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European Commission

Joaquín Almunia

Vice President of the European Commission responsible for Competition Policy

Competition Policy in times of restructuring

Chatham House Conference
Competition policy in global markets: Efficiencies and remedies in lean times/ London

22 June 2012

Ladies and Gentlemen,

I would like to thank Chatham House for inviting me to address this audience and giving me the opportunity to discuss the current challenges of competition policy.

I will try to present my thoughts taking some distance from the immediate challenges that the EU – and in particular the euro area – has been facing during the past new weeks and months that are being dealt with these very days at the level of the Eurogroup and the European Council.

Let me start by stressing the fundamental premise of competition policy. This policy is anchored in the firm belief that markets produce the best economic outcome in terms of quality, price and innovation by way of a customer-driven process of selection.

The challenges we face today are shaped by the pressing need for economic restructuring and economic growth in Europe, the rapid globalisation of economic activity, and a fast evolving technological environment.

Today, the forces of competition are increasingly global. And they are increasingly sophisticated. In the economy as in nature, evolution is key to survival. Competitive markets are the best mechanism to bring about such evolution.

Europe today is in urgent need of restructuring many of its traditional sectors. It must face this challenge with determination and develop the necessary tools to manage this process of migration from mature organisations into innovative ones.

This is the spirit of the State aid modernisation initiative – which I launched just over a month ago.

Its main objective is to help Europe’s governments spend more wisely to prepare the ground for the recovery, boost growth while keeping the right priorities in times of fiscal consolidation and, of course, mitigate the social effects of the crisis.

To this end, the regime that will emerge from the reform will encourage aid that targets market failures, has a real incentive effect; does not waste taxpayers’ money; and has no better market alternative.

These are the defining features of what I call ‘good aid’. The aid must target the promotion of environmental protection; support research and development; and give incentives for the development of the digital economy.

Conversely, we want to discourage the bad aid we can no longer afford, such as spending that keeps inefficient companies on the market.

In the context of the modernisation initiative, Member States will have a larger responsibility to identify and quantify the economic and social losses that the aid is designed to avoid and to select the cases that deserve the public support with greater care.

We will also transfer in these guidelines some of the lessons learned in the rescue and restructuring of banks and financial firms, such as the introduction of burden sharing.

The initiative will thus result in more focused and better-quality aid and will produce a leaner and clearer regime.

The changes that will streamline our control include an update of the Procedural Regulation and the review of the General Block Exemption Regulation, the Enabling Regulation and – if necessary – the de minimis Regulation.

In this context, although the Commission will not give up any of its exclusive competences in the enforcement of State aid law, a new level of commitment will be required from national governments.

Let me now broaden the scope of my analysis of competition-policy challenges beyond State aid control.

It is often said that to European firms need to be nurtured in Europe to succeed abroad. This is based on the idea that firms that are protected from competition at home can derive higher profits; invest more; develop knowledge; and be better placed to compete with global players.

I believe this is not the right approach. First of all, as I just explained, the State aid framework already allows public support to activities like research and development without the need to distort competition.

Second, the most useful knowledge and expertise that a firm can obtain comes from operating in a vibrant and reactive market. Such markets provide the best information about what customers want and what can be offered.

To be globally competitive, Europe must become a place where innovative businesses can enter, disrupt and succeed. This vision is not compatible with that of national or regional champions. This latter recipe was already tried in the past and failed.

Up to the 1980s, Europe engaged in industrial-policy using several forms of direct government support. There was also regulatory protection from competition in some sectors. These heavy-handed interventions in the economy assumed that governments could pick winners and develop national champions.

But it is not realistic in today's world to try and pick winners through political or administrative decisions. If Europe wants to be the home of companies that are successful in the long term and efficient on the global arena, it needs to provide a breeding ground for all sorts of innovations to be tried out and compete.

I am not referring to technological innovation only, but managerial innovation as well. This is why competition remains an important driver of progress even in mature sectors.

I want to stress the importance to fight attempts by individual firms to foreclose competitors or abuse their privileged position in the market.

The strategies used to do this are constantly evolving just as the claimed justifications for such behaviour. But more than ever competition policy must be enforced to make sure that the fittest companies that serve the economy better are the ones to survive.

Because of the importance of network industries in the economic fabric of a country, we have targeted attempts to distort competition in the energy, telecommunication, and transport sectors – and will continue to do so.

In the energy sector, we are investigating abusive practices aiming and protecting dominant positions by gas suppliers in Central and Eastern Europe.

In the telecommunications sectors, we continue to fight attempts by incumbents to foreclose competition; for instance in Slovakia, Spain and Portugal.

And last week we opened proceedings against Deutsche Bahn for attempting to weaken competition in the passenger and freight rail transport market.

Last year, the Commission stepped up its antitrust work in another vital sector of the economy that had largely escaped scrutiny; the financial sector.

We are currently investigating abuses by investment banks and market-information providers aiming at foreclosing competition in the market of derivatives and market-data information, respectively.

Also in the financial sector, we have open investigations against the excessive fees charged by payment systems, notably credit card schemes.

Let me turn to mergers. It is very rare that we have concerns that prompt a prohibition decision. But this did happen in the Deutsche Börse/NYSE Euronext deal this year, where we found that the transaction would have created a de facto global monopoly on derivatives with European underlyings.

In that case, we rejected that efficiency claims justified a clearance partly because of insufficient evidence that the money saved by the netting of margins would be suficientlly transmitted to the investors.

So let me say something about efficiencies. We are accused of not taking productive efficiencies into account when we assess mergers. This is not true and efficiency claims are always carefully assessed when they are submitted.

But we cannot accept efficiencies when their benefits are not transmitted to the economy in term of prices or innovation but are instead kept as private profits.

Most merger cases that raise concerns are resolved with remedies that preserve competition in the markets at risk. In innovative markets, we face the additional task of preserving innovation.

In the Hard Disk Drive merger, for instance, we imposed the requirement that the buyer of the divested assets had innovation capability. In the Intel/McAfee deal, we imposed interoperability remedies for five years to allow competitors the opportunity to evolve.

The promotion of innovation is a key objective of the European growth agenda. Antitrust control in very innovative markets is sometimes criticised for disrupting fast-changing and unpredictable processes. But even in very innovative markets, dominant players can adopt conducts that put a break on competition on the merits.

It is well known that we have an ongoing investigation against Google where we have raised concerns that the company is using its dominance in online search to foreclose rival specialised search engines and search advertisers.

Speed is of the essence in the resolution of cases in fast moving markets. Normal antitrust procedures may take years. In fast-changing industries, there are cases in which commitment solutions are worth exploring provided, of course, that the companies concerned are ready to seriously address and solve the problems at stake.

We are currently negotiating a settlement solution in our investigation of the e-books market and have offered Google the opportunity to take that route.

When addressing the role of competition policy in supporting innovation, one must deal with the seeming conflict between competition and the protection of intellectual property rights.

In fact there is no such conflict. IPR policy and antitrust are complementary. Antitrust enforcement does not question the use of IPR but it must fight the abuse of IPR.

We have opened four antitrust cases in the pharmaceutical sector involving several companies that might have extended their market exclusivity beyond the limits granted by their legitimate IPRs.

We are also currently developing our doctrine on the potential abuse of standard essential patents in the ITC industry. We have opened cases against Samsung and Motorola which examine the issue of injunctions against potential licensees of their standard essential patents.

Standard essential patents are usually subject to FRAND commitments. This means that the patent owner commits to give access to the standardised technology on fair, reasonable and non-discriminatory terms.

The use of injunctions against willing licensees to extract better terms in the case of standard-related IPR is potentially abusive and can cause disproportionate damage.

We have also increased our scrutiny of standardisation processes. Earlier this year, we opened an investigation against the European Payment Council, which was developing interoperability standards for a pan-European system of payments online.

We acted on complaints that the resulting work would result in the de facto exclusion of non-bank players. In the telecommunication industry, we have also decided to look into the standardisation work by the five main telecom operators in Europe to ensure it is not closed and opaque.

Standardisation is essential to develop European integration and such work needs to be strongly supported. But we need to ensure that standardisation processes are not being captured by some players to exclude competitors or hold up companies.

To be exempt from antitrust scrutiny, a standardisation process must open and transparent. It must also ensure that standards are available to all on FRAND terms. In addition and in order to prevent hold-ups there must be good faith disclosure of all IPR-essential to the patent.

Ideally, standardisation processes need to take place in recognized compliant standard setting organisations.

This brings me to the issue of cooperation between antitrust authorities and regulators. The recent crisis resulted in a growing consensus that markets do not always self-regulate. The regulatory drive is therefore likely to increase in the next few years. The interaction of competition policy and regulation will have to be carefully calibrated.

Regulation and competition policy are complementary. In some sectors, established patterns of behaviour or technological characteristics impede efficient competition. In such instances, case-by-case antitrust enforcement is not efficient and a regulatory approach can be more effective to remove the problem.

But regulation sometimes pursues other objectives than competition such as financial stability, broadband coverage, and safety requirements. In such cases, good cooperation between regulators and antitrust authorities is necessary to ensure that competition does not get inadvertently and unnecessarily damaged.

I will conclude by mentioning the effect of globalisation on international regulatory cooperation. Most deals today fall under the review of several jurisdictions. Many antitrust authorities are stepping up the level of scrutiny.

We have no choice but to increase cooperation and aim for convergence, for the sake of legal clarity and to cut the red tape for the companies involved.

Convergence in antitrust and merger enforcement can also be used to preserve competition policy from being misused as trade policy. Merger control under competition rules is not the right place to have provisions protecting strategic assets.

Conversely, the free-trade agreements negotiated by the European Commission are a good platform to include competition policy considerations and in particular the need to control state subsidies so that they do not become trade instruments.

As for our own European regime, we must work at a simplification exercise. The use of simplified procedures should probably be expanded and the length of certain procedural steps such as pre-notification could therefore be made shorter in certain cases.

On the other hand, we might close some gaps such as the operations involving non-controlling minority acquisitions. The reflection on this aspect is at an early stage and we will see how to address it. Longer term exercises may involve a reflection on the system of referrals, and the interaction between national laws and the EU merger Regulation.

Ladies and Gentlemen,

I have tried to give you an overview of the challenges facing competition policy in this world of globalisation and fast-changing technology.

My main message is that competition policy remains an essential instrument for growth and it must not be forsaken because of fear, reactionary instincts, or the promotion of special interest.

The organisation of economic activity is becoming increasingly complex and the supervision and regulatory drive of governments might very well increase in the coming years.

Competition policy must be part of the regulatory mix and must not be unnecessarily subordinated to other economic objectives.

In Europe’s very difficult circumstances, competition policy can help achieve a successful restructuring of our productive capacity and encourage innovation.

Most important of all, competition policy is an essential tool to integrate European markets into a single economic area and this would contribute in more ways than one to a deeper and more ambitious integration of Europe.

Thank you.

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