In the absence of a clearcut distinction between the two types of service, resources destined for the universal service could be used for services that are open to competition, to the detriment of consumers and potential competitors. Constant stream of complaints from users. Review rules that allow greater scope for direct letting of contracts. Introduce a levy on companies that operate on profitable routes to finance the universal service. Public financing in Italy lower than in other European countries.

It is urgent to make a clear distinction between, on the one hand, the universal rail service financed by the State and Regions which guarantees passenger mobility and on the other hand the profitable market services that are open to competition. So states the Antitrust Authority in a report sent to the Government, to Parliament and to the Regions, which reiterates the need to use competitive bidding as a tool in awarding the universal service so as to minimize costs for the community and in order to guarantee the quality of supply.

In its report, the Italian Competition Authority emphasizes that the partial and murky dividing line between “market” services and “subsidized” services and the assignment of the latter without recourse to competitive tendering leaves room for possible distortions in terms both of the protection of consumers and of the protection of competition. For this reason the Authority underlines the need to review the regulation that recently made greater room for the direct awarding of local rail services. The Authority asks the Regions in any case not to use this shortcut which would deprive them of the benefits obtainable from competitive bidding and would limit their already weak contractual leverage over the conditions offered by the winning companies.

The Authority believes it is necessary to define precisely the areas of operation and of “subsidized” services (spelled out in terms of type of train, capacity, stops, total and partial travel times) based on the mobility requirements deemed worthy of being satisfied, and as a function of the resources available. The universal service must then be put out to tender so that it can be assigned to those companies that can minimize subsidies and hence the need for public resources. The identification and separation of profitable and unprofitable services may also assist in the identification of a correct and transparent mechanism for sharing in financing of the universal service by those rail companies that are authorized to operate in the more profitable services, with positive effects on public finances.

The timing of tenders must in any case be such as to allow all potential competitors to obtain rolling stock. Today these are scarce resources and almost entirely available only to Trenitalia, except for a few Regions that own their own trains.

MEDIUM- AND LONG-RANGE PASSENGER SERVICES

The Authority points out that there exists a medium- and long-range passenger service area that, even though it receives subsidies from the State, is not precisely defined either as to its breadth (what kinds of trains it includes) or the obligations Trenitalia has in its regard (e.g. in terms of frequency, stops and travel times). In this context Trenitalia could shift part of the subsidies onto those services that are open to the market, thus distorting competition with the other operators. Trenitalia could also have an interest in moving, with no change in the subsidies received, part of the passenger demand from the universal service area (which includes Local Public Transport, regulated by the Regions) to the market area which is profitable. This risk is evidenced by the numerous complaints the Authority has received in recent months regarding the worsening state of the universal service in terms of punctuality, the frequent cancellation of trains on some routes, changes to timetables that no longer allow demand from commuters to be satisfied exclusively by regional trains, and increased travel times for regional trains giving precedence to faster trains. Recent changes in the conditions for passes, too, have practically meant, for many stretches, that the passenger needs to buy several passes (at prices that may not be regulated) with a significant increase in cost for the consumer.

Basically, the overall lack of regulatory clarity may lead Trenitalia to make a calculated segmentation of the market, obliging users to buy services in the free market when they should be covered by the universal service.

A better and clearer definition of the confines of public service could also benefit Trenitalia which, given the lower level of public financing compared with other European countries (in particular Germany and France), finds itself in difficulty in meeting the quality standards set by the service regulations.

LOCAL PASSENGER TRANSPORT

Even though Legislative Decree no. 422 of 19 November 1997 stipulated that local transport services were to be awarded by competitive bidding, so far very few service contracts have been let through such a procedure, while by far the most common method is direct assignment. Furthermore, as of today, relations between the Regions and Trenitalia are regulated only by the de facto extension of service contracts that expired at the end of 2007. The use of competitive tendering as an ordinary tool for the awarding of contracts was confirmed by the general reform of local public services. However, a number of rule changes that are still being ratified, such as Article 61 of DDL no. 1195, allow for direct assignment, thus overriding the principle of bidding in the regional railway sector. Other current laws (Article 25, Paragraph 2 of Law no. 2 of 28-1-2009 and Article 7, Paragraph 3-ter of Law no. 33 of 9-4-2009) have authorized the expenditure of Euro 480 million, to be split amongst the Regions for each of the years 2009, 2010 and 2011 to pay for new service contracts between the State/Regions and Trenitalia; at the same time, those laws stipulated that service contracts for public rail transport, “however they may be awarded”, should have a duration of not less than six years, and be renewable for a further six years.

Taken together, these measures on the one hand cover the Regions' expenditure requirements for the next three years, though only for new contracts with Trenitalia, but on the other hand they reintroduce the possibility of direct awarding of contracts. They would have the effect, thanks too to the extension of the minimum contract period, of continuing to deprive the industry of any competition, well beyond the deadline of 31 December 2010 specified in the reform of local publici services, effectively at least until 2015 – if not 2021.

The Authority points out that in order best to enable competition, a policy for financing rolling stock is needed whereby the centrally provided funds are made available to the Regions without any constraint as to their being spent with Trenitalia, thus reducing barriers to the entry of other operators.

FREIGHT

In the Authority's view, the payment of sums for rail freight based on a public service contract not obtained by way of a transparent competitive tendering process raises the question of possible cross-subsidization on free-market stretches where there is even a partial overlap between the two types of service. The industry is open to effective competition amongst the  various operators within the rail tansport mode and is subject to intermodal competition from sea and road transport. There does not therefore seem to be a public interest in the transport of freight that cannot be satisfied by the market, unless postive discrimination is deemed necessary in favour of rail. In any case, such discrimination should not lead to favouritism amongst rail operators.

Rome, 1 June 2009