Happy Birthday Royal Mail- have an £18m fine...

9 October 2014

royal mailThis weekend, it will be the first anniversary of the Royal Mail IPO, the much-criticised sell-off of the UK’s postal service to private investors. While the share price is still well above its initial purchase price of 330p per share, recent events have seen the share price fall from its high of 615p per share down to under 400p each. But what can Royal Mail expect for its first birthday as a private company? An £18million fine, that’s what…

Royal Mail is currently under investigation by the French regulator, Autorité de la Concurrence, over alleged breaches of competition law through its international parcels subsidiary Global Logistics Systems.

GLS operates one of Europe’s biggest ground-based parcel delivery networks, with almost 2000 trucks and 660 depots over 37 countries and the investigation- which is also looking at similar European organisations including Deutsche Post DHL, FedEx, TNT Express, and La Poste- seems to suggest that these postie types all got together over coffee and a croissant and decided how much they were going to charge for sending parcels in Continental Europe. Which is somewhat frowned upon, given it artificially sets consumer prices potentially higher than natural market competition might produce. Tsk tsk.

The results of the investigation will not be released until the end of next year, but Royal Mail says that the company has agreed to settle and “provide compliance commitments now” in order to get a smaller fine. Note that there is, apparently, no chance of no fine, which implies GLS’s behaviour might be capable of besmirching Royal Mail’s reputation. Royal Mail has therefore included an estimated penalty of £12 million, together with legal fees of £6 million, to make an £18million birthday bill.

And while £18 million might not sound small to us, City analysts estimate GLS’s share of the French parcels market to be just more than 5.5%, meaning its fine could have been much higher- up to a maximum penalty of 10% of worldwide turnover, which would be a whopping £160 million. The stock market thinks the fine is small too- the share price rose 7.7p at the news to 405.6p per share. Thank goodness for that.

But even if its continental indiscretions can be swept quietly under the carpet, Royal Mail is still in trouble with UK regulator Ofcom, after it attempted to instigate a price rise for other operators using its network to offer alternative delivery services. While Ofcom is wary of Royal Mail basically pricing competition out of the market, Royal Mail is complaining that competitors are only interested in muscling in on city deliveries, cherry picking the most profitable areas, while it is left holding the Outer Hebrides and remote rural areas baby. Royal Mail do still have a near monopoly on smaller postal services in the UK, although parcel prices have seen considerable challenge from new entrants to the market that has forced Royal Mail to look at its prices, as market competition often does. In sharp contrast to the never-ending price rises on stamps, Royal Mail recently announced a price cut for smaller parcels, to increase competitiveness in time for Christmas.

TOPICS:   Government

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