Because those niches only exist because the authority has deliberately carved them out to give independents a realistic role. These niches do not need to exist under franchising as it would be cheaper to bundle B-lot work into the A-lots, where the depot, spare fleet, engineering, supervision and driver resources already exist.
Those niches have always existed, it has never been about local authorities deliberately doing anything. They did so over a century ago before regulation was introduced, the existed throughout the period of nationalisation & regulation, they existed during deregulation and they should exist within franchising.
Small operators are inherently cheaper than big groups, that is why they win the work not due to any efforts by local authorities to carve them out a gap. Big groups may have economies of scale but they also have significantly higher head office and management costs, much higher expectations of profit margins and tend to have to pay their drivers more because they will be expected to cover early, late & weekend work at volume. Smaller companies will have much of the management work undertaken by the owner (often paying themselves less than a big group manager of that level would receive), aren't looking to take money out of the business as they are paying themselves a salary so don't expect more money and there are enough drivers who will accept a slightly lower pay rate for a smaller, more flexible & friendly employer (not all small operators are but those that aren't are the ones who struggle for staff).
Having smaller lots, focussed on the small pvr local routes, that are seperate to the big pvr lots helps prevent those small routes vanishing into the whole and struggling for the attention they need. Without special monitoring structures (at the local authority as much as the operator) a 1 PVR local route performing unreliably will barely be a drop in the ocean of a 200 PVR package but in many ways the passengers are more reliant on reliability whilst in a 10 PVR package it is a significant portion of the work so failures stand out.
Yeah, but the point is that this very rarely happens in practice under deregulation, or under depot dependent franchising models like London (or us with B-lots). When it does happen, new entrants often either stay very small or eventually collapse because the risk is too high (Yorkshire Buses).
There were a number of times operators have entered the London market, the issue has always been the payment model not finding a depot which is just a piece of industrial land to park buses in and a small building to undertake maintenance. The London issue is that it has been found difficult by even established operators to deal with the issue of contract terms meaning inflationary price rises don't match the cost of operation price rises experienced by bus operators - so it is impossible to get a price that is profitable at the end that is low enough to win the contract at the start so the model relies on winning a similar value of work every year to balance the profits from new contracts against the losses on old contracts. A different set of contract terms on how contract price increases are calculated or a more flexible authority and you would see different outcomes.
Outside London it is actually fairly common, there are multitudes of businesses who have successfully started new businesses and almost as many established companies who have similarly picked up new work requiring a new depot to be established. There will always be failures, commercial business is a risk and no one would expect guarantees so there will always been people who make the wrong choices or are caught by circumstances and so don't survive just as there will some who thrive. You seem to have this idea that being small makes companies poor/irrelevant rather than important parts of the business. There is a size point (around the 40-50 vehicles) where owners need to make a choice about their business model, at that point it becomes harder for the owner to be directly involved with the delivery on the ground (you need to start employing managers and you end up much more desk bound) and there are a number of companies where managers sold original independents who had grown beyond that who re-entered again with the express plan to remain small enough to remain hands on (I know two personally who have said this and two others I have seen explicitly state this in print in interviews).
The companies with serious financial expertise generally do not take that gamble. When was the last time Stagecoach, Arriva, First or Go-Ahead sourced a brand new depot in someone else's territory just to compete for tenders or commercial work? It barely happens because the upfront cost, staffing risk, engineering setup and uncertainty over future contract wins make it a poor bet.
It has never been something that the big groups did often because they need higher margins so forcing a gap is much harder than a new start-up. Stagecoach did it a number of times at the height of the bus wars but they got a lot of criticism for acting in such a manner when they did so there is an element of "damned if you do, damned if you don't" in this one. Go-Ahead have done it several times more recently, Cornwall is the biggest and highest profile but there have been a couple of expansions around contracts in the south that have developed (Dartford fast track is a smaller but high profile recent example) and the West Yorkshire expansion (buy a local coach operator and use those depots to enter the bus market) would also seem to qualify. First & Arriva have both in recent years more focussed on selling of struggling operations, many of which have been turned around by new owners, than taking the punt on expansions (and that as much applies to opportunities from established depots as new sites).
So yes, banning B-lot work from A-lot depots would protect existing independents with premises, but it would also risk freezing the market around whoever already has a base. That is not the same as encouraging genuine new competition. Independents should have a fair opportunity, but the system should not be designed around shielding them from normal competitive pressure.
I can see arguments for keeping different sized lots seperate for reasons not related to protecting independents. Not having a contract reliant on an operator retaining a seperate contract (if the B-Lot and A-lot don't finish at the same time, then you have the issue of what happens if the operator loses the A-lot first and then has nowhere to run the B-lot from causing disruption in the middle of that contract - probably less the initial contracts as I would expect B-lots to have shorter lengths but as such they would very quickly get out of sync) which could be used as lever to retain the bigger contract and to keep the contract managements seperate and clearer both are logical reasons for seperation. The issue is the other way round, the A-lots are too big for all but the largest bidders to consider so they are protected from many local options whilst B-lots (as was seen in Manchester) are perfectly reasonable for big companies to bid for as they are perfectly able to source a seperate depot for them and they are still able to assemble a big enough volume to justify their participation.
A depot isn't this great investment or complicated thing to set up, it can (and has) been done by many operators in weeks when needed and in post-industrial areas like the big northern conurbations there are plenty of possible locations for a smaller depot site (finding a site for 150+ buses is difficult, finding a site for less than 50 is not) so there is much less risk of freezing of the market than you seem to think.
www.westyorks-ca.gov.uk
