Taxi cabs are used frequently by passengers for conveyance in and around cities, especially in highly congested areas, even though fares are usually higher than other forms of public transport. The most frequently used mode of transportation remains, however, the bus service. Nonetheless, most public transport markets are still heavily controlled, particularly by entry restrictions.
Entry restrictions were considered to violate EU law in a recent judgement delivered by the European Court of Justice (ECJ). The case revolved around an Austrian regulation that required a licensee of a bus service to be already established in Austria and more importantly, made the obtainment of a new licence subject to the effect it could have on the profitability of other licensees.
In this setting, Yellow Cab applied to the Austrian authorities for a business permit to run a fixed-route bus service from fixed stopping points in accordance with a fixed time table within the territory of Vienna. Another company already operated a bus service on almost all of those fixed routes.
The municipality of Vienna denied Yellow Cab authorisation on the grounds that the service would economically endanger a competing company running a similar service and that Yellow Cab had no registered office in Austria. Yellow Cab appealed before the Vienna court complaining against such refusal. The Vienna court referred the matter to the ECJ for guidance.
During the proceedings, Yellow Cab argued that in requiring a company to have a registered office within Austrian territory before it could be eligible to apply for a licence, served as a prohibition for operators which did not originate in Austria, to compete in the Austrian public transport market. Yellow Cab argued more vigorously against the requirement that the new licence must not jeopardise the economic viability of an already licenced operator.
In its view this requirement impeded competition from operating freely and thus encouraged those undertakings, which have operated poorly and in an unprofitable manner, from bettering their services.
On the other hand, the Austrian authorities defended their position, insisting that Yellow Cab was proposing to service fixed routes, whose demand was already met with by the incumbent company, and to charge significantly lower prices than those charged by the already licenced undertaking.
The ECJ proceeded to consider the Austrian legislation in terms of the rules on the freedom of establishment within the EU. The court ruled that requiring a company to have a seat in the member state where it intends to operate does not constitute, as such, a barrier to such freedom. Of concern was the fact that the Austrian rules required establishment within Austrian territory to be eligible to apply for a licence, which had a dissuasive effect on companies established in other member states given that, at that stage, they would not be willing to invest.
The court disapproved of the criterion of granting licences on the basis of whether a drop in revenue of another licensee would result, especially if such drop was determined solely by the financial statements of the competing undertaking.
Entry restrictions of this nature which essentially prevent a company, in a position to offer a bus service at more competitive prices, from gaining access to the market, are generally considered to be in breach of EU law.
In the same way that undertakings in their dealings must respect competition rules, member states are also required to refrain from introducing or maintaining in force, laws and rules which may render ineffective competition rules applicable to undertakings.
jgrech@demarcoassociates.com
Dr Grech is an associate with Guido de Marco & Associates and heads its European law division.