Ofcom accuses Royal Mail of breach of competition law

Communications regulator Ofcom has accused Royal Mail of breaching competition law after it proposed raising prices for its bulk mail delivery customers.

Bulk mail is collected by other postal firms from businesses and passed to Royal Mail for sorting and delivery.

Royal Mail set out the price changes in January 2014, before withdrawing them.

Rival firm Whistl, which had planned its own delivery network, claimed the price hikes were anti-competitive.

Ofcom said its specific allegations include that "changes to Royal Mail's wholesale prices for bulk mail delivery services contained a differential in pricing which meant that, in practice, higher access prices would be charged to... customers that competed with Royal Mail in delivery than to those access customers that did not".

At the time that the price increase was proposed, TNT Post - now Whistl - was proposing to launch a rival bulk letter sorting and delivery service for business customers.

Following the price hike, it complained to the regulator about anti-competitive practice on the part of Royal Mail and ultimately gave up on its rival venture.

Ofcom said the higher wholesale prices Royal Mail was proposing to charge 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, and leading to a potential distortion of competition against the interests of consumers".

Royal Mail initiated two price rises for its wholesale bulk delivery customers, one in November 2013 and then another in January 2014. It suspended and then withdrew the January 2014 price increase three months later after Whistl complained to Ofcom.

'Robust defence'

Royal Mail said on Tuesday it had co-operated with the regulator's investigations and would now carefully consider Ofcom's provisional findings.

It promised to "submit a robust defence to Ofcom in due course".

The 500 year-old company added in a statement: "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.

"They were an important part of Royal Mail's commercial response to both changing market conditions and to Ofcom's statements in its March 2013 guidance document on end-to-end competition in the postal sector.

"Under the terms of our access contracts, 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."

The Statement of Objections from the regulator into the behaviour of Royal Mail comes a fortnight after the regulator confirmed the scope of a review into the company's operations.

The review could result in a price cap being imposed on the postal operator, it said.

Ofcom's inquiry will examine the "efficient and financially sustainable provision" of the UK's universal postal service - in other words, Royal Mail's commitment to deliver to all of the UK for the same price.

The general secretary of the Communication Workers Union (CWU), Dave Ward, accused Ofcom of "overstepping the mark" and undermining its "primary objective".

He added: "It is depressing that Ofcom seems to have learnt very little from the demise of Whistl.

"Competition for competition sake, seems more ideological than it does practical for a 21st Century postal industry. It is a 20th Century approach for a 21st Century problem.

"Their focus on competition in a declining letters market so far has shown that it risks jobs and drives down terms and conditions; as well as, further risking quality of service to the 29 million UK addresses reliant on our six day a week postal service."