Annual report on concurrency 2015 1 April 2015 CMA43 Contents Page Foreword .................................................................................................................... 3 A. Introduction ........................................................................................................... 6 B. Airport operation services and air traffic services – the Civil Aviation Authority .. 21 C. Communications (broadcasting, electronic communications and postal services) – Office of Communications ............................................................... 27 D. Electricity and gas in Great Britain –Gas and Electricity Markets Authority ........ 35 E. Financial services – Financial Conduct Authority/Payment Systems Regulator . 46 E.1 Financial Conduct Authority ......................................................................... 46 E.2 Payment Systems Regulator ....................................................................... 54 F. Healthcare services in England – Monitor ........................................................... 62 G. Railway services – the Office of Rail Regulation ................................................. 70 H. Water and sewerage services in England and Wales – Water Services and Regulation Authority .......................................................................................... 81 I. Utility services (electricity, gas, and water and sewerage services) in Northern Ireland – the Northern Ireland Authority for Utility Regulation ............................ 94 2 Foreword by Alex Chisholm, Chief Executive, the Competition and Markets Authority This is the first annual concurrency report that the CMA is obliged by statute to publish, to assess – and be held accountable for – the ‘concurrency’ arrangements for enforcing competition law in this country's regulated sectors. Under those arrangements, in a number of essential services for which there are relevant sector regulators (such as energy, water and sewerage, telecoms, post, broadcasting, rail in Great Britain, airports, air traffic services, healthcare services in England and, from April 2015, financial services and payment systems), the CMA and the particular sector regulator responsible1 concurrently hold the power to apply competition law in the sector concerned. It is a year since, on 1 April 2014, the CMA acquired its functions as the United Kingdom’s primary competition and consumer authority. On the same day, newly- enhanced concurrency arrangements came into force, designed to strengthen co- operation between the CMA and sector regulators, with a view to greater competition law enforcement activity in these sectors, and more generally the promotion of com- petitive outcomes in respect of these key services that are essential to every house- hold and business in the country, and to the overall economy. The Government, in proposing the enhanced concurrency arrangements, had expressed concern that, until then, in the regulated sectors ‘competition law may not be being enforced as proactively as it could be’.2 When it established the CMA, the Government gave us a strategic steer which included a request that we ‘should engage in broad strategic dialogue with the regulators and look for opportunities to promote effective competition’.3 The aim is to make these markets work better, for the benefit of consumers. More effective competition in these markets, providing a downward pressure on price and a spur to quality and innovation, is particularly important given that these are key services on which virtually every household and every business in the country depends. They are important to the economy as a whole; in themselves they represent a significant proportion of our GDP, and, moreover, many of these essential services are part of the fundamental infrastructure underpinning overall economic activity. 1 See footnote 6 for a list of the relevant sector regulators. 2 Department for Business, Innovation and Skills, Growth, competition and the competition regime – Government response to consultation, March 2012, paragraph 8.1. 3 Department for Business, Innovation and Skills, ‘Strategic steer for the Competition and Markets Authority 2014-17’, in Annex 1 to its ‘Response to consultation on statement of specific priorities for the CMA’, 1 October 2013, paragraphs 6 and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x 7KHEXLOGLQJEORFNVIRUPRUHHIIHFWLYHFRPSHWLWLRQHQIRUFHPHQWLQWKH UHJXODWHGVHFWRUVKDYHEHHQSXWLQSODFH x 7KHUHLVJRRGDQGSURGXFWLYHFRRSHUDWLRQEHWZHHQWKH&0$DQGVHFWRU UHJXODWRUVDQGWKH8.&RPSHWLWLRQ1HWZRUNLVZRUNLQJZHOO x 7KHUHLVDVHULRXVFRPPLWPHQWWRFRPSHWLWLRQFDVHZRUNDQGWRFRPSHWLWLYH RXWFRPHVLQWKHUHJXODWHGVHFWRUVDVDFRUHHOHPHQWLQSURWHFWLQJFRQVXPHUV x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µ%DVHOLQH¶DQQXDOUHSRUWRQFRQFXUUHQF\±&0$$SULO 2WKHUPDUNHWLQYHVWLJDWLRQVKDYHLQYROYHGWKHUHJXODWHGVHFWRUVLQFOXGLQJRXUZRUNRQLPSOHPHQWLQJWKH ILQGLQJVRIWKHPDUNHWLQYHVWLJDWLRQVRQSULYDWHPRWRULQVXUDQFH ILQDOUHSRUW6HSWHPEHU DQGRQSD\GD\ OHQGLQJ ILQDOUHSRUW)HEUXDU\ RQERWKRIZKLFKWKHUHKDVEHHQFORVHOLDLVRQZLWKWKH)LQDQFLDO&RQGXFW $XWKRULW\ investigations per year were launched, whereas in this first year of the new concurrency arrangements, six Competition Act investigations have been launched, and there have been a total of five ongoing Competition Act investigations, including in the water, airports, rail, post, broadcasting, telecoms, energy and healthcare sectors. There remains much to be done to embed these improvements and build on them, with a view to achieving the fundamental change the legislation intended. It is a positive start, and a sound basis for moving forward, in the interests of consumers, business and the economy that these key sectors serve. Alex Chisholm Chief Executive, Competition and Markets Authority April 2015 5 This annual concurrency report, in respect of the CMA’s financial year to 31 March 2015, is prepared and published pursuant to section 25(4) of the Enterprise and Regulatory Reform Act 2013, read with paragraph 16 of Schedule 4 to that Act. A. Introduction 1. This annual concurrency report assesses how the ‘concurrency arrange- ments’ for competition law enforcement in the regulated sectors have operated in the period 1 April 2014 to 31 March 2015. 2. The ‘concurrency arrangements’ are the arrangements for co-operation between the Competition and Markets Authority (CMA) and certain sector regulators6 in respect of competition law functions exercisable concurrently by the CMA and those sector regulators. 3. The period concerned, the year from 1 April 2014 to 31 March 2015, has been the first year of operation of the CMA, which took over the competition law functions of the former Office of Fair Trading and the former Competition Commission. It has also been the first year in which the enhanced concurrency arrangements in the Enterprise and Regulatory Reform Act 2013 (ERRA13) have had effect. 4. The background to the enhanced concurrency arrangements in ERRA13 was the policy position set out in a March 2012 paper issued by the Department for Business, Innovation and Skills concerning the Government’s proposals to reform the UK competition system. The paper said: There have been few Competition Act 1998 cases7 or Market Investigation References8 in the regulated sectors, and the Government is concerned that general competition law may not 6 The sector regulators for this purpose are: the CAA (Civil Aviation Authority), in respect of air traffic services and airport operation services; Ofcom (Office of Communications), in respect of communications (telecommunications, broadcasting and postal services); Ofgem (Gas and Electricity Markets Authority), in respect of electricity and gas in Great Britain; the FCA (Financial Conduct Authority), in respect of financial services; the PSR (Payment Systems Regulator), in respect of participation in payment systems (from April 2014 for Enterprise Act 2002 market studies and market investigation references and from April 2015 for enforcement of the prohibitions in the Competition Act 1998); Monitor, in respect of health care services in England; the ORR (Office of Rail Regulation), in respect of railway services; Ofwat (Water Services Regulation Authority), in respect of water and sewerage services in England and Wales; and the NIAUR (Northern Ireland Authority for