Competition Law and Rail Transport Competition Issues

1. Introduction

Rail transport presents distinctive competition-law problems because railways are network industries. A railway undertaking may simultaneously control infrastructure, operate trains, provide traction or terminal services, and compete with downstream freight or passenger operators. This creates a risk that control over an indispensable facility can be used to restrict competitors.

The principal competition issues include:

1. Monopoly and dominant position in railway infrastructure
2. Access to tracks, terminals, stations and depots
3. Discriminatory infrastructure access
4. Refusal to deal or refusal of access
5. Exclusionary conduct by vertically integrated railway operators
6. Predatory or discriminatory pricing
7. Cross-subsidisation and margin squeeze
8. Allocation of scarce train paths
9. Railway mergers and concentration
10. Joint ventures and cooperation between railway operators
11. State ownership and competitive neutrality
12. Preferential treatment of affiliated railway companies
13. Essential-facilities issues
14. Competition between rail and road/air transport
15. Regulatory independence of infrastructure managers

The EU has developed particularly important jurisprudence because European railway liberalisation deliberately separates infrastructure management from competitive train operations. India has also confronted these issues, notably in the Arshiya Rail Infrastructure litigation before the CCI.

2. Legal Framework

A. India

The principal legislation is the Competition Act, 2002.

Section 3 — Anti-competitive agreements

Railway operators may infringe Section 3 through:

• price fixing;
• allocation of freight/passenger markets;
• bid rigging;
• agreements restricting access to railway infrastructure;
• discriminatory arrangements between competing operators;
• exclusive arrangements.

Section 3(4) is particularly relevant to vertical arrangements involving:

• exclusive supply;
• exclusive distribution;
• refusal to deal;
• tying;
• resale-price restrictions.

Section 4 — Abuse of dominant position

Section 4 becomes important where a railway undertaking or infrastructure operator has substantial market power.

Potential abuses include:

• unfair or discriminatory conditions;
• unfair or discriminatory prices;
• denial of market access;
• limiting technical or economic development;
• leveraging dominance into related markets;
• predatory pricing.

Section 19

The CCI considers factors such as:

• market share;
• size and resources;
• economic power;
• entry barriers;
• dependence of consumers;
• market structure;
• vertical integration;
• relative advantages enjoyed by the enterprise.

3. Why Rail Transport Creates Special Competition Problems

Railways have substantial fixed-cost infrastructure.

A competing operator normally cannot economically construct an entirely parallel railway network merely to enter the market.

Consequently, competition often occurs in a structure resembling:

Infrastructure monopoly → regulated access → competing train operators → freight/passenger customers

This means competition law must examine not merely the price of railway services but also whether competitors can obtain meaningful access to the infrastructure necessary to compete.

For example:

• Track access
• Train paths
• Stations
• Freight terminals
• Maintenance facilities
• Electrification
• Signalling systems
• Marshalling yards
• Locomotive/traction services
• Intermodal terminals

4. Major Competition Issues

I. Infrastructure as an Essential Facility

A railway network can have characteristics of an essential facility where:

1. the infrastructure is controlled by a dominant undertaking;
2. competitors cannot reasonably duplicate it;
3. access is necessary to compete downstream; and
4. denial or discriminatory access can eliminate effective competition.

However, competition law does not automatically require every dominant infrastructure owner to provide access in every circumstance. The precise legal test depends upon the applicable jurisdiction and regulatory framework.

Railway-specific EU jurisprudence demonstrates that the analysis can be particularly strict where infrastructure is legally subject to third-party access.

5. Refusal of Access

A dominant railway infrastructure manager may potentially abuse its position by:

• refusing access;
• delaying access;
• providing inferior train paths;
• allocating commercially unattractive slots;
• charging discriminatory access fees;
• refusing terminal access;
• providing access to its own affiliate on preferential terms.

The problem becomes especially serious where the infrastructure manager is vertically integrated with a downstream railway operator.

6. Vertical Integration and Discrimination

Consider:

Railway Infrastructure Company A controls the track.
Railway Operating Company A is its affiliate.
Independent Operator B needs the same track.

If A provides:

• favourable train paths to its affiliate;
• slower paths to B;
• higher charges to B;
• better terminal facilities to its affiliate;
• discriminatory maintenance access;

competition law may examine whether the infrastructure monopoly is being used to protect the downstream affiliate.

This is one of the most important structural issues in railway competition law.

7. Predatory Pricing and Margin Squeeze

A railway undertaking may operate at several levels of the supply chain.

For example:

Infrastructure access → traction → freight transport

A vertically integrated undertaking could theoretically:

• charge competitors high infrastructure fees;
• charge its own downstream operation lower internal prices;
• simultaneously charge low downstream freight prices.

This can create a margin squeeze.

The relevant question is whether an equally efficient or reasonably efficient competitor could profitably compete after paying the infrastructure/access charges imposed by the dominant undertaking.

8. Allocation of Train Paths

Rail capacity is scarce.

During peak periods, infrastructure managers may have more requests than available capacity.

Competition concerns can arise if the infrastructure manager:

• systematically favours its own trains;
• gives competitors inferior time slots;
• reserves capacity strategically;
• uses capacity allocation to exclude a new entrant;
• applies apparently neutral rules selectively.

Therefore, transparent and non-discriminatory allocation mechanisms are important.

9. Railway Terminals and Ancillary Facilities

Competition problems are not restricted to tracks.

Important facilities include:

• container terminals;
• freight yards;
• stations;
• locomotive facilities;
• maintenance depots;
• marshalling yards;
• loading facilities;
• electricity supply;
• signalling facilities.

A railway undertaking can potentially use control over these facilities to disadvantage competitors even where formal track access exists.

10. Railway Mergers

Railway mergers can create substantial concentration because railway markets may already have:

• high fixed costs;
• limited alternative infrastructure;
• regional monopolies;
• network effects;
• scarce train paths;
• significant barriers to entry.

Merger analysis therefore examines whether a transaction could:

• eliminate an important competitor;
• create a dominant freight operator;
• increase bargaining power against shippers;
• foreclose access to terminals;
• strengthen vertical integration;
• facilitate coordination.

Structural or behavioural remedies may sometimes be considered where competition concerns arise.

11. Joint Ventures and Cooperation

Railway companies frequently cooperate because international or long-distance services require:

• interoperability;
• rolling stock;
• cross-border train paths;
• signalling compatibility;
• stations;
• traction;
• ticketing arrangements.

Such cooperation can generate efficiencies.

However, competition law must examine whether a joint venture:

• unnecessarily excludes competitors;
• restricts access to infrastructure;
• fixes prices;
• allocates markets;
• prevents independent entry.

The European Night Services case is especially important here.

12. Important Case Laws

1. Arshiya Rail Infrastructure Ltd. v. Ministry of Railways & Ors. — CCI, 2012

Case Nos. 64/2010, 12/2011 and 02/2011

This is one of the most important Indian competition-law decisions concerning railway transport.

Facts

Arshiya Rail Infrastructure and KRIBHCO Infrastructure were involved in the operation of private container trains.

They alleged that the Ministry of Railways and railway-related entities:

• enjoyed dominance;
• imposed discriminatory conditions;
• restricted commodities that private container train operators could transport;
• imposed haulage and other charges;
• gave advantages to CONCOR;
• disadvantaged private container train operators.

The case therefore raised issues of:

• dominance;
• relevant-market definition;
• discrimination;
• market access;
• vertical integration;
• essential infrastructure;
• the relationship between regulation and commercial railway activity.

Decision

The CCI ultimately did not find the Ministry of Railways/Indian Railways or CONCOR dominant in the relevant market as defined by the Commission, and therefore did not find abuse of dominance. The Commission also rejected the allegation of an anti-competitive vertical arrangement.

Importantly, however, the Commission identified concerns arising from the Railway Board's multiple roles as licensor, operator and owner of railway infrastructure, and observed that independent institutional arrangements could address the conflict of interest.

Principle

The case demonstrates that:

A railway undertaking is not automatically dominant merely because it has substantial control over railway infrastructure; the relevant market must first be correctly defined.

It also illustrates the importance of separating:

• regulatory functions;
• infrastructure ownership;
• licensing;
• commercial railway operations.

2. European Night Services Ltd. & Others v. Commission — Joined Cases T-374/94, T-375/94, T-384/94 & T-388/94

General Court, 15 September 1998

This is a foundational European railway competition case.

Facts

British Rail, Deutsche Bahn, Nederlandse Spoorwegen and SNCF participated in arrangements concerning overnight passenger railway services through the Channel Tunnel.

The arrangements involved cooperation concerning:

• traction;
• train paths;
• rolling stock;
• passenger services;
• other necessary railway services.

Competition Issue

The Commission examined whether cooperation among major national railway undertakings could restrict competition by making entry more difficult for competing operators.

Decision

The General Court examined the relevant markets and the competitive effects of the arrangements. The case is particularly significant because it addressed:

• railway cooperation;
• market definition;
• potential competition;
• access to necessary railway services;
• essential-facility considerations.

The Court found shortcomings in the Commission's assessment and reasoning concerning the relevant markets and competitive effects.

Principle

Railway cooperation must be assessed according to its actual competitive effects and market structure, rather than assuming that cooperation is automatically unlawful.

3. Deutsche Bahn AG & Others v. European Commission — Joined Cases T-289/11, T-290/11 & T-521/11

General Court, 6 September 2013

This litigation concerned Commission inspections relating to possible anti-competitive practices in the German railway sector.

Issues

The Commission investigated possible practices involving:

• DB Energie's electricity rebate arrangements;
• access to DUSS terminals;
• pricing of terminal services;
• possible strategic use of railway infrastructure;
• potential discrimination against competing railway operators.

The Commission was examining whether infrastructure controlled within the DB group could be used to disadvantage competitors.