28th Jul 2015 11:00
LONDON (Alliance News) - UK media and communications regulator Ofcom on Tuesday said it has issued a statement of objections to postal service operator Royal Mail PLC, with a provisional view that the company breached competition law by discriminating in its wholesale pricing against postal operators that competed with it on delivery.
Shares in Royal Mail were trading lower throughout trade on Tuesday after the Ofcom announcement, the second time this month a statement from the regulator has sent Royal Mail shares lower. Earlier in July, Ofcom published the scope of its review of the regulatory framework for the postal service operator, which confirmed price controls were still on the table.
Royal Mail shares were down 2.5% to 490.90 pence on Tuesday, the worst performer in the FTSE 100.
Ofcom said Tuesday its provisional findings, part of the investigation launched following a complaint by Whistl Ltd, a former competitor of Royal Mail, are that Royal Mail's changes to prices, terms and conditions for the provision of access services included "unlawful price discrimination".
More specifically, Ofcom said, the wholesale prices charged by Royal Mail for bulk mail delivery services contained different pricing which meant that, in practice, higher access prices would be charged to customers that competed with Royal Mail than for those which did not.
Ofcom has alleged that the higher access prices act as a disincentive to entry into the delivery market, increasing the barriers to expansion for postal services operators seeking to compete with Royal Mail.
The regulator said Royal Mail will have the chance to respond to the statement of objections before any final decision is made.
In response Tuesday morning, Royal Mail said it was "disappointed" by the regulator's announcement and added it takes its compliance obligations "very seriously". It said it considers the pricing changes made in 2014 to be fully compliant with competition law and noted that, under the terms of its access contracts, the pricing proposals were suspended following the opening of the Ofcom investigation and were withdrawn altogether in March this year.
Royal Mail said it is carefully considering Ofcom's findings and will submit a "robust" defence to the watchdog in due course. It added it has cooperated fully with Ofcom throughout the probe and will continue to do so.
Ofcom's statement marks the second time it has turned its attention on Royal Mail in July, having earlier this month outlined the scope of its review into the regulation of Royal Mail, including whether any price controls should be imposed on the company given the lessening of competition in the postal services market.
Ofcom had said in June that it had widened its review of the regulation of Royal Mail in light of the decision by competitor Whistl Ltd to halt its own direct delivery services in the UK. It said at the time that it would look at whether the commercial flexibility Royal Mail was given following the last regulatory review in 2012 was still appropriate and whether any pricing controls should be imposed.
The publication of the scope of the review in July confirmed that this remains on the table as an option, with Ofcom saying it will examine whether Royal Mail's wholesale costs and retail prices are affordable and sufficient to cover the costs of the universal service and whether the company's commercial flexibility remains appropriate within the changing market, including whether wholesale or retail charge controls may be appropriate.
The review also will examine whether any changes to the current postal regulatory framework could be appropriate in order to maintain the universal postal services and will study how to ensure Royal Mail continues to become more efficient given the absence of any significant end-to-end competition for the letters market.
By Sam Unsted; [email protected]; @SamUAtAlliance
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