Local bus services consulation Q&As

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Why did you launch the study?

We started this market study in March this year. We already had some information about local bus markets from our work on mergers and dealing with complaints. In particular, the following factors influenced our decision to carry out this market study:

• evidence from merger enquiries that suggested that local markets were more profitable once they were monopolised
  
  
• our investigation of and decision against Cardiff Bus for predatory behaviour and a number of other allegations of exclusionary behaviour in bus markets across the UK, and
  
  
• concerns about the rising cost of bus services, both for commercial services and for supported services, and whether this may be, in part, related to weak competition.

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Who did you speak to?

The OFT spoke to a range of interested parties:

• The major bus operators, First Group plc, Stagecoach Group plc, Arriva plc, Go-Ahead Group plc and National Express Group plc. This was supported by extensive written submissions from those operators.
  
  
• A public consultation which received information from a wide range of stakeholders including passengers, passenger bodies, foreign bus operators, a trade union and a charity.
  
  
• Interviews with the two main industry trade bodies, Confederation for Passenger Transport (CPT) and Association of Local Bus Managers (ALBUM).
  
  
• Interviews with a number of local transport authorities, supported by data about tendering over the last five years.
  

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What did you find?

Neither the commercial nor supported parts of the markets appear to be working well for bus passengers or the taxpayer.

On commercial services: 

• We found that markets tend to concentration (monopoly or near-monopoly) at the route, local and regional level. 
  
  
• We found that there were a number of barriers to entry to local markets that make it difficult for new operators to get into these concentrated areas. This included aggressive response by the incumbent bus operator designed to damage the incoming rival.  
  
  
• We also found that operators with a strong market position charge nine per cent more than operators who are challenged by a large well resourced rival.
  
  
• The concessionary fares regime (which is paid for by the tax payer) may be distorting the market.  We have concerns that bus operators have been able to manipulate the regime to increase the amount they are paid for providing concessionary services.

On supported services:

We found that in some areas supported services receive low numbers of bids in response to tenders - more bids tends to mean lower prices so this is a concern. Roughly a quarter of all tenders only receive one bid.

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Why do you propose to refer to the CC?

The OFT identified a number of features of local bus markets in Great Britain outside London, which it has reasonable grounds to believe prevents, restricts or distorts competition. We are proposing to ask the CC to investigate these concerns thoroughly.

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Why are you consulting?

The law (specifically section 169 of the Enterprise Act 2002) requires that the OFT consults on a proposed decision to make a market investigation reference. There are material benefits from consulting. A consultation can bring to light new evidence that has not been available to the study or that was overlooked by it. It also allows industry practitioners and other experts to consider the OFT's analysis and to suggest improvements to it. Overall, consulting is likely to result in better more robust decision making.

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What can the Competition Commission do that the OFT can't?

If a reference is made, the CC will conduct a detailed public investigation and reach its own conclusions about the market concerned. During an investigation the CC can compel parties to submit particular evidence, a power which the OFT does not have in a market study. In addition the CC has the power to impose remedies which go beyond the outcomes available from an OFT market study.

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Why did you exclude London and Northern Ireland?

The market study looked at bus services in the UK, however, none of the evidence which raised the concerns that we have about local bus services related to the markets in London or Northern Ireland. Accordingly, we have excluded them from the scope of our proposed reference.

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How are commercial and 'supported' services different?

Commercial services are run by bus operators without requirement for any specific public subsidy.

Supported, or tendered services as they are sometimes known, are those bus routes which are considered socially necessary but which are not provided by commercial operators because they do not regard them as commercially viable. Supported services are usually operated by private bus operators and subsidised by local transport authorities, although there are some municipally owned operators and not-for-profit operators. 

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