Recent merger in the railway sector (Thalys Joint venture)

Liberalisation of international passenger transport services by rail: the case of Thalys JV

In September 2014, the Commission decided not to oppose the creation by SNCF and SNCB of a full function joint venture, Thalys JV. The Commission deemed the concentration to be compatible with the internal market. The decision is made available in French since last December. 

As of 1 January 2010, international passenger transport services by rail have been opened up to competition. Railway undertakings providing “genuine” international services may also provide cabotage, that is the right to pick up passengers at any station located along the international route and set them down at another, including stations located in the same Member State. Five years of liberalisation have not witnessed the creation of many new entrants on international routes. Rather, existing cooperation between incumbent railway undertakings have often further consolidated, as was lately the case of Thalys. 

Thalys refers to a long standing marketing cooperation between the railway incumbents in France (SNCF), Belgium (SNCB), the Netherland (NS) and Germany (DB). While DB is progressively withdrawing from the cooperation with a view to further developing its own offer of ICE trains, SNCF and SNCB have notified the Commission their intention to take joint control of a newly created railway undertaking, being a joint venture, Thalys JV. SNCF would own 60% of the shares whereas SNCB, 40%.

The Commission went on to analyse whether the new undertaking was a effectively controlled by both parties. Given the unbalance of shareholding, it looked at the effectiveness of veto rights that SNCB will be able to exercise and was satisfied that SNCF’s casting vote would be limited. Regarding the full functional character of the undertaking, the Commission was reassured that Thalys JV would effectively dispose of its own resources, own safety certificate, own financing sources, assets, etc. Finally, the deal contained a non-compete clause according to which the parties commit not to develop new international rail services on the routes exploited by Thalys.  

To assess the effects on competition of the deal, the Commission did not conclude to a definitive market definition, although it confirmed previous practice by taking into account each pair of origin and destination as the relevant market, and making a distinction of the services in function of the motive of the travel (professional or leisure). It also recognised that the international passenger rail services were subject to competitive pressure from personal cars and the longer routes, from airlines as well as other high speed trains, such as ICE.

On the routes at stake, Thalys JV is going to substitute itself to SNCB and SNCF within current Thalys cooperation with NS and DB. As such, the market structure is not affected by the deal. The only remarkable modification is the non-compete clause contained in the deal leading to a loss of potential competition. The Commission however observed that the parties have not launched new competing services on these routes in the past, because of the considerable requirement for human and financial resources. Applying the SSNIPP test (test of a small but significant and non-transitory increase in price) to the services that Thalys JV would offer on the said routes, the Commission considered that competition from other means of transport or from other railway undertakings would constitute a real competitive constraint on Thalys JV, so that the Commission cleared the deal.

News report re. Germany 

A German court has confirmed the decision of the Federal Cartel Office that prohibited the online hotel booking platform HRS from continuing to apply “best price” clauses. Under the “best price” clauses, HRS’s hotel partners are obliged to always offer the hotel portal the lowest room prices, maximum room capacity and most favourable booking and cancellations available on the Internet. The Higher Regional Court of Düsseldorf in January 2015 confirmed that the best price clauses restrict German and European competition law to such an extent that they cannot be exempted under the TFEU Block Exemption Regulation or as an individual exemption. Many other European competition authorities are − according to the FCO − currently conducting proceedings against hotel booking portals in relation to best price clauses, and the FCO is in close contact with these authorities and the European Commission. As to the president of the FCO, the decision of the Higher Regional Court of Düsseldorf can serve as an orientation for the proceedings currently conducted by other European competition authorities. The FCO’s press release is available here.

The president of the FCO, Mr. Andreas Mundt, briefly outlined the future of the German competition policy during a recent conference in Germany. Online trade remains an enforcement priority in Germany. According to Mr. Mundt, retailers should be allowed to sell their products via third-party platforms such as eBay. The prosecution of cartels also remains a top priority. As regards best price clauses in the contracts of hotel booking platforms with its hotel partners, Mr. Mundt’s focus is on safeguarding that the same approach is taken in view of all undertakings applying such clauses, whether the market share exceeds the VBER threshold of 30 percent or not. In addition, he intends to focus on a balanced and effective sanction regime. Mr. Mundt commented negatively about current ideas of introducing more severe fines on company representatives, noting that approach could have an impact on the effectiveness of the German leniency program as it may prevent those representatives from applying for leniency. Finally, Mr. Mundt is of the opinion that a subsidiary of a parent company should be fined based on its individual financial strength, not taking into account the resources of the parent (no economic unit). As regards the current discussion whether Google constitutes a threat to competition, he prefers that policy makers aim to create an adequate level playing field rather than launching possible trust-busting procedures against Google. Finally, Mr. Mundt called on the German legislative authority to complement the German Competition Act and to more clearly regulate legal succession in antitrust fines. 

The FCO has published its inquiry into buyer power in the food retail sector. The results of the inquiry show that the German food retail market is highly concentrated. 

The large retail groups already have a lead over their competitors and can make use of their structural advantages in negotiations with manufacturers. The reseller’s private labels have become an increasingly important factor for their bargaining power. In some cases, even large manufacturers with well-known brands are confronted with the large retailer’s bargaining power, since they have no other distribution options for their products. The issue has become the subject of intensive political debate and has on a European level led to calls for the provision of rules or for commitments by the companies themselves to observe fair practices in negotiations. The FCO’s press release is available here.