On 28 July 2010 the OFT announced a consultation on its recommendation to extend the Public Transport Ticketing Schemes Block Exemption for another 5 years from its current expiry date in February 2011 with the new expiry date being 29 February 2016. This will be the second time the Block Exemption has been extended with the previous extension happening in 2006. The consultation will run until 20 October 2010.
The Block Exemption
The Block Exemption automatically exempts from UK competition law, subject to certain conditions, the types of integrated ticketing arrangement specified in it. These include multi-operator travel cards (MTCs), multi-operator individual tickets (MITs) and through tickets (TTs). Without a block exemption, passengers would have to buy tickets from each operator rather than purchase tickets, which could be used on the services of several operators. The OFT views the benefits of this (cost or time savings, increased flexibility and convenience of travel) as outweighing any detriments in competition terms. The conditions attaching to the Block Exemption are both general and specific in nature with the specific ones varying depending on the nature of the ticketing arrangement with revenue sharing on a variety of bases and price fixing only being permitted in the case of a MTC. Our experience has been that the Block Exemption has not been easy to apply, particularly in the case of smartcard-led schemes given, the different treatment of the various ticket types.
Whether the Block Exemption remains appropriate As far as the consultation is concerned, the OFT's preliminary view is that the Block Exemption remains appropriate and that the criteria for the existence of a block exemption continue to be met:
• There is a clearly identifiable category of agreements that appear to meet the conditions for an exemption in section 9 of the Competition Act 1998. Ticketing schemes deliver benefits for passengers, operators and other consumers. The restrictions imposed are not indispensable to the benefits. In the case of MTCs, for instance, co-operation between operators on pricing is necessary to operate the scheme more efficiently than it would be in the absence of the restriction. Consumers continue to benefit from the improved quality, flexibility and convenience and potentially lower prices of transport services that flow from integrated ticketing.
• The agreements remain "special" in the sense that there is an enhanced need for co-operation between transport operators if integrated ticketing is to be realised. Otherwise passengers would need to buy separate tickets.
• There is a real risk that agreements will not be entered into if the Block Exemption was withdrawn. In the absence of the Block Exemption, individual operators are unlikely to join a scheme due to concerns about infringing competition law (which is understandable given the last twenty years). Benefits to consumers tend to outweigh those to operators.
• There are no reasonable practical alternatives to facilitate joint ticketing schemes that could deliver even greater benefits. The OFT does not consider the regimes set up under the Transport Act 2000 for ticketing schemes (as this relies on the discretion of local transport authorities) or the introduction of sector-specific guidance to assist companies to self-assess their arrangements against the competition law framework to be alternatives.
Based on this preliminary review the OFT is minded to recommend that the Secretary of State extend the Block Exemption.
Other changes to the Block Exemption
The OFT is, however, not minded to make other changes to the Block Exemption. The OFT's preliminary review suggests that categories of ticketing agreement in the Block Exemption continue to be broadly used by operators and that the conditions attaching to the availability of the Block Exemption remain appropriate.
One particular change that has been sought is the accommodation of smart ticketing. The OFT views smart cards as electronic instruments that allow for the advanced handling and use of information rather than as necessitating any particular form of ticketing. Chapter 5 of the Consultation Document proceeds to set out the OFT's thinking regarding the likely implications of new technologies for ticketing arrangements between different transport operators and whether any changes to the Block Exemption are required.
The OFT's thinking at this stage is that while the new ticketing technologies are having contractual impacts on ticketing schemes in terms of permitting more targeted pricing and revenue allocation and leading to the development of new ticketing types, such as PAYG and PAYGC and may lead to a decline in the use of some ticket types over time, it seems premature to introduce a new category of schemes in the Block Exemption until the commercial application of smart ticketing technologies has developed further. The OFT considers that the benefits of encouraging smart ticketing schemes to be entered into are presently outweighed by the possibility that better ways of providing benefits to consumers may emerge in time. The OFT does envisage that smart ticketing technologies may become widespread during the life of the extension and that the subject may be reviewed again in 2016. In the meantime, businesses can self-assess the impact of competition law for agreements that fall outside the Block Exemption. In any event, if circumstances change sufficiently, a new proposal can be made to the Secretary of State.
As was noted in a previous article in this journal (June 23, 2010 at pages 26 and 27), one of the barriers to the introduction of smart ticketing outside London is the uncertainty around the application of the Block Exemption to smart ticketing schemes and in particular the narrow categories of agreement covered by the Block Exemption. As was noted in that article, the consequences of the distinction between MTCs and MITs are severe for smart card schemes, which are as likely to be MITs as MTCs. In any event, article 7 of the Block Exemption prohibits a scheme from preventing operators from setting the price or availability of their own tickets, which is likely to be necessary if the intent is to set up a scheme like Oyster. The effect of these restrictions is that authorities and operators developing smartcard schemes are as likely to turn to the ticketing schemes provisions of the Transport Act 2000, given the vaguer description of the competition test in Schedule 10, as to rely on the Block Exemption.
It is submitted that the OFT's preliminary view regarding changes to the Block Exemption is not helpful as far as the introduction of smartcard schemes are concerned. Smartcard technologies, while having a range of benefits, tend to encourage a move to more sophisticated systems of revenue distribution and a move away from individual operators issuing their own tickets (if only because the expense involved in adopting a smart card system). Simplifying price structures necessitates some agreement on prices between operators. Lastly, smartcards involve the ability to understand passenger trends in much more depth so that the question of information exchange arises. If we are to see more smartcard schemes emerge outside London in the next five years a change is needed now.
There is also the fact that there are now more than 35m Oyster cards in use in the UK. It is hard to explain to all those using Oyster cards that it is not possible to provide the benefits of that scheme outside the Transport for London area because bus transport in the capital was not deregulated. If the Quality Contract provisions of the Transport Act 2000 were ever implemented then this would change but the slow take up of smart card technology in the regions has to be viewed in the context of the system of competition law applying outside London. Competition Commission Inquiry The Competition Commission is, of course, in the early stages of its Market Investigation Inquiry concerning the bus industry. It is possible that issues relating to smartcard schemes will arise from this. However, the timing is not ideal as the OFT is due to make recommendations to the Secretary of State at the end of 2010 and the Competition Commission is only due to report in Summer 2011.
As noted above, the consultation runs until 20 October 2010. The OFT has formulated nine questions for respondents to consider and would like as many organisations as possible to respond. A copy of the consultation document may be found at http://www.oft.gov.uk/OFTwork/consultations/current/ticketing-schemes-ex....
In December 2009 the Department for Transport stated in its paper, "Developing a strategy for smart and integrated ticketing", that "concerns about contravening competition law can act as a barrier to integrated ticketing" (para 7.4) and said it would engage with the OFT to tackle concerns and reduce uncertainty. It is difficult to see much sign of such engagement in the OFT's consultation document and it is to be hoped that the OFT will address the legitimate concerns of many regarding the introduction of smartcard technologies in areas of the UK subject to the full rigour of UK competition law.