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) (Text with EEA relevance)
Date: 2008-05-14
Institutions: European Commission
Subjects: browser, cartography, competition law, database, economic concentration, merger control, restrictive-practice authorisation

C 237/8

EN

Official Journal of the European Union

16.9.2008

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

4. RELEVANT MARKETS

(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.

4.1. The Upstream Market — Navigable Digital Map

Databases

(2) Tele Atlas NV,

headquartered

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

in

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

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) infor-
mation 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 naviga-
tion devices, producers of navigation software and provi-
ders 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.

(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 transac-
tion would have been subject to mandatory scrutiny under
national merger control
law in four Member States;
Germany, the Netherlands, Spain and Portugal.

(8) The Commission considered it inappropriate to delineate
for digital map databases
separate product markets
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.

(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.

(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 applica-
tions constitute separate product markets.

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C 237/9

sold (1).

From the demand side,

(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
the
substitutability of navigable digital map databases with
different geographic coverage is limited. The degree of
supply-side substitutability of navigable digital map data-
bases with different geographic coverage is also limited,
the resources and time required to build a
because of
navigable digital map database from ‘scratch’. The Commis-
sion 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 sepa-
rate 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 distri-
butes 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 mate-
rial 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 provision of
the relevant geographic market
navigable digital map databases is worldwide.

for

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 soft-
ware; on-board systems, off-board systems and hybrid
systems. The question whether separate relevant product
markets should be defined depending on the type of navi-
since TomTom only
left open,
gation software was
provides on-board systems.

(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).

(13) The Commission considered it inappropriate to delineate
separate product markets depending on the database
formats used to integrate the data with the navigation soft-
ware 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
for the
provision of navigation software is worldwide in scope.

the relevant geographic market

4.3. The Downstream Market — PNDs

Definition of the relevant product market

(15) At present, four main types of navigation devices may be
(PNDs);
identified:
(ii) Personal Digital Assistants (PDAs);
(iii) mobile tele-
phones with navigation functionality and (iv) in-dash navi-
gation devices.

Portable Navigation Devices

(i)

(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 naviga-
tion 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 func-
tionalities, different prices and different degrees of adapta-
tion 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 Commis-
sion 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.

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Definition of the relevant geographic market

5.2. Navigation Software

(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

the incumbent providers.

(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
‘Greenfield’
the behaviour of
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 indi-
the producers currently producing
cations that any of
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
future entry from being timely
prevent any potential
enough to constrain the competitive behaviour of
the
incumbents in the short or medium term.

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

sufficiently swift

timely (i.e.

(22) Tele Atlas is not active in the market for the provision of
navigation software. Only a minor part TomTom's produc-
tion 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 Commis-
sion 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)

TomTom

Mio Tech & Navman

Garmin

MEDION

MyGuide

PNDs

[30-50]

[10-20]

[10-20]

[0-10]

[0-5]

All portable
end-uses

[30-40]

[10-20]

[10-20]

[0-10]

[0-5]

Table 7

EEA market shares by value (turnover) in 2006

Value market shares EEA

All portable
end-uses

[30-50]

[10-20]

[10-20]

[0-5]

[0-5]

PNDs

[30-50]

[10-20]

[10-20]

[0-5]

[0-5]

TomTom

Mio Tech & Navman

Garmin

MEDION

MyGuide

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.

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6. ASSESSMENT

6.1. Input Foreclosure in the PND and Navigation

Software Markets

(25) The analysis of input foreclosure was carried out in accord-

ance 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 rela-
tively 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 competi-
tors. However,
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.

it appears

(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]
[Navigation
Software Provider] are also partially protected, approxi-
mately half of the market could possibly be affected by a
foreclosure strategy.

and

(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 manufac-
turers 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
increased prices
upstream or degraded map database quality/delays access
to updates, while the benefits from increasing map data-
base prices to TomTom's competitors are likely to be rela-
tively limited.

it

(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
in the
foreclosure
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 data-
bases that Tele Atlas would continue to sell upstream.

switching costs

strategy.

Fourth,

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(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.

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.

(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 fore-
closure 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 neces-
sary 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 Commis-
sion 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
indicate that any price increase that
simple profit
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 compen-
sate upstream losses.

test

(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 navi-
gation software market appears even less likely, in particu-
lar 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 data-
the evidence regarding limited
base in the PND price,
pass-through, the limited switching costs and the competi-
tion with NAVTEQ all tend to limit the price increase that
could be imposed by Tele Atlas on TomTom's competitors.

(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 elimi-
nation of
the double marginalization by the integrated
company as well as other efficiencies such as the produc-
tion of better maps faster by using trace and feedback data
from TomTom. These efficiencies reinforced the Commis-
sion'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 custo-
mers 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 invest-
ment decisions. Once a new feature is developed,
it is
offered to all Tele Atlas customers at the same time.

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(47) Confidential information shared during technical consulta-
tions 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
In addition,
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
the parties would react to
foreclosure,
possible
offering
customers conditions which make switching to NAVTEQ
unattractive.

confidentiality concerns

confidentiality

is likely that

could result

concerns,

e.g.

by

it

(49) In view of the above, the Commission considered it unli-
the proposed transaction would significantly
to confidentiality

competition due

effective

kely that
impede
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 concentra-
tion 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 concentra-
tion 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.