Examination of Witnesses (Questions 218-239)
MR JOHN VICKERS, MR JUSTIN COOMBS AND MR GOVER JAMES
WEDNESDAY 15 MAY 2002
Chairman: Good afternoon, gentlemen. Before we begin I am afraid we have a little bit of housekeeping. Will anyone with a relevant interest declare?
Mr Stevenson: Member of the Transport and General Workers' Union.
Mrs Dunwoody: Gwyneth Dunwoody, member of the Rail, Maritime and Transport Union.
Mrs Ellman: Member of the Transport and General Workers' Union.
Miss McIntosh: Interest in First Group and other interests.
218. Gentlemen, you are most welcome this afternoon. May I ask you first to identify yourselves for the record?
(Mr Vickers) I am John Vickers, Director General of Fair Trading.
(Mr James) Gover James, Case Officer in Competition Enforcement Division.
(Mr Coombs) Justin Coombs, Director, Service Industries, Competition Enforcement Division.
219. As you know, Mr Vickers, we are very much looking forward to your evidence since you are very relevant to everything we want to do. Can you tell me if you want to kick off with a mea culpa?
(Mr Vickers) Thank you, madam Chairman. We have submitted to you quite a full memorandum. I would be very happy to spend a minute or two drawing out some of the main themes if that would help the Committee. Of course, in everything that the OFT does our role is based on, and only on, the legislation which gives us responsibilities and powers. That, speaking generally, is quite a range of legislation. In our memorandum to you we focused very much on some of the competition powers because I think those are the ones that are most relevant for the industry at hand. Whatever the legislation is that we are administering, there is one theme that runs through our work and that is the goal of trying to help markets work well for consumers, which in this case is the travelling public. Effective competition we see as absolutely central to that. It is a very pro-consumer thing. I say that not as an abstract proposition but very much as the down to earth reality. Moreover, I think it is how consumers see it too. We have in fact been carrying out some survey work recently on that and benefits of competition in terms of price, choice, availability, and consumer perception in large part as well as the reality. If the Committee is interested in that survey we would be happy to share it with you.
220. I think that would be helpful. We would like to know how many people you talked to and what the questions were.
(Mr Vickers) Of course. We will gladly do that. Our role in relation to effective competition has different strands but two key ones are to make sure that when competition exists or has the potential to exist that is not undermined by collusion or by exclusionary behaviour by firms with market power. Turning specifically to the bus industry, competition law as a whole is consumer oriented. It allows for exemption of what would otherwise be anti-competitive agreements that are indispensable to the bringing of consumer benefits, and the only block exemption so far issued under the Competition Act, which gives an exemption from a large class of activity, is in precisely the area of ticketing schemes for public transport. So the bus industry and related industries benefit from that, and that is unique so far under UK competition law. Clearly we have an enforcement role too. The Committee may be familiar with the Leeds Bus cartel case. Finally, and our memorandum touches on this, I think there is an important communication role that we have to make competition law as effective as possible and that takes many forms. We are in dialogue with the industry, there are meetings, we are open to give informal advice. Gover, for example, does a great deal of that. We issue guidelines; some are coming up quite soon. We are posting answers to frequently asked questions. There are interviews that we give and also part of communication is listening. It is an evolving process where we want to make as clear as possible to everyone involved what competition law does and does not mean.
221. That is very helpful because you will understand, Mr Vickers, that the Committee will want to explore quite a lot of that because we perceiveI hesitate to use such a word to youcertain illogicalities and I think perhaps we can get the chance to explore those in some detail. Can I ask you if you have any evidence perhaps from your survey that bus passengers are actually quite prepared to stand at bus stops waiting for the cheapest bus to come along?
(Mr Vickers) You invite me to talk about my own experience?
222. I am sure your experience is always relevant to everything but I would hope that you would base your views on a slightly wider sample than one.
(Mr Vickers) Of course. I did not know how to take that part of your question. I think the principle is a general one, that where competition is effective that is good for consumer choice in terms of price, in terms of quality and so on. That principle applies in the bus industry as it does in other industries. Where competition is working then whether or not people choose to wait for a subsequent bus to get a lower price is a matter for them. It is their choice. Whether they exercise that choice or not
Andrew Bennett: Do any exercise that choice?
223. Do you know? What interests us is that this is a marvellously abstract theory but if I am standing in the rain at a bus stop and I have a good idea that the next one is not going to come along for ten minutes, is there any evidence that I am more likely to get on the first bus than the second?
(Mr Vickers) Speaking for myself, I get on the first bus that comes along. What I would say is that if there is rivalry between the operators then the deal I get from whichever choice I make will in general be a better deal than in market circumstances where competitive disciplines do not work.
224. That would be so, for example, if there was a properly spaced timetable. But surely I am standing there. I want to have a choice. What is the reason that we cannot have an organised timetable so that I can tell that instead of buses coming sequentially they come with reasonable times in between?
(Mr Vickers) That timing pattern can well emerge naturally in the market place with operators making their own independent decisions.
225. That was not of course the experience of the industry when it began as a privatised industry after the last debacle in 1985, was it?
(Mr Vickers) If one has a situation where one operator is on the hour and the other is at two minutes to, I think that is not a stable situation. There may well be an entry opportunity for people to come in at other points on the clock face. I think things generally tend to settle down into that sort of pattern. On high frequency routes traffic flow and congestion mean that it is sometimes impossible to
226. The exact quote we got from Arriva last week was: "If there were two buses now running to a hospital owned by two different companies, they would far prefer one went on the hour and the other on the half hour, but they cannot do this because it is market sharing under the Competition Act."
(Mr Vickers) Perhaps I could put that into the context of the block exemption in the Act. The Competition Act, which we have the duty of applying, has prohibitions on, among other things, anti-competitive agreements. So operators getting together to agree on a price or to agree on how much capacity to put on the market or, in this context, to agree on timings, as a general proposition would be an infringement of the law which we have the responsibility of enforcing.
227. But you have also told us that you are beginning with the consumers' interests.
(Mr Vickers) We are not saying that it is absolutely inconceivable that a clock face arrangement would violate the Act because section 9 of the Act has exemption criteria for agreements which one needs to apply on a case by case basis.
228. Then who would have given this suggestion to Arriva?
(Mr Vickers) In the generality of circumstances an agreement between operatorsif, for example, you and I were to agree that you go on the hour and I go on the half houramong other things that would entail an agreement that we would each supply one bus per hour and I think that is highly likely to infringe the law.
229. We are going to come back to this.
(Mr Vickers) Madam Chairman, if I may there is one final point which I think might be helpful if I make in relation to the block exemption. Given what the law is, we could not responsibly give a block exemption to agreements of that kind. We could not responsibly have exercised our responsibilities under the Act to have embraced within the block exemption agreements of that kind. The law is the law.
230. Mr Vickers, in your opening comments you talked about effective competition, the key element being price choice availability. You also talked about the Competition Act, I grant you that, but you used the word "reality"; you said that was the reality. I wrote that down quite carefully. The evidence we have had from a number of sources, the Passenger Transport Executive and so on, indicates that competition and choice between operators, which is the key to your activities, hardly exists and that is the reality. National Express run 80 per cent of all bus units in the West Midlands. First Group run 91 per cent of services at Bradford, 81 per cent at Calderdale. First Group operate almost all commercial services in Bristol. One could go on and on. I know in my own area there is a dominant operator. Where is this reality that you are talking about?
(Mr Vickers) In the bus industry, on the question of on-the-road, head-to-head competition the picture is clearly a mixed one. There are places where that manifestly happens; there are places where that manifestly does not happen. I think the Competition Act is helpful in this regard. If you take cases where there is a dominant operator the Competition Act with its prohibition of abuse of the dominant position deters or allows us or others to enforce against behaviour that may have sought to exclude rivals from routes. We cannot magic rivals on to all sorts of routes but we can safeguard against kinds of anti-competitive behaviour in a way that did not exist before. We also say that where there is not on-the-road, head-to-head competition but where perhaps it is competition for the market, perhaps in a transport authority having a tender, again I think the Competition Act is the ally of that activity and the wider public transport objectives in so far as it strikes more effectively than previous legislation against bid rigging and other kinds of collusion. It is not just on-the-road competition that counts.
231. The Passenger Transport Executive Group has told us that areas of high patronage would be a good market, as you would think, for the market to operate in, but little on-the-road competition exists. We have also had evidence from councils that says that there is a lack of competing bus operators locally. The reality, as distinct from the Act, seems to be somewhat different from the description that you are giving to the Committee.
(Mr Vickers) The reality for the economy as a whole is that competition is good for consumers and it works. In the bus industry it is a mixed picture, as I have said. There are areas where there is
232. The trouble is, the mix seems to be 95 with no competition and five if you are lucky.
(Mr Vickers) I do not know exactly what the right way is to strike that percentage and there is competition in other forms as well. There is potential competition, there is bidding competition and so on.
233. With the private car.
(Mr Vickers) It is important to be clear about what a body such as ourselves at the OFT can and cannot realistically hope to do. We, I believe, by proper enforcement of the Competition Act, will create a better chance of competition happening more widely than if that Act did not exist or was not properly enforced, but it is not in our power to bring about
234. I understand that, and that is the reason I used the word "reality" rather than the Act itself. The reality is that the West Yorkshire Passenger Transport Executive contracts £16 million worth of tendered services every year. In evidence it said to this Committee that the average number of bids per tender is just over one. Could I go on now to the issue of competition and the economy as a whole, which is a good thing, of course. We are particularly concerned about passenger transport. That is what we are looking at here. I would like to ask about the differences between bus and rail. I think I understand that capacity on the railways is subject to some constraints whereas perhaps that same constraint does not exist in bus services. You note that buses and trains are very different from each other from a regulatory point of view, but why should bus passengers not be treated the same as rail passengers?
(Mr Vickers) In what respect?
235. I will give you some examples. Timetables are agreed between operators on railways. Why should this not happen for road passengers? All tickets, singles and returns, are valid on any train company's trains. Why should that not happen on the bus network?
(Mr Vickers) Perhaps I could seek to respond to that in a couple of ways and it may be that Gover has observations. There are clearly issues about train paths which add physical constraints in such a system, which do not exist in quite the same way when one is talking about road transport. In terms of agreement on ticket types, that area is exactly what the block exemption is dealing with. If the ticketing arrangement is within the block exemption then it is absolutely unequivocally no problem under the Competition Act. It does not follow from that that something that is not within the block exemption is necessarily unlawful. That may or may not be the case. Right across the economy businesses are making their compliance decisions about that Act. The block exemption is very much in that area and it permits ticketing arrangements that would otherwise not be allowed under the competition law, subject to conditions.
236. Are you saying that if, as appears to be the case, singles and returns of all tickets are valid all train companies' trains, if they are not available in a similar fashion for bus networks then it is not the OFT that is blocking that? It is not the Competition Act that stops that. It is the bus operators themselves that are simply not doing it?
(Mr Vickers) I do not wish to be pointing fingers at people. Gover may wish to expand on this but the block exemption sets out a series of conditions under which schemes of that nature are absolutely in the clear as far as the Competition Act is concerned.
(Mr James) The block exemption does clearly provide for joint ticketing arrangements of that sort to happen and there is no reason whatsoever why they should not.
237. It is not my intention to point a finger, but we need to understand, and that is what your evidence is about, that the block exemption allows that.
(Mr James) Yes.
238. There is no reason why the OFT therefore does not approve it and if it is not happening it is the operators that we should be thinking about rather than the OFT?
(Mr Vickers) The block exemption applies to such schemes subject to the conditions set out in that exemption. That is what it is all about.
239. Could we look at the question of competition between the bus and the car? Is it not more important to consider the main competition to the bus, which seems to be the car, when deciding your rulings? What thought do you give to the competition of the car?
(Mr Vickers) Perhaps I could answer by example. If, say, a merger comes along, the question we would address there is whether there was a possibility of a substantial lessening of competition. We would, in appraising that, look at the competing alternatives that existed to those of the merging parties. As a general rule I would say that the alternative of car transport is very often for many people not an effective competitive discipline that can be relied upon automatically. I think though it depends very much on the circumstances. There may be routes or situations where the private car is more of a discipline than in other contexts, but of course a large proportion of the population simply do not have that alternative.