Vice President of the European Commission responsible for Competition Policy
Perspective from the European Commission: Competition as a tool for sustainable recovery
6th Annual Global Antitrust Enforcement Symposium, Georgetown Law/ Washington DC
19 September 2012
Ladies and Gentlemen,
I would like to start my presentation by expressing my gratitude to Larry Center for his kind invitation to bring a European perspective to this debate.
This is the first time that I have the pleasure to speak at this annual Conference, which is one of the key events amongst antitrust enforcers.
It is well known that competition policy in the European Union has a unique role stemming from our founding Treaties.
This role is not the result of a whim on the part of the original legislators in the 1950's or of the leaders of the EU at the beginning of the present century.
Competition policy is a crucial factor in the overriding goal of building a Single Market for 27 different national economies and half a billion people residing in the EU.
We absolutely need common competition rules and a central enforcement authority to ensure that the commercial practices of companies and certain decisions taken by governments do not raise barriers within the Union.
And given the difficult times we are going through, competition enforcement has become one of the most efficient and less expensive tools in our hands to improve the competitiveness and resilience of our economies.
It goes without saying that our main priorities are overcoming the recession, correcting the EU internal imbalances, and broadening the scope of our internal market through the elimination of the internal barriers especially in the service and digital sectors.
But this is not only an inward-looking view; we are fully aware of the world we are living in. There are more and more cases that raise competition concerns globally, which is a consequence of the internationalisation of business.
None of us today could do their work responsibly without keeping track of the investigations and decisions of other jurisdictions. Cooperation has become a must among competition authorities the world over.
What emerges from this picture is that a number of issues that we tackle in Brussels are rather specific to the EU; while others involve concerns and challenges that are common to other agencies as well.
This distinction came in handy when I had to decide the themes of today’s presentation and of the one I will give tomorrow at Fordham University.
So, today I am focussing on the EU-specific challenges; whereas tomorrow in my New York speech I will cover challenges that are more global in nature.
In present company, someone will surely think that I have partitioned the market using my position. Maybe so…
But I can assure you that there has been no collusion between the organisers here in DC and those in New York City.
Ladies and Gentlemen:
The role of the European Commission as EU competition authority has always been vital for the integrity of the Single Market and hence for the integration process that has produced today’s EU.
The European Court of Justice, which reviews our decisions and hears cases from the national courts, has repeatedly affirmed this point. As a result, attempts by companies to fragment the Single Market have often been regarded as anticompetitive in principle.
This can be seen clearly in a ruling of last year regarding the system of licences that brings soccer matches to the TV sets of European sports fans.
The case involved England’s Football Association. According to the association’s licence agreement with broadcasters, decoder cards could be used only in the country where they were sold.
Specifically, the association tried to stop pubs in the UK from showing Premier League matches to their clients using card and decoder issued in Greece.
The ruling established that this licensing system was illegal because it eliminated competition between broadcasters and – this is the point that I want to stress – it would partition the national markets.
The Court wrote that "an agreement which might tend to restore the divisions between national markets is liable to frustrate the Treaty’s objective of achieving the integration of those markets through the establishment of a single market”.
So, everyone agrees that establishing the Single Market is among Europe’s highest achievements, but in many respects it is still work in progress. Competition enforcement must help to accelerate the completion of this crucial element of our integration process.
There are industries – such as energy and telecoms – that still operate essentially from behind national borders, and I will say a few words on both later.
Let me add that the European Commission is striving to strengthen and extend the Single Market using more comprehensive instruments than those of competition policy.
The recent efforts to implement the Single Market Act adopted last year lie at the heart of this strategy. A second wave of initiatives will be launched this autumn.
The so-called Single Market Act II sets out a dozen priority actions to leverage the internal market's huge potential for growth. These actions cover areas such as transport, energy, and payment systems.
The digital Single Market figures prominently in this initiative. E-commerce and other electronic transactions are areas in which integration in Europe is still a goal rather than a reality, in spite of the obvious economic opportunities. A concerted European effort can benefit citizens, businesses and public authorities.
For that purpose, competition policy continues to go hand in hand with the efforts to revive the Single Market from the regulatory side.
Competition, integration and growth
Moreover, the Single Market is not only a political and institutional pillar of the EU; we should not forget its obvious implications for the economy and for the wellbeing of Europeans.
Reinforcing the Single Market and extending its scope lie at the core of Europe’s strategy for growth – which is our main priority these days.
We need a genuine pan-European space without internal barriers where companies and other economic players can operate freely and without undue restrictions.
This would create the best conditions for business to scale up operations and reach the size required to succeed in the global economy.
But efficiencies of scale would not be the only benefit. In principle, in a seamless and well-regulated internal market every European company could challenge every other for the same business.
The spur of such continent-wide competition would drive our economic actors to become more efficient, more innovative, and more open to the world.
This is why the EU competition authority has traditionally taken a strong stance against those manufacturers that tried to prevent cross-border sales in Europe.
Let me give you an example from the car sector. In the past, we have sanctioned car manufacturers that obstructed sales to other EU countries made by their own dealers by, for instance, threatening to terminate dealership contracts, systematically reducing dealers' profit margins and bonuses or restricting deliveries.
These are not the practices that we expect from companies that intend to take advantage of the opportunities provided by the Single Market.
More recent evidence of the positive effects of robust and fair competition control in Europe comes from our work in the network industries such as energy, transport, and telecoms.
Network industries need stricter competition scrutiny in comparison to others in order to improve their pan-European integration and the general level of compliance with competition rules.
They also need special attention because a large proportion of the overall economic activity relies on them. Improving competitive conditions in these sectors can bring benefits across the board.
Let me start by having a look at the markets for energy.
The EU competition authority conducted a general survey of the sector back in 2005, which identified a series of problems in spite of efforts to bring competition in this industry since the late 1990s.
These problems included highly concentrated markets, vertically integrated incumbents in several countries hindering access to the market, and insufficient access to interconnection capacities between countries. As a consequence, we reported discrepant prices and conditions across the EU.
Things have moved on since then. A new regulatory framework is now being implemented and the goal is to establish an EU-wide Single Energy Market in 2014.
In parallel, our sector inquiry has resulted in a number of antitrust cases that have helped to introduce competition into these markets, particularly in Western Europe.
I will recall here the case we brought against Germany’s E.On in 2008 that resulted in the sale of electricity generation assets and its high-voltage transmission grid business. This was a milestone in opening up the market in Germany.
Other investigations have helped lift restrictions on cross-border trading of gas and electricity. For instance, we obtained changes to the Swedish electricity transmission system that was hindering exports by limiting interconnection capacity with neighbouring countries.
The objective of opening the energy markets are also pursued by merger control. One recent example includes the merger between GDF SUEZ and International Power, in which we accepted remedies to prevent further concentration in Belgium.
My overall focus in the present context is to introduce more competition to energy markets – notably in Central and Eastern Europe – and to support the Commission’s objective of completing the Single Energy Market.
To that end we are conducting a number of investigations in those markets. For instance the CEZ case, in which we have recently market tested structural remedies to prevent foreclosure of the Czech electricity market.
In Bulgaria we are investigating potential foreclosure by the national company BEH gas, as well as obstacles to cross-border trade in electricity.
In addition, earlier this month, we opened antitrust proceedings against Gazprom and the story was widely reported in the media.
There have been many comments and speculations on the possible political implications of such an investigation in the context of EU-Russia relations.
I have followed them with keen interest, but I can assure you that it will not distract us from our responsibilities.
The status of a competition enforcer rests on excellence, independence, and impeccable work on the merit of each case; irrespective of the national flag carried by a firm, the location of its headquarters, or the identity of its shareholders.
The real issues in this case are simply stated. We have concerns that Gazprom may be abusing its dominant position in upstream gas supply markets in Central and Eastern Europe – where in some countries it is almost the sole supplier.
We are looking in particular at whether Gazprom has divided gas markets by preventing the free flow of gas between EU countries and whether it is imposing conditions relating to the use of infrastructure that prevent the diversification of sources of gas supply. Finally, we are examining whether Gazprom is imposing unfair prices on its customers.
We will continue to investigate these three aspects and, if our concerns are confirmed, we will enforce our rules.
The second sector I will discuss in some detail is that of passenger air transport, which we handle using merger control, antitrust, and State aid instruments.
The airline sector in the EU is going through a phase of consolidation, which we support provided it does not take place at the expense of consumers and businesses.
The scrutiny of mergers between European airlines – as well as the antitrust review of various forms of cooperation among airlines – is critical in this respect.
Although many airline mergers concern consolidation between existing alliance partners, each merger creates a structural change in the market which has to be assessed on its own merits.
For example, in the Lufthansa/Austrian Airlines deal of 2009, both parties were members of the Star Alliance. Nevertheless, slot remedies were required on a number of routes out of Vienna.
Earlier this year, we reviewed the acquisition of British Midlands by IAG, owned by British Airways and Iberia.
We cleared the deal but only on condition that a package of slots would be freed at Heathrow for airlines that are not members of the alliance.
We also follow closely various other forms of co-operation among airlines.
Our investigations in the Star and SkyTeam joint ventures are currently on-going, and in February last year, we opened two cases into parallel code-share agreements between TAP and Brussels Airlines, and between Lufthansa and Turkish Airlines.
Another recurrent concern in this industry relates to the creation of dominant national players. It was precisely to prevent the creation of a dominant player on Greek domestic routes that in 2011 we prohibited the proposed merger between the two Greek airlines: Aegean Airlines and Olympic Air.
Similarly, in 2007 the Commission had prohibited the merger between Ryanair and Aer Lingus.
These transactions would have resulted in monopolies on a number of routes in and out of Greece and Ireland respectively, to the detriment of the millions of passengers who travel on those routes each year.
The Commission is currently investigating the newest attempt by Ryanair to acquire Aer Lingus.
Airline consolidation also implies that EU governments should not indefinitely support ailing air carriers through direct subsidies.
This is why we are carefully assessing that such support complies with the strict requirements of our rescue and restructuring guidelines, which is part of our control of State aid.
If they don’t, we do not hesitate to adopt negative decisions, as occurred recently in the case of the Hungarian carrier Malév. We are equally vigilant with respect to indirect forms of subsidies to airlines, as in the recent case of Spanair.
Finally, we have been investigating many cases of public support to regional airports and to the airlines operating there – in particular low-cost airlines.
At the same time, we are working on new guidelines for State aid to the aviation sector. Our objective is to find the right balance between, on the one hand, improving regional development and accessibility and, on the other, avoiding distortion of competition and the waste of public resources due to the financing of non-profitable airports.
Before I move on to telecoms, which is the third and final network industry I would like to discuss with you today, let me open an aside on postal services.
I want to mention our control of postal markets because they will be fully liberalised across the EU at the end of this year and we are keeping a close eye on the process.
I have the duty to make sure that the benefits of market opening, including legitimate public-interest objectives, are not frustrated by anticompetitive practices on the part of governments and companies.
Last January we took four major decisions concerning the aid granted by Germany, Belgium, France and Greece to their respective incumbent postal operators.
For Germany and Belgium we ordered the recovery of substantial amounts of incompatible aid, whereas we approved the French and Greek support.
Last March, we adopted two decisions concerning Royal Mail and Post Office Limited on the basis of the new framework for the Services of General Economic Interest – SGEI, for short – that came into effect on January 31st.
The decisions allowed both companies to continue delivering postal and other essential public services in the UK while ensuring fair competition.
The new SGEI framework allows the Commission to promote more actively efficiency and quality in certain public services, including postal services, and to strengthen competition in the industry.
Another interesting development in the sector is the proposed take-over of TNT Express by UPS.
The planned deal, among other things, would reduce from four to three the number of companies that control pan-European parcel-transport networks.
An important issue in the analysis of this deal is whether the company that would result from the merger would be constrained by the other two integrators DHL and FedEx.
Please bear in mind that the latter has a much smaller presence in Europe than either DHL or a combined UPS/TNT.
The outcome of our analysis will be known in due time. For the moment let me stress that many European companies use parcel express delivery services as part of their logistic chains, notably for cross-border shipments. Therefore, it is important that the prices of these services remain constrained by vigorous competition.
Finally, I will now turn to the telecoms markets starting with a quick overview of the sector. As with the energy markets, almost 15 years after liberalisation a genuine Single Market for electronic communications is not a reality yet.
For instance, the licensing of operators, the spectrum for mobile services and the numbering plans for fixed and mobile services are decided on a national basis.
As a result, there are still important differences in Europe in coverage, in the diversity and quality of available services, and in the retail prices of fixed and mobile markets.
Several reasons explain this persisting fragmentation. In particular the geographic scope of telecoms networks is regional or national rather than European, and the legal framework for the provision of telecommunications services is not fully harmonized.
Europe did give itself a regulatory framework for electronic communications services and networks. However there is no single regulator for the whole of the EU, and the framework is applied by 27 national regulators whose activity is limited in practice to their respective countries.
National regulators must still comply with EU law. All regulatory measures are notified to the Commission before adoption and are subject to its scrutiny.
This is done through a consultation mechanism which ensures that all regulators apply the common principles defined by the framework.
I can personally testify to the imperfect integration of telecom markets in Europe. As part of my job, I frequently travel between the three cities that host the main European institutions – Brussels, Luxemburg, and Strasbourg.
From my home in Brussels, it takes me about two hours to drive to the Grand-Duchy and four to reach Strasbourg.
Although the distances are relatively short, my cellphone needs to pick up a different signal in each city from three different sets of national service providers – and the roaming charges show up in my bill at the end of the month.
And this in spite of the fact that – according to estimates – 80% of EU citizens have mobile subscription with one of the four largest telecom groups: Deutsche Telekom, France Télécom, Telefónica and Vodafone.
Against this background, there are two main and quite different types of challenges for the enforcement of EU competition law in this sector:
Anticompetitive practices of old incumbents at national level; and
Possible concentration efforts at EU level.
Let us see them in order.
In the existing context of national markets, much of our time in the telecoms sector is spent to make sure that former monopolists do not abuse their dominant position and try to foreclose new players.
To give you a couple of examples, back in 2007 the Commission imposed a €151 million fine on Telefónica – Spain’s incumbent.
The wholesale prices that Telefónica charged to competitors forced them to make losses if they wanted to match the retail prices the company charged to its own customers. The EU Court fully confirmed the Commission decision last March.
As to on-going cases, last May we issued objections against Slovak Telekom and its parent company, Deutsche Telekom.
The investigation will make sure that the group is not using margin squeeze and unnecessary technical hurdles to make it impossible for alternative operators to sell broadband services in Slovakia.
Concentration is another major challenge for competition control in the telecoms industry. At present, there are over 1,200 fixed operators, almost one hundred mobile operators, and over two hundred mobile virtual network operators in the EU. But this highly fragmented picture looks quite different if we give it a closer look.
In mobile telephony, national markets are already quite concentrated, with typically three to four operators per country. Many national companies are part of larger groups but they continue to serve their customers as separate national subsidiaries.
And, in the fixed business, national incumbents still dominate broadband markets, except in the few countries where there is a nationwide cable infrastructure.
Some industry representatives claim that the excessive fragmentation of the market hurts efficiency and investments.
They argue that more consolidation should be allowed to achieve economies of scale and help the industry invest in the optical-fiber broadband infrastructure of the future.
Consolidation at EU level can certainly be beneficial if it increases efficiency; for example, if a deal brings together operators active in different countries and with limited or no overlaps in their networks.
But the risk is that the big incumbents may want to continue playing an asymmetric game in which they can move across the entire Single Market whereas their users and business customers cannot escape from their national borders.
The EU competition authority has reviewed a number of mergers in several EU countries; some were approved with remedies and none was blocked.
One current case is that of Hutchison's Austrian telecoms unit attempt to take over Orange Austria.
This is a $1.6 billion deal which, if it went through, would bring the current four competitors in the national mobile market down to three.
We are looking very carefully into this proposed merger and we have recently raised objections against it. At this stage, the question remains whether effective remedies will be found.
Ladies and Gentlemen:
I have come to the end of my presentation. I have picked a few recent and current stories to stress some general aspects of our enforcement work that I consider important.
First, that when it comes to completing the Single Market, the EU competition authority will continue to support and complement the regulatory efforts of the European Commission and the other institutions of the EU.
I am convinced that an open, broader and more integrated Single Market can be a springboard for Europe’s recovery.
Our exclusive competence across the EU in this domain gives us a higher responsibility in this juncture, because a robust and fair competition control can provide the extra boost that our economies need to regain dynamism, improve resilience, and encourage innovation.
This is the worst possible time to call for protectionist policies and laxer control invoking our companies’ need to withstand competition from the world markets.
In fact, the opposite applies: this is the time for our companies to grow stronger thanks to the discipline imposed by a continent-wide level playing field.
At the same time, I am fully aware of the fast-evolving reality beyond our borders; especially the rise of the new economic powerhouses. In a global world, competition enforcement cannot be but global.
As I said at the start, owing to the growing internationalisation of business, we share with other competition authorities a sizeable proportion of the challenges we face in our work.
But this part of the story will have to wait until tomorrow.
Looking forward to seeing many of you in New York.