The French Competition Authority authorized the SNCF acquisition of Novatrans subject to strict conditions to limit the SNCF market power

In conditionally clearing the SNCF acquisition of Novatrans, the French Competition Authority (ADLC) has imposed a number of stringent conditions that should adequately address the risk of SNCF extending its market power from rail transport to into contiguous markets.
SNCF is the French incumbent rail operator and owns Naviland Cargo, which is the main operator of combined rail-maritime transport and manages several terminals for this type of transport. By the notified operation, SNCF acquired exclusive control of Novatrans, the leading combined rail-road transport operator and manager of main terminals.
Because post-merger SNCF would be active in all the stages of the combined merchandise transport chain, the ADLC considered that the merger was likely to create competition problems in three markets: the market for railway services for combined transport operators, the market for terminal services and the market for road-rail combined transport services.
  • The market for railway services for combined transport operators
Though the French freight rail market is opened up to competition since March 2006, entry of new railway undertakings (RU) is still difficult because of a number of regulatory ( release of safety certificates and access to slots on rail network) and technical barriers (availability of suitable locomotives). Such entry barriers also negatively affect the market for railway services for combined transport operators. Combined transport operators have so less choice as regard from which RUs buy the traction services they need.
In order to prevent SNCF’s competitors being foreclosed from the market, the ADLC imposed on SNCF the following commitments. First, Novatrans will put out a tender open to all interested RUs to choice the suppliers of motive powers for the international links to be proposed from 2011. The commitments will have a 5-years duration. Because it is possible to bid only for a single line, SNCF will be prevented from bidding for the whole traction services requirement of Novatrans. In this way, a level playing field between SNCF and the other RUs will be ensured given that SNCF is the sole RU able to satisfy the whole Novatrans requirements. Second, Novatrans personnel involved in the bids will enter into a confidentiality agreements with the aim of not providing SNCF with sensitive data regarding the other RUs.
  • The market for terminal services
After the implementation of the merger the SNCF group would have the control of most of terminal for combined transport market, thereby having a monopoly or quasi monopoly position in five terminals. Moreover, post-merger, negative vertical effects were also expected. In granting RUs access to terminals, Novatrans might favour SNCF to the detriment of other RUs. Thus, combined transport operators would be more likely to purchase traction services from SNCF with the result that the other RUs would be foreclosed from the market. That may have serious implications for competition since the combined transport sector is seen as the gateway to the French freight rail market.
In order to address the above competition problems, SNCF committed to entrust the management of terminals to specially purpose open capital companies. Combined transport operators with a sufficient traffic at a given terminal can purchase a stake in the company managing this terminal and so have a say on the management of it. In the ADLC view, this should dispelled any risk of Novatrans’ rivals being discriminated or foreclosed with respect to access to terminals.
  • The market for road-rail combined transport services
Finally, the ADLC also feared that, in providing services for rail-road combined transport services, Novatrans would discriminate independents road haulers to the benefit of road carriers belonging to the SNCF group. To resolve this problem, SNCF entered into a 6 years long commitment to provide its services to all road carriers in transparent and non-discriminatory manner by applying pubic tariffs and transparent commercial terms and a online reservation system.

In conclusion, in this case the ADLC have dealt with the anticompetitive effects that the vertical integration between the rail incumbent operator and the leading rail-road combined transport operator would have in the freight transport sector. To this aim, the ADLC imposed a set of stringent conditions, including behavioural and structural remedies. However, one of the behavioral remedies (Chinese walling) does not appear to be much popular with the European Commission.

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