New regulation for rail universal services is critically received by the Italian Competition Authority

In its advocatory capacity the Italian Competition Authority has released an opinion with critical remarks at recently enacted laws and drafts now being examined by the Italian Parliament on the regulatory regime for rail transport, because of the feared negative impacts they may have on the competition in this sector (see AS528, Definizione del servizio universale nel trasporto ferroviario e affidamento dei conseguenti oneri di servizio- Definition of universal service with regard to rail transport and assignment of ensuing public service obligations).

Competition in rail transport markets is undermined by an opaque not clear-cut distinction between free- market services and universal services, and by the direct assignment of the latter. Regional passenger services to be carried out under public contracts signed and funded by regions fall within the concept of universal service. Article 23-bis of the act no. 112/2008 lays down that the general way of awarding a public service contract is a open tendering procedures, direct assignment being limited to exceptional circumstances. Notwithstanding that, theses services have been rarely tendered out, and when they had so, the related contracts were always awarded to the incumbent operator Trenitalia. To date, public service contracts expired in 2007 still regulate regional rail transport services provided by Trenitalia on behalf of regions.

The medium and long range passenger services sector has been formally liberalized since 2000 according to “competition for the market” model. Yet some of these services are still regulated and subsidized by a public service contract the Government has directly awarded to Trenitalia. Importantly, the links covered by this contract and the public service obligations imposed on Trenitalia are not disclosed. In contrast, the transport services not considered in the above contract are unregulated activities, being provided in a free market regime. Uncertainty over which medium–long range rail links Trenitalia has to supply under the public service contract, in conjunction with its dominant position in the rail market are thought to negatively affect the competition in the rail passenger transport markets. First, Trenitalia may cross-subsidize free market activities with the revenues gained from reserved activities. Second, it may shift part of the demand from the universal services links to the free market links. Third, it may have less incentive to keep a high level in the provision of universal service links.

This bleak picture for competition in rail transport is unlikely to improve with new legislation and bills the ICA discussed with the AS528. According to Act 33/2009 the length of public contracts for rail transport services is six years, extendable for more six years and should the Bill n. 1195 get through Parliament regions will directly assign public contracts for local rail transport services. Finally, Act 2/2009 allocates to region funds to finance public contracts for rail transport for the period 2009-2011 on condition that the related contacts be signed with Trenitalia. The above provisions has as effect to thwart competition in rail transport and to lessen the incentive for Trenitalia to improve its service given that its monopoly position is unlikely to be challenged until at least 2015.

To avert the risks, the new regulation for universal rail transport services should conform to general criteria of transparency and openness, and in particular the ICA suggests:

· To clearly define universal rail links, notably by distinguishing between regional links and interregional links;

· To setting cost-oriented ticket fares for universal service rail links;

· To award public contracts for universal service rail links through open tendering procedures to the offeror that submit the least onerous bid for public funds;

· To introduce a mechanism to cover the costs for the provision of universal service rail links financed through the proceeds gained by the railway undertakings carrying out profitable rail links;

· That the allocation of funds to regions for the procurement of rolling stocks should not made contingent on conditions that regions purchase the needed transport services from the incumbent operator;

· That, in their interests, regions should refrain from extending public service directly awarded or from directly assigning contracts for universal rail services.

With the incoming full liberalization of rail transport, the ICA tried to preserve competition in rail transport markets as indicated by the recent investigations into Trenitalia’s abusive conducts in the open to competition markets for freight and passenger transport services ( see cases A389 and A409, respectively) aimed at impeding new competitors’ entry into the market. This opinion, instead, focuses on the reserved market for universal service rail links. The ICA voices its concerns over the side effects of certain new pieces of legislation regarding the regulation of the provision of universal rail links services. These are feared to undermine “the competition for the market” model as a way to select operators to which entrust the provision of universal services. That, if it is the case, may strengthen the already dominant position of Trenitalia in the market, by making more difficult for competitors to entry into this market.

Comments

Post a Comment

Popular posts from this blog

Aspen: The Italian Competition Authority fines a generic manufacturer of drugs for excessive pricing

By the decision made on 29 September 2016 in Aspen [i] , the Italian Competition Authority (ICA) has imposed a fine of more than EUR 5 million on the Aspen group (Aspen), a South African manufacturer of generic drugs. Aspen violated Article 102 TFEU by imposing excessive prices for the supply of the so-called ‘Cosmos drugs’. These drugs included Leukeran, Alkeran, Purinethol and Tioguanine, which included the active principles of chlorambucil, melphalan, mercaptopurine and tioguanine, respectively. All these drugs were used to treat cancer pathologies and included in a wider package of pharmaceutical products, whose marketing rights had been purchased by Aspen from the originator GlaxoSmithKline (GSK) in 2009. Aspen had a dominant position in the relevant product markets for the commercialization of anti-cancer drugs manufactured using the active principles of alkeran, leukeran, purinethol and tioguanine. It had the only one market authorization for the sale of drugs and potential ...
Read more

Geographical allocation of turnover in aviation mergers: What the European Commission recently hold

The European Merger Control Regulation (ECMR) stipulates that only concentrations with a European dimension fall within the regulatory jurisdiction of the European Commission to review. A concentration is presumed to have such a dimension when it meets the financial threshold in Article 1 of the ECMR. To this end, it is necessary to calculate the turnover generated by the merging parties within the Community or in one or more member states. However, the geographical allocation of the turnover required by Article 1 for the purpose to establish the Commission’s jurisdiction can be a tricky issue in case of mergers between undertakings with a cross-border activity such airliners. In fact, the activities of airlines span several countries as they typically operate flights and sell tickets in many national markets. Recently, the Commission has dealt with the issue at length in the Ryanair/Aer Lingus case. It identified three possible methodologies for geographical allocation of turnover: -...
Read more

The European Commission unconditionally clears the Facebook/WhatsApp merger

By a Phase I decision the Commission unconditionally approved the Facebook $ 19 billion acquisition of WhatsApp ( Case No COMP/M.7217,Facebook/WhatsApp) . The Commission was required by the parties to review the transaction by means of a reasoned submission filed on the basis of Article 4(5) of the EU Merger Regulation. Indeed, the merger was not a concentration with EU dimension within the meaning of Article 1 EUMR falling within the Commission jurisdiction, since the EU turnover of WhatsApp in 2013 failed to met the financial thresholds in that provision. The Commission identified three relevant product markets affected by the concentration. It restrained the first relevant market, the market for consumer communication services, to the communication apps for smartphones, because WhatsApp was available only for this device. Following its approach in Microsoft/Skype (Case M.6281), upheld by the General Court in the case T-79/12, Cisco Systems and Messagenet v Commission, the Com...
Read more