Royal Mail PLC Royal Mail response to Ofcom statement (7160X)
14 August 2018 - 8:13AM
UK Regulatory
TIDMRMG
RNS Number : 7160X
Royal Mail PLC
14 August 2018
Royal Mail plc
14 August 2018
Royal Mail response to Ofcom statement
Royal Mail (RMG.L) will appeal Ofcom's decision taken under its
Competition Act powers which was announced today. The decision
relates to a price change announced in 2014 - which was never
implemented or paid - under Royal Mail's Access(1) Letters
Contract.
The infringement decision relates to an Access price
differential (see below) which was announced in January 2014,
automatically suspended about four weeks later, before it was due
to enter into effect at the end of March 2014. The announced price
change had been robustly stress tested by Royal Mail under
competition law and the relevant regulatory framework. It was
designed to support the sustainability of the Universal Service
from "cherry picking"(2) end-to-end letters delivery and the
general decline in mail volumes.
Royal Mail is very disappointed by Ofcom's decision to impose a
fine of GBP50 million. Royal Mail strongly refutes any suggestion
that it has acted in breach of the Competition Act, and considers
that the decision is without merit and fundamentally flawed. The
company will now lodge an appeal with the Competition Appeal
Tribunal within the next two months. No fine is payable until the
appeals process is exhausted.
Royal Mail's position
The key reasons why Royal Mail believes that Ofcom's decision
will be overturned when subject to judicial scrutiny are as
follows.
For an allegation of abusive price discrimination to be
established, the law is very clear. The relevant prices must be
actually paid. And, the party paying such prices must be placed at
a competitive disadvantage as a result. In this case neither of
these essential elements exist. In addition, even if the prices had
been paid, it is clear that they would not have foreclosed an "as
efficient competitor" (the "AEC" test), which is the relevant legal
test. Royal Mail has submitted detailed expert economic analysis
which clearly shows this, and during its 4 year investigation,
Ofcom has provided no answer to it.
Ofcom's claim that the notification of the price changes itself
had an anti-competitive effect is fundamentally flawed. First,
there is no case in which a mere notification has been found to be
anti-competitive. Second, there is no basis on which it can be
unlawful to notify a lawful price. This claim therefore provides no
shortcut to Ofcom in establishing that discriminatory prices were
applied and parties were placed at a competitive disadvantage.
Supporting the sustainability of the Universal Service
Ofcom has a primary legal duty to secure the financially
sustainable provision of the Universal Service, which is
particularly important in light of the structural decline in
letters volumes and intense parcels competition. The UK is also
unique as Access letters account for 62% of addressed mail. In no
other EU country does that percentage exceed 25%.
Royal Mail welcomes competition, provided it takes place on a
level playing field. Independent reports commissioned by the
Government and prepared by Richard Hooper in 2008 and 2010
identified the risk that cherry-picking by an end-to-end letters
delivery competitor would pose to the sustainability of the
Universal Service.
In 2012, TNT Post (now Whistl) announced it would roll out
end-to-end letters delivery (collecting, processing and delivering
business mail three days a week without using Royal Mail's network)
to about 42% of UK addresses. It would do so by serving urban areas
covering just 8.5% of the UK's land mass. Royal Mail, by contrast,
is legally required to deliver many kinds of letters six days a
week to every part of the country.
Acting within the Access Framework
In 2014, after careful consideration and robust economic and
legal analysis, and following the available Ofcom guidance, Royal
Mail announced changes under the access contract. In particular,
Royal Mail announced it would introduce a price differential
(0.25pence less per letter) when Access customers committed to
advance monthly volume forecasts, based on a national mailing
profile of 86 UK districts. Those who chose not to commit to the
approach would not benefit from the price differential. They would
continue to be charged on the basis of the four existing
geographies.
The Access Letters Contract provides that any price change is
automatically suspended if an Access Operator complains to Ofcom
and the regulator decides to investigate. Whistl complained to
Ofcom when the price changes were announced. This resulted in the
suspension of the announced changes after Ofcom opened its
investigation. Royal Mail and Whistl asked Ofcom to open a
regulatory investigation to quickly resolve the matter. But Ofcom
chose to conduct a competition law investigation. Four years later,
Ofcom has announced an infringement decision which Royal Mail
believes is fundamentally flawed.
-ends-
(1.) Access is where Royal Mail accepts mail that has been
partially sorted by large customers and other postal operators at
our Mail Centre nearest the recipient's address. For an agreed
price, we then deliver that mail to the recipient. Royal Mail has
detailed regulatory obligations to offer an access service.
(2.) The finances of the USO depend on cross-subsidies within
the mail system not on taxpayer support. Revenues from urban areas
subsidise the higher delivery costs in rural areas. End-to-end
delivery entails unfair "cherry-picking" - delivering post only to
those cheaper urban areas.
Enquiries:
Royal Mail plc
Company Secretariat
Kulbinder Dosanjh
Phone: 020 7449 8133
Email: cosec@royalmail.com
Media Relations
Beth Longcroft
Phone: 07435 768 549
Email: beth.longcroft@royalmail.com
Media Relations
Rebecca Hammond
Phone: 07841 103 824
Email: rebecca.hammond@royalmail.com
Investor Relations
Catherine Nash
Phone: 020 7449 8183
Email: investorrelations@royalmail.com
LEI 213800TCZZU84G8Z2M70
About Royal Mail plc
Royal Mail plc is the parent company of Royal Mail Group
Limited, the leading provider of postal and delivery services in
the UK and the UK's designated universal postal service provider.
UK Parcels, International & Letters (UKPIL) comprises the
company's UK and international parcels and letters delivery
businesses operating under the "Royal Mail" and "Parcelforce
Worldwide" brands. Through the Royal Mail Core Network, the company
delivers a one-price-goes-anywhere service on a range of parcels
and letters products. Royal Mail has the capability to deliver to
more than 30 million addresses in the UK, six days a week
(excluding UK public holidays). Parcelforce Worldwide operates a
separate UK network which collects and delivers express parcels.
Royal Mail also owns General Logistics Systems (GLS) which operates
one of the largest ground-based, deferred parcel delivery networks
in Europe.
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END
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