Undertakings Provided by the Peninsular and Oriental Steam Navigation Company (P&O), Stena Line AB (Publ), Stena Line (UK) Limited and P&O Stena Line Limited (POSL) (formerly P&O Dover (Holdings) Limited) Under Section 88 of the Fair Trading Act 1973: Rel

No. peninsular1

Advice given under section 88(4) of the Fair Trading Act 1973 by the Director General of Fair Trading to the Secretary of State for Trade and Industry on 14 March 2003

Issue

In this submission I advise under section 88(4) of the Fair Trading Act 1973 ('the Act'), in relation to the undertakings provided by P&O, POSL, Stena Line AB and Stena Line (UK) Limited in1998 (see note 1) following:

i. a request from P&O and POSL that they be released from the undertakings; and
ii. the purchase by P&O of the interest of Stena Line (UK) Limited in POSL.

In 2002 the undertakings were varied to replace Stena Line AB with Stena Line Holding BV. In 2002 P&O also notified the European Commission that it wished to purchase the interest of Stena Line (UK) in POSL. The European Commission cleared the merger under the ECMR. The recommendation below is based on the current position.
 
Recommendation
 
I recommend:

i. that Stena Line Holding BV and Stena Line (UK) Limited be released from the undertakings as they no longer hold an interest in POSL; and

ii. that POSL and P&O be released from the undertakings in view of the change of circumstances, namely the end of the Joint Venture.

Timing

Routine
 
Transparency

If you accept the recommendation you are required to announce the release from the undertakings in accordance with section 88(2A) of the Act. This advice could be published at that point.
 
Background 

This submission is concerned with behavioural undertakings given by P&O, POSL, Stena Line AB, and Stena Line (UK) Limited under section 88 of the Act. The undertakings relate to the operation of ferry services by the joint venture POSL on the cross-channel short-sea crossing route.

P&O and Stena Line AB, through its subsidiary Stena Line (UK), formed a joint venture (POSL) in 1998 to operate ferry services on the short-sea cross-channel route (principally Dover-Calais) (see note 2),  merging their separate cross-channel ferry operations on the route. The proposed joint venture was referred to the then Monopolies and Merger Commission (see note 3).  At the time of the MMC report, the abolition of duty free concessions had been fixed to take place in July 1999. The MMC considered that the abolition of duty free concessions would cause a supply shock from the loss of revenue earned, leading to a change in the market through a reduction in capacity and in the number of operators. It was considered that the formation of the joint venture together with this change in the market would be likely to result in the emergence of an effective duopoly between Eurotunnel and POSL.  

The MMC recommended that the joint venture should be allowed, subject to certain remedies being obtained.

Your predecessor accordingly decided to allow the joint venture, subject to certain behavioural undertakings. The joint venture was required to maintain a fare structure, and be subject to a price cap for non-freight vehicle and passenger fares in the event that a duopoly with Eurotunnel arose following the abolition of duty free tax concessions.

Undertakings were provided to your predecessor on 27 February 1998. (See summary of the undertakings).

In February 1999, the European Commission granted the joint venture an individual exemption under Article 81(3) until March 2001. No conditions were attached to the exemption. The individual exemption was renewed for a further six years in 2001, again with no conditions attached.  

In July 2002, P&O notified the Commission that it proposed to purchase the interest of Stena Line (UK) in POSL. The Commission cleared the merger under the ECMR without conditions.

The undertakings

The undertakings given relate to the operation of cross-channel ferry services on the short-sea routes, which cover crossings between Kent/East Sussex and Belgium/NE France. The undertakings become operative if and when a duopoly arises between POSL and Eurotunnel. In summary, the undertakings provide that the parties will:

• limit fare levels (through a price cap) and maintain service levels in certain specific circumstances
• maintain a fare structure; and
• provide fare information to the OFT. 

Assessment and recommendation

As a result of the purchase by P&O of Stena Line (UK)'s interest in POSL, the company is no longer a joint venture but is a wholly owned subsidiary of P&O. Therefore, the joint venture has ceased to exist and the conditions attaching to it are redundant and so should fall away.
 
The behavioural undertakings were given to your predecessor as a result of the formation of the joint venture. However, this has now been superseded by the merger, which was considered by the Commission, and granted clearance without conditions. (The Commission had previously granted, and renewed until 2007, an unconditional exemption for the joint venture.) In view of this change in circumstances, I recommend:

i. that Stena Line Holding BV and Stena Line (UK) Limited be released from the undertakings as following the merger they no longer have any interest in POSL; and
 
ii. that P&O and POSL be released from the undertakings on the grounds that the joint venture in question has ceased to exist. This amounts to a change of circumstances under section 88(4) of the Act.

NOTES

1. At the time that the undertakings were signed POSL was known as P&O Dover (Holdings) Limited.  It is now known as P&O Ferries Limited.  However, it is referred to as POSL throughout this submission.

2. The short sea market comprises routes between Dover, Folkstone, Ramsgate, Newhaven and Calais, Dieppe, Boulogne, Dunkirk, Ostend and Zeebrugge. 

3. The Peninsular and Oriental Steam Navigation Company and Stena Line AB, Cm 3664.

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