-5] [0-5]

Table 7

EEA market shares by value (turnover) in 2006

Value market shares EEA All portable end-uses PNDs TomTom [30-50] [30-50] Mio Tech & Navman [10-20] [10-20] Garmin [10-20] [10-20] MEDION [0-5] [0-5] MyGuide [0-5] [0-5]

Market entry

(24) The very large number of companies that have entered market during the previous four years indicates that barriers to entry are not significant. However, the vast majority of market entrants — including major companies with ‘deep pockets’ and strong brand names — have failed to capture other than marginal market shares and remain minor niche players.

6. ASSESSMENT

6.1. Input Foreclosure in the PND and Navigation Software Markets

(25) The analysis of input foreclosure was carried out in accordance with the Non-horizontal Merger Guidelines.

Ability to foreclose

(26) Given Tele Atlas' market share of more than [40-60] % and given the absence of counter-strategies detailed below, the Commission concluded that the merged entity enjoys a significant degree of market power on the upstream market, which is a pre-condition for the ability to foreclose competitors according to the Non-horizontal Merger Guidelines.

(27) Although digital map databases only account for a relatively limited share of the price of a PND, they constitute a critical component without which PNDs could not serve their purpose.

(28) The Commission considered whether there are effective and timely counter-strategies that rival firms in the PND market could deploy.

(29) NAVTEQ would still compete with Tele Atlas post-merger, thereby limiting Tele Atlas' ability to foreclose its competitors. However, it appears likely that NAVTEQ's best response to a price increase by Tele Atlas would be to also increase prices, which could potentially reinforce the effect of a foreclosure strategy by the merged entity on the downstream market.

(30) Entry is unlikely to provide an effective and timely counter-strategy that would constrain the merged entity's ability to foreclose its downstream competitors. As stated above, the Commission considered it unlikely that a new map database provider would build a navigable digital map database with the same level of coverage and quality as Tele Atlas or NAVTEQ and provide a timely constraint on the merged entity.

(31) Another limit to Tele Atlas' ability to increase prices or degrade quality could be provided by intermediaries that have a license from Tele Atlas or NAVTEQ to supply the map database together with their navigation software. Such intermediaries constitute an effective constraint only if they are themselves protected from price increases and quality degradation.

(32) Tele Atlas' ability to foreclose its downstream competitors is limited by the long-term contract that Garmin has concluded with NAVTEQ, which protects Garmin at least until […]. Since Garmin represents less than [10-20] % of the PND market, even taking Garmin's protection into account, the merged entity's ability to foreclose would still affect more than two third of the sales of TomTom's competitors downstream. If one takes into account that [Navigation Device Manufacturer] and [Navigation Software Provider] are also partially protected, approximately half of the market could possibly be affected by a foreclosure strategy.

(33) In light of the above, the Commission concluded that the merged entity is likely to have the ability to increase prices or degrade quality/delay access for some PND manufacturers and navigation software providers competing with TomTom.

Incentive to foreclose

(34) Post-merger, TomTom/Tele Atlas will take into account how the sales of map databases to TomTom's competitors will affect its profits not only upstream but also on the downstream market. The merged entity faces a trade-off between the profit lost in the upstream market and the profit gained on the downstream market by raising its rivals' costs.

(35) For reasons described below, Tele Atlas would be likely to lose significant sales to NAVTEQ if it increased prices upstream or degraded map database quality/delays access to updates, while the benefits from increasing map database prices to TomTom's competitors are likely to be relatively limited.

(36) First, since map databases account on average for less than 10 % of the PND wholesale price, map database prices would have to increase substantially to have an effect on downstream PND market prices and allow the merged entity to capture a significant amount of sales on the downstream market. Second, it appears that at least some PND suppliers would be reluctant to pass on an increase in map database prices in the PND price, which would further reduce any effect on PND prices. Third, Garmin's protection from foreclosure due to its long-term contract with NAVTEQ will limit the profits that TomTom could capture on the downstream market if it engaged in input foreclosure strategy. Fourth, switching costs in the upstream market are surmountable. As a result, Tele Atlas would lose significant amount of sales to NAVTEQ if it increased prices of map databases, degraded their quality or delayed access to updates. Finally, quality degradation only applies to Tele Atlas customers, since NAVTEQ would arguably continue to provide good-quality map databases to all PND manufacturers in a non-discriminatory manner. It is also important to note that degrading map database quality would be less profitable for the merged entity than increasing prices since, unlike a price increase, degrading quality does not bring higher margins for the map databases that Tele Atlas would continue to sell upstream.

(37) In order to measure the upstream/downstream trade-off, the Commission carried out an econometric estimation of downstream price elasticities to measure the sales that the merged entity could capture if it increased map database prices to TomTom's competitors downstream.

(38) The Commission first examined the likelihood of a total input foreclosure strategy. If the merged entity were to stop selling map databases, it would lose all its profits on map databases but would only recuperate profits on the sales that it is able to capture downstream. For a total foreclosure strategy to be profitable for Tele Atlas, it would have to recuperate enough profits downstream to at least compensate the lost profits on map databases. Since map database prices represent a relatively minor proportion of the price of PND devices, and given the elasticity estimates, the Commission's analysis indicated that it would be necessary for NAVTEQ to increase prices by very a substantial amount to ensure that an input foreclosure strategy would be profitable for the merged entity. In fact, the Commission calculated that if NAVTEQ does not raise prices by several hundred percent, a total input foreclosure strategy would not be profitable for Tele Atlas.

(39) The Commission also examined the likelihood of a partial input foreclosure strategy. The Commission concluded that the merged entity would only capture a relatively limited amount of sales downstream by increasing map database pricing to TomTom's competitors, which implies that the incentive to foreclose competitors would be limited. The Commission's subsequent sensitivity analysis confirmed the conclusion that any significant price increase would be unprofitable for the merged entity. The results of this simple profit test indicate that any price increase that would have a non-negligible impact on the downstream market would not be profitable for the merged entity as the downstream gains would not be sufficient to compensate upstream losses.

(40) The Commission concluded that the merged entity would have no incentive to increase prices in a manner which would lead to anticompetitive effects in the downstream market for PNDs. An input foreclosure strategy in the navigation software market appears even less likely, in particular in view of the more limited presence of TomTom in this market and the smaller profits that could be captured in the software market.

Effects in the downstream market

(41) The same qualitative factors that explained the lack of an incentive to engage in partial foreclosure also result in a lack of effects. For instance, the low share of the map database in the PND price, the evidence regarding limited pass-through, the limited switching costs and the competition with NAVTEQ all tend to limit the price increase that could be imposed by Tele Atlas on TomTom's competitors. The fact that Garmin is protected against price increases by its long-term contract with NAVTEQ, limits further the possible effects of foreclosure. The Commission therefore concluded that the proposed transaction would not lead to any anticompetitive harm in the downstream market.

(42) The overall impact of the transaction will also be impacted by the likely efficiencies that brought about by the merger. The Commission estimated the overall impact of the elimination of the double marginalization by the integrated company as well as other efficiencies such as the production of better maps faster by using trace and feedback data from TomTom. These efficiencies reinforced the Commission's conclusion that the proposed transaction would not lead to any anticompetitive harm.

6.2. Access by the Merged Entity to Confidential Information in the Market for PNDs

(43) The confidentiality concern, as expressed by third parties, is based on the premise that Tele Atlas' customers have to share information on their future competitive actions with their map supplier. Current contracts do not oblige customers to pass such information about future conduct to Tele Atlas. However, customers have voluntarily passed on information about their estimated future sales, product roadmaps, and new features included in the latest versions of their devices.

(44) The parties have presented convincing evidence showing that such exchanges are limited and that they could even be reduced post-merger without detriment to Tele Atlas' customers, should these customers be concerned about the use that the merged entity could make of the information exchanged.

(45) The market investigation showed that customers can avoid discussing sales forecasts with Tele Atlas. New customers can agree to a minimum purchasing requirement and thus avoid revealing sensitive information about future sales.

(46) Information about add-on features to be included in future products does not have to be passed on to TomTom. Firstly, add-on layers are supplied by a number of smaller companies. Alternative suppliers can therefore be a good source for add-on features for companies concerned about confidentiality. Secondly, customers sometimes approach map database suppliers to encourage them to invest in a new feature or extend coverage of their map databases. However, Tele Atlas does not base its investment decisions on requests of individual companies. A decision to invest in new features or geographic coverage is taken after consultations with the largest customers which implies that most ideas related to new content are communicated to other customers (including TomTom) prior to investment decisions. Once a new feature is developed, it is offered to all Tele Atlas customers at the same time.

(47) Confidential information shared during technical consultations with Tele Atlas could possibly be passed on to TomTom. However, as far as the incorporation of add-on layers is concerned, Tele Atlas provides its customers with all the technical specifications for this purpose. Technical problems which only Tele Atlas is able to solve are very rare.

(48) Post-merger, Tele Atlas would still have incentives to prevent its current customers from leaving to NAVTEQ due to confidentiality concerns because losing a customer would not be compensated by sufficient additional gains downstream even if NAVTEQ significantly raised its prices. In addition, confidentiality concerns could result in damage to Tele Atlas' reputation which would harm the merged company's map database business. Due to the absence of incentives for the parties to engage in input foreclosure, it is likely that the parties would react to possible confidentiality concerns, e.g. by offering customers conditions which make switching to NAVTEQ unattractive.

(49) In view of the above, the Commission considered it unlikely that the proposed transaction would significantly impede effective competition due to confidentiality concerns.

6.3. Coordinated effects

(50) There is currently no indication of coordination between Tele Atlas and NAVTEQ. On the contrary, the results of the market investigation indicated that, pre-merger, Tele Atlas and NAVTEQ competed on both price and non-price aspects. Effective coordination appears unlikely in the market for navigable digital map databases. Coordination on prices would be difficult since map database prices are not transparent and an allocation of customers would be difficult in the PND market, where the relative size of PND manufacturers is far from stable and numerous firms have entered since 2004. It also appears unlikely that effective monitoring and deterring mechanisms could be established in light of existing market characteristics. Finally, there is no clear evidence that the vertical integration of TomTom and Tele Atlas would increase the scope for coordination between map database producers.

(51) The Commission therefore concluded that the proposed operation is unlikely to lead to anticompetitive effects through coordination.

7. CONCLUSION

(52) The Commission concluded that the proposed concentration would not give raise to any competition concerns as a result of which effective competition would be significantly impeded in the Common Market or in a substantial part of it. Consequently, the Commission declared the concentration compatible with the Common Market and the EEA Agreement, in accordance with Article 8(1) of the Merger Regulation and Article 57 of the EEA Agreement.

(1) Please note that the geographic coverage of navigable digital databases is a product feature relevant for the delineation of the relevant product market in this case. The geographic coverage of the database must not be confused with the geographic scope of the market, which is dealt with separately below (in the section on the definition of the relevant geographic market).