Record £50 million fine for Royal Mail following Whistl complaint
The penalty, the largest ever imposed by Ofcom, is the result of an investigation into a complaint, made to Ofcom by Whistl. The complaint was about changes Royal Mail made to its wholesale customers’ contracts in early 2014, including wholesale price increases it was introducing.
At the time, Whistl was expanding its business to compete directly with Royal Mail by delivering business letters (known as ‘bulk mail’) to addresses in certain parts of the UK – becoming the first company to challenge Royal Mail’s monopoly in the large-scale delivery of bulk mail.
The 2014 wholesale price increases meant that any of Royal Mail’s wholesale customers seeking to compete with it by delivering letters in some parts of the country, as Whistl was, would have to pay higher prices in the remaining areas – where it used Royal Mail for delivery.
Following notification of these new prices, Whistl suspended plans to extend delivery services to new areas
Ofcom’s investigation found Royal Mail’s actions amounted to anti-competitive discrimination against customers, such as Whistl, who sought to deliver bulk mail.
Jonathan Oxley, Ofcom’s Competition Group Director, said: “Royal Mail broke the law by abusing its dominant position in bulk mail delivery.
“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.”
Royal Mail’s price changes
In January 2014, Royal Mail issued contractual notices to change its wholesale prices for other postal operators to access its delivery network.
These services, known as ‘access mail’, are worth £1.5bn to Royal Mail each year.[3]They involve access operators such as Whistl collecting and sorting bulk mail from large organisations – such as bank statements, utility bills and information from councils – before handing mail over to Royal Mail to complete delivery.[4]
Any company wishing to collect bulk mail has no choice but to use Royal Mail’s access mail services to deliver a large proportion of those letters.
Royal Mail’s 2014 price changes involved different price plans for wholesale customers, depending on whether they were able to hit mail volume targets for areas covering the whole of the UK.
In practice, if a company wished to start delivering bulk mail in some parts of the country, as Whistl did, it would have to pay Royal Mail around 0.25p (1.2%) more per letter than companies that used Royal Mail to deliver across the whole UK. In this way, Royal Mail sought to charge higher prices for the same services.
Whistl complained to Ofcom that Royal Mail’s price changes were unlawful, and in February 2014 we opened an investigation under the Competition Act 1998.[5]
What Ofcom has found
Royal Mail’s notified price changes discriminated against its competitors in bulk mail delivery. In effect, Royal Mail used its position as a near-monopoly provider of delivery services to penalise any wholesale customer that sought to compete with it in bulk mail delivery.
Royal Mail’s conduct was reasonably likely to put other companies at a competitive disadvantage, and restrict competition from the moment the price changes were notified. The price difference between the price plans would have had a material impact on a delivery competitor’s profits, making it significantly harder for new companies to enter the bulk mail delivery market.
As part of the investigation, Royal Mail’s internal documents were investigated regarding the price changes. These show the changes were part of a deliberate strategy to limit competition in delivery as a direct response to the threat of competition from Whistl.
Ofcom has therefore found Royal Mail in breach of Section 18 of the Competition Act and Article 102 of the Treaty for the Functioning of the European Union, which prohibits a firm from abusing its dominant position. As a result of this infringement, it has imposed a penalty of £50,000,000
Royal Mail to appeal
A statement from Royal Mail has been released to say it will appeal Ofcom’s decision and it “strongly refutes any suggestion that it has acted in breach of the Competition Act, and considers that the decision is without merit and fundamentally flawed.”
They say that the decision relates to a price change announced in 2014 – which was never implemented or paid – under Royal Mail’s Access1 Letters Contract.
The infringement decision relates to an Access price differential which was announced in January 2014, automatically suspended about four weeks later, before it was due to enter into effect at the end of March 2014. The announced price change had been robustly stress tested by Royal Mail under competition law and the relevant regulatory framework. It was designed to support the sustainability of the Universal Service from “cherry picking”2 end-to-end letters delivery and the general decline in mail volumes.
The company will now lodge an appeal with the Competition Appeal Tribunal within the next two months. No fine is payable until the appeals process is exhausted.
Whistl response
A spokesperson from Whistl has released a statement following the announcement from Ofcom this morning (14 August 2018):
“Ofcom has reviewed the facts concerning Royal Mail’s anti-competitive behavior and has confirmed that the company acted unlawfully. Royal Mail’s actions had a hugely negative impact on investment in and the competitive health of the UK postal sector.
“We have to review the Ofcom findings in detail and establish the level of damages we can seek from Royal Mail. Initial advice is that Royal Mail is potentially liable to pay compensation for the significant damage that was caused to Whistl’s business, in addition to the fine imposed by Ofcom.
“We will provide an update on our strategy when we have reviewed our options.”
Royal Mail response to Whistl statement
A Royal Mail spokesperson commented:
“Royal Mail notes Whistl’s statement, issued today, in connection with Ofcom’s infringement decision under the Competition Act 1998. Royal Mail strongly refutes any suggestion that it has acted in breach of the Competition Act, and considers that the decision is without merit and is fundamentally flawed. The company will now lodge an appeal with the Competition Appeal Tribunal within the next two months.
“Royal Mail considers that Whistl’s claim that Royal Mail’s notification of a price differential – which was never implemented or paid – caused significant damage to its business is entirely without merit. In Royal Mail’s view there were major problems with Whistl’s direct delivery business model.
“Royal Mail does not therefore consider there to be any legal basis for any potential claims for damages by Whistl or any other third parties in connection with Ofcom’s decision, and will defend itself vigorously against any such potential claims. No damages claims are payable until the appeals process is exhausted. We are confident that Ofcom’s decision will be overturned.”
