Future of rail project rides on competition ruling

Date: 10/09/1998

By Myles Neligan

THE national railway operators of Germany, France, the Netherlands and the UK are nervously awaiting a decision from the European Court of First Instance which will determine the long-term future of a 300-million-ecu joint venture they launched in 1993.

The ruling, due next Tuesday (15 September), is expected to set an important precedent for competition cases in the fields of transport and telecommunications, where the main firms typically control much of the industry's infrastructure.

The case traces its origins back to the completion of the Channel Tunnel in 1993, a development which prompted the four national rail carriers to join forces in a venture designed to provide rapid overnight rail connections between Glasgow, Paris, Brussels, Amsterdam and Frankfurt. Entitled European Night Services (ENS), the joint venture particularly targeted business travellers who would be prepared to pay higher prices for their tickets.

The four parent companies claimed that EU competition rules were not applicable to ENS. They argued that, far from restricting the choice available to consumers, the joint venture in fact offered a highly competitive alternative to air travel between the destinations in question.

The European Commission, however, took a different view. In September 1994, Competition Commissioner Karel van Miert's staff decided that cross-Channel rail and air travel did not constitute an undifferentiated market, and that ENS' activities therefore "may impede access to the rail passenger market by those transport operators in a position to compete with it".

The Commission noted that, under international law, any railway operator would be entitled to offer similar services to those provided by ENS through leasing arrangements with its counterparts in other countries, and argued that ENS' presence on the market made it highly unlikely that any such rival operations would spring up.

The parent companies' exclusive control of the high-speed trains operating through the Channel Tunnel was also cited as evidence of a dominant market position, as was a series of agreements between the four rail operators relating to the transport of freight.

The Commission's final decision fell short of an outright prohibition on the joint venture, but was described by executives from European Passenger Services, ENS' immediate owner, as "unacceptably restrictive".

The institution decided that ENS could be exempted from the full rigour of EU competition rules until December 2002, but ruled that the parent companies must agree, in the intervening period, to provide the necessary services to any other company wishing to set up a rival venture.

The four national rail operators immediately challenged the ruling, arguing that ENS occupied a unique market niche that no single rail company would be in a position to exploit. They also protested that the Commission's ruling would make it very difficult to gain any return on the 300 million ecu which was invested in the joint venture, pointing out that some 230 million of this had been spent on building 139 specially designed carriages.

Executives from EPS and the four parent companies are remaining tight-lipped ahead of next week's ruling to avoid prejudicing the Court's decision. But sources close to the debate say the rail operators take the view that the Commission based its decision on a misunderstanding of the railway industry and on an incomplete assessment of the complex network of agreements underpinning the ENS venture.