Examination of Witnesses (Questions 380-399)
MR VINCENT
SMITH AND
MR NOOMAN
HAQUE
15 DECEMBER 2004
Q380 Chairman: No, no, no. I have a problem,
you see, Mr Smith; I really do have a problem, and I think we
all have this. You say there is a difficulty with through-ticketing
because of these extraordinarily called block exemptions. Then
you say, "The industry does not have a problem with that;
they know all about it." Well, frankly, that is not the evidence
that we have been given in this Committee; it is extraordinarily
difficult to reconcile what you say you have been told with what
we have been told. Somewhere along the line somebody is telling
porky pies. If you are really saying to me that the only way to
get a real public interest test is to change the method of franchising,
then I think it would be better if you said so.
Mr Smith: If you felt, Madam Chairman,
that the full public interest test was required, that would need
a change of law.
Q381 Mr Donohoe: Surely you can be proactive
on occasion. You can see that this is obviously against public
interest and, as such, you recommend to whoever it is among your
superiors that, in your opinion, there requires to be a change
to apply common sense to the equation. Should you not have it
within your abilities to be able to do that sort of thing? You
cannot hide behind this bureaucracy of saying, "I have no
opinion on that"; you have an opinion—or you should
have an opinion—and you should be able to make some comment
around that.
Mr Smith: I think, at the moment,
as the law is framed, we are applying the tests that we are required
to apply as reasonably as we can to a wide variety of situations.
If it is felt that that does not give rise to the best set of
benefits for the travelling public then it would be appropriate
to look at the legislation again.
Q382 Mr Donohoe: Would you, as the Office
of Fair Trading, at any stage say: "This is not working;
it is not feasible, it is not something that is practical and
it is against public interest, and we are saying to you, Government,
we recommend that you look at this to change this law; the competition
law does not cover this in a sense that is sensible"? Surely,
you could make that recommendation.
Mr Smith: We can make those recommendations.
Q383 Mr Donohoe: You are not at that
stage, then?
Mr Smith: We are not at that stage,
at the moment, because of the lack of evidence that we have ourselves
that there are serious problems across the country.
Q384 Mr Stringer: I want to follow that
up. You are in a circular argument, are you not, Mr Smith? You
told me that you cannot investigate higher bus fares because you
need some sort of evidence that there is a cartel operating. Would
it not be a good idea if you could use the evidence of higher
bus fares to show that competition was not working?
Mr Smith: We can do, as I said
to you, Mr Stringer, earlier, but on its own I do not think it
is sufficient.
Q385 Mr Stringer: How do you define "economic
benefit"?
Mr Smith: We define "economic
benefit" as a better service, or a more reasonable price
to passengers overall, possibly.
Q386 Mr Stringer: I understand price.
What, beyond the price of a bus ticket or a train ticket, do you
use?
Mr Smith: We could use frequency
of service.
Q387 Mr Stringer: Not what could you
use, what do you use?
Mr Smith: We use frequency of
service; we use extent of timetable—ie whether there are
late or early-morning services.
Q388 Mr Stringer: So you calculate the
economic benefit or disbenefit if somebody has to wait an hour-and-a-half?
Mr Haque: We consider a wide range
of economic benefits which would include quality of the service
provided, for example. In the bus context, if agreements between
operators are necessary to provide a safe and reliable service
then that is something that could be allowed. So those sorts of
benefits can be considered under competition law.
Q389 Mr Stringer: Do you consider them?
Mr Haque: Yes, we do.
Q390 Mr Stringer: In what percentage
of cases do you go beyond the simple price?
Mr Haque: I think in all informed
advice that we have looked at this year the 40 that I talked about,
that concerned potential agreements or ticketing arrangements.
So we do go beyond price in all of them.
Q391 Mr Stringer: I am not up-to-date
on this but I know last time I looked at the figures the only
case you really prosecuted a bus company for anti-competitive
behaviour was First Cymru. How many bus companies have you prosecuted
successfully for anti-competitive behaviour?
Mr Smith: I would have to write
to you. I do not have the figure off the top of my head.
Q392 Mr Donohoe: Is it more than one?
Mr Smith: It is certainly more
than one but I would not say it was more than five.[1]
Q393 Mr Stringer: Does it strike you
as strange that you have evidence that bus companies in similar
situations are providing very different services and you are prosecuting
less than one a year successfully?
Mr Smith: We can only bring cases,
as I said to you, on the basis of the evidence that is put to
us or that we find. We need a fairly strong body of evidence before
we can proceed against people, so it is very much dependent on
people coming forward to us with their concerns but with hard
evidence to back them up. That is quite difficult to obtain.
Q394 Mr Stringer: This brings you back
to Mr Donohoe's question and the Chairman's question. Would you
like more powers to enable you to investigate anti-competitive
behaviour further? If you do, what would those powers be?
Mr Smith: I do not think we need
more powers; I think we need to be a little bit more savvy about
how we use the ones we have got. The regime is still relatively
young and we are still feeling our way somewhat. As I said earlier
to the Chairman, this interface between the non-regulated and
the regulated transport sector is a particularly difficult one
and is still an evolving story.
Q395 Mr Stringer: When you are considering
competition, do you see the car as part of the competition scenario?
Mr Smith: When we are looking
at public transport we generally tend not to regard the private
car as a substitute for public transport, if only because not
everyone has access to one.
Q396 Mr Stringer: Is that not rather
strange when the Government's policy is to encourage people to
move from the car to public transport and the Government sees
the main competitor to buses, trains and trams as the car?
Mr Smith: I think we would look
at the car-owning public, or car drivers, as potential customers
on public transport in some circumstances, but I do not think
we would say that that ability of car drivers to take public transport
is sufficient to mean that the car is a competitive force for
many kinds of public transport, particularly in urban areas.
Q397 Mr Stringer: Outside London that
just is not what actually happens. Are you dealing with a very
theoretical model when the reality for most people is there is
a real competition between a car and good quality public transport?
That is what most of the evidence shows in shire areas and most
urban areas in this country. If you have got good public transport
people move to public transport. If you reduce the quality of
public transport people move to the car. That is the real competition,
is it not, and it is not part of your model?
Mr Haque: I would say that the
way we approach our work is on a case-by-case basis, so the facts
of the case would be quite different from case A to B. It may
well be that in investigating a transport case in such an area
we may well conclude that the car and bus are substitutable with
each other than they are in an urban area.
Q398 Mr Stringer: That is a very theoretical
answer. I would contend—and I would be interested if you
disagreed with this—that car and bus are in competition
where there are buses everywhere in this country except London.
Mr Smith: I think I would disagree
with that but I would not suggest that you were wrong overall.
I think it very much depends on where we are looking and what
the journey is that the passenger wants to make.
Q399 Miss McIntosh: I should declare
another interest; that I spent five months in the Competition
Directorate of the European Commission, dealing with joint ventures.
I am familiar with the expression "block exemption"
but I do not know if I understand it any better than anybody else.
Can I ask you what the level of through ticketing is in other
European countries? Is it higher or lower than through ticketing
in this country?
Mr Haque: I have no firm answer
to that, I am afraid. We can find out for you.[2]
1 Note by witness: The Office has made infringement
decisions against two bus companies for a cartel based in Leeds,
Case CP/1163-00. In addition, the OFT undertook formal investigations
of complaints against three companies in 2004. Back
2
Note by witness: Actual statistics are not recorded by
the relevant authorities, and we have not undertaken a formal
analysis in the time available, but we are informed that for rail
travel, the level of through-ticketing is comparable to the UK.
Within each individual Member State, the availability of cross-modal
through-ticketing (eg bus and rail through tickets) varies widely
though in major cities and the surrounding commuter area it is
also quite high. Back
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