STENA / P&O MERGER INQUIRY

Statement of issues

An issues statement is published today as part of the Competition Commission’s inquiry into the acquisition by Stena of certain assets operated by P&O on the Irish Sea.

The inquiry, which was referred to the Commission on 22 August 2003, has focused to date on gathering information, views and evidence as a result of which a number of issues have been identified. This issues statement will form the agenda for private hearings with Stena and P&O, who will be asked questions on how they define the relevant market, the assessment of the competitive effects of the proposed merger, any customer benefits that might arise from the merger, and what would be likely to occur in the absence of the merger.

The Commission is seeking to establish whether there will be a substantial lessening of competition as a result of the proposed acquisition. Both freight and tourist markets are being considered although the inquiry will focus on the freight market.

The routes in question are Liverpool/Dublin and Fleetwood/Larne, though the Commission is also seeking details on other aspects, including the proposed closure of the Mostyn/Dublin route and the Cairnryan joint venture.

The Commission is required to publish its report by 6 February 2004.

This issues statement should not be seen as implying that the Group has identified any competition concerns—the Commission has yet to reach any conclusions on this inquiry. The purpose of making the statement of issues public is to inform all interested parties and give them an opportunity to raise any further points with the Commission.

Anyone wishing to comment on any of the issues set out below is requested to do so by Friday 17 October 2003 in writing to:

Alan Shearman, Inquiry Secretary, Stena/P&O
Competition Commission
New Court
48 Carey Street
London WC2A 2 JT

or by email to:

The Commission will now continue to gather evidence in this inquiry and will publish its provisional findings according to the administrative timetable available on the Commission’s web site (www.competition-commission.org.uk).

The issues that the Commission intends to consider are:

Market definition

The Group would like to explore the appropriate definition of the economic markets affected by the proposed merger, in particular:

(a) whether there are distinct market segments relating to freight and to tourist traffic;
(b) whether the relevant market should be defined as services between Great Britain and the island of Ireland as a whole, or should be segmented either in terms of groups of geographic routes (eg northern/central/southern corridors), type of unitized freight carried (eg accompanied roll-on roll-off/unaccompanied roll-on roll-off/lift-on lift-off), duration of crossing, or by a combination of any of these, or should be considered on a route by route basis; and
(c) whether there is any other market segmentation that should be taken into account.

In relation to (a), the Group’s provisional view is that the freight and the tourist markets should be treated separately. The inquiry will focus on the freight market.

Assessment of the competitive effects of the merger

Against this background, the Group would like to explore the possible competitive effects of the merger within each of the markets identified (“the relevant markets”):

(a) whether, or to what extent, Stena and the relevant routes of P&O currently compete in the provision of ferry services on the Irish Sea;
(b) whether, or to what extent, Stena and the relevant routes of P&O face competition from other ferry operators (including the remainder of P&O);
(c) whether there are identifiable trends in the development of the relevant markets that might affect competition in the foreseeable future;
(d) whether the merger is likely to lead to a reduction in capacity compared with the levels of capacity there would otherwise have been;
(e) whether port ownership, or a significant influence over port operations, confers a significant advantage upon port operators that also run ferry services;
(f) whether the ownership by a ferry operator of a multiplicity of routes to particular destinations on the Irish Sea, or more generally, confers a significant advantage on that operator in terms of costs or pricing;
(g) whether, or to what extent, the proposed closure of the Mostyn/Dublin route, and/or the Cairnryan joint venture, are likely to affect the relevant markets or alter the effects of the merger of the relevant routes;
(h) whether there are significant barriers to entry or to expansion (increasing capacity on existing routes or opening up new routes), and whether, in particular, the requirement for access to berths at ports in Great Britain or the island of Ireland causes a barrier to entry;
(i) whether any practices such as price discrimination between customer groups may be expected to come into existence or be exacerbated as a result of the proposed merger and, if so, which customer groups might be adversely affected;
(j) whether the merger would be likely to create or increase market power and lead to a rise in prices or reduction in service or choice for some or all customers (non-coordinated effects);
(k) whether the merger would be likely to create or increase coordination between Stena, P&O and other ferry operators on any routes across the Irish Sea which would also be likely to lead to a rise in prices or reduction in service or choice for some or all customers (coordinated effects);
(l) whether any potential lessening of competition might be offset by the buying power of large customers; and
(m) whether, taking account of all of the above, the proposed merger may be expected to result overall in a substantial lessening of competition for ferry services between Great Britain and the island of Ireland, either directly, or indirectly through a lessening of competition between port operators, or in any other way.

Counterfactual

The Group would like to explore what would be likely to occur in the absence of the merger (the counterfactual), including any alternative developments in the relevant markets that would be likely both in connection with the relevant routes and more generally in ferry services between Great Britain and the island of Ireland. In particular, the Group would like to understand whether or not the closure of the Mostyn/ Dublin route, and/or the Cairnryan joint venture would go ahead in the absence of the merger.

Customer benefits

The Group would like to explore whether or not any potential lessening of competition might be offset by any significant customer benefits that might arise as a result of the merger, and if so what these benefits are likely to be.

Notes to editors

1. The Enterprise Act 2002 empowers the OFT to refer to the Competition Commission completed or proposed mergers for investigation and report which create or enhance a 25 per cent share of supply in the UK (or a substantial part thereof) or where the UK turnover associated with the enterprise being acquired is over £70 million.
2. The Competition Commission has a 24-week period in which it is required to publish its report, which may be extended by no more than eight weeks if it considers that there are special reasons why the report cannot be published within that period.
3. Further information can be obtained from the Commission’s web site at: http://www.competition-commission.org.uk.
4. Enquiries should be directed to Francis Royle, Press Officer, tel: 020 7271 0242.