Postcomm issues enforcement order and proposes 2.16million penalty on Royal Mail for securing unfair commercial advantage over new operators

17 February 2006

Postcomm, the postal service regulator, today proposed a £2.16 million financial penalty and issued an enforcement order on Royal Mail.  Postcomm has acted because the company is failing to take adequate steps to ensure it does not gain an unfair commercial advantage over its competitors in the fast-growing ‘access to the last mile’ market.

Nigel Stapleton, chairman of Postcomm, said: “Competition is already starting to offer a better deal for customers but, given Royal Mail’s dominant position, the full benefits will never be felt unless the playing field is made as level as possible for the new operators.

“Postcomm has to enforce the rules for a postal market where, in the interests of customers, there is effective competition. We cannot allow any actions by Royal Mail that unfairly keep competitors out of the market.

“Many companies working for different clients have ‘Chinese walls’ – internal separation arrangements that prevent conflicts of interest and the exchange of confidential information between teams working on different projects. The Commission is surprised that Royal Mail did not think it needed to do this in a fully professional manner.”

Royal Mail currently has a 97% share of the postal market and since April 2004 has been charging some competitors a fee for its postmen and postwomen to deliver their mail. Royal Mail is currently delivering more than a billion of these items each year.

Postcomm began investigating these so-called downstream access arrangements last year after three of Royal Mail’s competitors – Express Ltd, TNT Mail UK Ltd and UK Mail Ltd – complained about various aspects of Royal Mail’s competitive behaviour.

Postcomm has concluded that Royal Mail has not put in place adequate measures within its wholesale and retail divisions to prevent it obtaining an unfair advantage over its competitors. This could enable the retail arm to use information obtained by the wholesale section to attract business.
 
The Postcomm report published today says Royal Mail is damaging confidence in the postal market because, from July 2004 it has contravened its licence – and is continuing to do so – by failing to identify all the risks of being able to obtain a competitive advantage through the supply of downstream access, both to competing operators and to its own business customers. 

Notes for editors

Downstream access is the part of the newly-liberalised mail market that is showing the biggest potential for new market entrants. Mail operators and some large mailers pay Royal Mail to deliver more than a billion letters for them each year. Users of this service pre-sort their post before taking it to a mail centre for onward delivery by Royal Mail postmen and postwomen.

  • The wholesale division provides ‘access to the last mile’ of Royal Mail’s network and the retail division provides all other, non-access, services.
  • Postcomm estimates that, had structural weaknesses not existed within Royal Mail, access volumes could have been much higher.
  • For example, roles within the company were not appropriately separated. Royal Mail’s regulation department (the department responsible for making sure it competed fairly) was also responsible for selling access to customers and rival operators.

Postcomm began investigating the way Royal Mail provided access after complaints from three rival operators. This investigation found a number of shortcomings with Royal Mail’s compliance with two licence conditions: 10(2) which relates to unfair commercial advantage, and 13(1) which deals with compliance. As a result Postcomm has served an enforcement notice on Royal Mail and proposed it must pay a financial penalty of £2.16 million.

Other investigations:

  • In January 2005, Royal Mail agreed to tighten its internal compliance procedures following an investigation by Postcomm into allegations that two of the company’s promotion schemes were anti-competitive.
  • In November 2005, Postcomm began an investigation into whether pricing for unregulated services based on capacity in Royal Mail’s network is unduly preferential or discriminatory when compared with pricing of regulated services that use the same network facilities.

Royal Mail has 28 days to make representations to Postcomm about the penalty.

Postcomm document: A Complaint about Royal Mail’s offer of Zonal Downstream Access (pdf, 347KB).