Royal Mail Fined £50 million for Breaking Competition Law

posted by KeithDaniel

Dan Dowen, commercial solicitor at Berry Smith, provides an update on today’s breaking news.

Royal Mail has been found to have breached competition law and, as a result, fined £50 million. Ofcom’s investigation concluded that Royal Mail was abusing its dominant position by discriminating against its only major competitor in delivering business letters.

The fine relates to Royal Mail’s actions in 2014 when Whistl, at the time known as TNT, was trying to become Royal Mail’s first competitor in wholesale mail delivery.

Whistl was expanding its business to compete 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 delivery of bulk mail.

Royal Mail implemented price increases in their wholesale contracts in 2014 which meant that any of their wholesale customers, such as Whistl, seeking to compete with it by delivering letters in certain parts of the country would have to pay higher prices in the remaining areas - where it used Royal Mail for delivery. Following on from this notification of the new prices, Whistl suspended plans to extend its delivery service to new areas.

As a result, Whistl complained to Ofcom that Royal Mail’s price changes were unlawful, and an investigation was opened by Ofcom in 2014 under the Competition Act 1998.

Ofcom's investigation found that Royal Mail's actions amounted to "anti-competitive discrimination against customers such as Whistl, who sought to deliver bulk mail”. In particular, they found that the price increases discriminated against its competitors in bulk mail delivery and that Royal Mail had used its position to penalise any wholesale customer that sought to compete with Royal Mail 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 difference in price would have had a material impact on a competitor’s profits, making it much harder for new companies to enter the bulk mail delivery market.

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."

As a result, Ofcom has found that Royal Mail has breached Section 18 of the Competition Act and Article 102 of the TFEU, which prohibits a firm from abusing its dominant position. Consequently, Ofcom has imposed a penalty on Royal Mail of £50 million with them also having potential liability to pay compensation for the damage cause to Whistl’s business.

For further information on the issues raised in this article, please contact Dan Dowen on ddowen@berrysmith.com or 02920 345511.

Dan Dowen, Commercial Solicitor at Berry Smith Lawyers