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European Commission

[Check Against Delivery]

Joaquin ALMUNIA

Vice President of the European Commission responsible for Competition policy

EU competition policy and sectoral challenges

41st Annual Conference on International Antitrust Law and Policy

Fordham, New-York, 12 September 2014

Introduction

Ladies and Gentlemen:

It is a pleasure for me to be part, once again, of Fordham’s competition conference and I thank Barry Hawk for giving me one more opportunity to speak here.

Two days ago, I spoke in Washington DC about the instruments of competition policy in Europe and our efforts to keep them ahead of the curve in the face of ever-changing business practices and economic conditions.

Today I would like to take a different perspective. I will explore the interplay between competition policy in the EU and the need to complete the Single Market.

I will do this discussing our enforcement work in two broad areas: energy and the environment on the one hand, and the digital economy, including telecoms, on the other.

***

Building a genuine Single Market has always been at the core of the European project and since the beginning of our integration process competition policy was designed as one of its pillars.

Since the Fifties, the gradual establishment of an EU-wide Single Market with no internal barriers has brought large economic benefits to Europe and its trade partners. And now that we have to tackle difficult challenges in the wake of the crisis, the deepening and broadening of the internal market is still one of our most powerful levers for growth.

But the significance of building the Single Market in Europe extends far beyond the economy.

For almost six decades, the European project has been vital to maintain peace among the members of the Union and economic integration has helped us to promote political stability and social cohesion.

This puts EU competition policy in a decidedly political perspective.

Implementing EU competition law goes hand-in-hand with practically every other common European policy.

But the political and economic relevance of the Single Market does not make competition enforcement an easy task.

In every EU country there is a tension between the protection of national interests and the shared objectives of our process of integration, especially in certain industries where national interests are perceived more strongly.

As a consequence, we have to cope with the permanent temptation in some EU countries to keep existing barriers around national markets and, in some cases, erect new ones.

From this perspective, enforcing EU competition law is a delicate and complex task. But this is also what advancing towards a united Europe is about. Common goals and strategies can only emerge from the composition of different – and sometimes diverging – views. Not for nothing, "Unity in diversity" is our motto.

Energy

To illustrate the complexity of our mission, let me tell you about our enforcement work, starting – as I said – from the energy sector.

This is a sector in which competition policy's goals of allowing the opening and integration of existing national markets co-exists with other considerations.

National energy policies are strategic for almost all EU countries; across Europe there is the need to ensure security of supply; and there is a strong public oversight at national level. Also, national environmental policies lead to different regulatory frameworks and are nationally funded.

In parallel, former state monopolies operate as incumbents with few incentives to allow for market opening. In addition, these companies often maintain a significant influence on national decision-making processes.

Most electricity and gas markets in Europe were national monopolies until the 1990s, when the EU and its members decided to gradually open them up to competition and establish a common energy market.

However, repeated attempts at liberalisation have met with uneven success and competition has been slow to take off. Indeed, competition enforcement supports and complements regulatory action.

What are the terms of our action in energy markets?

In State aid control – another unique feature of EU competition policy – we have introduced new guidelines last April that national governments should follow in the public financing of energy. Let me say a few words about them.

To start with, it is increasingly clear that energy policies are closely linked to the fight against climate change. This is why we have broadened the scope of the new State aid rules, which are now called Guidelines for Environmental Protection and Energy.

As to the goals, we pursue a broad strategy.

One is preserving Europe’s lead in decarbonisation. To this end, the new guidelines encourage EU countries to improve the design of public subsidies to renewable sources of energy.

One way to do this is by progressively introducing market-based instruments, especially for more widely deployed technologies. This will expose renewables to clearer market signals, focus the use of public subsidies on innovation, and minimise distortions of competition.

Europe also needs to use its energy more efficiently and, given our dependence on imports, improve security of supply. We could bring both these objectives closer with well-targeted investments in infrastructure coordinated at European level.

At present, parts of the European territory are poorly connected. It is difficult for the power generated by a wind farm in the North Sea to light a bulb in Rome – and here I can see an obvious market failure.

For this reason, we promote the public financing of cross-border energy infrastructure. In October last year, the Commission unveiled a long list of energy infrastructure projects and our new State aid rules encourage national governments to finance them, together with the EU budget and private investors.

A more efficient Europe-wide grid would also translate into cheaper energy bills for firms and households, helping us to improve our external competitiveness seriously threatened by the price gap with the US due to the shale gas revolution.

Finally, we need more efficient and integrated markets to reduce our dependence on imports, which account for over half of consumption in the EU.

The recurrent gas crises involving the Ukraine and Russia – the main supplier of fuel to the EU – and the worrying recent developments in Ukraine’s eastern regions mean that there is no time to waste.

We need a serious pan-European strategy to grant security of supply and defend our geo-political interests and this would involve policies that go far beyond the enforcement of competition rules.

***

The difficulties I mentioned earlier in energy markets can also be seen in antitrust. A wide-ranging inquiry into competition in energy markets issued by the Commission in 2007 identified a number of obstacles to liberalisation.

We addressed these problems by amending the EU regulatory framework for energy. The Commission has been pushing for the implementation of the legislative framework called Third Energy Package, adopted in 2009.

The aim was to ensure that the EU regulatory framework – once transposed into national law in Member States – would remove incentives to anticompetitive behaviour and promote the development of cross-border competition within the EU. However, these reforms are taking longer than expected to have a real impact on the ground.

In parallel, on the enforcement side, we have brought a number of cases against companies in the gas and electricity sectors. In the gas sector the Commission has used antitrust cases to open up gas markets in several countries, including Germany, Italy, France and Belgium.

As regards electricity markets, the Commission has also taken action to ensure that competitors can access electricity transmission networks and that incumbents cannot use their market position to give themselves an undue advantage – see, among others, our 2008 case against E.On in Germany, and our 2013 case against CEZ in the Czech Republic.

Another issue has been making sure that new entrants have access to customers. In 2010 the Commission obtained changes to the long-term contracts of the French electricity company EDF with large industrial customers so that new entrants could compete for these customers’ business.

Finally, in order to prevent restrictions on trade in electricity between EU countries, in 2010 we obtained changes to the organisation of Swedish electricity markets.

More recently, we have had a few cases involving power exchanges, which are crucial because they increase liquidity, foster competition, and promote lower prices.

Earlier this year, we have fined EPEX Spot and Nord Pool Spot – the two leading European spot power exchanges – for agreeing not to compete with one another.

We have also fined OPCOM, Romania’s only power exchange, for discriminating against foreign traders. Another on-going investigation involves Bulgaria’s electricity incumbent, BEH.

Digital industries

Ladies and Gentlemen:

I will now turn to the challenges we meet in the digital industries. There is no doubt that competition enforcement in these sectors will become more and more important in the years to come because of their growing significance in our economies.

In addition – at least in some digital markets – major players will have or already have significant market power. This means that we need to conduct effective oversight on their business practices and acquisitions.

In parallel, building Europe-wide digital markets such as those for telecoms, e-commerce, and TV services remains a challenge.

Given the nature of these industries this may sound paradoxical, but the diversity of national regulatory regimes across Europe – from copyright to spectrum allocation in mobile telephony – often perpetuates market fragmentation in the EU to the advantage of few established players.

In light of the fast evolution and complexity of digital markets, I would like to put a preliminary issue on the table. Do we need to change our rules to keep up with the new technologies and business models of the digital economy?

I would say that from a legal point of view, we are well equipped. Our rules are flexible enough to adapt to new market developments.

Of course, the complexity and diversity of digital markets and business-models pose new challenges to competition authorities.

One example is the rise of global leaders and platforms offering new services which have disrupted existing business models. One of the tasks of competition policy is creating the best conditions for innovation, and these large platforms have become dominant also thanks to it.

However, we need to remain vigilant that their prominence does not hamper innovation going forward. Think of the network effects that exist in some digital markets, which allow some companies to become unavoidable for other market players and end-consumers.

Many of our cases in the digital sectors involve companies that fall under one of two groups:

Infrastructure providers, such as telecom and cable operators and

Infrastructure users, including the so-called over-the-top players such as Google, Skype, YouTube, WhatsApp, Netflix, etc.

Almost every day the press reports about the mounting tensions between these two camps, and the reasons are quite clear.

Providers need to make large investments to improve and extend the infrastructure while over-the-top players use a growing proportion of broadband for their services – such as video streaming – without contributing enough to the cost.

In addition, the most successful over-the-top players are taking away large portions of the traditional core business of telecoms, such as telephone calls and messages.

Let me review some indicative cases and investigations in the digital sectors to show how these considerations translate into practice, starting with an update on our investigation into certain business practices adopted by Google in the market for internet search.

Google

The first point to clarify is that this case is not about the dominant position Google has in the market for internet search.

In fact, the case is about making sure that Google does not abuse its dominance to exclude innovative rivals – large and small.

More specifically, one of the main issues in this investigation relates to Google’s use of its dominant position to enter other markets – the so-called vertical search services – where it faces stiffer competition.

By displaying its own services more prominently, Google could leverage its dominant position in search to weaken competitors in vertical search markets in a way that would harm consumers.

This would have negative implications. Companies would be less likely to invest in vertical services that would be at a competitive disadvantage. In addition, Google’s preferential treatment of its own services would affect user experience since they are not aware of it.

This is not the case’s only concern. Other issues are about Google’s use of third-party content and about certain contractual elements of AdSense and AdWords.

Over the last two years, we have explored with Google possible remedies in order to solve our competition concerns and have asked for significant feedback from the market.

We have received new arguments and elements from third parties on the latest Google remedies package. These have been communicated to Google. We now need to further analyse these elements and see if Google can propose appropriate solutions.

Let me add a comment here. Every time I have talked about Google’s proposals as a basis for an Art. 9 decision, I’ve always made clear that it was without prejudice of the complainants’ arguments.

Some arguments and some empirical evidence received in July were new and significant – by the way, mostly provided by US companies.

This case has generated many opinions, letters, statements, even campaigns. However, the only arguments we have taken into account were those included in the complainants answers whenever they challenged the adequacy of Google’s proposals.

I have never linked the date of a decision to the duration of my mandate

Antitrust investigations must be kept outside of political tensions. And the only arguments of competitors and stakeholders that matter are those included in the proceedings.

Pay-Tv

Moving on to another digital market, I would like to mention an investigation we formally opened last January involving five major US film studios and the five largest pay-tv broadcasters in Europe.

Let me put the question at the core of this case as follows: Why can I buy a book in Frankfurt and read it on the beach in Spain but I cannot subscribe to a German TV channel and watch it on my tablet abroad?

Of course, this is a rhetorical question. I know why. Generally, the content we subscribe to is blocked when we cross a border – even within the EU – because of restrictions included in the licensing agreements between broadcasters and content providers. The same sort of restrictions would also make it impossible for us to subscribe to a channel from abroad.

Our investigation will reveal whether these restrictions are in line with EU competition rules. This case also shows that digital markets may raise similar issues as in traditional industries, where contractual restrictions have already been cause for concern.

Telecoms

Let us now see a couple of merger cases in mobile telephony. In recent months, we have seen a wave of consolidation among mobile operators.

As you may know, mobile telecommunications providers in the EU still operate within national markets because spectrum allocation and telecoms regulations remain very much national affairs.

Even though mobile operators are global companies with a presence in numerous countries, tariffs are still set at the national level and there are different mobile packages in each EU country.

European consumers only have access to mobile operators present in their respective Member States. When we drive from Strasbourg to Brussels – the two capitals of the EU – we have to switch providers three times – and incur roaming fees.

Existing barriers in the internal market prevent EU companies from competing on a European scale and reach out to a customer base of half a billion potential users.

This is what makes the difference with other large telecom markets outside Europe. And this implies that prices are set at the national level and therefore still depend on the level of competition in each country.

As a consequence, a reduction of the number of operators in a given country continues to pose difficult challenges to competition authorities.

We have recently authorised two such deals subject to remedies: the acquisition of Telefónica Ireland by Hutchison 3G and the acquisition of KPN's E-Plus by Telefónica Deutschland in Germany.

In these cases – unlike previous decisions – we insisted on upfront commitments to make sure that substantial amounts of capacity would be made available to virtual mobile network operators from the start. This would allow them to compete and expand in the market.

Moreover, these remedies provide strong incentives to compete given that virtual mobile network operators would purchase the capacity upfront and would then have to recoup the investment by expanding their customer bases.

There have been increasing calls in the industry for a laxer approach to consolidation in telecom infrastructure.

It has been suggested that consolidation up to 50% market share would be desirable and that mobile virtual network operators are "from the past".

It has also been said that Europe has too many fragmented operators while other large countries have just a few large operators.

In fact, both in Europe and the US a handful of large groups have a significant share of their respective mobile markets and then there are many more local players. In the EU, a high percentage of European customers are already with the four largest mobile players.

But let me say that merger analysis is not just about market shares or number of players. The competition analysis undertaken in these mobile mergers included detailed assessments of closeness of competition and the specific competitive role of the merging firms.

What seems misguided is the adoption of a defensive approach to digital challenges. Easing competition rules to facilitate consolidation is not a solution.

Investment in new technologies is driven by customer demand and healthy competition. Less competitive markets would be no guarantee that investment takes place.

The real issue is protecting competition in the relevant markets without stifling investments, which are needed to give customers innovative and better-quality services.

Hence, in addition to companies rethinking their business models and strategies in the face of a changing world, it would be Europe’s task to ensure that barriers to the internal market are eliminated so as to address the current fragmentation of EU telecom markets.

Facebook/WhatsApp

Consolidation is not limited to mobile telecom markets. At the end of August we received the notification of Facebook’s proposed acquisition of WhatsApp, the popular mobile messaging service.

The case raises a number of challenging questions ranging from market definition in communication services, potential competition, and the role of data in the competitive analysis. One key issue is to identify the extent to which Facebook and Whatsapp are actual or potential competitors or, alternatively, if they are offering complementary products.

We are now in the middle of our market investigation. Before we take further steps in our review of this deal, we want to know from market participants whether they think the proposed $19 billion deal would raise prices or degrade the quality of the products; stifle innovation; or worsen competitive conditions.

Liberty/Ziggo

Finally, I will mention a case showing that the rise of over-the-top players also affect cable operators, who respond by consolidating, entering into content, and diversifying their sources of revenues. In turn, by expanding into TV content and fixed telephony, cable operators also challenge the traditional positions of TV broadcasters and telecom operators.

I understand that these trends are quite similar in Europe and in the US.

We are currently assessing one such acquisition; that of Ziggo – the largest Dutch cable operator – by the US cable-TV provider Liberty Global, also present in the Netherlands. The two companies own the only two premium TV channels in the Netherlands.

In the retail markets for TV distribution, broadband internet and fixed telephony, the two cable companies are not present in the same geographic areas and therefore do not compete directly for final customers.

However, in terms of acquisition of TV channels and provision of access to Internet subscribers, the merger would create a very large player in the Netherlands.

The concerns are that the company resulting from the acquisition could use its leverage in the negotiations with the TV channels it offers on its platform and limit the provision of TV channels through over-the-top platforms. The investigation is ongoing and should be finalized in the coming weeks.

In cases like these, it is the task of competition authorities to make sure that integrating control over the physical infrastructure with a large share of content viewed by subscribers does not weaken competition.

And since one way to foreclose competitors is by throttling their content, there are clear implications for the net-neutrality debate.

Close

Ladies and Gentlemen:

These thoughts on our enforcement action in energy and the digital industries point at what I regard as the main practical implications of competition authorities in the EU.

Simply put, these are deepening the Single Market as a way to advance our process of integration and creating the best possible conditions for Europe to return to sustained and sustainable economic expansion and promote innovation.

Obviously, much more is needed to reach this goal. I’ve already said that it is urgent to integrate Europe’s markets for energy, the digital industries and telecoms. But the same would apply to e-commerce, financial services and the many other sectors that would benefit immensely from pan-European integration.

Let me insist on one point. After years of recession, competition policy can help create better conditions to relaunch Europe along a path of sustainable and stronger growth.

But this is not about the economy only. Integrating those industries beyond national borders is very much a political challenge. This is also about tearing down barriers, building bridges, and showing what Europe can deliver if we play as a team.

These are the goals of our enforcement work in Europe. I believe that – on the strength of its achievements – competition policy can lead the way.

I hope that Europe’s national leaders and the bodies of the EU that will carry on our work for the next five years will show political courage and vision.

Every European, from political leaders to the man and woman in the street, need to look at a stronger and more united Europe with renewed confidence.

Thank you.


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