Affected market: Supply of rail and bus services
Full text of the decision (annex 1)
Undertakings in lieu of reference (annex 2)
Undertakings accepted decision
The OFT’s decision on reference under section 33 given on 9 July 2004
Arriva plc (Arriva) operates an extensive range of public transport services, including buses, trains, commuter coaches and water buses. Its wholly owned subsidiary, Arriva Passenger Services Limited (APS), is the holding company for a number of bus subsidiaries, including Arriva Cymru Limited.
Arriva Trains Wales (ATW) is a new subsidiary, set up to operate the Wales and Borders rail franchise. ATW anticipates that its annual turnover will be in the region of £220 million per annum, of which approximately £150 million would derive from a Strategic Rail Authority (SRA) subsidy.
In August 2003, Arriva was selected by the (SRA) as the preferred bidder for the new Wales and Borders franchise, with responsibility for operating all local and regional train services in Wales and the Border counties. Arriva took over the franchise on 7 December 2003 for a period of 15 years.
As a result of the transaction, Arriva and the Wales and Borders rail franchise will cease to be distinct. The award of a rail franchise constitutes an acquisition of control by virtue of section 66(3) of the Railways Act 1993 as amended. The transaction will create a relevant merger situation under section 23(1)(b) of the Enterprise Act 2002 (the Act) as the turnover test is met.
By way of a decision of 16 March 2004 (the Decision) the OFT announced that, on the evidence available to it, the OFT believed that it may be the case that the merger may be expected to result in a substantial lessening of competition in the supply of passenger transport services on certain point-to-point routes in North Wales and the Borders. For the reasons set out in the Decision, the OFT believed that there was a realistic prospect that post-merger Arriva would have had the ability and incentive to introduce its own multi-modal ticketing arrangements and deny third party bus operators in the region access thereto (thus possibly foreclosing bus routes into rail stations). On this basis, the OFT decided that the merger would be referred to the Competition Commission unless Arriva gave suitable undertakings pursuant to section 73 of the Enterprise Act to remedy the competition concern arising as a result of the merger. The text of the Decision is attached at Annex 1.
Arriva has offered an undertaking that Arriva shall ensure that bus operators are able to participate in any public transport multi-modal ticketing scheme run by Arriva on fair and reasonable terms that are at least no less favourable than the terms applicable to Arriva’s own bus operations. On 21 May 2004, the OFT published the proposed undertakings inviting interested parties to give their views on them to the OFT. The OFT did not receive any responses to suggest that the proposed undertakings were not appropriate to remedy, mitigate or prevent the competition concern identified.
The merger would have been referred to the Competition Commission if Arriva had failed to give suitable undertakings pursuant to section 73 of the Act to address the competition concern outlined above. The OFT has decided to accept the proposed undertakings in lieu of reference as they address that competition concern.
This merger will therefore not be referred to the Competition Commission and the undertakings which have been signed by Arriva, the text of which is attached as Annex 2 to this decision, will come into effect from this date.