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.
| 
