Examination of Witnesses (Questions 240-259)
MR JOHN VICKERS, MR JUSTIN COOMBS AND MR GOVER JAMES
WEDNESDAY 15 MAY 2002
240. But if we have a situation where, because of the intervention from the OFT, there are different routes of travel, change of routes, and we have this question of unattractive approaches to the buses because of the difference in fares, if there is this shift in timetables, more in rural areas than in urban areas, if there is a shift in the difference in prices, is that not encouraging people to use the car more because of the uncertainty and the unsatisfactory way it works?
(Mr Vickers) As a general proposition, if public transport alternatives became less attractive to consumers, then some, I dare say, would migrate to private transport or in the other direction, if relatively speaking public transport became more attractive. Where it existsand this is not just a question of on-the-road; it is also a question of tenderingand where competition works effectively, that will tend to make more attractive the public transport alternatives and in that way competition can serve public transport objectives.
241. Have you any evidence to that effect?
(Mr Vickers) As a proposition across the wide range of economic activity across sectors there is a wide range of evidence that competition is good for consumers. I cannot point to specific evidence myself in relation to the bus industry.
242. We take that as conjecture on that particular point. If we are going to have a highly competitive bus industry, if there is a point in having a highly competitive bus industry that is in decline because of the private car and the strange restrictions that the public do not understand in many instances, can we do anything to try and highlight the strange applications to the bus services so that the public do understand and therefore they will accept that there is a need to use the bus over the car?
(Mr Vickers) When you speak about the strange applications to the bus industry
243. I think the problem, Mr Vickers, is that the Committee perceives, either rightly or wrongly, that there is a difference between an abstractand, forgive me, it is not a pejorative use of the worddiscussion of the economic benefits and disbenefits of competition and the reality of what is happening in the bus industry where fewer people use it in certain circumstances, that the things that would encourage people to use it, like a modified timetable, like systems that enable you to use a bus from one company to another, do not seem to fit with your interpretation of the Competition Act. I think it is this gap between an academic discussion of the advantages of competition and the reality of the provision of public transport that bothers the Committee.
(Mr Vickers) If I can be opposite of abstract, there is up and down my road bus competition on the road. I am sure that I and my family use the bus more because of that.
244. You live perhaps in London?
(Mr Vickers) In Oxford. I am sure that I and my family use the bus a lot more than if there were not competition up and down that road. That is just a nitty-gritty example. Earlier rural areas were mentioned. If you take the area of tendering, a transport authority tendering out a service is going to get a better deal if there is competition for that tender than if there is not competition for that tender.
245. But the evidence we have taken is that very often that is not the case.
(Mr Vickers) I understand that but I think a better chance is given to those good things happening if there is a Competition Act properly in force.
246. You are saying that the position would be that if a law exists and it manifestly is not capable of rightful application, nevertheless it is of benefit because it exists?
(Mr Vickers) There you are speaking of a law not capable of practical application, but I do not think that is the situation in the bus industry.
(Mr James) It might be worth saying, madam Chairman, that because the Competition Act exists it does not mean to say that fares cannot be the same in a competitive market. They probably are the same. There is no reason equally why the buses should not arrive at equal headways if the operators make an individual commercial decision to decide that that is the better way to proceed as long as they do not do it by agreement. That is where we have a problem.
Chairman: As long as they do not do it efficiently it is all right.
247. My understanding is that the Competition Act put into effect Articles 85 and 86 as they were of the Treaty of Rome.
(Mr Vickers) Yes. It mirrored those almost word for word.
248. When you introduced the block exemption what consultation did you have with consumers and bus operators to try to introduce it?
(Mr James) We had a list of about 400 names at the time, which included all the major operators and all the local authorities and all the trade associations in the industry, the Confederation of Passenger Transport, the Local Government Association and the transport co-ordinating offices, and also the National Federation of Bus Users.
249. Did anything make the points the Committee have made this afternoon?
(Mr James) Yes, inevitably points were made of all sorts, some more sensible than others.
Miss McIntosh: The personal difficulty I have, Chairman, is that we are hearing a lot of hearsay about why Mr Vickers is using a particular bus service and not the actual evidence that the OFT received, which would be helpful for the Committee, concrete evidence as opposed to why your family take the bus as opposed to the train.
250. We do not have any objection to your family using a bus in Oxford although of course many of us would say that Oxford in fact is atypical of the situation because of a number of major institutions by the City Council and by the way the transport system has been organised. We have taken a lot of evidence about Oxford as a bus entity, if I may so put it. The valid point that Miss McIntosh is asking you is, did you take any notice of the representations of the people on your list?
(Mr James) Yes, of course we did. We could not meet all of the points made to us because it was not possible under competition law or for policy reasons.
251. Whose policy?
(Mr James) The Office's policy. We have to have a policy to enforce the Act.
252. This is where we come back to the Competition Act.
(Mr Vickers) It is a continuing dialogue and I mentioned in my opening remarks such things as guidance which is coming out, ongoing dialogue, information that we are putting up such as the answers to the frequently asked questions. It is a continuing thing and we are committed to making this as clear as we can.
(Mr Coombs) Perhaps I can just add that sometimes we hear stories about things which are prevented by competition law. I think one thing that came out from the questions that Mr Stevenson was asking was that quite often we find that these things are not prevented by competition law at all. There seems to be a misconception here which we are trying to overcome by talking to the industry.
253. Could you give us an example of where this clarity has been applied in a practical way by the bus industry, a particular instance where the industry did not understand they were able to do what they thought they were not able to do and you clarified the situation and now they are doing it? Could you give us a specific instance? One would do.
(Mr James) There was one case where a small operator, having agreed with one of the major operators to accept each other's return tickets, decided to withdraw from the agreement and put out a press release saying that they had been advised that competition law prevented them carrying on with this agreement. They had not spoken to us or asked our views. We had not seen the agreement but we wrote to them and said, "Is this true? Would you like to come and talk to us?" They said, "No, thank you very much, we would rather not", but it transpired that it was not strictly competition law that prevented them carrying on with this agreement. They could have carried on with the agreement as it was and it may well have been benefited from the block exemption but they chose not to.
254. When you look at the relevant market, clearly there is not very much of an alternative between taking a bus round Oxford and you either take one company or another company or you walk. How do you consider what the relevant market is in regard to the Competition Act and the block exemption?
(Mr Vickers) When one is talking about agreements between firms to do such things as fixed prices, then there is a fairly ready inference that that may have an anti-competitive effect. If one is looking, for example, at a merger, as was discussed earlier, then it depends on the circumstances at hand, whether there are or are not realistic alternatives for members of the public to take. It is very difficult to give a general answer because it is fact-based depending on the conditions.
255. So why can bus passengers not be treated the same as rail passengers for the purpose of the competition?
(Mr Vickers) That goes back to some points we had earlier and in respect of the ticketing schemes what the exemption is doing is to say that things in this area are absolutely
256. It is market entry because your written evidence seemed to indicate, depending on your perception, that the OFT seems to thinkand correct me if this is wrongthat it is easier for a new operator to enter the railways than it is for a new operator to enter the bus market. Is that not correct?
(Mr Vickers) If we gave that impression it was absolutely unintentional. Perhaps I could remove any such belief.
(Mr James) If anything it is more likely to be the other way round, that the bus market is cheap and easy to enter. There are some sunk costs but generally only in terms of management time and marketing. A second-hand bus is a second-hand bus whereas obtaining a train operating franchise is a much more difficult business of course.
257. What competition has there been, say, in the West Midlands where National Express run 80 per cent of services? What competition has there been in Bristol where First Group run nearly all the services?
(Mr James) All I can say is that in the West Midlands 20 per cent is operated by operators other than National Express.
258. How much competition was there for that? Was there any?
(Mr James) On your figures there is 80 per cent by National Express and 20 per cent by others. There may well be competition on some routes within that area. There is bound to be on the corridors into the town centres. There will be on-road competition.
259. How did they get to that position? Was it because there were a number of competing operators in this one market or was it because there were not competing operators?
(Mr James) It is historical largely: what used to be called West Midlands Travel was a municipal operator and it had a total monopoly before privatisation. There is still a hang-over from nationalisation days.