CMA: more 'open access' rail lines could lower fares and improve competition

The Competition and Markets Authority (CMA) said that more of these 'open access' services or splitting franchise awards could have "immediate benefits" for consumers; whether or not as part of a first step towards replacing the existing franchise system with one that allows for multiple licensed operators. Additional operators would, however, have to contribute financially towards the running of the network to reflect any reduction in franchise fees.

"We've found that there is strong evidence, both here and abroad, of the benefits that the introduction of competition on mainline intercity routes can bring," said Alex Chisholm, the CMA's chief executive.

"There are legitimate concerns about the impact that greater competition might have on the income received by government from franchise operators but so far that concern has been tackled in a way that hinders new entrants. We think a better way would be to have a level playing field – where competing operators are able to make more of a contribution to network costs and to funding unprofitable services. In return they would get more freedom to compete for business against the franchise operator," he said.

The CMA's report, which has been presented to the Department of Transport (DfT) but was not part of a formal investigation, received a mixed response from regulators and campaigning groups. Although economic regulator the Office of Road and Rail (ORR) welcomed the policy document, the Campaign for Better Transport said that passengers would benefit more from a "joined-up" transport network.

"The government has committed billions to upgrading the railways to meet record passenger demand," said the group's chief executive, Stephen Joseph. "Rather than handing this much needed capacity to open access operators, as the CMA proposes, communities and the economy would benefit far more if train companies worked with new city regions and combined authorities on joined-up networks of public transport designed to support the local economy."

The current rail franchising system was established following privatisation under the 1993 Railways Act and accounts for "some 99%" of passenger miles, according to the CMA's report. It is a form of competition 'for' the market, in which successful operators are awarded regional franchises for a specified period, typically of around seven to 15 years.

The report proposes increasing competition 'in' the market – that is, competition for the same passengers between train operators themselves. This could take the form of overlapping or parallel franchises, the latter of which involve connecting the same cities via different routes; or through 'open access' to parts of the franchised route. The number of overlapping and parallel franchises has been in cut in recent years as a result of policy decisions by the franchising authority, while two companies currently run open access services on specified routes along the East Coast main line.

According to the CMA, the ORR only granted four of the 19 applications to operate open access services that it received between 2000 and 2014. When granting applications, the ORR is required to act in accordance with its statutory duties which include "not only an obligation to promote competition in the provision of railway services for the benefit of users, but also ... to have regard to the funds available to the government for its functions in relation to railways and railway services".

To get around this, competing open access operators would have to make more of a financial contribution than they do at present in order to "help cover any fall in the premiums paid to government that might result from increased competition". This could take the form of higher track access charges and a new 'public service obligation' levy, which would go towards funding "important but unprofitable services" including those in rural areas, the CMA said.

A "more radical" option considered by the CMA would be a move towards "multiple operators providing rail services in a fully commercial environment" subject to a new licensing regime. This could be modelled on the regimes operating in other regulated sectors in the UK such as energy, water, postal services and telecoms, the CMA said. Licensed operators would be able to offer services "determined by market forces" through an auction system, and the regime would include obligations to provide unprofitable but socially desirable services, it said.

The CMA said that this option would "generate the strongest on-rail competition", leading to the lowest fares and the strongest incentives for operators to innovate and improve operational efficiencies. However, it would also come with the highest level of operational risk, and require a "strong system operator" to award licences and manage the timetables of multiple intercity train operators, it said.