Competition Commission Seeks to Increase Competition in Payment Protection Insurance Market

In June 2008, the Competition Commission concluded, after an investigation, distributors of payment protection insurance (PPI) in the UK face little or no competition when selling PPI to their customers. The Commission published a report November 13 that listed its proposed remedies to increase competition in the market.

PPI covers borrowers in the event they are unable to make payments on loans, credit cards, or mortgages because of accident, sickness, or unemployment. PPI has been under scrutiny since 2005, when a consumer group referred a complaint about PPI to the Office of Fair Trading. The OFT referred the case to the Commission in February 2007. The OFT found that only 20 percent of PPI premiums are ever paid out in claims, while 82 percent of car insurance premiums are paid out in claims.

The Commission noted that the vast majority of PPI policies are sold at the same time as a consumer takes out a loan or other credit. Many consumers are unaware they can purchase PPI from other providers. Consumers rarely shop around to compare terms, conditions and prices for PPI and rarely switch PPI providers. The Commission found that the ‘point-of-sale’ advantage makes it hard for consumers to locate other PPI companies and leads to a lack of competition and high prices in the PPI market.

The Commission recommended several measures which it thinks will be effective in increasing competition in the PPI market. The most drastic measure was a ban on the sale of PPI by a distributor to a consumer within 14 days of the distributor extending credit to the consumer. Under the plan, the consumer could contact the distributor 24 hours after the sale if he wanted to purchase PPI. The Commission determined this ban will give the consumer more opportunity to shop around for PPI, and will eliminate the point-of-sale advantage.

The Commission called for advertising for PPI to be made clearer. The Commission also recommended a ban on single-premium PPI policies, where consumers pay for the insurance upfront, because it’s difficult for consumers to switch policies and compare costs with other PPI policies.

The Association of British Insurers criticized the new plan harshly, stating that it would result in financial hardships for individuals and families who failed to purchase PPI and found themselves unable to make repayments on a loan. The British Bankers Association claimed it was wrong to encourage people to borrow money without a back-up in place.

However, many consumer groups were pleased with the recommendations. One group recently warned that banks were pushing PPI to consumers who mistakenly thought they were required to purchase it. Another problem is the insurance is frequently sold to consumers who could never make a claim on it, like the self-employed or employees on short-term contracts. The Financial Ombudsman reported that about one-fourth of the complaints it receives each week are about PPI.

The Commission is inviting interested parties to contact it with comments and concerns about the proposed plan before December 4. The final report is scheduled to be released in mid-January 2009.

About the author: Jason Hardy is an avid writer on legal issues, including international writing about many subjects including european antitrust. Eu competition law interests Jason particularly. He resides in Seattle, Washington.

Soccer Fans File Complaint with Office of Fair Trading Over Ticketing Issues

Manchester United, a professional soccer team in Great Britain, has been reported to the Office of Fair Trading by the Manchester United Supporters Trust (MUST), which claims to represent 34,000 fans of Manchester United. MUST claims that the team has breached its statutory and legal obligations to its season ticket holders.

The main complaint of MUST is Manchester United’s Automatic Cup Scheme for season ticket holders. The plan requires season ticket holders to purchase tickets for cup games without knowing who the opposition will be, the price of the tickets, or how many tickets they will have to pay for. Season ticket holders are required to purchase the tickets, whether they will be able to attend the games or not, or else they will not be allowed to renew their season tickets.

MUST also complains that the ACS is balanced in the club’s favor. MUST claims that season ticket holders are obligated to pay for the tickets to the cup games against the less desirable teams, while being denied tickets to the more popular cup games against European teams later in the season. In addition, it claims, teams sometimes use younger teams during cup matches, which forces fans to purchase tickets to watch inferior players.

MUST argues this scheme violates the Competition Act 1998, Part II, Section 18(2), which prohibits companies from abusing a dominant position in the market. MUST also alleges this violates the Unfair Terms in Consumer Contract Regulations 1999, which renders ineffective any contract terms that are unfair to consumers.

MUST is also unhappy with the rise in ticket prices. Since 2005, when a new owner, Malcolm Glazer, took over the team, season tickets have increased by an average of almost 60 percent. Tickets for individual games have risen as much as 41 percent. As an example, MUST notes that a season ticket that would have cost £532 in 2004-2005 now costs £912 before cup matches are factored in.

MUST claims that Glazer broke a pledge he made to the fans before he purchased the team that he would not raise ticket prices. The fans allege this pricing scheme is in violation of the Competition Act 1998, Part II, Section 18(2)(a), which states that conduct may be considered to be an abuse of a dominant market position if the conduct imposes unfair purchase prices or trading conditions.

MUST requested the OFT investigate the way in which the new pricing scheme has been introduced. MUST acknowledged that although prices do rise over time, because Manchester United has a dominant market position and there is no reasonable substitute available, its practices violate consumer protection laws.

The OFT stated that it had received the complaint and will review it before deciding whether to go forward. There is no set timetable for completing an investigation.

About the author: Jason Hardy is an avid writer on legal issues, including international writing about many subjects including european antitrust. Eu competition law interests Jason particularly. He resides in Seattle, Washington.

Office of Fair Trading Refers Software Company Merger to Competition Commission

The U.K.’s Office of Fair Trading referred the completed acquisition of IBS OpenSystems by Capita Group to the Competition Commission for further review, after an investigation revealed possible anti-trust problems with the deal. Capita, one of the U.K.’s largest support services companies, agreed in June 2008 to buy IBS, a software company.

The OFT is concerned about competition in the supply of revenue and benefits software services to consumers. Currently, Capita, IBS, and Northgate Information Solutions are the only three successful companies providing such software in the U.K. The OFT reasoned that if IBS is removed from the market, there will only be two companies providing such services, which will result in less competition and higher prices. The OFT observed that the possibility of a new company entering the market would be unlikely. During its inquiry, the OFT also found that customers in the market were very concerned about the effect of a merger on competition.

In general, the OFT has a duty to refer any merger situation that has or will result in a lessening of competition for goods or services within any market in the U.K. to the Competition Commission for further review. Markets of £10 million or less are generally considered too small to justify a referral to the Competition Commission. Such inquiries fall under the de minimis exception to the duty to refer. The total market for such software services in the U.K. is around £20 million.

Capita argued that although the total market may now be around £20 million, the limited value of the contracts that are coming up for renewal in 2008 means that the market is much smaller. Therefore, it claimed, the OFT should not refer the case to the Competition Commission under the de minimis exception.

The OFT dismissed this argument, finding that given the uncertainty around the number and value of the contracts for which parties could compete in the future, and the extent and duration of competition concerns that the merger will create, a further investigation by the Competition Commission is justified.

The OFT recently cleared a similar merger in the same market. Northgate Information Solutions, one of the three competitors in the market with Capita and IBS, recently acquired Anite Public Sector Holdings, another supplier in the software market. The OFT found that this merger did not remove a supplier of software to local consumers from the market.

Capita stated it would cooperate with the Competition Commission during its inquiry.

About the author: Jason Hardy is an avid writer on legal issues, including international writing about many subjects including european antitrust. Eu competition law interests Jason particularly. He resides in Seattle, Washington.

Merger of Giant Breweries Approved by EU and U.S. Regulators with Conditions

The U.S. Department of Justice and the Office of Fair Trading approved the acquisition of Anheuser-Busch by Belgian brewery InBev. However, the Department of Justice required InBev to sell its interest in LaBatt Brewing in the U.S.

Anheuser-Busch controls nearly half of the United States beer market, while InBev is strong in Western Europe and Latin America. Anheuser makes Budweiser, the U.S.’s most popular beer. Its 2007 revenue was $16.6 billion. InBev is the world’s second-largest brewer. Its 2007 sales were €14.4 billion. InBev makes Stella Artois, Becks, Bass and Labatt Blue beers.

The Department of Justice found that the transaction, as originally proposed, would have led to higher prices for beer in the Rochester, Syracuse, and Buffalo, New York metropolitan areas. Anheuser-Busch and InBev make the two most popular beers in those cities, and the proposed merger would have resulted in higher prices to beer drinkers in those areas. In the vast majority of markets for beer in the U.S., InBev brand beers account for less than two percent of the beer market and engage in very limited competition with Anheuser-Busch.

A final consent judgment regarding the acquisition was filed in U.S. District Court for the District of Columbia on November 17. The judgment requires LaBatt, a partially owned subsidiary of InBev based out of Toronto, to grant a perpetual and exclusive license to brew, market, distribute and sell the Labatt beer brands in the U.S. to an independent third party. LaBatt Brewing in Canada will be allowed to brew and supply LaBatt brand beers to the U.S. licensee for three years.

The German Federal Cartel Office formally approved the merger on August 20. The Office of Fair Trading, which was the primary European regulator involved, announced on November 18 that it was approving the deal. Initially, the OFT was concerned that after the merger, the consolidated company would have a market share of between 25 and 50 percent in various beer markets in the EU. The OFT feared the lack of competition would make it easier for the company to raise prices for consumers.

However, after an investigation, the OFT found that the Budweiser and Stella Artois brands both have loyal customers who generally do not prefer the other brand, so they are not close competitors. In addition, retail chains, bars, pubs and restaurants who sell beer were unconcerned about the merger. Evidence also showed that there are other competing premium lagers that would keep prices in check.

The deal, which was worth $52 billion, created the world’s largest brewer, which will be called Anheuser-Busch InBev. The acquisition was the largest cash acquisition in history.
The combined company will be one of the five largest consumer products companies in the world. InBev has promised that Anheuser’s headquarters will remain in St. Louis, Missouri and that none of its breweries would be closed as a result of the merger. InBev wants to complete the acquisition as soon as possible, and the deal could close as early as the end of the month.

About the author: Jason Hardy is an avid writer on legal issues, including international writing about many subjects including european antitrust. Eu competition law interests Jason particularly. He resides in Seattle, Washington.

European Commission Investigates Cartels in Cement Industry

On November 4 and 5, the European Commission raided the offices of several major European cement companies on suspicion of cartel activities. The companies under investigation include Lafarge of France, the world’s largest cement maker, Holcim of Switzerland, the world’s second-largest cement maker, and German companies HeidelbergCement and Dyckerhoff, as well as a company in Mexico.

The Commission stated that it had “reason to believe” that the companies involved may have broken Articles 81 and 82 of the EC Treaty, which prohibit price-fixing cartels and monopolies. The investigation hopes to uncover evidence of coordinated price movements, discriminatory pricing and market sharing. However, no formal charges have been filed against the companies.

The Commission’s first step when suspecting anti-trust violations is a surprise inspection of the companies involved. The Commission has no deadline to complete its investigation, but the timeline usually depends on the complexity of the case and the cooperation of the companies involved.

In 1994, an investigation into anti-trust practices in the cement industry resulted in fines for 42 companies, including Lafarge. The companies involved were accused of dividing the cement market among themselves and sharing information. In 2000, a European Union court reduced their fines from €248 million to €108 million. Additionally, in 2002 Lafarge was €250 million for its involvement in a plasterboard cartel. In 2003, Germany fined cement companies €660 million for anti-trust violations. Because the cement market has been consolidated over the past 20 years, anti-trust regulators and industry watchdogs are watchful of anti-trust violations.

In addition to the penalties from anti-trust regulators imposed on the cement industry, cement companies also face challenges from others active in the cement industry. In Germany, Cartel Damage Claims filed suit against Heidelberg, Lafarge, and others, seeking millions in damages on behalf of 35 companies damaged by an alleged cement cartel that began in the 1970s.

If any of the companies involved in the current investigation are found to be repeat offenders of the anti-trust laws, they could face heavy increased fines. The Commission’s ability to fine anti-trust violators has increased in recent years. In addition, Neelie Kroes, the current Competition Commissioner, has made a crackdown on cartels a priority during the past four years. In recent years, the EU has been giving amnesty to the first company to come forward with evidence of a cartel, which has resulted in the exposure of many cartels.

About the author: Jason Hardy is an avid writer on legal issues, including international writing about many subjects including european antitrust. Eu competition law interests Jason particularly. He resides in Seattle, Washington.

European Commission Gives Glass Cartel Biggest Price-Fixing Fine in History

The European Commission imposed a record fine of almost €1.4 billion on four manufacturers of automobile glass, finding they operated a cartel and shared commercial secrets for five years. The Commission fined Great Britain’s Pilkington (€370 million), Japan’s Asahi/AGC (€113.5 million), Belgium’s Soliver (€4.4 million), and France’s Saint-Gobain (€896 million). The fine issued to Saint-Gobain was the largest the Commission has ever awarded a company before.

The Commission received an anonymous tip about the cartel and began a three-year investigation. In 2005, the Commission raided the offices of several car glass producers in Europe. After the raid, Asahi helped the Commission with its investigation, and had its fine cut in half as a result.

The Commission’s investigation found the cartel cheated the car industry from 1998 to 2003. Senior managers of companies involved in the cartel discussed the supply limits of car glass for new cars and renegotiated ongoing contracts during secret meetings at airports and hotels across Europe. The cartel also rigged prices for windscreens, sidelights, rear windows, and sunroofs in new European cars.

The cartel controlled 90 percent of the glass used in new cars, as well as for original replacement glass. The cartel operated in the European Economic Area, which includes all countries in the European Union plus Liechtenstein, Iceland, and Norway.

Soliver only joined a portion of the secret meetings, so its fine was significantly lower than the other companies involved. The Commission increased the fine for Saint-Gobain because it had participated in cartels in 1984 and 1988 in Italy and Belgium. Saint-Gobain’s fine represents 95 percent of the company’s annual glass sales in Europe. Saint-Gobain plans to appeal, and complained that it had only set aside €520 million for the fine. The company also noted that it offered training each year for thousands of its managers in competition rules.

However, the Commission noted Saint-Gobain’s annual sales are €43 billion, and the Commission has the authority to fine companies up to 10 percent of global turnover for every year they broke the law. The Commission says it set the fines in this case so high because of the large size of the market and the seriousness of the case.

In addition to the fines, the Commission urged businesses or individuals that have suffered from the cartel to seek damages from the companies in court. The money collected from the fines goes into the EU’s budget and is primarily spent on farm subsidies and research.

About the author: Jason Hardy is an avid writer on legal issues, including international writing about many subjects including european antitrust. Eu competition law interests Jason particularly. He resides in Seattle, Washington.

European Commission Objects to Merger of Mining Companies

On November 4, the European Commission issued a statement of objections to the proposed merger of the Australian mining company BHP Billiton and Rio Tinto. The content of the statement of objections was not released by the Commission or the companies.

In February, BHP Billiton, the world’s largest mining company, made a hostile offer for smaller rival Rio Tinto. The offer was for 3.4 shares of BHP Billiton stock for each Rio Tinto share. In addition, BHP Billiton would assume $40 billion of Rio Tinto’s debt. Rio Tinto rejected the offer as too low. The companies are now waiting for the Commission to approve the deal before approaching shareholders.

Typically, the Commission will not block a merger. However, the Commission can push hard for concessions to be made in order for the deal to go through, and it has done so in recent mining mergers. One proposed remedy is a divestment of assets by the combined company. Another suggestion to obtain Commission approval is for BHP Billiton to commit to selling a certain amount of its iron ore on the stock market on a contract basis, and to make its price-setting mechanisms transparent.

The merger of BHP Billiton and Rio Tinto would combine the world’s second- and third-largest miners of iron ore and allow them to overtake Companhia Vale do Rio Doce, the world’s largest producer of iron ore. BHP Billiton wants to buy Rio Tinto to cut costs and obtain a larger share of the metal markets. The combined companies would have sales of $100 billion a year.

However, European steelmakers object to the merger, saying it would give the merged company a market share of almost 40 percent of the seaborne iron ore market. Seaborne iron ore is the raw material that is used to make steel. Both companies have iron ore mining operations in western Australia. Other parties opposed to the deal have pointed out that the combined company would also have a dominant market position in the aluminum and uranium ores markets, as well as coking coal.

The Commission started its review of the deal on September 29 and is due to make a decision by January 15. If the deal is completed, it will be one of the largest corporate takeovers in history. Anti-trust regulators in Australia, the U.S., Canada and South Africa have given permission for the merger.

However, anti-trust regulators in Japan have also expressed reservations about the deal. The companies involved have not sought permission for the merger from the Japanese government, but the government is demanding information on the deal because of pressure from auto-makers who are worried about the price of steel.


About the author: Jason Hardy is an avid writer on legal issues, including international writing about many subjects including european antitrust. Eu competition law interests Jason particularly. He resides in Seattle, Washington.

Competition Commission Finds Airport Owners Acted Against Public Interest

The Competition Commission published a report on November 4 finding that British Airport Authority (BAA), which owns seven airports in the UK, has acted against the public interest in its management of Stansted Airport. The Commission investigated Stansted for six months at the request of the Civil Aviation Authority (CAA).

In its report, the Commission found that the airport failed to consult adequately with the airlines about its planned expansion, failed to manage the security waiting process, and overcharged cargo aircraft for landing. The Commission noted that it had received furious criticism about the quality of service at Stansted since 2002.

The Commission has investigated problems with British airports in the past, which it blames on a lack of competition in the ownership of airports. The Commission previously recommended that BAA should sell three of its airports to increase competition.

Ryanair, an airline that operates routes across Europe and North Africa, complained to the Commission about the costs of using the UK’s airports, with Stansted as its main concern. Ryanair is grounding 15 airplanes at Stansted this winter because the airport’s fee structure hurts the airline’s profitability. In its report, the Commission did not agree with Ryanair that the airport’s costs were excessive for airlines, and found that the airport had not operated against the public interest with regard to airport charges.

The report recommended that the CAA require BAA to take three actions: (1) improve the consultation process with the individual airlines; (2) introduce a service quality rebate scheme under which BAA will be forced to pay airlines for poor performance; and (3) offer off-peak discounts on landing charges for the largest cargo aircraft.

The Commission recognized that the introduction of extra security measures in 2006 caused problems, but still thought BAA did not do enough to meet the needs of its customers. CAA statistics show that 78 percent of flights from Stansted took off within 15 minutes of their scheduled departure time. The average delay was just under 15 minutes.

The Commission’s report also recommended landing fees be set significantly below BAA’s expectations. The Commission ruled that fees could rise from £ 6.34 per passenger to £ 7.05 over the next five years.

The BAA expressed disappointment in the Commission’s report, claiming that the Commission had failed to reflect large elements of the cost in operating Stansted Airport over the next five years and beyond in its assessment.

The CAA will consider the recommendations before making its final decision in March 2009. It must decide on the five year price cap regime for Stansted, as well as imposing remedies in areas where BAA has acted against the public interest.


About the author: Jason Hardy is an avid writer on legal issues, including international writing about many subjects including european antitrust lawsuits. Eu competition law interests Jason particularly. He resides in Seattle, Washington.

British Video on Demand Service Responds to Competition Inquiry

In October, the backers of Kangaroo, a video on demand service, published an updated submission to the UK’s Competition Commission, responding to the Commission’s ongoing investigation of competition concerns with the video on demand (VOD) project.

In November 2007, three British companies announced a joint venture that would create a VOD service called Kangaroo. Kangaroo would provide an internet-based service to enable users to view and own audiovisual material, sell internet advertising space, and syndicate content to third party VOD service providers. The three companies involved are: BBCW, a subsidiary of the British Broadcasting Corporation, which is primarily involved in the commercial exploitation of content produced by the BBC; Channel 4 Television Corporation, a publicly owned corporation which operates several channels; and ITV plc, which is active in the audiovisual market. The companies submitted their plans for Kangaroo to the Office of Fair Trading in April 2008.

The OFT found the venture did raise competition concerns, and referred the case to the Competition Commission. The OFT noted that after the transaction, the VOD activities of the three companies involved will no longer be distinct. In particular, the companies’ activities will overlap in the area of “catch-up” television, which is content made available via VOD within a window of zero to 30 days after its initial broadcast on television. Kangaroo will account for more than 25 percent of catch-up hours available on VOD in the UK. The OFT was also concerned about that the lack of competition for VOD services would result in increased costs for consumers.

In its newly released submission to the Commission, Kangaroo claimed there were serious misconceptions about Kangaroo’s effect on competition. Kangaroo pointed out that the competition concerns “centre on the argument that the parties have strong market positions in respect of rights over UK TV content and that UK TV content is unique… Both of these propositions are misconceived.”

Specifically, Kangaroo argued it would not have unfair access to VOD rights, because they would be separate from television show rights. In addition, the strength in the television market of the three companies involved in the venture would not apply, since a lot of UK television content, such as sports, news, soap operas and talent shows would not be suitable for VOD.

Kangaroo noted it would not drive up prices for consumers, because 90 percent of Kangaroo’s content will be free. Kangaroo also claimed that it only expected to get about 10 percent of UK VOD revenue by 2012. It observed that it faces significant competition from Amazon’s Lovefilm, Sky, Virgin Media, Microsoft, and Tesco.

The Competition Commission is currently investigating Kangaroo and is expected to rule on the project in February 2009.


About the author: Jason Hardy is an avid writer on legal issues, including international writing about many subjects including european antitrust lawsuits. Eu competition law interests Jason particularly. He resides in Seattle, Washington.

UK’s Business Secretary Approves Huge Bank Merger

The UK’s secretary of state for business, Peter Mandelson, granted approval on October 31 to the proposed merger of Lloyds TSB Group and Halifax Bank of Scotland (HBOS), two major British banks.

On September 18, Lloyds announced it was preparing to take over HBOS, Britain’s largest mortgage lender, for £ 12 billion. The HBOS share price had been steadily decreasing for almost a year. HBOS overextended itself with a heavy focus on sales and raising funds to lend to customers. When lending between banks slowed recently, HBOS faced a huge problem.

The merger will create a banking giant that will control about 25 percent of British accounts, 28 percent of home loans and £ 400 billion in savings deposits, or about 50 percent of the savings market. Normally this merger would raise competition issues. However, the government changed the law to allow the merger to take place in the interest of maintaining the stability of the British financial system. The takeover will create the largest ever British bank.

The OFT released its report to Mandelson on October 24, outlining its concerns with the merger. The OFT was particularly concerned that the merger would result in a substantial lessening of competition for mortgages, personal accounts, and banking services for small and medium sized businesses.

The OFT took into consideration the views of the Financial Services Authority, the Bank of England, and the Treasury, as well as other stakeholders. The OFT noted that most parties agreed that the merger would support financial stability, and was therefore in the public’s best interest.

The OFT’s report on competition issues was binding. Therefore, any anti-competitive outcome identified by the OFT is treated as being adverse to the public interest, unless it is justified by one or more relevant public interest considerations. The UK’s secretary of state for business found that the stability of the UK financial system outweighed the OFT’s competition concerns, and decided not to refer the case to the Competition Commission. He asked the OFT to “continue to keep the relevant markets under review in order to protect the interests of UK consumers and the British economy.”

The shareholders will vote on the merger in the third week of November. If the merger is approved, Lloyds expects to complete the transaction and capital raising by January. The government is injecting £ 17 billion in capital into the banks, which is contingent on the transaction going forward.


About the author: Jason Hardy is an avid writer on legal issues, including international writing about many subjects including european antitrust lawsuits. Eu competition law interests Jason particularly. He resides in Seattle, Washington.