Royal Mail ‘broke competition law’ says Ofcom

A Royal Mail sorting office
A Royal Mail sorting office
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Royal Mail broke competition law when it tried to change the way it charged rivals such as Whistl for use of its network, according to provisional findings by regulator Ofcom.

Whistl complained to Ofcom after the changes were announced in January last year, prompting an investigation. Royal Mail suspended the move in March 2014 and said in March this year it had withdrawn the changes.

Ofcom said its provisional view was that Royal Mail “breached competition law by engaging in conduct that amounted to unlawful discrimination against postal operators competing with Royal Mail in delivery”.

The group will now be able to make representations to the regulator before it takes a final decision. It said it was disappointed by the announcement and considered the changes it had planned were “fully compliant with competition law”.

Ofcom has the power to fine Royal Mail up to 10% of its annual turnover. Revenues for the year to the end of March totalled £9.3 billion.

Dutch-owned Whistl, formerly known as TNT, suspended deliveries in May after private equity backer LDC pulled out of funding to help expand the business.

Its complaint to Ofcom related to the way Royal Mail had said it planned to change prices, terms and conditions for bulk mail delivery “access services”.

These enable rival operators to hand over letters that they collect from large business customers such as councils, banks and utility companies to Royal Mail for final sorting and delivery. Whistl claimed the changes were anti-competitive.

Ofcom has provisionally found that Royal Mail’s plans would in practice have meant that “higher access prices would be charged to access customers that competed with Royal Mail in delivery than to those access customers that did not”.

It claimed “that these higher prices would act as a strong disincentive against entry into the delivery market, further increasing barriers to expansion for postal operators seeking to compete with Royal Mail in this market, leading to a potential distortion of competition against the interest of consumers”.

The regulator has sent a “statement of objections” - which has not been made public - to Royal Mail setting out the facts of the case, the objections it has raised, the actions it plans to take, and the reasons for them.

“It represents one stage in Ofcom’s investigation, and no assumption should be made at this stage that there has been a breach of competition law,” the regulator said.

Shares in Royal Mail fell 3%.

It said: “Royal Mail takes its compliance obligations very seriously and is disappointed by Ofcom’s announcement. The company considers that the pricing changes proposed in 2014 were fully compliant with competition law. “

The group said the changes had been part of its response to changing market conditions and Ofcom’s own guidance.

It added: “These pricing proposals were suspended following the opening of Ofcom’s investigation. Accordingly the pricing proposals were never implemented and were withdrawn altogether in March 2015.

“Royal Mail is considering carefully Ofcom’s provisional findings. It will submit a robust defence to Ofcom in due course. Royal Mail has co-operated fully with Ofcom throughout its investigation to date and will continue to do so.”