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OFT refers classified directories market for investigation

63/05    5 April 2005

The classified directory advertising services market is not working effectively according to the OFT and has been referred to the Competition Commission (CC) for investigation.

The move follows a seven-month study into the market and the effect of undertakings. These placed a cap on advertising prices in Yellow Pages and a restriction on the publication of local Yellow Pages directories in order to address concerns about high prices and the undermining of effective competition (see note 1).

Download The OFT's reasons for making a reference (pdf file 192 kb).

The OFT has continued concerns that competition in the market is not operating effectively. The structure of the market remains highly concentrated with Yellow Pages and Thomson Local directories accounting for over 90 per cent of supply in the UK: barriers to entry are high due to strong branding and network effects. Profits appear high and there seems limited competitive pressure on prices. While there has been some new entry to the market – notably, British Telecommunications re-entered the market in 2003 – the OFT does not believe recent entrants have strengthened competition to a material degree.

Jonathan May, Director of Markets Policy and Initiatives Division at the OFT, said:

'Our study has concluded that there are real concerns about this market and whether competition is working effectively. The Competition Commission will now investigate further to decide on any necessary remedies.' 

NOTES

1. The undertakings given by Yell Ltd in 2001 to the Secretary of State for Trade and Industry include undertakings to provide a price list to anyone who requests it; to cap prices at RPI-6 per cent (or as they were on 1 December 2001, whichever is the lower); and not to have overlapping distribution areas unless after two of the undertakings there is no supplier in that area other than Yell. For full details of the undertakings see the DTI press release. Originally, undertakings were given by BT, the previous owner of the Yellow Pages, in 1996 following a Monopolies and Mergers Commission report on Classified Directory Advertising Services (Cm 3171). In 2001, the Yellow Pages business was sold by BT to Castaim Ltd, now Yell Ltd.

2. The study was carried out under Section 5 of the Enterprise Act 2002, which gives the OFT powers to obtain and compile information about matters relating to the carrying out of its functions so that it can take informed decisions and carry out its other functions effectively.

3. Under Section 131 of the Enterprise Act 2002 the OFT may make a market investigation reference to the Competition Commission where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the UK for goods or services prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the UK Or part of the UK.

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