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OFT refers local bus services for competition inquiry

8 January 2010

A competition inquiry into local bus services in the UK is to be held after the Office of Fair Trading decided to refer the sector to the Competition Commission.

The move, which excludes London and Northern Ireland, follows consultation on the results of an OFT market study into the industry which found evidence that limited competition between bus operators tended to result in higher prices and lower quality for bus users, and might represent poor value for money for taxpayers.

Among other features the study found, in relation both to commercial services and those subsidised by local transport authorities,

  • a stable and concentrated national market picture where large national operators appear to largely respect each others' territories;
  • the majority of local services, in many different local areas, being operated by a small number of large bus companies;
  • complaints alleging predatory behaviour of incumbent firms designed to eliminate competition from new entrants; and
  • low numbers of bids for supported service contracts in many areas, with just one bidder for a quarter of tenders.

The study also found evidence that fares are higher in those areas where operators with a strong market position are not challenged by a large, well-resourced rival.

Domination

Heather Clayton, OFT senior director, said: "One of the concerns that we think the Competition Commission should take a look at is the tendency for local areas to become dominated by a single operator. This is certainly not about a return to 'bus wars ' or unmanaged 'head to head ' competition on every route, but we do think large bus operators should face a healthy level of competitive constraints.

"Given the size and importance of this industry, with at least £1.2 billion coming from the public purse every year, the OFT believes that it is appropriate for the Competition Commission to investigate how, in its various forms, competition can be harnessed to deliver what passengers want and the best value for money for the taxpayer."

Bus operators however described the decision as a waste of public money. Stagecoach said it was "a pointless academic exercise for the competition authorities". First Group said it could become "an unnecessary and costly distraction from the objective of improving traffic congestion in our towns and cities".

The Commission will now conduct a detailed public investigation and reach its own conclusions. It can compel parties to submit particular evidence, and also has the power to impose remedies which go beyond the outcomes available from an OFT market study. It issued a call for evidence yesterday following the announcement and will report by January 2012.

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