North East operators criticised for collusion

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Jeremy Peat, chairs the CC’s investigation group
Jeremy Peat, chairs the CC’s investigation group

New Competition Commission evidence shows operators protecting ‘core’ territories

The Competition Commission (CC) has concluded some large bus companies, particularly in the North East of England, have taken action which has had an adverse effect on competition, in order to protect their core territories.

Following its provisional findings in May 2011, in which the CC noted in many local areas the largest bus operator faced little or no competition and an additional report covering ‘tacit co-ordination’ in August 2011, the CC last week published an addendum based on new evidence gathered since August 4 from company documents between 2006 and 2009 relating to competition between Go North East and Arriva North East and from subsequent hearings with past and present executives. The North East evidence led the CC to “consider afresh” competition between Arriva and FirstGroup in Chester and the Wirral.

In its addendum, the CC describes ways in which large bus companies seek to protect their own ‘core’ territories. The CC said the evidence it has seen shows this segregation was brought about by:

  • extensive communication between certain large operators;
  • signaling through registering of new services and deregistration;
  • retaliation to entry through competitive responses on other routes; and
  • the sale and acquisition of rivals’ assets.

Commenting on communication between operators, the CC stated: “We have been struck by the sensitivity and specificity of the topics discussed, including in some instances a willingness to disclose what would ordinarily be regarded as commercially sensitive information, not least because large operators have competition compliance programmes in place.

“In our view, the extent of contacts goes beyond what would normally be expected between competitors, and we are concerned this could serve as a basis for developing a mutual understanding of tactics and objectives which would assist in allowing operators to avoid head-to-head competition and thereby also reducing the threat of potential competition.”

Commenting on the notion of territory and retaliatory behaviour, Jeremy Peat, chairman of the investigation group, said: “One of our main concerns in this investigation has been the number of areas where one company has faced little or no competition over an extended period of time. In August we noted bus operators may have the incentive to avoid competing in each other’s territories. We have now found some large bus companies have gone about their business in ways which adversely affected competition in some areas as we feared.

“We have found evidence of a clear perception among some operators that some areas ‘belong’ to a particular company and of behaviour designed to maintain this situation, particularly threats of retaliation when attempts are made to encroach on their territory.

Peat continued: “We have found clear evidence relating to only three large operators, and only in a few areas of the country. We have not been able to conduct a full investigation of a larger number of areas. But our concerns expressed in the provisional findings on tacit co-ordination that operator conduct could restrict competition in a wider number of areas are further reinforced.”

Peat said the evidence strengthens the case for its package of remedies, but it is suggesting no further additions to those proposed.

Meanwhile, the Times and the Newcastle journal last week picked up on the CC’s addendum, accusing operators of secret collaboration. An article in the Times was headlined “This may look like a turf war, but rivals are collaborating on the buses” and an article in the Newcastle Journal said: “A deal to carve up bus routes in Northumberland and Tyneside has been exposed by competition authorities.”

In a letter of response to the Journal’s editor, Go North East’s outgoing MD Peter Huntley said: “I was concerned to see your description of last year’s sales of bus operations in the Hexham and Ashington areas as a ‘secret bus routes deal’ as it is clear this is not the CC’s conclusion.

“The operators in fact referred the sales deals to the Office of Fair Trading, who investigated them before approving them. Interests within the region were given the opportunity to comment on these transactions at the time and both the transactions and the investigation of them are a matter of public record.

Huntley said the Journal’s report does not give a balanced view as it fails to note the full context of discussions between operators, such as contact to discuss arrangements for integrated ticketing (Network One), a code of conduct for responsible operation, a ‘fixed price’ reimbursement arrangement for concessionary fares and partnership arrangements with local authorities to allow better local working.

Huntley concluded: “I will leave it to your readers to decide whether these ‘deals’ are in their interests,” adding: “As the CC’s report acknowledges, Go North East continues to compete vigorously in the North East.”