What has happened?

On 3 September 2014 the Office of Rail Regulation (“ORR”) published a consultation on the impacts of regulation, industry arrangements and practices for rail ticket selling (the “Consultation”).

The Consultation is part of the wider retail market review launched by the ORR in February 2014. The rail retail market review by the ORR is a three staged approach:

Stage one: February 2014 - September 2014

  • By way of stakeholder engagement, desktop research and market analysis, the ORR aims to understand the ticket selling arrangements and to identify the benefits and issues that arise from how the retail market operates. The Consultation document concludes this stage;

Stage two: September 2014 - early spring 2015

  • With the help of the responses to the Consultation and further stakeholder engagement and market analysis the ORR’s focus will be on understanding the materiality/relevance of the potential opportunities and challenges; and

Stage three: early spring 2015 - late summer 2015

  • the ORR’s focus will be on conclusions from the review and on recommendations and implementation of these recommendations.

What is the focus of the Consultation?

The focus of the Consultation is generally on the impact of regulation and industry practices, but as part of the Consultation it is clear that independent choices by Train Operating Companies (“TOC”) are also being considered by the ORR. For example, in chapter five of the Consultation the ORR has noted that third party retailers don’t necessarily have access to TOCs’ full product ranges, and that third party retailers must ‘settle’ at full price even though they may charge price which is lower than the one offered by TOCs.

Interestingly, the ORR seems to have floated the concept of supply chain unbundling – it has invited stakeholders’ views on the impact of third party retailers in rail not having access to a wholesale market/wholesale price. The ORR has also invited comments on how the arrangements differ from arrangements between wholesale providers and third party retailers in other sectors. Moreover, the ORR has noted that in a comparative analysis of the third party retailing arrangements within the rail and other sectors, Cambridge Economic Policy Associates (“CEPA”) (which was commissioned by the ORR to carry out the comparative analysis) has found that other sectors have greater separation or unbundling, and that there are narrow routes to market in rail compared with other sectors. In its report, CEPA has identified rail as “the least competitive, least unbundled, and most regulated sector”

The ORR has identified that approaches to third party retailing in rail will be a key factor, in its thinking on potential options to address the benefits and issues. In line with this, the Consultation document invites the stakeholders to consider the effects of the incentives, obligations, governance, rules and systems on retailers’ ability to compete to deliver services that meet consumers’ needs and expectations. Furthermore, in the summary of responses to the February call for evidence the ORR has highlighted concerns from Passenger Focus about third party retailers not having access to all fares (such as season tickets) and that these arrangements could amount to high barriers to entry and stifle innovation. The ORR has also noted that according to the Association of Train Operating Companies ("ATOC"), third party retailers are likely to have higher costs of online sales compared to TOCs, especially if third party retailers’ marketing costs are taken into account.

Comments

The ORR has stated that it intends to follow-up with a further consultation in spring 2015 to “address the issues, where necessary”. However, the ORR recognises that arrangements in the rail sector are determined to a large extent either by government or by the industry, and it might not have powers to implement all potential options.

It is possible that the Consultation and the wider retail market review may act as a stepping stone for the ORR, should it identify concerns within the retail market in rail but be unable to implement what it sees as appropriate remedies, to refer the rail retail market to the Competition and Markets Authority. Market investigations are enormously time consuming and usually require a great deal of external advisory support (both legal and economic). TOCs will wish to ensure that they engage meaningfully with the ORR to input on these important issues to try to influence the ORR’s direction of travel and the potential outcomes from its review.

On 26 September 2014 the ORR has also published a seperate Consultation on the development of a code of practice on the provision of ticket information at the point of sale. The ORR aims to promote best practice in meeting consumer law and industry standards, in order to help ensure that ticket retailers give passengers a clear understanding of what level of service they can expect, whether from a ticket office, online, a ticket machine, or other self-service channels.