European Competition and Consumer Day, 18 April 2016

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Introduction

Ladies and gentlemen

 

I'd like to thank the Ministry of Economic Affairs, and the Authority for Consumers and Markets, for inviting me to be with you here in Amsterdam.

 

I was last here in January, at the start of the Dutch Presidency of the European Union. That time, we arrived by boat, under the stern of a huge sailing ship. They told me that ship was a copy of the Amsterdam, which was built more than two hundred and fifty years ago to bring spices to Europe. You might say it was the most advanced communication technology of its time.

 

Today's high tech products look a little different.

 

I doubt that in two hundred and fifty years, our descendants will find them as elegant as the Amsterdam. But I think they will notice one important thing - that many of our most advanced products are not made for big companies, but for you and me.

 

We have smartphones in our pockets that are more powerful than all the computers that controlled the moon landings. We use them to run apps that give us control over our own lives, from when and how we shop, to the way we gather and share information.

 

So as consumers, we have a lot to gain from innovation. But to get the most out of it, we need the right competition rules. So that new ideas actually get to us, and we have a chance to find out for ourselves whether they give us what we need.

Antitrust policy and innovation

Because successful companies don't always welcome innovation. It can undermine their markets, just as steam power made ships like the Amsterdam obsolete.

 

There might not be much they can do to stop innovation. But they can make it hard for innovative products to reach consumers.

 

So one of our basic jobs, as competition enforcers, is to make sure that companies don't abuse their power to hold back innovation.

 

And there's nothing especially innovative about that.

 

More than ten years ago, the Commission decided that Microsoft had tried to shut rivals out of the market for media players, by including its own player with Windows.

 

One of the concerns was the effect on innovation. If Microsoft's media player was already there when you bought a PC, it would be hard to persuade people to even try an alternative. So innovators would be at a big disadvantage when it came to reaching customers.

 

Of course, digital markets look rather different now. But making sure innovators have a fair shot at success is just as important now as it ever was.

 

Look at mobile apps.

 

Launching a new app doesn't take a lot of money. What matters is coming up with a new way of doing things, a way that appeals to consumers.

 

Take WhatsApp. It launched in 2009 with seed funding of 250 thousand dollars. By the time the Commission looked at its merger with Facebook, just five years later, it had 600 million users across the world. Today, it has a billion users.

 

That kind of change could wipe out another company’s business before it has time to react. So we need to be sure that big companies don't try to protect themselves by holding back innovation.

 

That's why we’re looking closely at Google’s contracts with phone makers and operators which use the Android operating system.

 

When we take a new smartphone out of its box, we want it to be ready to go straight away. We expect the maker - or the network operator - to make sure the basic apps, like a search app, are pre-loaded before it gets to us.

 

And that gives innovators a great opportunity to bring a new app to people’s attention.

 

Our concern is that, by requiring phone makers and operators to pre-load a set of Google apps, rather than letting them decide for themselves which apps to load, Google might have cut off one of the main ways that new apps can reach customers.

 

But innovation isn't only about new technology. It’s also about new ways of doing business. So innovators would have no way to reach customers.

  

Last June, we started an investigation into Amazon's contracts with e-book publishers.

 

Those contracts mean publishers have to tell Amazon when they offer a better deal to its competitors – or even just a different deal. And they have to offer Amazon terms that are at  least as good as its competitors get.

 

That could discourage e-book sellers from coming up with innovative business models that could compete with Amazon. Because they know that any deal they strike with publishers will immediately be offered to Amazon as well.

 

Of course, our investigations into Google and Amazon are still going on. So I can't yet say if either of them has broken the rules.

 

But I can say that innovation matters. To consumers, and to us as competition enforcers.

Merger policy and innovation

And this isn't just about the antitrust rules.

 

One of the simplest defences against innovation is to buy up rivals that create innovative products.

 

That's why, when we look at high-tech mergers, we don't just look at whether they might raise prices. We also assess whether they could be bad for innovation.

 

Last year, we looked at a merger between the drug company Pfizer and its rival, Hospira. We only approved the deal after Pfizer agreed to sell the European rights to an arthritis drug it was developing. One concern was that Hospira already had a competing drug on the market, and we thought Pfizer might stop work on its own drug if the deal went ahead as planned. Which would have meant less of the innovation that we depend on as patients.

 

So protecting innovation is important in our merger policy. So important, in fact, that we’re considering whether to change our rules to do it more effectively.

 

Our rules decide which mergers need to be notified to us based on the turnover of the companies involved. So when someone buys up an innovator, with a lot of good ideas but not yet much in the way of sales, we might not even have the chance to look at whether that merger will be bad for innovation.

 

That’s why I announced last month that we're looking at whether to change the thresholds for notification, to make sure we get a look at this type of merger.

 

That’s not an easy question to answer. We don't want to create extra work for companies if their merger won't have much effect on competition in Europe. And we need to bear in mind that a merger doesn't always have to meet our thresholds for us to review it. For example, we dealt with the merger between Facebook and WhatsApp because the parties asked us to look at it, instead of the national competition authorities.

 

But it's important that we give proper thought to this. Because our merger rules are there to protect innovation – but we can't do that if we don't see the deals that matter.

Rewards for innovation

So we need to make sure powerful companies don't hold back innovation that might threaten their position.

 

But that doesn't mean we have a problem with them, just because they're successful.

 

We have to remember that many of them have done well precisely because of innovation. And that means their success inspires the next generation of innovators.

 

In spare rooms all across Europe right now, people are putting their time and savings into building the next Amazon, the next Google, the next Facebook. And the last thing we should do is to tell them we disapprove of those companies’ success.

 

On the contrary, we should tell them success is welcome – but the right way for a big company to stay successful is to keep competing, to keep innovating. Not to misuse its power to stop others from innovating.

E-commerce

Innovation is all very well. But as consumers, we don't get the most out of technology if businesses don’t make full use of what it can do.

 

Take e-commerce.

 

There are excellent reasons why more than half of us shop online.

 

It's convenient, for a start. It's handy to be able to shop any time of the day - or night, for that matter.

 

It's also handy to be able to find things easily. With e-commerce, you should be able to find the pair of shoes you want, and make sure you get the best price, with just one web search. That's one reason to be so concerned that Google seems to favour its own comparison shopping service in search results - because one of the main benefits of e-commerce is linked to those services.

 

And yet we’re not making the most of what e-commerce has to offer. I mentioned that half of us shop online. But only a sixth of us buy from sellers in another EU country.

 

The sector inquiry we launched last year is all about trying to understand why that's happening. And I think the issues paper we published last month already has a lot to say about it.

 

It’s now absolutely clear that one reason consumers aren't buying abroad is that they're being stopped by widespread geoblocking. Nearly two-fifths of the online sellers of consumer goods, like clothes and electronics, who answered our questions said that they geoblock. So did more than two-thirds of the sellers of digital content, like films and sports events.

 

In other words, many consumers, when they try to buy from another European country, find that companies just won't sell to them.

 

This seems strange. Why would a company turn away customers?

 

The costs must have something to do with it. Because selling to another country can involve new requirements in terms of consumer contracts and VAT, not to mention higher delivery costs. Part of the Commission’s work on the Digital Single Market is precisely about removing this kind of obstacle to selling cross-border.

 

But even companies that want to sell to other European countries, in spite of those obstacles, are being held back.

 

Many companies have supply contracts that only allow them to sell in certain countries. Our issues paper shows that 12% of consumer goods retailers, and almost 60% of digital content sellers, have contracts that limit their ability to sell cross-border in the EU.

 

And contracts which stop retailers selling abroad, even when customers come to them unsolicited, are a concern for us. They divide up the single market into a series of national markets, and replace the barriers we've dismantled over nearly sixty years with new, contractual, obstacles.

 

So this type of restriction can be a serious breach of our rules.

 

Of course, we’re still at an early stage of this inquiry. We don't yet know whether particular companies have broken the rules.

 

But I think it's clear that geoblocking is holding us back from getting the most out of e-commerce. And as a Commission, we’re committed to doing what we can to change that.

Conclusion

There is a saying in English: "that necessity is the mother of invention".

 

That's as true in digital markets as anywhere else.

 

Companies innovate because they have to. Because they’d fall behind their competitors if they stopped being inventive.

 

So one of the best ways to support innovation is by promoting competition.

 

That's why we follow markets such as telecoms so closely, and pay such attention to making sure that competition stays strong in those markets.

 

Because we may be in the middle of a digital revolution. But its effect on our lives will depend on how we use the new possibilities that we have. And for that, we need companies that are free to produce the innovations that will transform our lives for the better.

 

Thank you.