CC looks for more competition on the buses

The Competition Commission (CC) is looking at ways to open up more bus markets across the country after concluding that too many operators face little or no competition in local areas.

In a summary of the CC’s provisional findings report on the local bus market in the UK (excluding London & Northern Ireland) published today, it provisionally concludes that although there are 1,245 bus companies in England, Scotland and Wales, the great majority of routes and local areas experience a high degree of concentration. Consequently in many local areas, the largest operator has consistently faced little or no competition.

Many passengers dependent on bus services in those areas can expect less frequent services and in some cases higher fares than where there is more competition.

The CC has also concluded that the way local authorities tender for supported services—necessary services which would not be provided without public subsidy—and the limited number of potential bidders in local areas can restrict competition and increase the cost of supporting these services.

The CC is now consulting on measures to open up more markets by tackling the factors which can hinder competition. The CC is also seeking views on whether Local Transport Authorities (LTAs) should take measures to encourage competition, including whether franchising (where operators would compete for the right to provide services) might be required in cases where there has been a particularly marked failure of competition.

Aspects of the market that the CC’s investigation has provisionally found include:
•Local areas are, on average, persistently and highly concentrated—the average share of supply of the largest operator in an urban area is 69 per cent.
•Several factors inhibit or prevent new entry or expansion in markets by other operators and thus reduce the constraint from potential competition.
•These factors include the tendency for instability in head-to-head competition, which means that competition is unlikely to be sustained and one or other rival is likely to exit. This prevents lasting competition developing in these areas and also deters potential entrants.
•Incumbent operators can benefit where multi-operator network tickets are inferior to their own network tickets.
•Another factor is the advantage that incumbents have over new entrants by running an existing network.
•Entrants can sometimes have difficulties in accessing bus stations on fair terms and developing depots.
•The great majority of urban areas have not experienced any large-scale entry in recent years—risks and costs are likely to increase with the scale of entry.
•Many of these factors result from both the historical and present-day operation of the bus industry.
•The five largest operators (Arriva, FirstGroup, Go-Ahead, National Express and Stagecoach) provide 69 per cent of local bus services in the whole reference area.
•The five largest operators have tended to make profits above the cost of capital over the last five years.
•A substantial proportion of trips are accounted for by multi-trip tickets.
•Partnerships between operators and LTAs do not cause an adverse effect on compe¬tition, although the concessionary fares schemes could encourage higher fares if new guidance to travel concession authorities is not followed.
•Concern about adverse publicity and relationships with LTAs can moderate operators’ behaviour.
•The low number of operators in some areas, along with the design of tenders them¬selves, restricts competition for tendered services.

The CC proposes a number of possible remedies to address competition problems including:
•measures to increase the number of multi-operator ticket schemes and to ensure that these are effective and attractive to customers;
•restrictions on aggressive behaviour, such as ‘overbussing’ on particular routes and other obstructive behaviour aimed at reducing a rival’s ability to compete;
•ensuring fair access to privately owned and managed bus stations for all operators.
•recommendations to LTAs on the circumstances in which to pursue Quality Contracts, or other franchising models, in areas most affected by a lack of competition;
•recommendations to LTAs on how to use other powers (for example, Quality Partnerships) to promote competition or improve outcomes to local consumers;
•recommendations to the Department for Transport (DfT) to update its best practice guidance on supported services in the light of the CC’s findings, to the Scottish Government and Welsh Assembly Governments to develop suitably tailored guidance and to LTAs to follow this guidance, in order to increase the number of operators bidding to win such contracts; and
•measures to make more information available to LTAs and potential bidders about the performance of supported services.