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Digital Maps Go Vertical: Tomtom/Tele Atlas and Nokia/NAVTEQ Carles ESTEVA MOSSO, Michal MOTTL, Raphaël DE CONINCK and Franck DUPONT (1)

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Digital Maps Go Vertical: Tomtom/Tele Atlas and Nokia/NAVTEQ Carles ESTEVA MOSSO, Michal MOTTL, Raphaël DE CONINCK and Franck DUPONT (1) Merger control Digital maps go vertical: TomTom/Tele Atlas and Nokia/NAVTEQ Carles ESTEVA MOSSO, Michal MOTTL, Raphaël DE CONINCK and Franck DUPONT (1) The Commission recently issued decisions in product lines are not comparable to Tele Atlas or two vertical merger cases in the satellite naviga- NAVTEQ’s. They are not in a position, in particu- tion industry. In October 2007, TomTom notified lar, to provide similar geographic coverage and the Commission of its acquisition of Tele Atlas. cannot offer sufficient functionalities, resulting Four months later Nokia notified its acquisition in digital maps that are unsuitable for advanced of NAVTEQ. Both of these cases are important navigation functions such as car navigation. from a policy point of view. TomTom/Tele Atlas and Nokia/NAVTEQ are the first purely vertical TomTom is a manufacturer of PNDs and a sup- second phase investigations after the adoption of plier of navigation software for use in navigation the non-horizontal merger guidelines. They pro- devices. It is the European leader in the PND vide guidance on how the Commission is going market, way ahead of its competitors, Garmin, to apply the non-horizontal merger guidelines in Mio Tech & Navman. Its activities as a supplier of future cases, in particular in situations where there navigation software to third parties are limited. is a duopoly upstream and where both upstream Nokia provides equipment, solutions and serv- 1 players integrate vertically in a short period. ices for electronic communications networks. The company is principally known as a manufacturer I — Digital map suppliers went for of handsets for mobile telephony (‘mobile hand- vertical integration simultaneously sets’). It also intends to develop mobile online services via its ‘OVI’ portal. Nokia is the world’s Transactions largest supplier of mobile handsets, its main com- petitors being Motorola, Samsung and Sony Erics- On 22 October 2007, TomTom N.V. (‘TomTom’, son. The share of mobile handsets to incorporate the Netherlands) notified the Commission of its navigation possibilities via the inclusion of a GPS acquisition of Tele Atlas N.V. (‘Tele Atlas’, the chipset is expected to increase dramatically in the Netherlands) (2). A few months later, on 19 Feb- short term, and to account for considerably more ruary 2008, Nokia Corporation (‘Nokia’, Finland) than 50% of the mobile handset market within a notified the Commission of its acquisition of few years. Navteq Corporation (‘NAVTEQ’, USA) (3). Vertically affected markets The two transactions were put together almost simultaneously. They resulted in the vertical inte- A digital map is a compilation of digital data and gration of the navigable digital map providers Tele typically includes (i) geographic information con- Atlas and NAVTEQ. Both purchasers, TomTom taining the position and shape of each feature on and Nokia, embed digital maps in the devices they a map, (ii) attributes containing additional infor- manufacture in order to provide their customers mation associated with features on the map (e.g. with navigation solutions. street names, addresses, driving directions, turn restrictions and speed limits) and (iii) display Tele Atlas and NAVTEQ are providers of navigable information. In addition to the core database, sev- digital maps. They supply manufacturers of PNDs eral layers of add-on information are provided by (Portable Navigation Devices), car manufacturers, the suppliers of digital map databases. Maps are navigation software producers, mobile handset said to be navigable when they include sufficient manufacturers and location web companies (for functionalities to provide navigation services, instance, Google Maps) with the digital maps they such as real-time turn-by-turn navigation. need to operate navigation solutions. Other digital map suppliers are active on the market, but their In both cases, the Commission considered the relevant upstream market to be the market for (1) Directorate-General for Competition, unit C-5. The navigable digital map databases, where only Tele content of this article does not necessarily reflect the Atlas and Navteq are active, with market shares official position of the European Commission. Respon- of approximately 50% each. Navigable digital map sibility for the information and views expressed lies entirely with the authors. databases are one of the key structural compo- (2) COMP M.4854 TomTom/Tele Atlas. nents of dedicated navigation devices and other (3) COMP M.4942 Nokia/Navteq. navigation applications. The relevant geographic 70 Number 3 — 2008 Competition Policy Newsletter market for the provision of navigable digital map foreclosure. Such strategies would strengthen the MERGER CONTROL databases was considered to be worldwide since market power of the other supplier of navigable geographic data can be sold to customers any- digital maps, namely NAVTEQ, which would, as where around the world and the transportation a result, be likely to increase its prices. The the- costs and other barriers to trade are minimal. The ory of harm raised under Nokia/NAVTEQ was Commission also established that entry in this similar. The Commission found that the merged market was unlikely in the short- to mid-term. entity could attempt to foreclose its downstream competitors in the mobile handset market and in In the TomTom/Tele Atlas case, the downstream the market for the provision of navigation applica- markets affected were the market for PNDs and tions on mobile handsets. the market for the provision of navigation soft- ware. This type of navigation software can be In both cases, the theory of harm relied on the sold to PND manufacturers, but also to mobile increase in market power of the remaining sup- handset manufacturers, Mobile Network Opera- plier of navigable digital maps, which was not party tors (MNOs), or directly to end-customers for self- to the transaction, and its capacity to increase its installation in their mobile handsets. prices. The Commission’s assessment of the likeli- hood that such a theory of harm would materialise In the Nokia/NAVTEQ case, the downstream mar- was based on the Guidelines on the assessment of kets affected were the market for mobile handsets, non-horizontal mergers under the Council Regu- and the market for the provision of navigation lation on the control of concentrations between applications on mobile handsets (including on- undertakings (‘the non-horizontal merger guide- board, off-board and hybrid solutions). lines’). The Commission analysed the ability and In both cases, PNDs and mobile phones with GPS in particular the incentive of the merged entities were not considered to be part of the same prod- to foreclose their downstream competitors, as well uct market. The market investigation revealed as the overall effect in downstream markets. that there are significant differences between the two types of devices. Whereas the latest mobile Assessment — lack of incentive phones are ultra-portable multi-function com- munication devices, PNDs are primarily designed In TomTom/Tele Atlas, the Commission con- for navigation. This is reflected in the larger screen cluded that the merged entity would have the sizes of PNDs and the fact that, with some excep- ability to increase prices or degrade quality/delay tions, they do not offer the wide range of func- access for some PND manufacturers and naviga- tions common in most smart phones. Consum- tion software providers competing with TomTom. ers use mobile phones mostly for communication This conclusion was based on the following fac- and PNDs mostly for navigation. However, the tors: (i) navigable digital maps are an essential Commission did not exclude that, as technology input for PNDs and navigation software; (ii) it is evolves, both markets will increasingly converge. unlikely that a market entrant could produce nav- igable digital maps in the short term; and (iii) the foreclosure strategy by one digital map database II — Assessment of vertical foreclosure supplier could increase the market power of the theory other. Theory of vertical foreclosure Conversely, in Nokia/NAVTEQ the Commis- sion did not reach any conclusion with regard In both cases, the merger led to the vertical inte- to the ability of the merged entity to foreclose its gration of one of the two suppliers of navigable downstream competitors, for instance because digital maps to the downstream competitors of navigation applications in handsets are only one the purchaser. Both transactions therefore raised application among others (video, mobile TV, potential concerns of input foreclosure. Never- music, design, etc.) and therefore constitute only theless, the two transactions had only a limited one of the numerous factors triggering the pur- impact on each other in terms of competitive chase reflex of customers. The question whether assessment, as TomTom and Nokia are essentially the merged entity has the ability to foreclose was active in different downstream markets. therefore left open. The theory of harm raised under Tom Tom/Tele In both cases, the Commission concluded that Atlas was that the merged entity could foreclose its the merged entities would not have the incentive downstream competitors in the PND market and to foreclose their downstream competitors. Post- in the navigation software market, either via an merger, TomTom and Nokia will look at how the increase in the price of its navigable digital maps, sales of map databases to their downstream com- via a degradation of the map quality or via total petitors affect their profits not only upstream via Number 3 — 2008 71 Merger control sales of Tele Atlas or NAVTEQ maps, but also on could be imposed by either Tele Atlas or NAVTEQ their respective downstream markets. Therefore, on their downstream competitors and eventually when considering the profitability of an input on consumers. foreclosure strategy, the merged entities face a trade-off between the profit lost in the upstream In addition, in TomTom/Tele Atlas the parties market due to a reduction of input sales and the claimed that the transaction would bring about profit gained on their respective downstream efficiencies.
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