You have summarised a point, a lot of people have made, if XC were running long trains at regular frequency, then revenue extraction and congestion factors are important.
If however they are unable to fully service their core with long regular trains, then allowing services that continue to the margins to be operated by someone else, so XC can better concentrate its resources to fully achieve its core function, should be dominant factor in the decision.
Of course can only really decide if XC deliver or don't by looking at their stats. so these are latest XC performance figures to see if they are delivering:
Trains within 3 minutes of time 71.0%. (29% fail)
Trains arriving within 15 minutes 93.7% (6.3% fail)
Cancellations 7.1%
Short formations 3.9%
Proportion of trains canx by XC 3.8% (was over 10% three periods earlier)
Discover CrossCountry's train performance, including delays and cancellation rates, passenger satisfaction, and complaints.
www.crosscountrytrains.co.uk
With such a feeble performance by incumbent, why would ORR want to say a new entrant is not in passengers interest