Summary of Commission Decision of 2 July 2008 declaring a concentration to be compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.4942 — Nokia/Navteq)
Date: 2008-07-02
Institutions: European Commission
Subjects: European Economic Area, competition law, economic concentration, mobile phone, restriction on competition, satellite navigation, telecommunications, trade agreement (EU)

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Official Journal of the European Union

20.1.2009

Summary of Commission Decision

of 2 July 2008

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

(Case COMP/M.4942 — Nokia/Navteq)

(Only the English version is authentic)

(2009/C 13/06)

On 2 July 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 (1), 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

I. THE PARTIES

munity dimension and has been examined by the
Commission.

(1) Nokia Corporation (‘Nokia’, Finland) provides equipment,
solutions and services
for electronic communications
networks. The company is principally known as a manu-
facturer of handsets for mobile telephony (‘mobile hand-
sets’). Nokia also intends to develop mobile online services
via its ‘OVI’ portal,
including so-called Location-Based
Services (‘LBS’).

(2) Navteq Corporation (‘Navteq’, United States of America,
‘United States’) is a supplier of digital map data used in
navigation devices and to provide a wide range of LBS.

II. CONCENTRATION

(3) On 1 October 2007, Nokia announced the signing of an
agreement according to which Nokia will acquire all shares
and outstanding options in Navteq. The transaction consti-
tutes a concentration within the meaning of Article 3(1)(b)
of Regulation (EC) No 139/2004 (the ‘Merger Regulation’).

III. ARTICLE 4(5) REFERRAL

(4) The parties to the concentration do not meet either of the
alternative turnover
in Article 1(2)
and 1(3) of the Merger Regulation. The transaction would
have been capable of being reviewed under national
merger control
[Business
Secrets].

law in 11 Member States

thresholds set out

(5) On 22 November 2007,

the Commission received a
reasoned submission by Nokia in which the company
requested a referral
to
Article 4(5) of the Merger Regulation. No Member State
objected to the referral of the transaction to the Commis-
sion. The transaction is therefore deemed to have a Com-

to the Commission pursuant

(1) OJ L 24, 29.1.2004, p. 1.

IV. RELEVANT MARKETS

1. Upstream markets

(6) Navteq commercialises navigable and non-navigable digital
map databases. Both categories of maps can be used for
inclusion in Location Based Services (LBS) in mobile hand-
sets. Navigable maps allow for real-time turn-by-turn navi-
gation applications. However non-navigable digital map
databases account for less than 5 % of Navteq turnover.

(7) The competition analysis conducted by the Commission
concluded that no competition concerns may arise in the
upstream market for non-navigable digital map databases,
notably because a number of competitors are present, and
because barriers to market entry are limited. The Commis-
sion has therefore focused its competition analysis on the
upstream market for navigable digital map databases, and
the relevant downstream markets.

Navigable Digital Map Databases

(8)

the databases determines the scope of

Like in the recent TomTom/Tele Atlas decision, the Commis-
sion defined a relevant market for the provision of navig-
able digital map databases, where the geographic coverage
of
the product
market. The exact delineation of
the relevant product
markets — i.e. whether or not databases covering indivi-
dual countries, regions or the whole EEA constitute sepa-
rate product markets — may be left open since it does not
affect the assessment. The relevant geographic market is
worldwide in scope.

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(9) The same picture emerges from the market share analysis
regardless of which alternative product market is used. The
worldwide market(s) for the provision of navigable digital
map databases with EEA-coverage is a duopoly where
Tele Atlas is the larger player as evidenced by its larger
market shares in the total market for all databases with
whole or partial EEA-coverage (Navteq: 40-45 %, Tele Atlas:
55-60 %),
for databases with regional
coverage and in the larger markets for individual countries
such as databases covering France, Germany, Italy, Spain or
the United Kingdom.

in the market

(10) The market investigation in the present case has confirmed
the findings in the recent TomTom/Tele Atlas decision both
as regards the estimated time and cost of entry, as well as
the likelihood and impact of entry. While the Commission
does not exclude that marginal entry may occur, 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, with
regards to its scope and magnitude, to deter or defeat any
potential anti-competitive effects of Nokia's acquisition of
Navteq.

2. The intermediate market

Navigation software

(11) Navigation software combines the data contained in a
digital map database with geographic positioning from a
GPS-receiver. The navigation software uses an algorithm to
calculate routes and provide turn-by-turn directions on
screen and via voice guidance. Most manufacturers of
mobile handsets and most MNOs do not produce naviga-
tion software in-house. These companies typically acquire
navigation software from third party software developers.

to define

(12) Like in TomTom/Tele Atlas, the Commission considered it
for
appropriate
a
navigation software comprising all three types of software
(on-board, off-board and hybrid) and regardless of
the
end-use (i.e. software for use in PNDs, PDAs, mobile hand-
sets or other applications). The geographic scope of this
market is worldwide.

single product market

(13) Nokia is active in the market for the provision of naviga-
tion software through its subsidiary gate5 AG which Nokia
acquired in 2006. The market share of Nokia/gate5 is
limited; [5-10] % of the merchant market in 2006 (the
largest suppliers are NAVIGON: [20-30] %, Nav N Go
[15-20] % and Destinator: [15-20] %). A large number of
companies
lists
23 providers in the notification) and barriers to entry
appear to be limited.

in this market

(Nokia

active

are

3. Two downstream markets

(14) The Commission has identified two relevant downstream
markets: (i) Navigation applications for mobile handsets;
and (ii) Mobile handsets. Navigable digital map databases
are an input for all navigation applications, and also for a
growing number of mobile handsets with navigation func-
tionality pre-installed.

3.a. Navigation applications for mobile handsets

(15) Navigation applications for mobile handsets devices can be
sold together with the handset or independently as an
aftermarket add-on, and consist of a digital map database
and navigation software which uses the database and the
information from a GPS receiver to provide information
about the current location of the user and, in the case of
more advanced applications, provide graphical and voice
instructions on how to get to a chosen destination.

(16) Most Mobile Network Operators (MNOs) in the EEA have
for instance started, or intend, to offer such services to
their customers. Navigation applications for mobile hand-
sets can also consist of navigation software directly
purchased by end-customers in shops or on websites of
the software developers (e.g. TomTom Mobile navigator 6).
They can also be bundled with handsets, for instance when
its
a MNO promotes a handset and includes
own-branded navigation service. Navigation applications
for mobile handsets can also be accessed via a web
browser.

in it

(17) From the point of view of the end-user, the navigation
applications delivered through these different channels are
very similar. For these reasons it is not necessary to define
separate markets for navigation applications depending on
the sales channel.

offer

real-time,

turn-by-turn

(18) In contrast to on-line applications offering basic routing
(Google Maps, Mappy.com, etc.), the advanced navigation
applications
navigation
accompanied by voice instructions. They also require
special navigation software to be installed on the device.
Such navigation applications can be embedded on-board
of the mobile phone or stored on a central server and
accessed wirelessly from the handset (off-board). Hybrid
systems combine features of off-board and on-board appli-
cations. Ultimately it is not necessary to define separate
markets for off-board, hybrid and on-board navigation
applications.

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(19) Although further differentiation cannot be excluded in the
future, for the purpose of this decision a single relevant
market for navigation applications for mobile handsets can
be defined. With regard to geographic scope, the supply of
navigation applications
least an EEA-wide and
is at
possibly worldwide market.

market definition to differentiate between mobile handsets
with and without embedded GPS, and concluded that it
was not appropriate to do so. Firstly,
the majority of
mobile handsets currently sold can be used for navigation
thanks
to relatively inexpensive external GPS sensors
which can be linked to a mobile phone via a Bluetooth
connection. Secondly, according to analyst predictions,
in 2011 approximately [65-75] % of mobile phones sold
in Western Europe will have an embedded GPS sensor.

M a r k et c o n d i t i o n s

(20) The provision of navigation services on mobile handsets
being a nascent industry, no reliable market data, such as
market shares, is available, irrespective of the distribution
channel. The market investigation indicates that there is a
large number of competitors. MNOs have the advantage of
having an on-going direct commercial relationship with
customers, and can leverage this position to sell navigation
applications on mobile handsets. Navigation software
providers have the necessary technical expertise but suffer
from not having a regular contact with customers. Finally,
providers of on-line navigation applications have the
advantage of being accessible on mobile browsers (Google
Maps, OVI from Nokia).

(21) Barriers to entry in the market for navigation application
for mobile handsets are low. A number of navigation soft-
ware providers (active in the intermediate market) develop
white-label products that can be easily branded by MNOs
or other players.

3.b. Mobile handsets

(22) Mobile handsets equipped with navigation applications are
one of the main types of navigation devices. Other devices
with navigation functionality are PNDs and PDAs. PNDs,
PDAs and mobile telephones with navigation functionality
meet different consumer needs. There is limited substitut-
ability between mobile handsets and other types of naviga-
tion devices from the point of view of consumers. A
mobile handset is a multi-function communication device
primarily used for mobile telephony, where the navigation
functionality is only one of many features. Due to different
functionalities, different types of navigation devices are not
fully interchangeable. It can therefore be concluded that
mobile phones are a separate relevant product market.

(23) It is common for the latest features to be introduced into
high-end handsets and relatively quickly become adopted
in a wider range of handsets if the feature is attractive to
consumers. The majority of mid-range to high-end hand-
sets currently have operating systems that are capable of
supporting navigation solutions. The Commission has
considered whether it is appropriate for the purpose of

(24) For

the

reasons mentioned above,

the Commission
considers that the relevant product market encompasses all
mobile handsets. The relevant geographic market is global
in scope.

M a r k et c o n d i t i o n s

[10-20] %,

(25) On the markets for the provision of mobile handsets,
Nokia is the largest supplier by far. Nokia and its main
reached the following worldwide market
competitors
shares in 2006: Nokia [30-40] %, Motorola [15-25] %,
Samsung
LG
[0-10] %, BenQ Mobile [0-10] % (1). A wide range of
handsets are navigation compatible and Nokia is not
unique in offering handsets that can be used for naviga-
tion. Navigation services are not currently a significant
driver of handset sales. However the parties expect that
navigation services will become more popular
in the
future.

[0-10] %,

Ericsson

Sony

(26) Like most electronics markets, the market for mobile hand-
sets is characterized by intense competition and frequent
entry of new competitors. In addition to the traditional
competitors who have origins in mobile phones, products
competing with Nokia's handsets are being introduced by
competitors with origins in other electronics and hi-tech
markets. Examples of devices gaining market share include
RIM's Blackberry, Apple's iPhone, Garmin's Nuviphone and
Palm.

V. COMPETITIVE ASSESSMENT

by

(27) The Commission authorised on 14 May 2008 the
acquisition without
TomTom of
commitments
Tele Atlas, the competitor of Navteq in the supply of navig-
able digital map databases. Although the merger between
Nokia and Navteq is analysed independently and presents
different characteristics — in particular in the downstream
markets — a number of similarities exist between the two
cases. The analysis in both cases shows that vertical fore-
closure is unlikely because the newly merged entity would
lack the incentive to foreclose.

(1) Source: notification.

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(28) The Commission has focused its market investigation on
assessing the likelihood of competitive harm arising as a
result of the transaction due to (i) non-coordinated effects
(input foreclosure by the merged entity in the downstream
markets; and access by the merged entity to confidential
information of its competitors); and (ii) coordinated effects.

1. Input foreclosure

(29) Mobile telephone manufacturers, MNOs, online map users
and navigation software providers have expressed concerns
that Nokia and Navteq could foreclose them from the
market of navigable digital map databases. Foreclosure
strategy could be achieved either by increasing prices, by
providing degraded map sets, by delaying access to latest
maps or attributes, or by reserving innovative features to
Nokia. Total input foreclosure was not considered a likely
scenario by the respondents to the market investigation.

(30) The Commission examined (i) whether the merged entity
would have the ability post-merger to foreclose access to
inputs; (ii) whether it would have the incentive to do so;
and (iii) whether a foreclosure strategy would have a
significant detrimental effect.

Ability

(31) Navigable digital map databases are a critical component
for the provision of navigation applications on mobile
handsets as navigation applications cannot be delivered
without a navigable digital map database. Conversely it is
unclear whether navigable digital map databases are a
critical input for the market of mobile handsets as naviga-
tion applications are only one service among others.
Customers could decide to purchase a handset without
pre-installed navigation applications and access a naviga-
tion solution via a subscription to the navigation service of
its MNO for instance. It could also be argued however that
navigable digital map databases are an important compo-
nent for handset manufacturers as the notifying parties
have recognised that navigation applications embedded
into mobile handsets will be a key factor influencing the
sales of handsets in the near future.

(32) Navteq enjoys significant market power in the market for
navigable digital map databases, competing only with
Tele Atlas.

(33) It cannot be excluded that timely and effective counter
strategies could exist that would make a foreclosure by
Nokia and Navteq unprofitable. Garmin, a PND manufac-
turer, has notably signed a long term agreement with

Navteq for the supply of navigable digital map databases. It
is authorised to re-sell them together with its software.
Garmin could be to a certain extent a credible supplier of
navigable digital map databases for handset manufac-
turers (1) or MNOs, therefore acting as a third map supplier
on the market. Handset manufacturers and MNOs would
therefore be indirectly protected from a foreclosure strategy
from Nokia. Garmin would however be unsuitable as map
database supplier for navigation software providers and
on-line providers of navigation services because these
clients develop their own navigation software and Garmin
is only authorised to sell maps integrated into an applica-
tion that it has developed.

(34) Motorola [has a contract] with Navteq. The second largest
handset manufacturer [will be in a position to exert a
competition constraint on Nokia with regard to navigation
services installed into mobile handsets].

(35) It can ultimately be left open whether the notifying parties
would have the ability to foreclose their downstream
competitors because, as will be shown below, Nokia and
Navteq have no incentive to do so.

Incentive

(36) Post-merger, Nokia and Navteq will take into account how
the sales of map databases to Nokia's competitors will
affect its profits not only upstream but also on the down-
stream market. Therefore, when considering the profit-
ability of an input foreclosure strategy, the merged entity
faces a trade-off between the profit lost in the upstream
market due to a reduction of input sales and the profit
gained on the downstream market by raising its rivals'
costs.

(37) The Commission conducted an in-depth qualitative and
quantitative analysis to characterize the incentive of Nokia
and Navteq in this respect in the market of mobile hand-
sets. Our analysis led to the conclusion that although the
profits obtained by selling a mobile handset are much
higher than the profits realized on the sale of a map data-
base, the merged entity would lack incentives to foreclose
Nokia's downstream competitors. While this analysis only
relates to foreclosure of competitors manufacturing mobile
handsets, any incentive for the merged entity to engage in
input foreclosure with regard to firms providing navigation
applications on mobile handsets via other means appears
even less likely, in particular in view of the more limited
presence of Nokia in this market and the smaller profits
that could be captured there.

(1) The recent announcement of a partnership between Garmin and
Samsung is illustrative of the nature of the partnerships that could be
developed.

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(38) A number of elements limit the incentive of Nokia and
Navteq to foreclose their downstream competitors. Firstly,
map databases account on average for less than 5 % of the
Mobile handsets wholesale prices. As such only a very
substantial
increase in the price of maps could have an
impact on the price of mobile handsets. Secondly, naviga-
tion services are only one application among others on
mobile handsets. Thirdly, Garmin could sell maps
to competitors
(embedded into its navigation software)
foreclosed by Nokia and Navteq, and Motorola, which is
the largest competitor of Nokia [will be in a position to
exert a competition constraint on Nokia with regard to
navigation services installed into mobile handsets].

(39) In addition,

the economic analysis conducted by the
Commission concluded that it would not be profitable for
Nokia and Navteq to develop any foreclosure strategy. The
merged entity would only capture relatively limited sales
downstream by increasing map database pricing to Nokia's
competitors and the loss of revenue due to decreasing sales
of map databases would not be replaced by additional
sales of mobile handsets.

(40) In light of the above, the merged entity would have no
incentive to increase prices in a manner which would lead
to anticompetitive effects
the downstream
markets.

in any of

Effects in the downstream market

(41) For the reasons stated above, the effects of any foreclosure
strategy in the downstream markets would be very limited.
The low percentage of the map database in the mobile
handset costs, the limited switching costs and the competi-
tion with Tele Atlas all tend to limit the price increase that
could be imposed by Navteq on Nokia's competitors.

(42) In addition, the elimination of the double mark-up will
possibly reduce the price of Nokia mobile handsets sold
together with navigation applications, although in a very
limited manner. In view of the above, the transaction will
likely not lead to any anticompetitive harm on the down-
stream markets.

conducted

(43) The notifying parties also submitted that price and
the merger. The
non-price efficiencies would result of
analysis
effectively
concluded that price efficiencies, although very limited,
could be considered merger-related. Conversely non-price
efficiencies (development of pedestrian maps) are unlikely
to be merger-specific, but rather related to the growth in
the market for navigation applications on mobile handsets.

the Commission

by

2. Access by the merged entity to confidential

information

(44) The confidentiality concern, as expressed by some third
parties, is based on the premise that Navteq's customers
have to share information on their future competitive
actions with their map supplier. They fear that this infor-
mation could be used to their disadvantage by the down-
stream affiliate of the merged company.

(45) The Commission has established that the amount of infor-
mation of competitive value exchanged between Navteq
and its customers is limited and could be further reduced.
It is therefore unlikely that the merged entity will be in a
position to obtain competitive information from its custo-
mers, should they fear that such information could be used
to the advantage of the merged entity in the downstream
markets for mobile phones or navigation applications. In
addition, the merged entity would have incentives to miti-
gate third party concerns related to confidentiality. In view
of the absence of incentives for the parties to engage in
input foreclosure, it is likely that the parties would react to
possible confidentiality concerns in various ways, most
importantly by offering conditions to its customers that
would make switching to Tele Atlas unattractive.

3. Coordinated effects

(46) The Commission also examined whether the vertical inte-
gration of Nokia and Navteq would create any concerns as
regards coordinated effects, and found that the transaction
is unlikely to lead to anticompetitive effects through coor-
dination for the reasons explained below.

(47) TomTom and Nokia are not active in the same down-
stream markets and appeal
to different customer cate-
gories. TomTom is the largest supplier of PNDs in Europe
and has a marginal presence in the market for mobile navi-
gation software. Nokia is the largest manufacturer of
mobile handsets and intends to develop its presence in the
market for navigation applications on mobile handsets via
the development of
its internet-portal OVI, and has a
marginal presence in the sales of PNDs. The concentration
therefore neither increases, nor creates an incentive for
Nokia and TomTom to coordinate their behaviour
in
downstream markets.

(48) The market structure on the upstream market for navigable
digital map databases becomes, as a result of the transac-
tion, more symmetric with two vertically integrated map
this
providers. However,
market structure is not conducive to coordination because
TomTom and Nokia are active on different downstream
markets and therefore have a different incentive structure.

the investigation showed that

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(49) It could be argued that TomTom and Nokia could have a
common incentive to degrade the commercial conditions
under which Tele Atlas and Navteq commercialise their
digital maps, with an objective to render TomTom and
Nokia devices and services more appealing if compared
with those of their competitors. It is however very unlikely
that such a strategy would be sustainable.

(50) Market partitioning between PNDs on the one hand and
mobile handsets and navigation applications on the other
hand seems to be unlikely in view of very diverging
growth expectations. For instance, TomTom/Tele Atlas has
a very limited presence in the market of navigation solu-
tions on mobile handsets. Although this market
is
currently limited in value,
it is expected to grow very
substantially in the future. Therefore TomTom/Tele Atlas
would have a strong incentive to sell digital maps for
mobile navigation at prices below Navteq's to be present in
this market that is expected to grow faster than the PND
market,
business. Otherwise
traditional
TomTom/Tele Atlas would run the risk to be undercut by
Navteq, and would therefore forego sales of maps that
would not be compensated by a decreased competitiveness
of
i.e. PND manufacturers. The
asymmetry in the incentive structure of the two vertically
integrated firms is therefore not conducive to coordination,
as it renders such coordination likely unsustainable.

its direct competitors,

TomTom's

(51) In addition, the conditions for coordination are not met.
There is very limited transparency of prices of digital
navigable maps and there are
large and infrequent
contracts, which make deviation from a potential collusive
arrangement more likely. In addition Garmin would likely
be in a position to destabilise any coordination between
Navteq and Tele Atlas via its long term contract with
Navteq that guarantees its supply of digital maps. As
already indicated, Garmin has already announced its inten-
tion to launch a mobile handset with navigation function-
ality and has announced that its navigation solutions will
be made available on Samsung handsets
in Europe
[Business Secrets].

(52) Bearing these considerations in mind,

the Commission
the operation is unlikely to lead to

concluded that
anticompetitive effects through coordination.

VI. CONCLUSION

(53) The Commission concludes that the concentration will 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. Conse-
quently,
concentration
compatible with the Common Market and the EEA Agree-
ment, in accordance with Article 8(1) of the Merger Regu-
lation and Article 57 of the EEA Agreement.

the Commission declares

the