Royal Mail has been fined a record £50m by the UK communications regulator for breaching competition law when it discriminated against its only major rival for delivering letters.
Ofcom said the company had abused its dominant position by penalising wholesale customers that sought to deliver bulk mail such as bank statements and council tax demands door to door.
The penalty followed an investigation into a complaint by Whistl about changes Royal Mail made to wholesale customer contracts in early 2014, including price increases.
At the time, Whistl was expanding its business to compete directly with Royal Mail by employing workers to deliver letters in parts of the UK. Previously the company, known as TNT at the time, had collected and carried out an initial sort of the letters before handing them all to Royal Mail for a final sort and delivery.
Ofcom said Royal Mail increased prices for competitors that did not reach volume targets for the whole of the UK. This in effect meant any competitor employing its own delivery workers in certain parts of the country, as Whistl did, would have to pay higher prices in areas where it used Royal Mail.
Royal Mail makes £1.5bn a year from delivering so-called access mail that is collected by other companies. Ofcom said under the 2014 price changes Whistl had to pay 0.25p more per letter for Royal Mail to make the final delivery than other operators that used it for all of the UK.
Ofcom said Royal Mail had used its dominant position in the mail market to penalise any wholesale customer that tried to compete with it on bulk mail delivery.
As a result, Whistl scrapped plans to extend its delivery services to new areas in 2015. It had intended to expand to cover 40% of the country, but the failed expansion ran up losses of £10m.
Jonathan Oxley, Ofcom’s competition 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 shares closed down 1.6% to 454.9p.
Ofcom said it inspected Royal Mail’s internal documents covering its price changes. They showed the adjustments were part of a deliberate strategy to limit competition in delivery as a direct response to the threat of competition from Whistl, the regulator said.
Royal Mail said it was very disappointed by Ofcom’s decision and strongly rejected any suggestion that it broke competition law, adding that that the decision was “without merit and fundamentally flawed”.It argued that the 2014 price change was never implemented or paid, adding that it had been “robustly stress tested by Royal Mail under competition law and the relevant regulatory framework”. The company said it was designed to protect its service from “cherry picking” letter delivery and the general decline in mail volumes.
Royal Mail said it would lodge an appeal against Ofcom’s fine with the competition appeal tribunal within the next two months.
When Whistl, which was owned by the Dutch delivery company PostNL, launched its delivery service in London, Manchester and Liverpool, Royal Mail criticised the move.
It said if competitors were allowed to take business in densely populated areas Royal Mail’s deliveries to rural districts would be threatened because profitable deliveries in towns and cities subsidised those in remote locations.
Ofcom told Royal Mail to respond to extra competition by becoming more efficient. Under the terms of its privatisation in 2013, Royal Mail is committed to maintaining its universal service at least until 2021.