Select Committee on Transport Minutes of Evidence


Examination of Witnesses (Questions 340-359)

MR VINCENT SMITH AND MR NOOMAN HAQUE

15 DECEMBER 2004

  Q340 Chairman: You made it clear, did you, that it was a question of "That's their patch, not mine"?

  Mr Smith: I accept that we did not actually make that clear to the SRA.

  Q341 Mr Stringer: Can I go back to your opening statement? I was not sure, when you were talking about safe harbours and block exemptions, whether they exist now.

  Mr Smith: The ticketing block exemption currently exists; it lasts until 2006. Therefore, we need to work now to make sure there is something in its place by the time it expires to ensure certainty for operators going forward. We intend to consult in the early part of next year on an extension of the exemption.

  Q342 Mr Stringer: How many applications for the block exemption have been accepted and how many have been rejected?

  Mr Smith: People do not need to apply for the benefit of a block exemption, it applies to you: it is a piece of delegated legislation, and it says that as long as your agreements fall within the terms of that piece of delegated legislation then competition law, effectively, does not apply to your agreement.

  Q343 Mr Stringer: Have you investigated any of those to see whether the compliance is there or not?

  Mr Haque: We have given advice this year on 40 various types of integrated ticketing scheme. Most of those, on our analysis, would comply with the terms of the bock exemption. On, I think, two occasions that I can recall we have suggested minor modifications to the scheme, which the parties in principle seem to have accepted. Obviously, it is up to the wider parties and operators to implement those.

  Q344 Mr Stringer: You also said in your evidence that the competition issue delivers consumer benefit. What criteria do you use to see if it is actually delivering consumer benefit?

  Mr Smith: Sometimes we ask consumers—that is not uncommon. We normally use economic theory. We check whether the criteria in Section 9 of the Competition Act are met. So we have to ensure there is some actual theoretical benefit. We then look to make sure that operators are not taking the benefit for themselves—ie that a fair share of whatever extra savings are made on the costs of the service or the efficiency of the service is passed on properly to consumers.

  Q345 Mr Stringer: Why, when I write to you, though, with complaints about the fare-paying passengers of First Group in North Manchester, do you tell me that these are irrelevant and there has to be direct evidence of collusion between the different operators in Greater Manchester—when the evidence is there from the consumers that they are getting a worse service from Stagecoach in South Manchester?

  Mr Smith: The Act, you will recall, applies to agreements, so we have to prove an agreement between the operators colluding together.

  Q346 Mr Stringer: That is why I was confused by what you said to start with and what you have said just now, because you said you had to look at consumer benefit. I was wondering how you measure that when, clearly, fares are higher and consumers are complaining and you ignore it.

  Mr Smith: We have to have a nexus on which to hang our action, and the nexus in the statute is that there is an agreement between operators to collude together.

  Q347 Mr Stringer: So consumers can go and hang if you cannot find a piece of paper that says "We are breaking the law"?

  Mr Smith: We would not go so far as to need a piece of paper but we do need some evidence of them having talked to each other in a way which would set prices or might affect prices.

  Q348 Mr Stringer: So the fact that bus companies operating in the same conurbation do not compete is not evidence?

  Mr Smith: It may be in certain circumstances, but I think we need more than that simple fact to take action.

  Q349 Mr Stringer: What do you say to Richard Bowker's comment that the OFT has mounted costly, time-consuming inquiries into rail franchises, which have yielded miniscule recommendations?

  Mr Smith: The current Railways Act requires us to look at refranchising as if it were a merger situation. Therefore, we actually need to look at each refranchise on that basis. Most of them we do not find any difficulty with, it is only where there may be   an overlap between railway services being refranchised and other forms of transport that we tend to take a closer look.

  Q350 Mr Stringer: I think Mr Bowker was referring to National Express in East Anglia. He said that it cost the train operators and the railway industry half a million pounds. Do you think that is reasonable?

  Mr Smith: I have no idea whether it did cost that much. If it did then I think it is probably rather high for the amount of the franchise awarded, but that is the general cost of a competition law investigation.

  Q351 Mr Stringer: Can you give me some background into how much of your organisation is devoted to transport competition?

  Mr Haque: We are one of the four industry sector divisions in the OFT devoted to services.

  Q352 Mr Stringer: I am sorry, I missed that.

  Mr Haque: There are four industry sector branches within the OFT: transport and other services sit within one branch—my branch—and land transport is approximately about a quarter of that team.

  Mr Smith: So that would be, approximately, six people.

  Mr Stringer: Thank you.

  Q353 Mrs Ellman: When is through ticketing allowed under competition law?

  Mr Smith: Most of the time, I would say, provided that the ticket is actually a genuine through-ticket —ie it enables you to add together different components of a public transport journey to get you from where you are to where you want to be. I think, generally, we would not see a problem with that.

  Mr Haque: The other thing to add, I would say, is that one of the key considerations has to be that the two routes which are being joined by the through ticket do not significantly overlap—ie they are not effectively routes in competition with each other, in which case through ticketing cannot be used. So it is for routes that are, more or less, separate; for a connecting service from A to B to C, for example, a through ticket can be used.

  Q354 Mrs Ellman: Do operators have to seek approval first?

  Mr Smith: For their schemes? As I was saying to Mr Stringer, the answer to that is no; provided that their arrangements fall within the terms of the block exemption statutory instrument then they are not at fault. This applies automatically; there is no need for people even to come to us if they are content that that is the case.

  Q355 Mrs Ellman: Do you think there is a full understanding of the rules and regulations that you enforce?

  Mr Smith: I would hesitate to say there is full  understanding amongst, particularly, the bus community. Particularly where there is an interface between the largely unregulated bus industry and the rather more regulated train industry that can cause difficulties and misperception, I suppose, between what is allowed on the railway and what is allowed in the bus sector. That does cause difficulties in explanation to the bus industry, particularly.

  Q356 Mrs Ellman: What are the major misconceptions?

  Mr Smith: Anecdotally, although we do not generally get much direct evidence of this, people say that we are against integrated transport and that we actually try and block through ticketing schemes on competition grounds. I can assure you that is not the case.

  Q357 Chairman: That is the generally held view, though, is it not, Mr Smith? Why would this view be so generally held throughout the transport industry when most of the people would actually benefit from through ticketing? Why are they so convinced that you are against it?

  Mr Haque: I think one of the reasons that I have discovered—again, I have no hard evidence of this but it is anecdotal—is that on some occasions the interests of the Passenger Transport Executives and the interests of commercial operators, private operators, do not always coincide. Quite often the PTEs—

  Q358 Chairman: No. One is meant to make a profit and the other one is meant to provide a service; almost by definition they are going to collide.

  Mr Smith: It would be false to assume that private bus companies do not intend to provide a service.

  Q359 Chairman: No, but their legal duty is to return a profit, is it not?

  Mr Smith: It is, Madam Chairman.


 
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