63((&+
0DULR0RQWL
European Commissioner for Competition Policy
(IIHFWLYH FRPSHWLWLRQ LQ WKH UDLOZD\
VHFWRUDELJFKDOOHQJH
UNIFE Annual Reception
%UX[HOOHV0D\
,QWURGXFWLRQ
I should like to start by thanking UNIFE very much for inviting me to address you this evening. I think I am right in saying that this is the first occasion, certainly in recent years, when a Competition Commissioner has addressed a railway audience and I would like to thank UNIFE, once again, for extending their invitation to me.
7KH&RPPLVVLRQDJHQGD
I want to devote my speech tonight to the Commission’s approach to competition in the rail transport market because I think that the role of competition policy has tended to be overlooked in the ongoing debate about rail market reform and liberalisation. Much of that debate has concentrated, inevitably perhaps, on the scale and pace of market access liberalisation, or “opening up the market”. Market opening is, of course, essential if consumers are to be able to exercise freedom of choice. But it is only one aspect of liberalisation and I will come back to this theme later on.
I will not dwell on the existing sectoral framework for the railways or go into detail about the various legislative proposals now on the table to help the railways to modernise. These are all very much the province of Commissioner de Palacio and, in any case, I am sure you are all intimately acquainted with them. But I would like to take the opportunity to re-emphasise the urgency which the Commission continues to attach to the need for market reform in the rail sector.
The reason for this sense of urgency is the wider Community objective, introduced by the Treaty of Amsterdam, of sustainable development. The railways have potentially a huge role in helping to bring that about. But rail continues to lose ground to road because of a lack of commercial and technical dynamism. Problems continue at borders: there are far too few genuinely trans-European services. The modal shift we want to see is not happening. Rail cannot make a real contribution because of market entry barriers which, by and large, continue to plague the sector. Not only that: there are some Member States where there are severe structural impediments making it very difficult indeed for the market to function properly, or at all.
The environmental imperative requires us to dismantle these barriers to a better use of the European network, and quickly. If we do not, the goal of sustainable development will never be realised.
Removing the barriers to a properly functioning internal market for railways remains a common objective of the Commission’s transport and competition policies. The favoured method for railway reform and liberalisation is by means of stepwise legislation enacted by the Council and the Parliament on the basis of a proposal by the Commission, bolstered by action by the Commission in the competition field, on a case by case basis. This approach was reaffirmed in the transport policy White Paper last September1:
“Revitalising this sector means competition between the railway companies themselves …the priority is to open up the markets…”2
and later on:
“If more room is made for competition between operators, the rail industry as a whole will become more competitive against other modes of transport. The arrival of new operators…can make the industry more competitive by encouraging healthy competition between the existing operators and their new competitors…it is important that the Community competition rules be applied properly …to prevent anti-competitive practices and ensure that the Community rail transport market is genuinely opened up.3”
and, in the context of infrastructure funding, the White Paper said:
“…when selecting infrastructure projects to receive Community support, the Commission will consider the extent to which the line has been opened to competition.4”
That is a very clear policy line.
&RPSHWLWLRQUXOHVDQGDSURSHUO\IXQFWLRQLQJPDUNHW
Up to the present, Commission activity in the railway sector, in terms of both merger control and anti-trust law enforcement, has been relatively low. This is largely because, for very many years, all the national railways operated a statutory monopoly on their territories and there was no competition between them at all. This territorial exclusivity was bolstered by a multiplicity of technical barriers, making a competitive market, even for purely cross-border services, virtually impossible. As long as all the markets remained shut, there was no European Union dimension. But that is no longer the case. In addition to liberalisation measures introduced at EU level, seven Member States – Germany, Denmark, Italy, Netherlands, Portugal, Sweden and the UK – have already introduced some form of competition in their domestic passenger markets. In so doing, these countries have been able to demonstrate convincingly that it is possible to provide these services of a general economic interest, or SGEIs, in ways which are less restrictive to competition and the internal market. In fact, the two countries which have gone furthest in the use of controlled competition5 – Sweden and the UK – are also those with the fastest growth in rail use and rail’s market share since the mid 1990s. There is no contradiction between liberalisation and providing public services which the consumer wants.
Similarly, a number of Member States such as Austria, Italy, Germany, the Netherlands, Sweden and the UK have also opened up their domestic freight networks to competition.
This means that there is now an obvious EU dimension in terms of the impact on trade between Member States. Having opened the market, we need to apply the competition rules rigorously to ensure that the old barriers are not replaced by new ones. 2 p.13, EN version 3 p. 27, EN version 4 p.33, EN version 5
time limited, exclusive contracts awarded on the basis of open, competitive tender i.e. competition IRU the rails, rather than RQ the rails.
In applying the rules to the rail transport sector, I should like to make it clear from the outset that the Commission will continue to take into account the specificities of the sector and, in particular, the pivotal role played by the railways in providing services of a general economic interest in the passenger sector.
As regards PHUJHUFRQWURO, the continuing evolution of the rail transport market is bound to give rise to further restructuring. That, in turn, may result in mergers with an EU dimension. Market concentrations can, in certain circumstances, make it easier for companies to gain access to other national markets and therefore improve competition at European level. At the same time, we must be on guard to ensure that such concentration does not lead to an unacceptable degree of market power which would undermine the benefits of liberalisation.
In the area of DQWLWUXVWthe aim is to apply competition rules in a manner which will help to speed up the liberalisation process, consistent with the conclusions of the Lisbon European Council. For passenger services operated in the public interest, that means applying the rules in ways which enhance the demonstrable benefits of controlled competition and help to bring about a level playing field in the provision of these SGEIs. For freight, the objective is to apply the rules to ensure that open access means precisely that. The application of competition rules in the rail transport sector as a whole is aimed at contributing to the effective opening of the markets by ensuring that rights conferred upon newcomers are actually exploited in a non-discriminatory way. Co-operation between operators will continue to be permitted, as now, provided that there are discernible benefits to passengers and the arrangements are not disproportionately restrictive of competition.
The goal of effective competition in the railways sector is a big challenge. As a first step towards this objective, I have asked my services to become more pro-active in the anti-trust field in this sector. The PRGHUQLVDWLRQ of the competition rules should help.
Some of you may have heard that the Commission has tabled a proposal in the Council to change the way in which the competition rules are implemented. The proposal does not concern merger control or state aid but it will mean big changes for the way in which anti-trust cases are handled. The proposal will replace the current system of administrative authorisations that is centralised at Commission level, by one in which not only the Commission, but also national competition authorities and the courts, will be able to apply Article 81 in full. This will enable the Commission to be more pro-active and concentrate on combating restrictive practices and abuses of dominant positions with a major EU impact. The proposal will retain an autonomous decision-making power for the Commission. It will also set up information and co-operation mechanisms to ensure consistent application of the rules across the Community, so that both businesses and consumers are able to benefit fully from the Single Market.
For the rail sector, I am able to say that this network-building has already begun, independently of the proposed modernisation, as a means of ensuring a commonality of approach under the existing arrangements; and also as a way of exchanging views about future networking possibilities and best practice in day-to-day competition matters.
More immediately, we are already handling an increasing number of inquiries which neatly illustrate the importance of the competition rules in prohibiting restrictive practices and bringing to an end abuses of a dominant position. I will not hesitate to propose to the Commission the prohibition of blatantly anti-competitive agreements and concerted practices, for instance in the field of slot allocation or fixing fares. Possible abuses of dominant position, such as the refusal of access to key facilities or the imposition of unfair or discriminatory conditions of access to the infrastructure will be closely scrutinised.
I am pleased to say that the state owned flag carriers seem to be waking up to the fact that they do not have blanket immunity from the competition rules. What’s more, intending new entrants, and railway users generally, appear much more ready to lodge formal complaints. This will help the Commission's action in the competition field.
As some of you present will know, we are already pursuing two cases of suspected abuse of a dominant position, largely on the grounds that the incumbents have been engaging in discriminatory or exclusionary behaviour. Our investigations are now quite far advanced but we have yet to reach final decisions. I will not say any more about these particular cases except to pass on the thought that they are a very good illustration of deficient restructuring of the industry.
For the market to work properly, there must be supply side competition in the form of new entrants capable of mounting a realistic competitive threat; and conditions of access to networks that are transparent and non-discriminatory. But this is not by any means universally the case, even in those Member States who feel able to boast that they have legislated for a 100% open market. There are striking parallels here between developments in the railway market and those in other ‘utility’ sectors such as energy and telecommunications. The most worrying parallel lies in the continuation of large structural defects which are inimical to a properly functioning Single Market.
6WUXFWXUDOLPSHGLPHQWV
There are, it seems to me, 3 big issues.
The first concerns separation of essential functions. Last September’s transport White Paper said:
“…in too many cases, there is still no proper separation between the body which owns the infrastructure and the body which operates services”6.
I could not agree more. The problem with vertically integrated incumbents in an emerging competitive market is well known and is not new. Such a company is present in all the most important stages of the sector’s activities including, crucially, applying the conditions of access to the network. This can lead to discrimination against third parties. A company which is engaged not only in marketing capacity on its network but also providing its own services over that network may find it difficult to resist the temptation to favour its own services over that of a competitor, particularly where there are financial transfers within the structure which encourage it to behave in that way. In effect, and given the manifest ease with which it is able to evade action by even the most vigilant regulator, such a company is able to act as both judge and jury in its own cause.
I said not long ago, in a speech about the energy market, that:
“the ideal solution would be to separate transport operations and supplier operations, which should be entrusted to two distinct, separately owned, undertakings.”
It will not surprise you to learn that I take a similar view of the rail transport market. I am not suggesting for one minute that infrastructure managers and train operators should be prevented from talking to one another. I am sufficiently familiar with the railway market to know that regular and close contact between train operators and infrastructure managers is essential, not least for reasons of safety. But I do not believe that it is possible to engineer a properly functioning internal market by half-baked restructuring which maintains vertical integration. And I am strongly of the view that these deficiencies are much better tackled by structural reform than by H[
SRVWIDFWR antitrust law enforcement.
There are similar structural concerns about the provision of rolling stock. I said earlier, in the context of mergers, that further liberalisation may bring about further restructuring. I would like to express the hope that more liberalisation will give rise to a much more open and vibrant market for rolling stock leasing. I am sure that all those bidding to operate passenger services will want to do so on the same basis as those who operate them now, not least in terms of access to in-use rolling stock. I can certainly see no case for artificially constraining the leasing market.
The second big issue concerns slots. It is common ground that we need to devise proper arrangements to enable infrastructure managers to co-operate to facilitate international services: the 1st package explicitly requires it. But we have to pay very close attention to the manner and scale of that co-operation. We must also recognise the indispensability of open, transparent, objective and non-discriminatory procedures to ensure that the reasonable interests of new entrants, potential as well as actual, are not overlooked and that there are no possibilities for market foreclosure or abuse of a collective dominant position. As I have already noted, the only way I can see of removing those risks entirely when it comes to the allocation of capacity is the complete and irreversible structural separation of infrastructure from operations. In the absence of that, I should think that, as a bare minimum, we should be looking for arrangements in which the allocation bodies take the lead, where there is one forum in which the bids for slots are considered, and that there is no presumption in favour of bids from incumbents. I hope this advice will be heeded, because I am trying to be helpful. There is a very clear competition concern here which, one way or another, will have to be properly addressed. After all, it should be pretty obvious that we are dealing here with arrangements which go beyond the merely technical; and it is no accident that provisions in the railway package are prefaced by the words “without prejudice to Articles 81, 82 and 86 of the Treaty.”
The third big issue concerns bilateral agreements between flag carriers. It is far from clear whether all these international groupings are compatible with the competition rules. I do recognise that, under the current legislative framework, an international grouping may be the only way to provide certain types of international service. I also recognise that an international grouping may be the only workable solution in other cases because, for example, the route or routes concerned are not dense enough to make the market contestable. But, even if those arguments are accepted, it does not necessarily follow that the international grouping has to be one between flag carriers LQ DOO FDVHV. That is the sort of traditional co-operation arrangement which the Council was evidently so keen to protect when it first introduced the concept of international grouping into law7. But, whatever motives the Council may have had in introducing this idea, it omitted to spell them out sufficiently clearly. In the absence of a specific definition, the ECJ was subsequently able to rule, in the (XURSHDQ1LJKW6HUYLFHV case8, that the concept is capable of very wide interpretation indeed. It covers not only arrangements between the flag carriers, but can also include a much looser type of arrangement: any arrangement, in fact, which is necessary to enable the services in question to be operated. So the Directive actually provides wider opportunities than the Council originally seems to have intended.
Existing case law alone is sufficiently clear to enable us to reach a preliminary view that this sort of railway operation goes well beyond the purely technical. If co-operation between flag carriers restricts competition, we have to be satisfied that it has beneficial effects; that it is indispensable; and that it does not completely eliminate competition. Consequently, I have to ask myself whether some of these bilateral agreements between flag carriers may not be overdue for examination by my department on a case by case basis.
&RQFOXVLRQ
In conclusion, I would like to reiterate my support for the Commission’s work programme in the field of railway policy and to express the hope that the Council and the Parliament will act expeditiously in the adoption of Commission proposals aimed at railway liberalisation. There are many barriers – structural, legal and technical – which we have to remove before we have a properly functioning internal market for railway services. The more barriers that remain, the more active we have to be in the competition field. I think I can safely say that the scope for anti-trust enforcement in the railway sector is virtually limitless. I can confidently predict that my department will become increasingly active in meeting what is undeniably a big challenge.
7
Article 10 of Directive 91/440 on the development of the Community’s railways. It is only for the purposes of providing international combined transport freight services that it is possible for an LQGLYLGXDO operator to gain access under the Directive. For all other types of service, individual operators have to join together to form an “international grouping”.
