SUMMARY OF STAGECOACH
(HOLDINGS) LTD AND PORTSMOUTH CITYBUS LTD: A REPORT ON THE ACQUISITION
BY STAGECOACH (HOLDINGS) LTD OF PORTSMOUTH CITYBUS LTD
On 21 February 1990, the Secretary of State for Trade
and Industry asked the Commission (see Appendix 1.1) to investigate and
report on the acquisition in October 1989 of Portsmouth Citybus Ltd (PCB)
by Stagecoach (Holdings) Ltd (Stagecoach).
We are initially required to determine whether a merger
situation qualifying for investigation exists, ie whether, following
the merger, Stagecoach supplies over 25 per cent of local bus services
in a 'substantial part' of the United Kingdom. In our view the area specified
in the terms of reference (East Hampshire, Eastleigh, Fareham, Gosport,
Havant, Portsmouth, Southampton, Winchester and Chichester) represents
a substantial part of the United Kingdom. Following the merger Stagecoach
subsidiaries supplied over 40 per cent of local bus services in that
area and we have therefore concluded that a merger situation qualifying
for investigation has been created.
The Stagecoach Group is one of the largest bus companies
in the United Kingdom, with operations in a number of areas. Its subsidiary,
Southdown, acquired by Stagecoach in August 1989, operates mainly in
Sussex and East Hampshire, including services in Portsmouth and Havant.
PCB was formerly owned by Portsmouth City Council (PCC), but was
sold to Southampton City Transport Ltd and the Start-Right Co-operative
Ltd in June 1988, and subsequently to Stagecoach.
Before the merger, Southdown and PCB accounted for almost
90 per cent of commercial bus miles in the Portsmouth and Havant area
and about two-thirds of contract services, with extensive competition
on many routes (as shown in Appendix 1.2), but little competition between
them elsewhere in the reference area. Although the extent of competition
had some disadvantages, for example frequent changes in services, confusion
amongst passengers, and loss of interchangeable tickets, passengers benefited
in other ways, with, for example, significant increases in frequency
on many routes. Both companies incurred significant financial losses
in Portsmouth and Havant but while one might have withdrawn or partly
curtailed its operations it is possible that had the merger not gone
ahead a greater degree of competition or potential competition could
have been retained than now exists.
Following the merger competition and potential competition
has been significantly reduced within Portsmouth and Havant, particularly
on commercial services. The result is a market structure which lends
itself to further market dominance, and Stagecoach would, we believe,
be in a position to deter other firms from entering the market, and threaten
the position of the few remaining competitors.
We do not believe that the merger has to date had adverse
effects on the public interest and it has produced benefits, removing
some of the disadvantages to which we have referred. However, in our
view in the longer term the reduction in competition may be expected
to have the effect of producing higher fares and lower standards and
frequency of service on commercial services in the Portsmouth and Havant
area than would occur in a more competitive situation. We have therefore
concluded that the merger may be expected to operate against the public
interest.
In the particular circumstances of this case, we believe
that sufficient safeguard to the public interest would be provided by
a number of undertakings and other steps we have suggested with a view
to making Stagecoach's activities more transparent and deterring predatory
action. We have recommended that steps be taken to limit Stagecoach's
scope to engage in predatory retaliation against competitorsby temporary
undercutting of fares or temporary increases in frequency. We have also
recommended that Stagecoach be required to publish information on its
Portsmouth operations, to improve its accountability. These measures
would be supported by the prospect of action under the Competition Act
should Stagecoach engage in other forms of anti-competitive practice
or under the Fair Trading Act should it seek to exploit its position
and by the readiness of local authorities to use their powers to safeguard
the interests of passengers and stimulate competition. If undertakings
to this effect are agreed, divestment of the assets of PCB or imposition
of any more formal regulation of fares would not be necessary.
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Last Revised: June 1999
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