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Arriva could face an in-depth merger investigation over competition concerns resulting from it taking over the Northern Rail franchise.

The Northern Rail franchise is currently the largest train franchise in Great Britain in terms of the number of services run. It operates over most rail routes in northern England.

Arriva Rail North Limited (ARN), a subsidiary of Arriva plc (Arriva), started operating the Northern Rail franchise on 1 April 2016, after being awarded the franchise by the Department for Transport last December. Arriva will continue to operate the franchise should the Competition and Markets Authority (CMA) decide to carry out an in-depth investigation; however, the CMA has issued an enforcement order which prevents full integration of the businesses until the CMA has concluded its investigation.

In addition to the Northern Rail franchise, Arriva currently operates 3 rail franchises, including Cross-Country Trains Limited and Arriva Trains Wales, two rail concessions and one open access rail service (with another one planned). Arriva’s existing rail services overlap with a number of journeys covered by the Northern Rail franchise. The CMA’s initial merger review has found that on 38 overlapping journeys there was little or no competition from other service providers and, as such, the CMA is concerned that any loss of competition between Arriva and the Northern Rail franchise could lead to higher prices or a reduction of service quality for passengers on these routes.

Arriva is also one of the largest bus operators in the UK, operating around 5,900 bus services in London and the South East of England, the North East, North West, as well as in the Midlands and Wales. There is a substantial overlap between Arriva’s network of bus services and the services offered under the Northern Rail franchise. The CMA found that the franchise award creates competition concerns in relation to these ‘bus-on-rail’ overlaps on 44 routes where there is limited or no competition from other bus or rail service providers, which could lead to higher prices or a reduction of service quality for affected passengers.

Arriva now has 5 working days to offer proposals to resolve the competition concerns identified by the CMA. If Arriva does not offer such undertakings, or the CMA does not accept them, the CMA will refer the Northern Rail franchise award for an in-depth phase 2 investigation.

Andrea Coscelli, Executive Director, Markets and Mergers, and decision-maker in the phase 1 case, said:

Arriva already runs significant existing train and bus operations in the area covered by Northern Rail. We have identified a number of services and routes where passengers have previously had a choice between competing operators, but which will now be run by Arriva.

This situation could potentially lead to a rise in non-regulated fares for passengers so unless Arriva is able to offer suitable undertakings now, we intend to carry out an in-depth investigation to look in more detail at these concerns, and decide whether any remedies are required.

Notes to editors

1. The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law.
2. Under section 66(3) of the Railways Act 1993, entering into a rail franchise agreement constitutes an acquisition of control of an enterprise under the merger control provisions of the Enterprise Act 2002.
3. Under the Enterprise Act 2002 (the Act) the CMA has a duty to make a merger reference, resulting in a full phase 2 merger investigation, if the CMA believes that it is or may be the case that a ‘relevant merger situation’ has been created, or arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and that the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
4. Under the Act a ‘relevant merger situation’ is created if 2 or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million (‘the turnover test’) or as a result of the transaction, in relation to the supply of goods or services of any description, a 25% share of supply in the UK (or a substantial part of the UK) is created or enhanced (‘the share of supply test’).
5. The CMA’s duty to refer the merger for a phase 2 investigation under the Act is not exercised whilst the CMA is considering whether to accept undertakings (if offered) in lieu of a reference. Arriva has until 19 May 2016 to offer undertakings to the CMA that might be accepted by the CMA. The CMA then has until 26 May 2016 to decide whether these might be acceptable as a suitable remedy. If this is the case, it will consult on Arriva’s proposed undertakings before accepting them. If no undertakings are offered and accepted, then the CMA will refer the merger.
6. All the CMA’s functions in phase 2 merger investigations are performed by inquiry groups chosen from the CMA’s panel members. The appointed inquiry group are the decision-makers on merger investigations.
7. The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business; the membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).
8. The text of this decision will be placed on the case page as soon as is reasonably practicable.
9. Enquiries should be directed to Siobhan Allen (siobhan.allen@cma.gsi.gov.uk, 020 3738 6460).
10. For more information on the CMA, see our homepage, or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on merger cases.