Shepherd and Wedderburn LLP
  August 7, 2006 - Scotland

OFT Market Interventions: Is the Tide Rising?
  by John Schmidt

The Office of Fair Trading (OFT) announced in June that it was considering launching an investigation into the UK airports market "with a view to establishing if the current market structure works well for consumers". This raised a number of eyebrows in the City, as the European Commission had only just cleared Ferrovial's bid for BAA, confirming that the market (at least for ground-handling services) "is broadly perceived as well-functioning by airlines". While these apparently divergent views give rise to interesting points of law, as to the extent to which the prior European clearance prevents adverse findings by the UK authorities, looking beyond the specifics of the BAA case there lies a wider issue of whether regulatory reviews of entire industries is on the rise. There are currently some four ongoing OFT references of entire markets to the Competition Commission (CC): Northern Irish personal banking, home credit, classified directories and the grocery market, and two recently concluded enquiries: store cards and domestic bulk LPG. The European Commission, which has similar powers, is currently conducting two sector inquiries: into energy and financial services. The energy and financial services sectors are clearly high on both authorities' agenda and come at a time of public criticism - particularly by the UK Treasury Committee and especially in relation to the financial services sector. Groceries are also subject to a growing political debate in the UK largely because of large supermarkets' ubiquity on the high street. Nevertheless, the grocery reference has come as somewhat of a surprise to competition lawyers (and, one may speculate, also to the CC), as the CC has already investigated the same market twice within the last six years: in 2000 as a market enquiry on incidentally very similar grounds to the current reference and in 2003 during the multi-faceted bid battle for Safeway. The situation is not too dissimilar in respect of airports. One of the OFT's principal concerns, namely that the same company operates Heathrow, Gatwick and Stansted was already reviewed in 2002 on a reference from the Civil Aviation Authority. While the CC made orders relating to quality of service, it did not consider that forcing BAA to divest any of its airports would be appropriate and specifically made a finding to that effect. Although the OFT has not yet decided whether or not to refer airports to the CC, it may be questioned whether continued regulatory re-examination of essentially the same issues in the same industries even by the OFT is an appropriate use of both public and private resources. For the industries under review, it involves the dedication of significant costs and management time re-defending issues on multiple occasions. For the regulators it ties up resources which could more usefully be deployed examining other cases. This should be a particular concern for the OFT at a time when it is aiming to reduce significantly the overall number of cases it is investigating, in order to come to speedier outcomes in those cases it finds worthy of investigation. It would be too cynical to suggest that the focus of regulatory reviews is limited to a small number of politically charged industries, where the OFT suspects something but so far has not been able to collate sufficient evidence. However, looking at the number of new references one cannot escape the suspicion that regulatory intervention is on the rise and one must ponder whether the OFT is soon to move the regulatory limelight onto other industries.


Footnotes:
John Schmidt is a partner specialising in competition and regulation with commercial law firm Shepherd and Wedderburn. +44 (0)131 473-5423