Royal Mail may face fine over price discrimination claims

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Royal Mail (LON:RMG) may face a hefty fine if the UK postal watchdog rubber-stamps claims that it planned to discriminate against rivals on pricing.

The company could get a penalty of up to 10% of turnover of part of its business following the announcement by regulator Ofcom on Tuesday.

Ofcom said it believed RM breached competition law by launching plans earlier this year to change prices and terms.

The measures never took effect because RM later withdrew them following a complaint by competitor Whistl.

Whistl was competing with RM in the so-called end-to-end market - where it would collect, sort and deliver mail.

Access customers such as banks, councils and utilities collect and sort their own mail before handing it to RM for final delivery.

Ofcom claimed the moves would have resulted in higher prices for customers that competed with RM in delivery than to those customers that did not.

Whistl withdrew from the market after failing to secure funding from an investor.

RM effectively gained a monopoly in the end-to-end letter market after Whistl's withdrawal, although the market is in decline.

Ofcom said the higher access prices would have strongly discouraged rivals such as Whistl from entering the delivery market.

But it stressed that its claims were provisional and that it had yet to make a final ruling.

"It represents one stage in Ofcom's investigation, and no assumption should be made at this stage that there has been a breach of competition law," it said.

RM said it was disappointed by Ofcom's announcement.

"The company considers that the pricing changes proposed in 2014 were fully compliant with competition law," it said in a statement.

"They were an important part of Royal Mail's commercial response to both changing market conditions and to Ofcom's statements in its March 2013 guidance document on end-to-end competition in the postal sector.

"RM is considering carefully Ofcom's provisional findings. It will submit a robust defence to Ofcom in due course. RM has cooperated fully with Ofcom throughout its investigation to date and will continue to do so."

Ofcom stressed that its claims were provisional and that it had yet to make a final ruling. RM shares fell 12.5p to 491.5p in early London trading.