The Competition and Markets Authority (CMA) in the UK has raised concerns over the award of the South Western franchise to FirstGroup and Hong Kong's MTR, following an investigation into the development that began in May.
However, the watchdog noted that there are no competition concerns on the vast majority of the routes FirstGroup would operate.
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The concerns were primarily related to the London-Exeter rail route, as FirstGroup already operates the Great Western Railway (GWR) franchise, which could lead to potential fare hikes or a decline in service quality due to a lack of competition on the network.
The CMA’s decision comes ahead of the start of the franchise, which is due to begin on 20 August.
CMA acting chief executive and decision maker Andrea Coscelli said: "This is a crucial rail route to the South West, used by around half a million passengers a year. It’s therefore vital that passengers do not suffer as a result of reduced competition.
"The CMA believes that without its intervention, FirstGroup may be able to increase fares for passengers between London and Exeter, as it will be the only rail operator running all services on this route.
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By GlobalData"We look forward to hearing from the companies involved about how they think they can overcome this."
FirstGroup and MTR will now have to submit proposals to address these concerns to the CMA, whose approval would enable the companies to avoid an in-depth phase II investigation.
In a separate development, Europe’s privately owned Out-of-Home (OOH) advertising business Exterion Media has been selected by FirstGroup as its media partner for the new South Western rail franchise.
Exterion is set to take over the media deal from France-based company JCDecaux, which has held the South West Trains (SWT) contract for a number of years.
The news comes after FirstGroup and MTR won the contract to operate the rail franchise, which will cover more than 1,200 advertising sites across 92 stations.
SWT saw more than 300 million entries and exits last year, and delivers high volumes of commuters into London Waterloo from South West London and the commuter belt around the south-western home counties on a daily basis.
The deal will see FirstGroup introduce a fleet of 90 new trains and add 22,000 extra seats into London Waterloo on every morning at peak times, as well as 30,000 extra seats on every evening at peak hours by December 2020.
First Rail managing director Steve Montgomery said: "From August, we will be delivering £1.2bn of investment in the South Western rail network, improving the experience for customers with better trains, more seats and quicker journeys.
"Having built a strong relationship with Exterion Media on Great Western Railway, TransPennine Express and Hull Trains, we are delighted to be bringing their advertising knowledge to the new South Western franchise."
