Consequences of the EU approval of TomTom-Tele Atlas deal

Yesterday the European Commission (EC) approved the Tele Atlas acquisition by TomTom. This unconditional approval can be read as a total victory for TomTom. In November 2007, when the European Commission entered in the phase two process such a positive outcome was doubtful. Indeed, at that time the EC stated: “After a preliminary review, the Commission has identified serious doubts that the acquisition by TomTom of Tele Atlas might, in the light of the duopoly market for navigable digital maps and TomTom's strong position on the market for PNDs, lead to a significant impediment of effective competition within the EEA.”

However, yesterday EU Competition Commissioner Neelie Kroes said this merger "would not significantly impede effective competition. […] The satnav market is important for consumers. After thorough investigation, I am now satisfied that the innovation and competition we have seen in satnavs until now will continue after this merger and that consumers will continue to benefit from new and innovative products."

So what did happen between November and May? According to many commentators in Europe, it seems the Commission did not feel its case was strong enough to resist an appeal and win in court. Therefore, the only solution was a plain Yes to TomTom.

This unconditional approval of the acquisition will have many consequences, first for TomTom, then for the Nokia-Navteq deal, and finally for the digital map market at large.

TomTom Map Share
TomTom Map Share
TomTom’s strategy moving forward
For TomTom this EU ruling is a real success that opens the door to the next phase of its strategy: developing a broader business than selling Personal Navigation Devices.

But moving forward with this strategy is a serious bet, because it involves moving many of the competitive advantages TomTom has developed in the last 18 months from the device to the map. Indeed, TomTom intends to make its services Map Share (user-generated map update), IQ Route (passive user-generated real speed on roads) and HD Traffic (cell probe-based traffic data) available to Tele Atlas customers - meaning to some of its own competitors such as Mio. Obviously it is a calculated risk, because TomTom’s main competitor on the PND market is Garmin which has signed a long term deal with Navteq and surely does not intend to use Tele Atlas maps once owned by TomTom.

Assuming that Tele Atlas integrates quickly the content and map related assets from TomTom, its value proposition could soon become more compelling than Navteq. Even more important, harnessing the power of the nearly 20 million TomTom users - actively (Map Share) or passively (uploading anonymous GPS traces) involved in the process – to update Tele Atlas maps could also be a real game changer in terms of cost. It will reduce the need for Tele Atlas to deploy large field teams for map updates and let the company switch resources to map out new territories and create more value for TomTom’s shareholders.


Thursday, May 15th 2008

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