08 July 2004
Victoria House Southampton Row London WC1B 4AD Press enquiries 020 7271 0242 Facsimile 020 7271 0177
35/04 8 July 2004
NEG/GREATER ANGLIA INQUIRY
Statement of issues
The Competition Commission (CC) has today published an issues statement as part
of its inquiry into the recent acquisition by National Express Group plc (NEG)
of the Greater Anglia rail franchise.
The issues statement should not be seen as implying that the Group has
identified any competition concerns-the CC has yet to reach any conclusions on
this inquiry. The purpose of making the statement of issues public is to inform
all interested parties and give them an opportunity to raise any further points
with the CC. Other information about the reference is on the CC web site.
NEG, which took control of the new expanded Greater Anglia Franchise at the
start of April, provides a number of coach services in the Greater Anglia area
and also operates a number of other rail franchises in the UK, including c2c and
Central Trains. The inquiry was referred to the CC by the Office of Fair Trading
(OFT) on 27 May 2004. The CC has been asked to consider whether the acquisition
has resulted, or may be expected to result, in a substantial lessening of
competition within any market or markets in the UK, particularly in the supply
of passenger transport services on certain routes in the Greater Anglia area.
The acquisition of a rail franchise is treated as a merger under the Railways
Act, but the terms of reference do not allow the CC to consider the integration
of the former Anglia, Great Eastern and parts of the WAGN franchises into the
Greater Anglia franchise.
The inquiry is particularly concerned with whether the merger may be expected to
(a) between certain rail services and coach services in the Greater Anglia
(b) between the rail services between London and Southend (where NEG now
operates both the Greater Anglia services to and from Liverpool Street and the
c2c services to and from Fenchurch Street); and
(c) between rail services between Peterborough, Cambridge and Norwich, where
NEG now operates overlapping services as part of both the Greater Anglia and
Central Trains franchises.
The issues statement follows the initial process of gathering information, views
and evidence and identifies clearly for all interested parties the specific
questions and areas the inquiry will be examining. This will form the basis for
the hearings with NEG and other interested parties. The full issues statement is
attached at the end of this release and raises issues concerning:
(a) the relevant markets;
(b) the extent of competition between rail and coach services in the
Greater Anglia area, and the effect of the merger on that competition;
(c) the extent of competition between rail services on a number of
particular routes in the Greater Anglia area and the effect of the merger on
(d) current and potential competition from other operators of public
transport on those services, including prospects for entry;
(e) whether the merger may therefore be expected to result in a
substantial lessening of competition; and
(f) any customer benefits that might arise from the merger.
If the inquiry group (the Group) considers that the merger may be expected to
result in a substantial lessening of competition, it will consider whether and,
if so, what remedies might be appropriate, issuing any remedies statement,
should this be required, at about the time it publishes its provisional
Anyone wishing to comment on any of the issues set out below is requested to do
so by 22 July 2004 in writing to:
The Inquiry Secretary,
London WC1B 4AD
or by email to:
The CC will now continue to gather evidence in this inquiry and will publish its
provisional findings according to the administrative timetable available on the
CC's web site at www.competition-commission.org.uk/inquiries/current/natexpress/
Notes for editors
1. The Enterprise Act 2002 empowers the OFT to refer to the CC completed or
proposed mergers for investigation and report which create or enhance a 25 per
cent share of supply in the UK (or a substantial part thereof) or where the UK
turnover associated with the enterprise being acquired is over £70 million.
2. The CC has a 24-week period, to 10 November 2004, in which it is
required to publish its report, which may be extended by no more than eight
weeks if it considers that there are special reasons why the report cannot be
published within that period.
3. The NEG/Greater Anglia Inquiry Group consists of five members-Professor
Paul Geroski (Chairman of the CC), Sarah Brown, Chris Darke, Diana Guy and Peter
Stoddart-supported by the CC's staff.
4. Further information can be obtained from the CC's web site at:
5. Enquiries should be directed to Francis Royle, Press Officer, 020 7271
0242 or Rory Taylor on 020 7271 0488/
6. The full text of the OFT's referral of this case can be found on the OFT
web site at www.oft.gov.uk.
7. There is also a link to this from the CC web site.
NATIONAL EXPRESS GROUP/GREATER ANGLIA INQURY
Statement of issues
Our terms of reference require us to consider the acquisition of the Greater
Anglia Franchise by the National Express Group plc (NEG). The main elements of
the merger we have to consider are:
(a) The effect of the merger on rail and coach services in the area operated
by the Greater Anglia Franchise (which we call the Greater Anglia area), in
particular between London and towns served both by the NEG coach services to
Cromer, Norwich, Great Yarmouth, Felixstowe, Ipswich, Walton-on-the-Naze,
Colchester and Chelmsford, and by rail services.
(b) The effect of the merger on the rail services between London and
Southend of the Greater Anglia Franchise (operating to and from Liverpool
Street) and c2c (operating to and from Fenchurch Street): also on the rail
services operated by the Greater Anglia Franchise and by Central Trains between
Peterborough, Cambridge and Norwich. All these services are now operated by
subsidiaries of NEG.
The acquisition of a rail franchise is treated as a merger under the Railways
Act (as amended). The terms of reference do not allow us to consider the
integration of the former Anglia, Great Eastern and parts of the WAGN franchises
into the new Greater Anglia Franchise by the Strategic Rail Authority (SRA) or
any consequences of having one rather than two train operating companies on rail
services from Liverpool Street. The issues we have to consider are as follows.
The relevant market(s)
1. Whether it is appropriate to regard the supply of passenger
transport services on point-to-point routes in the Greater Anglia area as a
relevant market or markets. Relevant considerations include:
(a) Whether coach and rail services which overlap on point-to-point flows
can be regarded as separate, complementary markets or as effective competing
substitutes on such flows. This will include consideration of any evidence on
the extent to which demand for coach and rail services is affected by the price
of the respective service (the 'own price elasticity' of demand), and any
evidence on the extent to which such demand is also affected by the price of the
other service (the 'cross price elasticity' of demand).
(b) Whether the characteristics of the Greater Anglia area are different
in this respect from previous areas in which issues of competition between coach
and rail services have been considered by the Commission (for example, the areas
served by the Midland MainLine, Central Trains or ScotRail franchises).
(c) Whether the market can be segmented by journey purpose, for example
between journeys for leisure, commuting and business purposes.
(d) Whether rail services which overlap on point-to-point flows can be
regarded as separate, complementary markets or as effective substitutes for each
other on such flows; and also whether they are part of a wider public transport
market which includes bus or coach services on those flows. We would need to
consider whether the alternative rail services between the same or nearby
stations between Peterborough, Cambridge and Norwich, and between London and
Southend can be regarded as effective substitutes. But we would also need to
consider whether the Greater Anglia and c2c rail services to intermediate
stations between London and Southend (or stations beyond Southend Central to
Shoeburyness), even though up to five miles or more apart, can be regarded as
(e) The interlinked nature of different point-to-point flows on
particular rail or coach routes, for example, whether competition between two
particular points (eg London and Southend) could also affect services to other
points on the respective routes.
2. Whether it is appropriate to regard rail and coach as being
part of a wider public transport network, and whether, as a network, they
deliver value to users above and beyond the services delivered at particular
3. Just how wide a geographical market is therefore appropriate
when examining rail:coach and rail:rail competition on particular point-to-point
flows as well as on a wider network basis.
4. Whether we should also take into account a market for
competing for public sector support for the operation of rail services.
5. Whether, on the other hand, public transport services on,
for example, point-to-point flows in the Greater Anglia area can be regarded as
part of a wider market, which includes private transport (cars). Relevant
(a) evidence on the extent to which prices of coach and rail services
relative to private transport affect their relative use (the cross price
elasticity of demand between public and private transport);
(b) the divergent trends in the price of coach and rail services,
relative to the cost to the user of private transport;
(c) the extent to which users of public transport do not have private
cars available; and
(d) other factors affecting the use of public and private transport
(convenience, congestion, journey time etc).
Issues relating to the extent of competition between rail and coach services in
the Greater Anglia area and the effect of the merger on that competition
6. The OFT decision document referred to 52 point-to-point
overlaps in the Greater Anglia area (although we would expect that those to and
from London are likely to be far more significant than others) and stated that
there were grounds to believe that acquisition of the franchise may lead to rail
and/or coach fares being higher on these overlaps than they would be compared to
the situation without common control of such services. Further, the OFT believed
actual or potential non-price competition on quality of service and on
innovation might be diminished by the merger. Among relevant considerations are:
(a) Whether there is evidence that effective competition existed between
coach and rail services, on particular flows or routes or at a network level,
taking into account, for example, the reasons for passengers' choice of rail or
coach travel; and given the relatively low frequencies of coach services on some
of these flows.
(b) Whether NEG would have scope and/or motivation to attract passengers
from coach to rail, or whether there would be other constraints on its ability
to increase coach fares or reduce services on such flows: for example, the
extent to which passengers may travel less or not travel at all rather than
switch to rail services; and desirability of maintaining those coach services in
order not to adversely affect the number of passengers using those services to
connect with its services to other parts of its network.
(c) The implication of any revenue sharing arrangements with the SRA as
part of the Greater Anglia franchise on the incentive to attract passengers from
coach to rail.
(d) The effect, therefore, of any increase in fares or reduction in
services particularly on the more important coach routes on overall revenues of
NEG's rail and coach services (taking into account also prospects for entry by
other operators, referred to below); whether there are any cost advantages from
switching passengers from coach to rail; and whether therefore overall
profitability would increase as a result.
(e) Whether NEG would have scope and/or motivation as a result of the
merger to increase fares, or reduce quality and frequencies of its rail services
which overlap with its coach services, or whether this would be prevented by the
terms of the Greater Anglia Franchise agreement; including whether controls over
fares could be relaxed or changed in future.
Issues relating to the extent of competition between rail services in Greater
Anglia and the effect of the merger on that competition
7. The OFT decision document said that it appeared reasonable
to believe that the two services to Southend may have been in competition and
that, after the merger, fares may increase, in particular unregulated fares. In
addition, it believed that actual and potential non-price competition, which
might have raised quality of service above the minimum required standards, may
be lost as a result of the merger. (The OFT expressed less concern about the
effect of the merger on competition between Peterborough, Cambridge and Norwich
given the common pricing on these services, all tickets being interavailable;
regulation; and the relatively short journey times, with alternative modes of
transport-bus and private transport-available.) Among the relevant
considerations on these services are:
(a) Whether there is evidence that effective actual or potential
competition existed between rail services between London and Southend but also
to and from other stations on those routes; and on services between
Peterborough, Cambridge and Norwich, taking into account, for example:
(i) the reasons for passenger choice of the services they used, and the
extent to which this is based on differences in fares or levels or quality of
service, or other factors such as convenience of access to stations,
availability of car parks or connecting bus services, journey times etc, and
(ii) any evidence that competition has affected fares or level or quality
of service before the merger.
(b) The implication of any revenue sharing arrangements with the SRA as
part of the Greater Anglia, c2c or Central Train franchises on any incentive to
change fares or service quality as a result of the merger.
(c) Any other constraints on NEG's ability to change fares or service
quality as a result of the merger, for example lack of capacity on rail services
at particular times; the extent to which passengers may not travel at all rather
than switch to the other rail services; the impact of any such actions on
non-overlap flows on those routes.
(d) Whether NEG would be expected as a result of the merger to increase
rail fares, or reduce service quality and frequency and the extent to which this
would be prevented by the terms of the Greater Anglia, c2c or Central Trains
franchises, including whether controls of fares could be relaxed or changed in
Current and potential competition from other operators of public transport
services, including prospects for entry
8. The Group will need to consider whether competition from
other public transport operators, including prospects for entry, would be
sufficient to prevent any adverse effects on competition which might arise as a
result of the merger between rail and coach services in the Greater Anglia area.
Relevant considerations include:
(a) The extent to which there is effective competition from other public
transport operators, including existing coach services to or from Southend or
other intermediate localities between Southend and London; or from bus services
on routes between Peterborough, Cambridge and Norwich. Within the M25 area,
moreover, London Underground services may compete with c2c, and rail fares may
be significantly influenced by prices of travelcards.
(b) Whether there is any prospect of entry to rail services given, for
example, restrictions on entry resulting from the licensing and franchising of
rail services; operational capacity constraints on the establishment of
competing services; and the absence of subsidy to operate such services.
(c) Whether there are barriers to entry to the operation of new coach
services, for example the strength of NEG's existing coach network, both in the
Greater Anglia area, and more generally given national marketing, and its
ability to offer connections to other parts of its network; or the possibility
of response by NEG to any new entry. We may also wish to consider whether the
merger may itself result in NEG having more incentive to respond to entry by
other coach operators that may seek to attract passengers from its rail as well
as its coach services.
Whether the merger may be expected to result in a substantial lessening of
9. In the light of its analysis of the above issues, the Group
will need to consider whether the merger may be expected to result in a
substantial lessening of competition.
10. In doing so, the Group will need to consider the '
counterfactual'-what may have happened in the absence of the merger-including
whether it is relevant for us to consider the extent to which the operation of
the Greater Anglia Franchise by other bidders could itself have had an effect on
competition (eg between rail services and local bus services operated by the
other shortlisted bidders for the franchise).
11. If the Group does identify a substantial lessening of
competition, it would be required to consider appropriate remedies to any such
substantial lessening of competition or any adverse effects-for example, on
fares or the level or quality of service operated-that may result, and to take
into account any customer benefits resulting from the merger.
12. Although the Group will not consider possible remedies until it
has reached its provisional findings, it would nonetheless welcome comments at
this stage on any customer benefits (which may extend beyond only consumer
benefits) directly attributable to the merger to be taken into account in
considering any possible remedies. In this context the group may wish to
(a) whether the merger may be expected to have benefits for transport
integration in the Greater Anglia area that would not otherwise occur if other
operators held the franchise;
(b) any other benefits to passengers from the merger; and
(c) whether, it would also be relevant to consider any benefits to the
SRA and taxpayers from any better terms offered by NEG for the franchise
compared with other operators.
13. Again, although the Group will not consider possible remedies
until it has reached any provisional finding on whether the proposed merger may
be expected to result in a substantial lessening of competition, it would
welcome comments on whether any structural or behavioural remedies, on the
operation of either coach or rail services, would be appropriate, taking
customer benefits into account.
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