Wait a minute Mr Postman - Royal Mail fined £50m for breach of competition law

The UK’s communications regulator Ofcom has issued a decision finding that Royal Mail breached competition law and has fined the company £50m.  This is the highest fine imposed by a sector regulator with competition powers and is the first fine imposed by Ofcom for breach of competition law.

Ofcom found that Royal Mail had abused a dominant position in the business letter delivery market.  The key elements of Ofcom’s findings in relation to the alleged infringement were broadly as follows:

• The decision concerned price changes Royal Mail had made at the time the company Whistl was developing its business to compete with Royal Mail in the business letter delivery market.
• The price changes centred around a new pricing structure whereby the price for the delivery of a letter was dependant on whether a bulk mail operator was able to hit mail volume targets for areas covering the whole of the UK.
• The effect of the change was to make it more expensive for companies that did not use Royal Mail’s delivery services for the whole of the UK, and thus would disadvantage competitors such as Whistl who wished to deliver certain letters themselves.
• Ofcom stated that it had reviewed internal documents from Royal Mail which showed that the increase in prices was part of a deliberate strategy to limit competition in delivery as a direct response to the threat of competition from Whistl.

Royal Mail has strongly refuted that it had acted in breach of competition laws and has promised to appeal the decision to the Competition Appeal Tribunal (CAT). Amongst its arguments is the fact that the price changes were never actually implemented as they were suspended before they were due to come into force due to the regulatory investigation.

Comment

We await with interest further details on this case, in the form of the decision (when published) and developments on any appeal.  In the meantime there are three elements worth highlighting:

• The decision provides businesses in all sectors with a reminder of the importance of carefully reviewing new pricing policies to ensure changes will not be perceived as having an exclusionary effect, especially where the business might be seen as dominant in a particular market.
• The decision will provide clarity on the extent to which anti-competitive conduct needs to have been implemented in order to constitute an abuse: while it is clear that agreements having an anti-competitive object (e.g. cartels) need not be implemented to infringe, this is less clear in the case of abuse of dominance cases.
• Finally, the decision underlines the fact that sectoral regulators will increasingly make use of competition law powers as part of their enforcement ‘toolkit’.