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OFT to review undertakings from FirstGroup plc relating to the acquisition of SB Holdings Ltd

10/06    12 January 2006
  
The OFT is to review undertakings given by FirstGroup that regulate bus fares in parts of Central and Lowland Scotland and also provide in essence a package of anti-predation undertakings covering parts of this area.

The undertakings were accepted by the Secretary of State for Trade and Industry on 17 January 2002 following an investigation by the Monopolies and Mergers Commission (now the Competition Commission) in 1997 into the purchase of SB Holdings by FirstGroup.

FirstGroup has been applying the fare cap element of the undertakings - which involved a price freeze and then fare increases limited to the change in RPI since 1997/98.

The OFT review will examine a number of matters including:

• whether competition among bus companies has changed in Central and Lowland Scotland since 1997
• how the impact of changes in fuel prices and duty and other costs such as drivers and staff costs generally has affected FirstGroup's operations given the link of fares to changes in RPI
• the views of other interested parties such as passenger transport authorities, local authorities, trade associations, passenger organisations and other bus companies. 

The OFT has a duty to review undertakings to consider whether there has been a change of circumstances and whether the undertakings remain appropriate. It can recommend that the undertakings should be kept in place, varied, removed or replaced. FirstGroup has submitted that the undertakings should be removed because of significant changes in the market.

The OFT invites interested parties to send their views by 26 January 2006 to Carole Bowley at: OFT, Fleetbank House, 2-6 Salisbury Square, London EC4Y 8JX (email: carole.bowley@oft.gsi.gov.uk).

NOTES

1. FirstGroup (formerly Firstbus) acquired SB Holdings in June 1996 and brought together the two major bus operating companies in central and south east Scotland. The merger was referred to the Monopolies and Mergers Commission which reported in January 1997 that the merger operated against the public interest (A report into the acquisition by FirstGroup (formerly FirstBus) plc of SB Holdings - Cm 3531). 
  
2. The MMC recommended that FirstGroup should be required to divest its Midland Bluebird operation together with one of SBH's Glasgow depots and routes. Following an extensive review of the Scottish bus market by the OFT, the Secretary of State announced on 31 July 1998 that she had decided to seek behavioural undertakings from Firstgroup. These undertakings were intended to regulate prices and minimum service levels, and included restrictions on fare and frequency changes, journey intervals and competition against tendered services.

3. The undertakings have two elements: a fare cap covering most of FirstGroup's First Glasgow, Midland Bluebird and Lowland operating areas and a package of essentially anti-predation undertakings covering the Midland Bluebird and Lowland areas. This review will consider both elements of the undertakings.

4. FirstGroup has been applying the fare cap since September 1997 in Glasgow and since February 1998 in the Midland Bluebird and Lowland operating areas, in advance of the undertakings being finally agreed. The OFT has received a submission from FirstGroup setting out why it thinks that the fare cap should be removed in the First Glasgow, Midland Bluebird and Lowland operating areas, and why the anti-predation undertakings should also be removed.

5. Under section 88(4) of the Fair Trading Act 1973, the OFT has a duty to keep under review the carrying out of these undertakings, and from time to time to consider whether, by reason of any change of circumstances, the undertakings are no longer appropriate and either the parties can be released from them or the undertakings need to be varied or superceded by new ones.

6. Full texts of the undertakings are available from Steven Clarke of the OFT's mergers branch (telephone 020 7211 8586, fax 020 7211 8916, email: steven.clarke@oft.gsi.gov.uk)

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