Local bus operators face full competition inquiry

The Office of Fair Trading (OFT) has called for a widespread investigation into concerns that the dominance of four companies in local bus services outside London has led to higher prices.

After an initial five-month inquiry, the OFT said that it plans to refer the £3.6 billion sector to the Competition Commission.

The OFT also said that it had uncovered “reasonable” evidence to suggest that operators with an existing monopoly on certain routes used predatory tactics to discourage rivals from competing on them.

John Fingleton, the OFT’s chief executive, said: “Our investigation has unearthed a range of evidence that suggests the market for local bus services is often not working as well as it should and may be resulting in higher prices for bus users.”

In its report on the inquiry, the OFT said that a quarter of public tenders for routes outside London received only a single bid, which could lead to local authorities and taxpayers paying over the odds.

Its analysis also found that, in some areas, concessionary fares for the elderly, the disabled, children and students had created an incentive for operators to charge higher prices.

The consumer watchdog’s report said that the industry outside London and Northern Ireland was dominated by four big operators — Arriva, FirstGroup, Go-Ahead and Stagecoach — which together control about two thirds of the market.

Head-to-head competition is limited, with about one third of local routes being the province of a single operator — even in towns such as Aberdeen, Bristol, Brighton, Cardiff and Cambridge. Prices in such areas are on average 9 per cent higher than in places where there is more than one operator, the report found.

In 2008 the watchdog found that Cardiff Bus, the lone operator in the Welsh capital, had breached competition law after it responded to the emergence of a rival, no-frills operator by flooding the same routes with its own budget service. The rival eventually quit the market.

The OFT said that it had received a raft of complaints about predatory behaviour before starting the investigation in March.

Norman Baker, the Liberal Democrats’ transport spokesman, said the inquiry was overdue. “Far from creating a flourishing and competitive bus market, deregulation in many areas of the country has created high fares and a dwindling number of routes,” he commented. “Outside the big cities, buses are often virtually non-existent, and where they do run, they’re infrequent and expensive.”

The Confederation of Passenger Transport, an industry body, said that there was effective competition: “Bus companies operate in highly competitive markets and it is always in our interests to keep prices competitive to attract passengers out of their cars and on to our services.”

The market for local buses was deregulated in 1986. Since then services have been provided by private operators, although some routes deemed to be socially necessary are subsidised by local authorities. The sector receives about £1.2 billion in taxpayer support.

Under the Enterprise Act 2000, the OFT can investigate entire sectors where it is concerned that consumers are not being treated fairly. Since 2003, it has referred eight such investigations to the Competition Commission for a full inquiry, including ones into supermarkets and payment protection insurance.

It is obliged to hold a public consultation before deciding to refer any matter to the Commission. The consultation on local buses is open until October 15.

(Published by Times Online - August 21, 2009)