Break-up of airport monopoly ordered

The competition watchdog has ordered BAA to sell three of its seven UK airports, ending its monopoly ownership of the leading airports in London and in Scotland. In the toughest corporate sell-off ever demanded by the Competition Commission, BAA, a majority owned subsidiary of Spain’s Ferrovial, will be required to sell Gatwick, Stansted and one of either Glasgow or Edinburgh airports within two years. It will keep control of Heathrow, its most prized asset

Link: Airports face biggest shake-up in history

The commission said it had found “competition problems with adverse effects for both passengers and airlines” at all seven of BAA’s UK airports – Southampton and Aberdeen are the other two. A “key problem” was BAA’s common ownership, which precluded any competition between them.

Link:Promise of new era of lower charges - provides details of how passengers and airlines should benefit. However, there is some concern that individual airports are still monopolies and could raise their charges to recoups the costs of purchase unless there is some form of price regulation. The market will not be sufficiently competitive to ensure effective self regulation.

Does Royal Mail need to be privatised in order to survive?

The government want to sell a stake of about 30% in Royal Mail to the private sector to help pay for the modernisation of the service. It is argued that the injection of private capital is necessary to fund the modernisation the company needed. Many European postal firms have automated a lot of their services which saved them money and made them more efficient. Union leaders and MPs are worried about the threat to jobs and the impact of private sector involvement on the Royal Mail's "universal service" obligation to deliver mail to every UK home. There are fears that selling off 30% will open the door to full privatisation in the future compromise this obligation. Ministers say they are committed to the universal service but argue that Royal Mail is less competitive than its European counterparts and needs to improve its performance in order to safeguard its long-term survival.

Lloyds TSB takeover of HBOS

The Lloyds TSB-HBOS proposed takeover highlights a number of the issues we have been focusing on during the first few sessions of the A2 course.

• The vulnerability of firms once their share price comes under pressure from the markets
• The impact of a merger/takeover on the vulnerable company (Will the Chief Executive of HBOS survive? How many jobs will be lost? How will the business be rationalised?)
• The economies of scale that can be exploited by the new business (“..significant cost savings can be made…”) Will some of these be passed on to customers?
• What impact will it have on competition in the banking market? The government is likely to relax the competition rules even though “…the enlarged group will hold a third of the UK mortgage market”.

Links:
Black Horse becomes White Knight - good graphic showing decline in HBOS share price price
Lloyds TSB unveils HBOS takeover
Profile: Lloyds TSB and HBOS

A view from France

Greater competition, lower prices, must be welcomed by consumers. Not necessarily so, if the example of France is anything to go by. Many French consumers, unhappy at rising prices, inflation at a 17 year high and lower prices elsewhere in Europe, have reacted unfavourably to a proposed new law enabling more hypermarkets to be built to challenge local monopoplies and greater freedom for them to negotiate prices with suppliers. A poll showed that less than half favoured more competition as a solution to their concerns but rather a reduction in sales tax and a rise in the minimum wage.

Unlike the UK, hypermarkets are not allowed sell pharaceutical products, despite their claims that they could do so more cheaply. Despite a legal challenge, ' the pharmacists' monopoly remains—with Mr Sarkozy himself ruling out any change on the ground that pharmacies are not a business but a “public service”. ' Read the full article here.

Water sector competition proposed

The water and sewerage industry should be opened up to competition, says regulator Ofwat. Competition was "severely limited by legislation" and had "not developed successfully", said Ofwat, the regulator in England and Wales. Opening up the sector would help it address climate change and water scarcity, as well as lower costs. Ofwat said it would challenge firms on price and service until competitof the syatem by whichion was "strong enough to protect customers".

The watchdog said competition would help "respond to the environmental challenge of water scarcity, which the government highlighted in its water strategy". It also said "markets could spur innovation in developing and making better use of water resources and more water efficiency services, supporting sustainable water abstraction". Read the BBC article here.

Think about the challenges the water industry faces. How could competiton help address these? What effect would greater competition have on customers? Would they be able to switch supplers easily? Would it lead to a reform of the way in which most customers now pay for their water?

Postal competition has created 'no significant benefits'.

The liberalisation of the UK postal service has produced "no significant benefits" for either households or small businesses, a report has said. That is the initial finding of an independent review of the UK postal sector commissioned by the government. It warned there was now a threat to the Royal Mail's financial stability. The Royal Mail's 350-year monopoly ended at the start of 2006, when other licensed operators were given the right to collect and deliver mail. View article here.

While the initial report said homes and small firms had not gained from the increased competition, it said large companies had "seen clear benefits from liberalisation - choice, lower prices and more assurance about the quality of the mail service".

There is still no significant competition in the delivery of letters, due perhaps to "significant barriers to entry." View The Guardian article here.

Think about why potential competitors are unwilling to challenge Royal mail in the area of household letter delivery. In spite of deregulation, what barriers to entry are still likely to exist?