Ofcom fines Royal Mail £50m for competition breach

Rhys Handley
Tuesday, August 14, 2018

Royal Mail is to appeal a £50m fine imposed by Ofcom for breach of competition law.

Royal Mail has entered a consultation with Unite and CWU on plans to axe 1,600 jobs
Royal Mail has entered a consultation with Unite and CWU on plans to axe 1,600 jobs

The UK communications regulator first launched an investigation into the country’s leading mail provider in March 2014 after Royal Mail announced it would introduce wholesale price increases for customers on its Access Letters Contract for bulk mail in January that year.

Whistl, at the time called TNT Post, intended to expand into the bulk mail market in certain parts of the UK, taking over not just the sortation but also the delivery of some Access mail – which accounts for 62% of all addressed mail in the UK and is worth £1.5bn to Royal Mail each year. Delivery had so far exclusively been handled by Royal Mail.

The move would have put Whistl in direct competition with the Royal Mail’s monopoly on the sector. If Whistl had gone ahead, it would have had to pay 0.25p (1.2%) more per letter than the companies who continued to use Royal Mail’s network across the entire UK.

Plans were suspended when Whistl investor LDC withdrew its funding following the price increase announcement by Royal Mail.

According to Ofcom, the announcement by Royal Mail amounted to anti-competitive discrimination in breach of Section 18 of the Competition Act 1998 and Article 102 of the Treaty for the Functioning of the European Union. Royal Mail had to cancel its plans to increase prices once the investigation was underway.

The investigation’s conclusion was announced today, with a £50m fine issued to Royal Mail, though the mailing provider has subsequently announced its intention to appeal.

A Royal Mail spokesperson said: “We took extensive legal and economic advice over many months to ensure we were operating in line with competition law. We also followed the available Ofcom guidance. We did the right thing with our announced price change.

“For an allegation of abusive price discrimination to be established, the law is very clear. The relevant prices must be actually paid. And, the party paying such prices must be placed at a competitive disadvantage as a result. In this case neither of these essential elements exist.”

Royal Mail described Ofcom’s claim that the notification of price changes had a negative impact as “fundamentally flawed”, saying that there was no previous case in which a notification had been found to be anti-competitive.

Ofcom’s argument was that the action of notifying its customer base of price increases directly resulted in Whistl cancelling its expansion plans. It claimed that whether price increases ultimately took effect or not was irrelevant.

“Royal Mail broke the law by abusing its dominant position in bulk mail delivery,” said Ofcom completion group director Jonathan Oxley. “All companies must play by the rules. Royal Mail’s behaviour was unacceptable, and it denied postal users the potential benefits that come from effective competition.”

Ofcom claimed to have accessed “internal documents” at Royal Mail which show the price changes as “part of a deliberate strategy to limit competition in delivery as a direct response to the threat of competition from Whistl”.

The nature and content of these documents was not made clear.

Ofcom launched a further review of its regulator framework for Access pricing in 2015, after Whistl confirmed its full withdrawal from end-to-end delivery. The review led to some changes to Ofcom's regulation of Royal Mail, but no significant changes were made due to the fact Whistl no longer intended to compete in the market.

A Royal Mail spokesperson said: “We continue to work closely with Whistl, who is one of our largest Access customers.”

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