Ofcom, the UK regulator of companies in the communications sector, has fined Royal Mail £50m for breaching competition law.

It is the largest fine ever issued by Ofcom in a competition case, though 'core' competition regulators such as the Competition and Markets Authority (CMA) and the European Commission routinely issue larger fines.

What did Royal Mail do?

Several companies have tried competing with Royal Mail in the market for business "bulk mail" (i.e. deliveries of letters sent by large business customers, such as bank statements or insurance documents). This type of mail now makes up the vast majority of all mail sent (with very few individuals sending letters these days). One such company, Whistl (previously known as TNT Post) entered the London market for delivery of this bulk mail in 2012, with plans to roll out its own network across much of the UK in competition with Royal Mail. It would subcontract delivery to Royal Mail in areas where it did not have its own vans.

In 2014 Royal Mail set prices for wholesale customers (companies like Whistl who subcontracted to Royal Mail) that were 1.2% higher for customers who did not use Royal Mail for all their deliveries (i.e. those who did some deliveries themselves, in competition with Royal Mail).

What's the competition issue?

In large parts of the UK, Royal Mail is the only company which has the infrastructure to deliver these letters and the costs of creating that infrastructure from scratch are too high for companies like Whistl to enter those markets profitably. The Scottish Highlands are a good example.

That makes Royal Mail dominant in those markets, and like any dominant company Royal Mail has obligations not to abuse its dominance, such as by discriminating between customers. We recently wrote about Google being fined for abusing its dominant position in Android.

Whistl complained to Ofcom, which after investigating has found that Royal Mail broke competition law by abusing its dominant position in bulk mail delivery. It used its dominant position to "penalise" those customers who tried to compete in bulk mail by increasing their costs, either impacting on their profit margin or increasing the prices they would have to charge their customers.

Sector regulators show their teeth

Ofcom's latest foray into competition law is another reminder that companies operating in regulated sectors (including communications, energy, financial services, transport, airports and, in England and Wales, water) have two competition regulators looking over their shoulders: the CMA and the relevant regulator for their industry. These regulators - Ofgem, Ofcom, the FCA, the Payment Systems Regulator (PSR), the Office for Rail and Road (ORR), the CAA and Ofwat - all have 'concurrent' powers with the CMA to enforce competition law rules, including to levy fines. They are also, generally, required to use their competition powers if they can, rather than their regulatory or licensing powers.

As the CMA's workload increases - see our blog here - these regulators are likely to take on more responsibility for competition in their sectors (and the PSR recently launched a market study into card acquiring services). This will free up the CMA to investigate competition issues in non-regulated sectors, but also means that regulated businesses may be the most likely to face competition investigations and enforcement action going forward.

Contributor

Jamie Dunne

Senior Associate