Long-Distance Passenger Rail Services in Europe: Market Access Models and Implications for Germany 18th International Symposium on Transport Economics and Policy Madrid, 17 November 2009 Matthias Walter In collaboration with Thorsten Beckers (TU Berlin), Fabian Haunerland, and Christian von Hirschhausen Chair of Energy Economics and Public Sector Management Outline 1. Introduction 2. Sector background 3. Models of market access 4. Case study: Germany 5. Conclusion -2- With Directive 2007/58/EC, market access for long-distance services is back on the agenda, but the domestic design matters as well Introduction • Possibilities to establish “competitive pressure” for long-distance rail services are limited - Potential scope economies, network effects, and transaction costs reducing the potential for competition - Closely connected to infrastructure ownership - Closely connected to infrastructure investment and operation (from static to dynamic market access design) • European legislation a key driver of change in the railway sector - Directive 2007/58/EC: - Open access for international passenger rail services - Possibility of passenger carriage within countries along international routes - Protection of routes served with public service contracts or with exclusiveness obtained through a competitive procedure • Domestic market design for long-distance passenger rail services - UK: tendered franchises with some additional open access services (Griffiths, 2009, Nash and Smith, 2007, Yvrande- Billon and Ménard, 2005) - Netherlands: network concession to monopolistic incumbent (Van de Velde et al., 2009) - Germany, Austria, Italy: dominant vertically integrated incumbent with formal open access for newcomers - Sweden: - Announced change from monopolistic incumbent to more open access (Alexandersson and Hultén, 2009) - Potentially first country with open access as primary market entrance possibility and vertical disintegration • Definition of three basic models for market access in the following -3- Outline 1. Introduction 2. Sector background 3. Models of market access 4. Case study: Germany 5. Conclusion -4- There are strong interdependencies between market access and other value chain related issues such as vertical integration Value chain of the rail transport sector NetworkNetwork capacitycapacity NetworkNetwork NetworkNetwork accessaccess planningplanning andand constructionconstruction RollingRolling stockstock SalesSales andand TrainTrain andand slotslot investmentinvestment andand ownershipownership distributiondistribution operationsoperations allocationallocation decisiondecision maintenancemaintenance InfrastructureInfrastructure TransportTransport servicesservices • Infrastructure a non-contestable natural • Possible state involvements to reduce market entry monopoly barriers: • Outsourcing of parts of network construction - Rolling stock ownership and maintenance to a competitive market - Scheduling and sales: Internet platform, ticket vending possible machines, etc. • Train operations: • Network access and slot allocation: integration with network manager or as separate agency - 50% of total costs predetermined by track and station access costs, energy costs, and marketing and sales • Application for network slots in case of open costs (Monopolkommission, 2009, pp. 49 and 94, and access Preston, 2008) - Quality and service related to rolling stock and tracks Source: own illustration -5- The differentiation of long-distance and regional services and the handling of non-profitable interregional services are crucial points in market access design Differentiation possibilities between different types of passenger services Long-distance services Interregional services Regional services 11• High-speed trains, intercity, Superior regional services, 11• Regional trains with lower eurocity and night trains characterized by increased speed and comfort OR speed and comfort? OR 22• Travel distance over a certain How to measure travel 22• Short travel distances, e.g., threshold, e.g., 50 km distance? under 50 km OR OR Explicit definition? 33• Profitable and commercially 33• Usually characterized by operated services Profitability? some sort of state provision: public ownership or public Subsidies? procurement Subsidized, public service Public procurement? obligation • no generally accepted distinction criteria between long-distance and regional services • may not be useful to differentiate Source: own illustration -6- Major differentiation criteria in today’s European long-distance railway organization are concessions and open access Characterization of long-distance passenger rail transport markets France Netherlands Great Britain Sweden Germany Austria Italy Degree of infrastructure - Partial Full separation Full separation Full separation Holding Holding Holding transport services separation integration integration integration separation Network ownership Public Public Public Public Public Public Public Concessions No Two Competitively Concessions on No No No concessions tendered routes where SJ granted to NS franchises refuses to and HSA operate commercially Open access No No Yes, if not Only for night Yes Yes Yes primarily trains abstractive Degree of market opening None None Access for all Commercial Access for all Access for all Access for through day services operators operators given international competitive reserved by law given groupings given tendering to SJ Market dominance and 100% SNCF NS (state- Oligopoly of SJ (state- 99% DB – 100% ÖBB 100% Trenitalia operator ownership (state-owned) owned) and private train owned) Fernverkehr Personen- (state-owned), /KLM joint- operating dominating, (state-owned), verkehr (state- market entry by venture HSA companies some smaller market entry owned), market NTV and (90% state- railway by locomore entry by DB/ÖBB owned) together undertakings and Keolis Westbahn and announced 100% present announced Fair train announced change to more open access announced Own illustration according to Alexandersson (2009), Alexandersson and Hultén (2009), Alexandersson et al. (2009), company websites, Holvald (2009), and Monopolkommission (2009, p. 56) -7- Outline 1. Introduction 2. Sector background 3. Models of market access 4. Case study: Germany 5. Conclusion -8- We define three basic models of market access: “Tendered Concessions”, “Network Concession for a Monopolistic Operator” and “Open Market” Models of market access: fundamentals • Definition of three basic models for market access and design in European long-distance passenger rail transport 11- “Tendered Concessions” model 22- “Network Concession for a Monopolistic Operator” model 33- “Open Market” model • The models are designed to structure the discussion • European countries pursue their own approaches aligned to regional circumstances, but country examples for models are obvious -9- Tendered concessions represent competition for the market, the network concession for a monopolistic operator… Models of market access: description (1/2) 1 2 3 1 2 Network concession for a 3 Tendered concessions Open market monopolistic operator • Competition for the market for • One concession for the network • Open access as primary market sub-networks in terms of entrance possibility • Intramodal competition restricted competitive tendering Competition idea in the likely case of direct awards • (Threat of) Competition in the • Price competition with potential to state-owned companies market for the incumbent other criteria such as quality, etc. • Depending on the type of contract • Creative product offerings • Operators, not the state, define possible, but only from the the service offering • Level of supply generally Entrepreneurship incumbent – new entries with new determined by authority • New business models and ideas and business models not innovation supported • Less room for operator creativity possible • Concession fees for profitable • Both subsidies and concession • No subsidies for long-distance lines fees possible services Financial • Subsidies for non-profitable lines • Performance-based contract • But: regulation via track access organization charges possible • Limited profits (Kain, 2007) • High risks and chances for • Additional tendering costs newcomers • Differentiation not necessary • Differentiation necessary if • Open access only for long- concession only for long-distance distance services Differentiation of • Integrated concessions for long- services long-distance and distance and regional services • Regional services usually as regional services possible (with timetable • No differentiation if concession for public service obligation integration) all services • Differentiation necessary Source: own illustration -10- …aims at utilizing strong network effects, whereas the open market is mostly featured by open access Models of market access: description (2/2) 11 22 Network concession for a 33 Tendered concessions Open market monopolistic operator • Star-like (radial) networks • High level of network effects • Many interconnection points Network characteristics • Good separability into regions • Smaller countries with highly • Importance of international necessary synchronized timetables connections • Infrastructure quantity and quality • Some integration between • High discrimination potential in provided by network manager network planning and train case of vertical integration: track Relation between operator feasible capacity, track access, track • Little impact by train operator infrastructure and charges, ticketing