Royal Mail's share price plummeted three per cent in early trading after Ofcom claimed it had “breached competition law” by behaving in a way that “amounted to unlawful discrimination” against competitors.
The communications watchdog has issued a strongly worded “statement of objections” as part of an ongoing investigation prompted by complaints against Royal Mail by competitor Whistl UK, formerly known as TNT Post.
The complaints centres around changes to its prices, terms and conditions for bulk delivery services, known as “access services”, announced by Royal Mail in January 2014.
These services enable other postal operators to hand over letters that they collect from large business customers - such as councils, banks and utility companies - to Royal Mail for final sorting and delivery.
The same month, Whistl UK complained to Ofcom, arguing that the changes were anti-competitive. Ofcom opened an investigation on 21 February; on 4 March Royal Mail suspended the changes and on 11 March announced it had withdrawn them.
Ofcom said today that Royal Mail's new structure would have contained a differential in pricing “ which meant that, in practice, higher access prices would be charged to access customers that competed with Royal Mail in delivery than to those access customers that did not”.
It added: “These higher access prices would act as a strong disincentive against entry into the delivery market, further increasing barriers to expansion for postal operators seeking to compete with Royal Mail in this market, and leading to a potential distortion of competition against the interests of consumers.”
Ofcom has raised its objections with Royal Mail and its proposed actions.
“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,” the watchdog added.
A spokesman for Royal Mail said: "Royal Mail takes its compliance obligations very seriously and is disappointed by Ofcom’s announcement.
"The company considers that the pricing changes proposed in 2014 were fully compliant with competition law. 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.
"Under the terms of our access contracts, these pricing proposals were suspended following the opening of Ofcom’s investigation. Accordingly the pricing proposals were never implemented and were withdrawn altogether in March 2015."
He added: "Royal Mail is considering carefully Ofcom's provisional findings. It will submit a robust defence to Ofcom in due course. Royal Mail has cooperated fully with Ofcom throughout its investigation to date and will continue to do so."