Royal Mail has been fined a record £50 million for having violated competition laws. The mail service is facing the fines for having “abused its dominant position” in the market.
Competition Law Violation
Royal Mail now faces a record-breaking £50 million fine. It is accused of having “abused its dominant position,” in the letter delivery market and violating competition law. This activity placed its rival, Whistl, in a position of having to pay higher prices.
The penalty against the delivery service is the biggest the Ofcom communications regulator has ever issued. The fine is connected with the Royal Mail’s change in wholesale customer contracts which went into place over four years ago.
At the time when Royal Mail changed the wholesale customer contracts it was offering, Whistl had been expanding its letter delivery service offerings. Back then, the company was called TNT. It was seeking to grow its bulk mail arm. This would have had the company delivering utility bills, bank statements and other types of bulk letter mail.
This placed it in direct competition with Royal Mail. That said, TNT still needed to rely on Royal Mail, and its former monopoly in the country, for the delivery of some of its letter mail on routes that offered less profitability.
Ofcom conducted an investigation into Royal Mail’s activities and determined that when the delivery service chose to increase the cost of service to competitors – such as TNT – by 0.25p per piece, this was a component of a “deliberate strategy to limit competition.”
Changing the contract and prices in the way the Royal Mail did four years ago “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,” said Ofcom in a statement.
Royal Mail’s Response
Royal Mail intends to appeal Ofcom’s decision. It called the accusations “without merit and fundamentally flawed.” It stated that the price hike it had proposed was stopped after Whistl brought its concerns forward. It added that the proposed rate increases had been meant for “cherry picking” prevention, which would stop rivals who were not obligated to deliver to all addresses throughout the U.K. – as Royal Mail is – from being able to pick and choose the most profitable routes for the same price.
“Royal Mail welcomes competition, provided it takes place on a level playing field,” said a Royal Mail statement.
In 2015, Whistl stepped out of the bulk letter mail market. A spokesperson for that company stated that it intended to seek damages as a result of the Royal Mail’s choice. He explained that it had made a “hugely negative impact on investment in and the competitive health of the UK postal sector.”