Annual report on concurrency
2016
28 April 2016 CMA54
© Crown copyright 2016
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To view this licence, visit www.nationalarchives.gov.uk/doc/open-government- licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected].
Contents
Page
A. Introduction ...... 4 B. Airport operation services and air traffic services – the Civil Aviation Authority .. 21 C. Communications (broadcasting, electronic communications and postal services) – Office of Communications ...... 29 D. Electricity and gas in Great Britain – Gas and Electricity Markets Authority ...... 36 E. Financial Services – Financial Conduct Authority/Payment Systems Regulator . 46 E.1 Financial Conduct Authority ...... 46 E.2 Payment Systems Regulator ...... 61 F. Healthcare services in England – Monitor ...... 70 G. Railway services – Office of Rail and Road ...... 76 H. Water and sewerage services in England and Wales – Water Services and Regulation Authority ...... 92 I. Utility services (electricity, gas, and water and sewerage services) in Northern Ireland – the Northern Ireland Authority for Utility Regulation ...... 103
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Foreword
This is the second annual concurrency report to be published by the Competition and Markets Authority (CMA) in accordance with its statutory obligation1 to assess the operation of the concurrency arrangements. Under those arrangements, the CMA and the sector regulators for key sectors of the economy (specifically, airports and air traffic services, telecoms, post, broadcasting, spectrum, energy, water and sewerage, rail in Great Britain, healthcare services in England, financial services and payment systems) have concurrent powers to apply competition law in the relevant sector.
The enhanced concurrency arrangements, which came into effect on 1 April 2014, aim to increase competition law enforcement activity in the regulated sectors by strengthening cooperation between the CMA and the sector regulators and, more generally, to promote competitive outcomes for the benefit of consumers, business and the overall economy.
As set out in last year’s report,2 the first year of the regime saw the ‘building blocks’ of the new regime – those processes, documents, policies and other mechanisms required in order to implement the enhanced concurrency arrangements and to facilitate cooperation between the CMA and the sector regulators – put into place. Over the past year, these arrangements have been working well and cooperation within the regime has extended beyond competition enforcement activity to broader policy and markets work. As a result, there has been improved coordination between the CMA and the sector regulators, as noted in the recent National Audit Office report3 on the UK competition regime.
Key messages
Overall, the concurrency arrangements are working well, with significant progress being made across the sectors during the past year:
In terms of competition enforcement activity, there has been a clear focus on delivery of the ongoing competition cases within the regulated sectors, with two decisions taken (one infringement and one non-infringement decision), the acceptance of commitments in another case and the issue of a Statement of Objections in a fourth. In addition, two new competition cases have been opened during the year. The first of these was launched
1 Enterprise and Regulatory Reform Act 2013, section 25(4), read together with paragraph 16 of Schedule 4 to the Act. 2 CMA (1 April 2015), Annual report on concurrency 2015 (CMA43). 3 National Audit Office (6 February 2016), The UK competition regime.
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by Ofgem in the energy sector and the second is the first case to be opened by the Financial Conduct Authority in financial services.
Alongside competition enforcement, there has also been significant markets work undertaken in the regulated sectors, with the CMA progressing its two major ongoing market investigations into energy and retail banking and a number of market studies conducted by the regulators within their sectors. There has also been extensive policy work by the CMA and the regulators to promote competition in the regulated sectors, including a CMA-led project on passenger rail services and Ofwat’s work on market opening for non-household water customers.
Since the new concurrency arrangements came into effect, there has been a clear increase in joint working between the CMA and the sector regulators across the competition toolkit. For example, in the past year, there have been secondments of specialist staff from the regulators to provide sector-specific input in the CMA’s market investigations into the energy and retail banking markets, as well as in relation to merger activity in the healthcare, telecoms and financial services sectors.
There has also been good cooperation between the CMA and the sector regulators, with new Memoranda of Understanding agreed by the CMA and the sector regulators, the sharing of information in accordance with the Concurrency Regulations4 and more informally, and the work undertaken by the UK Competition Network, including the sharing of expertise where common issues arise across different sectors.
Despite this good progress, we recognise that there is more to be done. For example, as noted by the National Audit Office, we need to improve our collective record of decision-making in competition cases.5 We also acknowledge that the number of cases opened during the period of the report is below the level that we would like it to be. The CMA and the sector regulators will need to work together to address such issues in order to ensure that the ambitious aims behind the enhanced concurrency arrangements are met over the next few years.
Alex Chisholm Chief Executive, Competition and Markets Authority April 2016
4 Competition Act 1998 (Concurrency) Regulations 2014, SI 2014/536. 5 See ‘Key findings’ section, National Audit Office (6 February 2016), The UK competition regime.
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(a) Rail: In December 2015, the ORR accepted commitments in its investigation into suspected infringements of the competition prohibition on the abuse of a dominant position in connection with the carriage of freight by rail. Following its acceptance of the commitments, the ORR closed its investigation.
(b) Water: In December 2015, Ofwat issued a 'no grounds for action' decision in relation to its investigation of an alleged margin squeeze by Anglian Water regarding the provision of water and sewerage services to new developments. Ofwat found that there was insufficient evidence of actual or potential anti-competitive effects sufficient to justify a finding of abuse.
(c) Communications: During the period of this report, Ofcom has been progressing three competition cases:
(i) In the postal sector, Ofcom issued a SO to Royal Mail in July 2015, in relation to its investigation into prices offered by Royal Mail for access to certain letter delivery services. The SO set out Ofcom's provisional view that Royal Mail had breached the competition prohibitions by engaging in conduct that amounted to unlawful discrimination against postal operators competing with Royal Mail in delivery. The case remains ongoing.
(ii) In the broadcasting sector, Ofcom's investigation into a suspected infringement of the prohibition on anti-competitive agreements, in relation to the sale of live broadcasting rights in the UK to Premier League matches by the Football Association, remains ongoing.
(iii) Additionally in the broadcasting sector, Ofcom announced in February 2016 that it had decided to close its investigation into an alleged abuse of a dominant position by Sky regarding the wholesale supply of Sky Sports 1 and 2, on the grounds of administrative priorities. In reaching this decision, it took account of the fact that BT had obtained access to Sky Sports 1 and 2 on a non-reciprocal basis for its YouView platform. As this was the remedy sought by BT in the complaint, Ofcom considered that the principal risk to the interests of the consumers identified in the complaint had been brought to an end.
(d) Aviation: The CAA's investigation into a suspected infringement of the competition prohibitions, in relation to airport operation services, is in the information-gathering phase. The investigation concerns allegations of price fixing and price information exchange in relation to access to facilities at an airport and the suspected abuse of a dominant position in relation to the provision of access to facilities.
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0DNLQJFRPPXQLFDWLRQVZRUNIRUHYHU\RQH coming years, wherever they live and work. It sets out the following key proposals: A strategic shift to large-scale investment in more fibre – Ofcom will help create more choice for people and businesses, while reducing the country’s reliance on Openreach. A major strategic shift will encourage the roll-out of new ‘fibre to the premise’ networks to homes and businesses, as an alternative to BT’s planned innovation in copper-based technologies. As part of this, BT will be required to open up its network, allowing easier access for rivals to lay their own fibre cables along BT’s telegraph poles and in its underground cable ‘ducts’. A step change in quality of service – Ofcom will publish service quality performance data on all operators, and look to introduce automatic compensation for consumers and small businesses when things go wrong. Ofcom intends to introduce tougher minimum standards for Openreach with rigorous enforcement and fines for underperformance. Reforming Openreach – Ofcom intends to reform Openreach’s governance and strengthen its independence from BT. In future, Openreach should be governed at arm’s length from BT Group, with greater independence in taking its own decisions on budget, investment and strategy. Openreach management will be required to serve all wholesale customers equally, and consult them on its investment plans. Greater independence could be achieved by ‘ring-fencing’ Openreach (for example, Openreach becoming a wholly owned subsidiary with its own purpose and board members). Full ‘structural’ separation remains an option. The right to broadband – Ofcom will work with the UK government to make decent, affordable broadband a universal right for every home and small business in the UK. The universal right should start off at 10Mbit/s for everyone, and then rise in line with customer demand over time. Ofcom will work with the government to deliver it. Ofcom will also look to improve mobile coverage by including new obligations on operators seeking new licences for spectrum (the radio airwaves which transmit mobile signals). Empowering consumers to make informed choices – Ofcom will give consumers real power to exercise choice through much more accessible and engaging information on the services available to them. Ofcom will continue to make switching easier for more services so customers really can exercise choice. 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quarter 2018. — In December 2015, the FCA set out proposals to introduce new rules and guidance for firms on steps they should take when renewing general insurance policies.72 This work follows an announcement made in the July 2015 Budget by the Chancellor of the Exchequer and the FCA is aiming to provide finalised rules and guidance by mid-2016. — The Insurance Act 2015 will come into force in August 2016. The changes in the Act will apply only to business (ie non consumer) insurance and it re-calibrates certain aspects of the relationship between insurer and policyholder, including replacing the duty of disclosure with a duty of fair presentation. — The European Commission is considering the application and future of the Insurance Block Exemption Regulation and published a report on its functioning in March 2016, suggesting that the exemption is no longer necessary for information exchange and pools.73 The FCA has carried out informal consultations with several UK market participants to understand the extent to which the UK insurance industry relies on IBER and the likely impact in the UK of its non-renewal. The FCA is liaising with the European Commission with a view to contributing to their renewal assessment. Pensions and Retirement Income: — The UK government confirmed in December 2015 that from 6 April 2017, tax restrictions for people looking to sell their annuities will be removed, creating a secondary annuity market. This will give people with an existing annuity and those who purchase an annuity in the future, the freedom to sell their right to future income streams for an upfront cash sum. — In its publication of final rules for Independent Governance Committees published in February 2015, the FCA stated that it intends to conduct a review in 2017 of the effectiveness of these bodies.74 72 FCA (3 December 2015), Increasing transparency and engagement at renewal in general insurance markets. 73 This is a legal instrument that allows (re)insurers to benefit from an exemption to the prohibition of anti- competitive arrangements laid down in Article 101 (1) of the TFEU. It is due to expire in March 2017. 74 FCA (4 February 2015), Final rules for independent governance committees, including feedback on CP14/16. 59 Other: — The European Commission published a Green Paper on financial services in December 2015. The Green Paper seeks views on how to improve choice, transparency and competition in retail financial services to the benefit of European consumers. 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ORR intends to publish the final guidance in summer 2016. (f) ORR continues to promote and protect competition across the range of its functions on the following PR18 work streams: (i) Development of route based comparison - leading to greater route based price controls from 2019. (ii) Development of the system operator function; ORR will continue to focus on developing a dashboard of indicators on the effectiveness of system operation activities (which refers to both long-term network planning and nearer-term activities around managing capacity, producing the timetable and signalling, including those activities undertaken by parties under than Network Rail). The dashboard is intended to show the progress of system operator related outputs and activities and is to be used to aid better decision-making and support greater awareness, particularly among funders and passenger- representative groups. Working closely with ORR, Network Rail consulted on the first form of a dashboard in August 2015 and intends to follow this up with a revised version in spring 2016. (iii) Development of structure of charges work to facilitate greater on-rail competition. (g) Code of Practice on Retail Information – ORR will continue to focus on issues with self-service ticket vending machines including information about the range of tickets available and key restrictions that apply to tickets, the use of jargon, and the presentation of search results. (h) Transparency – in April 2016, ORR will publish a new annual report showing for the first time industry performance against the key obligations it has for passengers. 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