SECURITY SERVICES SECTOR (Advisory opinion)
PRESS RELEASE
The Italian Competition Authority submitted to the Ministry of Home Affairs an advisory opinion concerning the regulation of mobile and permanent security service and, in particular, price setting.
Security service is regulated by Royal Decree no. 773/1931 (Public Safety Consolidation Act) and Royal Decree no. 635/1940 (rules for the Consolidation Act enactment).
Security service is to be licensed by the Prefect, in line with the requirements of the Consolidation Act.
Under the terms of the Act, applications to obtain the licence have to indicate the rate for single services or subscriptions. Such a rate is to be approved by the Prefect authorizing to perform the activity. Further, the Consolidation Act provides for a maximum rate companies have to inform clients of.
The Ministry of Home Affairs has given a different and widen interpretation of the Consolidation Act. In fact, by a circular of 1991, the Ministry allowed the Prefects to predetermine minimum rate to be applied in the entire provincial area.
According to this interpretation, the Prefects have predetermined minimum rates and sometimes even maximum rates for security services in the most part of the Italian provinces. In the provinces left, the Prefects have approved minimum and maximum rates set by single companies. In general, security service is regulated by many rules, which affect different aspects of the activity, as conditions of entry, employment of production factors, characteristics of service and pricing behaviors.
The Authority is aware of the importance of the public order and safety reasons which are on the grounds for security service regulation and discretional power vested with the Prefects, with respect to certain responsibilities concerning the security service.
However, under the general principles regarding the administrative action, such a power has to fall within the limitations set out by laws in force. Indeed, the Prefects have to exert their powers in conformity, among the other regulations, with Law no. 287/90 implementing Article 41 of the Constitution.
Taking into account the above background, the Authority highlighted the regulation aspects which called for action:
a) price setting
The Prefect's power to predetermine minimum rates might have the worst anticompetitive effects.
The Ministry of Home Affairs said that such a faculty was justified mainly by the need to train security officers, pay insurance and pension contributions, comply with contractual terms and labor laws. To this end, it is to be noted that interventions in minimum price are to be added to the Prefects' broaden powers to control the activity performed by security companies. In fact, training of the staff must be in conformity with the Prefect's requirements.
In relation to the compliance with insurance and pension obligations on the security companies, the sector regulation vests the Prefect with wide supervisory power, which is in addition to the ordinary controls on companies by the responsible public institutions.
Thus, it is said that interventions in minimum price are not necessary, in order to meet the requirements of the ministerial circulars. Indeed, such interventions do not ensure the achievement of the above goals, since a minimum price fixing does not prevent companies from providing law-quality services and not complying with law obligations.
Given the different cost structures among companies, minimum price fixing would distort competition, by preventing each company from adopting price strategy according to the specific production conditions and impeding, in the medium term, a selection of more effective firms.
The Authority considered most likely that if and when public procurements are used to award contracts, the existence of a minimum rate could affect public interest anyway, since it would distort or reduce competition among potential suppliers of public sector.
b) barriers to entry and territorial limits.
Under the law in force, public interest is represented by public order and safety and therefore the Prefects should have to examine authorization requests taking appropriate measures to protect market position of the already existing operators.
The Prefect should not exert their power to predetermine an exclusive regime within certain territories, given that the law in force does not contain provisions on the monopoly regime.
c) limits to quantity of services firms can perform.
For public order and safety reasons, the Prefect can define the optimal ratio of policemen to security officers and limit the number of patrolmen in the territory falling within his responsibility.
However, if and when the number of patrolmen working for each company would be strictly prefixed as well as the overall number of security officers, the Prefect would determine the competitive capacity of companies, by tying the quantity of labor-intensive services each firm can carry out, as the permanent surveillance and the mobile patrol, in such a way that the Competition Act would result useless.