SPEECH/08/53

Meglena Kuneva

European Commissioner for Consumer Protection




"Launch of new EU consumer investigations"

Press conference speaking points
Brussels, January 31^st 2008

Introduction

The European Single Market has come a long way in the last 15 years.

But we believe that Europe's consumers are still not getting the deal they deserve.

If we can empower them to make better informed choices in the marketplace that will be

• good for the consumer
• good for more competitive markets
• good for the economy of Europe and for European business.

To achieve this, the European Commission is launching a new instrument and process to investigate markets from a consumer perspective

These new investigations aim to break down barriers that distort consumer choice and competition in retail markets – at the final point of sale.

• Barriers that distort prices
• Barriers that limit choice
• Barriers that prevent switching
• Competition killers

I want to underline just how significant a development this is.

• Building on the new Consumer Strategy the Commission adopted last March, this is a fundamental re-orientation of consumer policy in the European Union.
• It is a clear acknowledgment of consumers' vital role as powerful economic operators driving competition and growth.
• It is breaking new ground for the Single Market – focusing on malfunctioning and barriers in the retail market where goods and services are finally delivered to consumers.
• It represents a very important shift within the European Commission – to a stronger outcomes based approach
• It is a hugely ambitious and far reaching project. It will in time become the biggest and most comprehensive system to screen and investigate consumer market outcomes in the European Union or elsewhere in the world.

So how will the new investigations work?

There are three key steps in the new process

Step 1. A wide ranging screening of markets

5 top-level indicators will be used to screen the health of markets – from energy to telecoms and financial services to traditional traded goods - from a consumer perspective. The results will be published annually in a Consumer Market Scoreboard.

Why these 5 indicators?

• Prices. Prices tell us much about the reality of the internal market. Unexplained price differences within a supposedly 'single' market may be an indication that a part of the market is not working smoothly.
• Complaints. Complaints provide first hand bottom up feed-back on markets- they are a very important indicator.
• Switching We expect firms to compete for customers and customers to choose better offers when these become available. Switching is a very good indicator of the dynamism and level of competitiveness in a market.
• Satisfaction complements the data on complaints, taking into account also the views of those who did not complain.
• Safety Indicates the most important sources of risks in the internal market.

I want to underline that in themselves, these indicators are not final or conclusive evidence of malfunctioning but they can act as a yellow warning light, pointing to consumer markets that call for further analysis.

Step 2 in-depth sectoral investigations

In those sectors picked as risky in terms of malfunctioning for consumers, an in-depth, market specific analysis can be carried out that will identify the reasons behind the failures.

Where the red flag goes up, confirming the initial suspicion of malfunctioning, we will be able to put forward appropriate policy remedies.

Step 3. There are 5 main tools to resolve market malfunction. These can operate at eu, or national level

• Enforcement of existing legislation – at national or EU level. This is probably the most efficient tool when legislation already exists that can address the issue at stake. This may require clarifications regarding the scope and application of legislation.
• Information: empowering consumers with clear and manageable information to help them chose, exercise their rights, and spot and avoid fraud and deception
• Codes of conduct with industry: there may be instances where it is sufficient to call in industry and ask them how they intend to fix a particular shortcoming. A targeted code of conduct discouraging or encouraging business practices is a less intrusive way to resolve an issue.
• Regulatory actions: for systemic problems in particular sectors that cannot be addressed by lighter remedies, regulatory intervention cannot be excluded.
• Competition action: when the market is working badly because of the conduct of an abusive firm or group of firms infringing competition rules, competition authorities will be able to enforce competition policy and resolve the case. The Scoreboard may be helpful in pointing them to areas they have previously overlooked.

Let me be clear at this early stage:

• In Europe we are NOT in the business of fixing prices or determining market outcomes.
• This is not about generating more regulation. It is about breaking down barriers that are holding back competition and choice at the retail end.
• Nor is it about imposing a heavy administrative burden for national administrations and statistical offices – it is about co-ordinating and prioritising the huge statistical work already being done.
• At the heart of all this work is partnership – with Member States, with national regulators, with consumer organisations. We will rely on these partners for data and evidence and we will work with them on solutions. It is clear that many actions on consumer issues – from information to enforcement - are best taken at national level close to the ground.

BEFORE I PRESENT THE RESULTS OF THE FIRST SCOREBOARD LET ME SAY A FEW WORDS ABOUT THE CONTEXT WE ARE OPERATING IN – AND WHY THESE INVESTIGATIONS ARE SO IMPORTANT

THESE CONSUMER INVESTIGATIONS ARE A CENTRAL PART OF THE COMMISSION'S CITIZENS AGENDA

These new investigations are an essential part of a much bigger drive by this Commission to deliver better real world choice for consumers.

THE NEW PROCESS IS CENTRAL TO THE COMMISSION'S BETTER REGULATION AGENDA

It will very significantly strengthen the evidence-base for decision-making in consumer policy and throughout the Commission as a whole.

IT'S ABOUT CONSUMER POLICY COMING OF AGE

One year ago I launched a new consumer strategy 2007-2013 - based on 3 essential pillars - empowering consumers, enhancing their economic welfare and effectively protecting them.

These new investigations give consumer policy the tools to really come of age – and effectively deliver for consumers in their pockets - where it counts

Now let me present to you the results of the first scoreboard

Even in its "first edition", the results of the scoreboard are significant

1. The first conclusions is that there are an awful lot of gaps.

There is a total lack of evidence in some key areas on consumer outcomes and a lack of EU wide comparable data in almost all policy areas.

This can't be right.

• i) It can't be right for consumers
• ii) It can't be right for policy-makers

There is extensive work to be done to remedy this situation.

2. The scoreboard also confirms that there are plenty of interesting questions to be asked about how markets are really functioning at the retail level

For example, I'm sure consumers would like to understand better what is behind some of these interesting price differences:

• 1. Why is fixed telephony 20% more expensive in Belgium than in the Netherlands? Maybe it is taxes, maybe not. We want to know.
• 2. Electricity in Italy is twice as expensive than in Finland or Greece. Why?
• 3. Average fees for the management of bank accounts can vary between zero and more than 80 Euros across countries in the EU.
• 4. There is little valid price data on tradable goods. But consumer organizations report that the prices of digital cameras can vary up to 30% even between neighbouring countries. How do we reconcile this with a supposedly 'single' market?

And there is evidence of confusion in the market place.

• 5. We find that up to 40% of people in the EU find it difficult to compare mobile phone offers
• 6. More than a third of people across the EU find it difficult to compare offers between banks.

We know consumers’ confusion can lead to very real economic losses.

• 7. Evidence from Portugal, confirms that over 90% of subscribers do not use the tariff that minimizes their mobile communication expenses. The study revealed that, on average, consumers waste over 100 euros per year^[1].
• 8. And evidence of more confusion in energy markets where consumers have a hard time understanding and comparing offers and therefore do not switch. A study in the UK showed that between 20 to 32% of people who switched suppliers in 2000 after the liberalization of the energy markets actually switched for worse contracts.^[2]

The Scoreboard also reveals that consumers are not yet fully exploiting the opportunities of the Single Market.

• 9. Whilst 26% of Europeans shopped online in their national market, only 6% did so cross border

And finally, there is much scope to improve the consumer environment.

• 10. People complain more about their internet services than about any other service on record. In general people complain more about telecoms. Why is this?

More worringly, almost 50% of those who made a complaint relating to services of general interest in the EU 25 in 2007 did not feel their complaint was well handled.

What will be the follow up actions for 2008?

1 extensive work will be done to build the evidence base so these investigations can function to their full potential

The scale of the evidence we are looking for may take several years to achieve.

The work will move forwards 2008 – with for example

• a consultation on a common EU wide system complaints classification
• extensive work with Eurostat and national statistical offices on the statistical priorities and in particular on EU wide comparable price data.
• Safety data and satisfaction screening will be extended to new sectors.

There are 3 main issues we will target in 2008 for in-depth investigation

This first scoreboard is at an embryonic stage. It is not possible at present to comprehensively screen the full range of markets.

However, there are a number of conclusions to be drawn from this first scoreboard that will trigger a number of targeted actions:

1. The priority area for action will be retail financial services

Starting with financial services enables us to hit the ground running.

I will partner with Commissioner McCreevy to boost the work already being done by the Commission in relation to key issues such as

• clarity of information received by consumers
• contractual obligations
• switching
• fees
• product tying and bundling

The scoreboard underlines the need to better understand the reality facing consumers for example in the banking sector.

So we want to work to deepen the analysis from a consumer perspective.

Just a couple of examples show the kinds of problems consumers are still facing:

• There is a wide disparity in the management fees charged by banks (costs of having an account) within countries or across countries
• Most of the people interested in switching find it difficult or perceive it to be difficult
• More than a third of people across the EU find it difficult to compare offers between banks. In France or Denmark, half of the people think that comparing offers of banks is difficult.

I will not pre-judge the results of the work that will take place next year.

But it is clear that we need to know more about the reality faced by consumers:

• what is the total cost of their banking services?
• how informed are consumers of these costs?
• can they easily change banks?

The results will be published within a year.

2. The second priority area is barries to cross border sales in tradable consumer goods (cameras, cds, books).

This is an important area where there are strong grounds to suspect that the retail internal market is not operating to its full potential.

Tradable goods - like Digital cameras, i-Pods, mobile phones, hi-fi systems and video recorders - are a significant part of consumer expenditure. These are also goods that are increasingly traded over the internet.

Yet, price differentials appear significant and cross-border trade, including over the internet, low.

Because these products are typically bought across generations and they are fast becoming ubiquitous, I really want to understand: what is holding consumers back from chasing better deals cross border? Are there unjustified restrictions in place preventing sellers from selling cross border?

This will be a priority area for targeted action – with a report back in 2008.

3. The final priority area is consumer redress:

The figures on redress - are very disappointing.

This is an essential issue for me. It is about citizenship, it is about civic rights. It is about fairness. It is about empowering people – so they do not feel small faced with a big administrative system. It is about a people's basic right to access to justice.

The figures on redress speak for themselves

• Almost 50% of those who made a complaint relating to services of general interest in the EU 25 in 2007 did not feel their complaint was well handled?
• Around 40% of citizens think that resolving disputes through mediation or arbitration is difficult.
• 45% think its is also difficult to resolve disputes through courts. There is obviously the perception that there is currently no general satisfactory way to resolve consumer disputes.

To play their full role in the market, consumers need effective mechanisms of redress when things go wrong

This is an area where we will target our efforts in 2008.

To conclude

I want to emphasise that in Europe we are in the business of putting people at the centre of the market.

I want to underline that in the modern world it is not about consumers versus producers. It is about the market. It is about building healthy markets where consumers can choose and business can compete.

That false contraction belongs to another era.

These new investigations are based on fresh economic thinking.

The acknowledgement that consumers operating in transparent markets are powerful economic operators.

They drive forward competition and growth.

So these investigations are about creating the right market conditions

• Giving people the power to choose
• Giving business the incentive and necessity to compete
• And getting the European market to deliver the best deal for consumers.

Thank you for your interest, now I will be happy to take any questions you might have.

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^[1] Data from DECO/PRO TESTE in February 2005.

^[2] 'Do consumers switch to the best suppliers?' Chris Wilson and Catherine Price, CCP Working paper May 2006.