Examination of Witnesses (Questions 360-379)
MR VINCENT
SMITH AND
MR NOOMAN
HAQUE
15 DECEMBER 2004
Q360 Chairman: Therefore, it is unwise
for us to confuse the legal responsibility to produce a profit
with the duty of the Passenger Transport Executives which is to
provide an integrated and efficient form of transport. They are
fundamentally different jobs, are they not? They may run parallel
but they are different.
Mr Smith: Can I disagree with
you there, Madam Chairman? After all, the Passenger Transport
Executives are supposed to run an efficient service as well; they
tender out their services, so they do have an interest in making
sure what they buy is competitively priced.
Q361 Chairman: But that is not the same
thing, is it? When I buy things, Mr Smith, I want value for money.
That does not mean to say that I expect the deal to automatically
make a profit. When, on the other hand, I am running something
as a commercial undertaking then I expect it to make a profit.
The two things are different, are they not?
Mr Smith: I think it depends on
when the competition arises. If you are looking at a Passenger
Transport Executive that is inviting bids to run a bus network
in its area it needs a number of bidders at that point in order
to get an efficient service at the lowest possible price. That
is a competitive process; that is competition. Then there is the
question of "Well, once the service has been tendered you
need to make sure that the person who has been successful complies
with the terms of the contract", and that is a regulatory
function. If there is no regulation of that nature then competition
is the only means of making sure that quality standards are maintained
and/or prices—
Q362 Chairman: No, it is not the only
means; it is a means. What is important is that the original contract
should encompass a set of standards that the operator has to comply
with.
Mr Smith: I was drawing a contrast
between those kinds of services which are subject to tender and,
therefore, subsequently, subject to service quality standards,
and those that are entirely unregulated and, therefore, where
competition is the only means of making sure that services are
maintained and that prices are kept at a reasonable level.
Chairman: I am sorry, I interrupted Mrs
Ellman.
Q363 Mrs Ellman: You said that there
is confusion in what you described as the "bus community".
If there is confusion whose responsibility is it to put that right?
Mr Haque: The Office has a general
policy of going out and speaking to industry and to consumer groups
whenever possible to explain competition law. In the transport
team, where I sit, we make particular efforts to go and talk to
interested parties, which would be operators, PTEs and local authorities
and we, obviously, as I said earlier, give informal advice and
attend conferences and seminars and maintain a completely open-door
policy in respect of any interested party in this sector, in particular.
Q364 Mrs Ellman: You have told us that
you are going to consult on some changes. How do you intend to
identify those changes?
Mr Smith: We do a standard consultation.
When we consulted on a not dissimilar subject two years or so
ago we did so through a standard consultation list, which has,
from memory, about 500 operators' names on it of various sizes
and geographical locations.
Q365 Mrs Ellman: You have not chosen
those areas because there is a problem?
Mr Smith: No, we would consult
widely and invite a range of views on the operation of the block
exemption going forward to make sure that if there are any problems
we get to hear about them and can adapt the proposal accordingly.
Q366 Mrs Ellman: In general terms, do
you try to identify the areas where there are difficulties? In
terms of running services.
Mr Haque: In general terms, through
our process of talking with industry, particularly talking to
interested parties, we gather views. Obviously, one of the things
that led up to the change in exemption was this very strong industry
view that revenue-sharing arrangements and block exemptions as
they stand are far too restrictive. We have no hard evidence other
than constant representations made by industry. However, we complemented
that with our own analysis and our own thinking about how we could
possibly change the requirements for revenue sharing. So I would
say, in answer to your question, I think it is both internally
driven as well as taken from representations from the outside
world.
Q367 Mr Donohoe: Can I take you back
to this through ticket situation, where you say that it would
be anti-competition if, in fact, you know that it was not A to
B and B to C but the train was running from A to C and the bus
was running from B to C? That would not be allowed under competition
law? Is that what you are saying?
Mr Smith: The difficulty we have
where there may be overlapping services is that if two services—part
of the railway service and some bus services—are jointly
owned there is clearly a large incentive on the joint owner to
try and squeeze out competition in the bus leg. When we were looking
at the North Wales refranchising, for example, there were strong
representations to us then that if Arriva were awarded the franchise
it would have a big incentive to squeeze out rival operators who,
at that time, operated connecting bus services to the various
railheads on the North Wales coast. They were concerned that if
Arriva were awarded that franchise they would do that. Arriva
actually offered a promise that they would allow competing bus
operators to continue to operate on the same terms as Arriva's
own connecting bus service, so a non-discrimination clause. That
is the kind of thing that we are aware of, as it were: people
owning two legs of a journey and squeezing out competition in
one leg where there could be competition.
Q368 Mr Donohoe: If I may just explore
this a bit. I will not mention any particular company, but, say,
company A owns both the railway and the bus locally. Is that healthy
competition or is that something you would have something to say
about? Operating on exactly the same line, if you are taking A,
B and C as a straight line with B in the middle of that and it
is the same company that is operating the buses and operating
the rail from these towns, is that something you would have something
to say about and stop?
Mr Smith: We would if we found
that that company had been trying to exclude competitors—and
I would assume the bus leg is an unregulated one and not subject
to local authority tender. If that were the case we would have
concerns if we found evidence of the train company trying to exclude
connecting bus services to the benefit of its own connecting bus
service, yes.
Q369 Mr Donohoe: If the company that
had got the franchise for the railways, and it was at that point
operating the buses, all of a sudden started to take its traffic
from the railway and move it over to its bus operation, would
you have something to say about that?
Mr Smith: Yes, we could do. You
will recall this was a concern with the Scot Rail refranchising
case upon which the Competition Commission has just reported.
They found that First Group, which has been awarded the franchise,
as you know, have such an incentive in certain parts of the network
there between Glasgow and Edinburgh, and they have taken undertakings
from First Group to make sure that bus and train services are
maintained at the same prices they are now and at the same service.
Q370 Mr Donohoe: Would that be mirrored
in any other part of that particular franchise? Or may there be
parts of the country where there was a similar situation?
Mr Smith: Two different propositions.
Yes, they would be mirrored in any other part of the franchise
where there was a similar proposition because that is the undertaking
that First Group gave to the Competition Commission, which is
a legally binding promise. We would need to look carefully on
a case-by-case basis if that were to happen in other parts of
the country. It is actually quite a difficult analysis to undertake
and we do not want to go around forcing people to maintain services
unnecessarily.
Q371 Mr Donohoe: Who brings that sort
of situation to your attention? Has it got to be a member of the
public?
Mr Smith: It can be more or less
anybody. We get a lot of complaints from MPs, for example.
Q372 Mr Donohoe: Can I just take you
back to one of the points you made in your initial statement where
you talked about those who are affected by the transport situation;
it could well be that they are passengers but they could also
be future passengers—or anybody else, for that matter. Who
would be the "anybody else"?
Mr Smith: If there were clear
benefits, for example, in reducing congestion in an inner city
area from having a particular agreement between bus operators,
and if that could be convincingly shown, I think we would take
that into account—ie that there is an economic benefit to
the public in general. It would have to be an economic benefit,
so if the road use within the city centre would be easier there
would be economic benefits flowing from that. I think we would
look at that provided there was a clear benefit which could be
shown.
Q373 Mr Donohoe: Can I take you, then,
into the more urban areas where there are possibilities of co-ordination
between bus and train timetables? Would that be something that
you would deem possibly being in breach of the Competition Act?
Mr Smith: It is possible that
co-ordination of timetables might be in breach of the Competition
Act. It depends a bit on why it is done. One can imagine a situation
where there are two large bus operators and a new entrant bus
operator who wants to come in and operate as a competing service,
which might be either more frequent or cheaper, or something like
that. If there is a co-ordinated timetable between the two large
operators it would be quite easy for them to exclude the new entrant
on that basis. So I think we would have some difficulty with that
kind of scenario. Following the Director General's previous appearance
before this Committee, we did some research to find out whether
competition law was seen as an impediment to co-ordinated timetables.
I think we found that the answer to that question, generally speaking—and
we had several hundred responses to that—was no, people
did not feel that that was a problem; that problems with timetable
co-ordination in an unregulated environment are likely to happen
in any event.
Q374 Mr Stringer: Who were the people
you asked?
Mr Haque: We sent a questionnaire
to every bus operator operating in the country, large and small,
every PTE and, also, a number of representative groups as well,
from the passenger and industry side as well.
Q375 Mr Donohoe: If I am a travelling
member of the public I can see advantages in some of that co-ordination,
which might well be against what you would deem as competition.
I would argue it is not, in these circumstances, in the interests
of the passenger.
Mr Smith: If co-ordination could
be shown in individual cases to be clearly in the interests of
the generality of passengers then we might take the view that,
in those particular circumstances, that could be left. Again,
I come back to the densely populated area where it might be more
appropriate to co-ordinate timetables in a small city centre.
Mr Donohoe: So you apply a public interest
test to this, do you, at all times?
Q376 Chairman: I think it is quite clear
that they do not apply a public interest test. You were told earlier
on—and Mr Smith will correct me if I am wrong—that
the definition is the economic benefit to the passenger. That
was what you mentioned. That is not a public interest definition.
Mr Smith: Not a full public interest
definition.
Q377 Mr Donohoe: Do you think that is
sensible?
Mr Smith: I genuinely do not have
a view. I think it very much depends on where we are looking.
As you know, of course, the arrangements in London in relation
to the bus service are very different; it was felt that was necessary
because with that number of people living in such a small area
there needed to be more central control.
Mr Donohoe: You are making that point.
Therefore, in that circumstance, it would suggest that there needs
to be a change to competition law as it exists.
Q378 Chairman: Mr Smith, you know that
the reason that the Conservative Government excluded London was
because most of them were concerned they could not drive their
cars in London, and they did not take buses outside London so
they were quite happy that the arrangement was done on a different
basis.
Mr Smith: I have no comment—
Q379 Chairman: No, but you are interpreting
this in a very particular way. Are you saying that if the Government
wanted to change the law so that the whole bus industry had the
same arrangements on franchising that they have in London that
would not give you a problem? Is that what you are saying?
Mr Smith: I think that if that
was what the Government wanted—
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