CMA updates guidance on rail franchises and ORR launches market study

Updated CMA guidance on rail franchises

The CMA's role in franchise awards

The CMA has a statutory role in reviewing the award of rail franchises, which it aims to complete prior to the start of a new franchise. The CMA's role is to assess whether the award of a new franchise could give rise to competition concerns. In particular, the CMA seeks to protect consumers from higher fares and/or degradation in service which might arise where the successful bidder for a rail franchise already operates rail, bus or coach services on the same route.  The updated CMA guidance includes a short guide for potential franchise bidders as well as more substantive guidance on the CMA's methodology for reviewing franchise awards.

How the CMA assesses rail franchise awards

In assessing a rail franchise award the CMA identifies point-to-point journeys (described as 'flows') on which the rail service of a franchise overlaps with existing transport services provided by the winning bidder. 

The CMA's revised guidance brings together the analytical approach the CMA has applied in recent rail franchise awards including Arriva/Northern and First/South Western. Key points from the guidance include:

• the CMA generally takes rail travel as its starting point and considers which other modes of transport should be included in the market definition;
• overlapping flows will generally be defined as: (a) rail services between the same two rail stations or the same two settlements; (b) bus and rail services where the catchment area of a rail service contains bus stops; and (c) coach and rail services between the same two settlements; and
• the CMA will apply filters to reduce the number of flows it considers in detail including excluding low revenue routes and implausible flows (flows which are not plausible alternatives).

The techniques and thresholds set out in the guidelines will be applied during a Phase 1 investigation (previously the CMA often applied different thresholds when investigating rail franchise awards at Phase 1 compared to Phase 2). This could increase the prospects of clearance at Phase 1, but also potentially increases the burden and data requirements of a Phase 1 investigation.

ORR market study into ticket vending machines and automatic ticket gates

On 14 March 2018 the ORR launched a market study into ticket vending machines and automatic ticket gates. This action follows on from previous work by the ORR in which it identified concerns that high concentration and a lack of effective competition may be causing higher prices, reductions in quality, and stifling innovation in respect of the supply of ticket vending machines and automatic ticket gates. As a result, the ORR's market study will focus on three key themes:

• concentration and market shares in the ticket vending machine and automatic ticket gate markets; 
• outcomes for customers, both the immediate customers of these products such as Transport for London, train operators, Network Rail, and passengers; and
• understanding the reasons why the market works as it does.

If, following the market study, the ORR considers that competition is not working well, it has a range of options available to it to improve market/consumer outcomes including:

• taking consumer or competition law enforcement action;
• making recommendations to the government to change regulations or public policy;
• making a reference to the CMA for a more in-depth market investigation; and/or
• accepting formal undertakings in lieu of a reference to the CMA.

Any interested parties are invited to submit initial comments on the ORR's Statement of Scope by 4 April 2018. In addition, industry stakeholders will almost certainly be contacted by the ORR in due course (if not already) as part of the market study.