CMA bus partnerships letter to ITAs

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The competition authority’s detailed letter aims to encourage new bus partnerships and remove the barrier of ‘perceived threat of CMA action’

The Competition and Markets Authority (CMA) has published an open letter to local transport authorities regarding bus partnerships.

The CMA said its view is that passengers can benefit from effective partnerships between bus operators and authorities as well as from effective competition in local bus markets, and that it aimed to provide some clarity on the way it considers is best to achieve the appropriate balance between competition and partnership working.

The letter states: “In a deregulated bus market, fair and open competition helps ensure that passengers get the best possible bus services. As commercial undertakings, bus operators are subject to normal competition law provisions to prevent practices that harm passengers’ interests, such as colluding to raise prices or geographic market sharing.

“Beneficial forms of cooperation can include better integrated networks, multi-operator ticketing schemes and integrated information management.

“Legislative mechanisms are in place to ensure that competition law does not prevent consumers benefitting from improvements that can only be secured through closer partnership working. The Local Transport Act 2008 provides some additional protection for Local Transport Authorities (LTAs) and operators seeking to deliver passenger benefits through certain forms of partnership, by removing the CMA’s ability to impose fines for those involved in a scheme arranged in good faith under a Voluntary Partnership 2 Agreement or Qualifying Agreement even if it might subsequently be found to be anticompetitive.

“The Department for Transport (DfT) has previously produced guidance to LTAs on setting up and running multi-operator ticketing schemes. However, recent conversations between LTAs and the DfT have emphasised that the perceived threat of CMA action remains a significant barrier to closer partnership working.

“The CMA does not want LTAs to be deterred from introducing partnership arrangements that benefit customers but do not weaken rivalry between bus operators by unfounded concerns that they might breach competition law.”

The CMA said that LTA coordination of network planning does not inherently raise competition concerns as long as it build on the normal business practice of conducting network reviews and uses the partnership mechanisms set out in legislation. It added that in striking an appropriate balance between competition and cooperation, network planning should provide scope for continuing rivalry between operators, both in how the right or responsibility to run particular services is allocated and through on-the-road competition where routes overlap.

The letter continued: “To ensure that a network planning scheme delivers long-term customer benefits it is important to allow scope for the network to evolve, for new entry to take place and for existing operators to be able to propose new services.

“Retaining an ongoing threat of potential competition plays an important and necessary role in motivating operators to maintain the quality of their services. It also encourages innovation by potential competitors.

“LTAs should therefore ensure that network planning schemes are designed to allow for the approval of new and revised services.

“The network planning process should allow for rival operators to seek LTA approval to run services in competition with an existing operator. It is particularly important for the LTA to allow the provision of services to evolve if there are already restrictions in place due, for example, to congestion and pollution concerns.

“The commercial impact on an incumbent operator’s services should not form part of the assessment of whether another operator could establish a new service.”

The CMA said there is a risk that operators expressing an interest in running different routes as part of network planning might increase geographic market segregation.

“Any such retreat to ‘core territories’ would reduce the effectiveness of potential and actual competition,” it said.

“The CMA expects the likelihood of this risk materialising to become apparent relatively soon after inviting expressions of interest. If this appears to be the result of unilateral decisions by individual bus operators, LTAs could invite operators to make alternative expressions of interest so as to maintain the scope for potential competitive constraints to apply across the area.

“If, however, LTAs suspect there is evidence of explicit market sharing or anti-competitive agreements between bus operators, there may be scope for action under competition law.”

On entry requirements, the CMA said: “As part of a partnership scheme, LTAs may wish to seek minimum standards for bus operators participating in the scheme, for example in terms of the quality of the fleet that they are operating.

“While minimum standards can deliver benefits to passengers in terms of overall service quality and satisfaction, it should not be made unnecessarily difficult for operators to meet requirements to run bus services within the local area. Entry requirements should be proportionate and clearly justified in relation to the objectives of the scheme.

“This issue would become more important in the event that legislative change gives Passenger Transport Executives the ability to require compulsory participation in partnership schemes, as such standards would become a cost for all market participants.”

The CMA said it supports well-designed multi-operator ticketing schemes, which can deliver increased convenience to those passengers who choose to use multi-operator ticketing products.

“The potential benefits of multi-operator ticketing schemes are recognised under the public transport ticketing schemes “block exemption,” the CMA said.

“Certain types of agreements between LTAs and commercial operators – including many covering multi-operator travel cards and individual tickets, through tickets and add-on tickets – are expressly allowed by the Competition Act 1998 (CA98).

“Whilst multi-operator travel card tickets cannot be priced by deterministic premium rule relative to single operator tickets, they can be set with an awareness of single operator prices to make sure they are competitive.

“LTAs may also consider ways to standardise the definition of commonly used ticket types and fare zones within a local area. Although coordination between operators on these two dimensions is explicitly outside the block exemption, there is a legal exception regime which means potentially restrictive agreements will still be lawful if they produce economic benefits that outweigh the restriction, these benefits are shared with consumers and they do not unnecessarily impose restrictions, or give rise to the possible elimination of competition.

“The CMA would also encourage LTAs to be alert to risks of excessive standardisation and avoid unduly restricting aspects of individual suppliers’ ticketing offering which are highly valued by consumers and serve to drive competition including operators’ own period/area tickets.”

The CMA said arrangements for integrated customer management records, smart ticketing and real time data have the potential to harm competition if they were to result in competing operators being able to share commercially sensitive information which, in turn, could allow operators to coordinate their activities. The CMA said LTAs should establish appropriate firewalls.

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The full letter can be read at http://tinyurl.com/j7zbkrn