National News

P/98/617 31 July 1998 REVIEW OF FIRSTGROUP UNDERTAKINGS: BEHAVIOURAL UNDERTAKINGS SOUGHT Margaret Beckett, when President of the Board of Trade and Secretary of State for Trade and Industry, decided to vary the undertakings being sought from FirstGroup under the Fair Trading Act 1973 in relation to their merger with S B Holdings Limited (SBH). Rather than seeking divestment of the enlarged Midland Bluebird, Mrs Beckett decided to seek a package of behavioural undertakings, consisting of undertakings on prices and minimum service levels, together with restrictions on fare and frequency changes, journey intervals and tendered services. Mrs Beckett said: "In January 1997, following the MMC''s report into their merger with SBH, the then Minister for Corporate and Consumer Affairs, Mr John Taylor MP, decided that FirstGroup should be required to divest the business of its subsidiary, the enlarged Midland Bluebird plus part of the Glasgow operations of SBH. FirstGroup subsequently asked for a review of this decision on the grounds that there had been important new developments in the Glasgow bus market since the MMC''s report was published which cast doubt on the MMC''s conclusion and made the divestment unnecessary. "The then Competition and Consumer Affairs Minister, Mr Nigel Griffiths MP, therefore asked the DGFT to consider this request. The DGFT received a large number of representations, particularly from respondents in Scotland. The majority of these representations argued that divestment was no longer necessary due to the changes in the Glasgow bus market, and that any further competition concerns could be dealt with by behavioural undertakings. "After carefully considering these views, the DGFT reached the view that they were not decisive and he advised me that, while some change to the scale of the divestment would be warranted, FirstGroup should nevertheless be required to divest the enlarged Midland Bluebird. I have considered this advice very carefully. "This is a very unusual case. As the MMC report makes clear, the merger resulted in the loss of little or no actual competition; all the significant competition concerns relate to potential competition. In considering its conclusion, the MMC was of the view that the possibility that Stagecoach might enter the Glasgow bus market was remote. "I have been conscious of developments in the bus market in Glasgow since the MMC report, and I consider that Stagecoach''s decision shortly afterwards to enter the Glasgow bus market alters the facts in this case as perceived by the MMC. "While the DGFT has advised that Stagecoach''s entry into the Glasgow bus market does not change his view that divestment is necessary, I do not agree. Stagecoach''s entry, although on a relatively small scale, is, I believe, a demonstration that competition in the relevant market is possible. "I do, however, have some remaining concerns that the scale and dominance of FirstGroup following the merger may nevertheless deter entry by others. In my view a package of behavioural undertakings will be sufficient to remedy the adverse effects identified by the MMC and will also avoid adverse consequences for bus passengers in the area which might result from divestment. "I have therefore decided to ask the DGFT to seek a package of behavioural undertakings. These undertakings have two main aims. Firstly, to prevent FirstGroup from exploiting their market power through undertakings restricting their ability to raise prices and reduce their level of services. "Secondly, the undertakings seek to protect new entrants, through restrictions on fare and frequency changes, journey intervals and tendered services. For example, should FirstGroup reduce their prices on a route to a level below that of a competitor (or increase the frequency of their services) and should the competitor withdraw FirstGroup would be required to maintain their prices and frequency of service on that route for three years. "The undertakings to be sought will also require FirstGroup to provide the DGFT with such audited or independently verified information as he might require to ascertain that the undertakings are being carried out. "Under the Fair Trading Act 1973, undertakings are obtained by the DGFT following consultation with the parties, and any undertakings given to me and accepted must be published. The DGFT has been asked to obtain signed undertakings by 30 October 1998. "As I have said, this is a most unusual case, and similar circumstances are unlikely to arise again. Any future cases in the bus market will continue to be considered on their merits in the light of the DGFT''s advice." Notes for Editors 1. The acquisition of SBH by FirstGroup (then called FirstBus) was referred to the Monopolies and Mergers Commission (MMC) in September 1996. The MMC''s report, "FirstBus plc and S B Holdings Limited: A report on the merger situation" (Cm 3531) was published on 24 January 1997. 2. The MMC concluded that the merger may be expected to operate against the public interest, by eliminating actual and potential competition between the two bus companies. FirstBus''s scale and dominance in central and south east Scotland was likely to deter competition from large adjacent operators and entry by others. 3. In line with the MMC''s recommendations and the DGFT''s advice, the then Minister for Corporate and Consumer Affairs, Mr John Taylor MP, announced on 24 January 1997 that FirstBus should be required to divest the business of its subsidiary, the enlarged Midland Bluebird (which provides bus services in central and south east Scotland) plus part of the Glasgow operations of SBH. If divestment of part of the business of SBH should prove to be impractical, FirstBus would be required to divest SBH in its entirety, without divestment of any of Midland Bluebird''s operations (DTI Press Notice P/97/66). 4. In June 1997, FirstBus requested a review of Mr John Taylor''s decision on the grounds that there had been important new developments in the Glasgow bus market since the MMC''s report was published which drew into question the MMC''s conclusion and made the divestment unnecessary. The then Competition and Consumer Affairs Minister, Mr Nigel Griffiths MP, therefore asked the DGFT for his advice on FirstBus''s request. 5. Under Section 88 of the Fair Trading Act 1973 (FTA) the DGFT has a duty to consult with the relevant party with a view to obtaining undertakings requested by the Minister and, when undertakings are subsequently given, to keep them under review. Under Section 93A of the FTA, undertakings given following an MMC report are enforceable through the courts. Under Section 88 of the FTA they must be published. ENDS