Merger between DB AG and Stadt- und Regionalbus Göttingen cleared under strict obligations directed at opening up the market

The Bundeskartellamt has approved plans of Deutsche Bahn AG to acquire a 49.9% share in the company Stadt- und Regionalbus Göttingen GmbH (SRG) via its subsidiary Regionalbus Braunschweig GmbH (RBB) only under strict obligations with a view to opening up the local public transport market in the Göttingen area to competition in future.

The President of the Bundeskartellamt, Ulf Böge, stated: “As the majority shareholder in SRG, Göttingen City Council has undertaken to offer all contracts for transport services falling within its competence as contracting entity for local public transport for public tender Europe-wide through open procedures within a period of four years. The invitation to tender should be announced in time to enable the award-winning transport company to start up operations by 1 November 2006 at the latest.  This obligation will offset the strengthening of RBB’s dominant position in the local public transport market in the Göttingen area and open up the market to more competition in future.”

The merger project was notified to the Bundeskartellamt by the companies concerned last December. SRG is a subsidiary company of Göttingen City Council and is to incorporate the existing transport companies of Stadtwerke Göttingen AG.  RBB is one of a total of 18 regional bus companies integrated in the DB concern. It is by far the leading operator of regular regional bus services in the Göttingen, Brunswick and Hildesheim area. On account of an overlap in the areas of operation of SRG and RBB in the Göttingen area, which would have resulted in a joint market share of well over 80 %, a strengthening of RBB’s already dominant position would have been expected in view of relatively weak residual competition in the local public transport sector. With SRG RBB would acquire its leading rival as regards competition for the issue or re-issue of concessions for regular services. The worsening of the structural conditions for competition in the Göttingen area expected from this could only be avoided by opening up the local transport market in this area to effective competitive bidding for tenders. Of particular importance here is competition for transport markets on expiry of the respective transport contracts and concessions for regular services. Furthermore competition in the local public transport sector is virtually non-existent due to the formation of transport associations, for transport policy reasons. 

Within the merger control proceedings which have now been completed the Bundeskartellamt has for the first time comprehensively defined and evaluated the regulatory framework and conditions for competition in the local public transport sector.  Like other network-based service sectors before liberalisation (e.g. energy supply) one particular feature of the local public transport sector is that its market structure is currently characterised by regional monopolies. The currently low intensity of competition in the local transport sector is due primarly to how the regulatory framework was implemented in practice, especially the respective regulations of the Passenger Transportation Act.  According to this every transport company requires a state permit (concession) to operate a regular service. This exclusive concession is granted for a limited period of time so that the regional monopoly of a transport company can basically be challenged in the event of expiry of the concession.

The low intensity of competition in the local public transport sector has led to initiatives at European level which are aimed at extending the obligation to tender to transport services. However no one can predict when this political process will be completed and what form it will take. Nevertheless the growing pressure to liberalise has led many transport companies in Germany to consider how they can adapt to the competition expected in the future. In many cases cooperations with transport companies with strong market positions such as DB AG have played an important role in this. As a result of the regulatory and competition conditions currently prevailing there is still the danger that the liberalisation successes envisaged will be countervailed if the transport companies secure and strengthen their dominant positions in the form of mergers in anticipation of liberalisation. On the other hand the Bundeskartellamt is also fully aware that a change in the corporate structure of business is necessary to bring about liberalisation in the public transport sector.

In the view of Bundeskartellamt President Böge the decision which has now been taken does justice to this conflict of objectives.  On the one hand it will not prevent the large number of local transport companies, which themselves admit to their currently low competitiveness, from cooperating with other companies in the local transport sector. On the other hand it avoids jeopardising the liberalisation successes strived for in the local public transport sector. Making it obligatory to issue public invitations to tender Europe-wide in the near future will achieve the objective of opening up the local public transport sector to competition for the respective regional market affected.