Royal Mail PLC v Office of Communications & Anor

A competition authority is not required to conduct an as-efficient-competitor (AEC) test before finding that a dominant undertaking’s pricing practice is abusive. An AEC test is one tool among others, and may be irrelevant, impracticable or economically uninformative in the circumstances. If the authority relies on the test, it must apply it correctly. If the undertaking relies on it, the authority must fairly evaluate it, but need not treat it as determinative or highly relevant. The authority and tribunal must assess all the circumstances, including market structure, dominance, conduct, intent and likely or actual effects. A specialist tribunal’s economic assessment will not be disturbed on a point-of-law appeal absent a clear error.

Royal Mail appealed under section 49 of the Competition Act 1998 against the Competition Appeal Tribunal’s dismissal of its appeal from Ofcom’s decision. Ofcom had found that Royal Mail abused its dominant position by issuing Contract Change Notices introducing discriminatory wholesale access prices, contrary to section 18 of the Competition Act 1998 and Article 102 TFEU. The Tribunal dismissed the appeal in [2019] CAT 27.

The appeal concerned whether an AEC test was required or determinative, and whether Ofcom had adequately considered Royal Mail’s AEC analysis. The central issue was whether the alleged pricing abuse could be established through the evidence as a whole despite the AEC analysis.

1. The appeal was dismissed. Arnold LJ gave the leading judgment, with Males LJ and King LJ agreeing. The appeal under section 49 of the Competition Act 1998 was confined to points of law. The Competition Appeal Tribunal was a specialist and expert tribunal, so its economic and factual assessments attracted substantial appellate respect.

2. There is no obligation on a competition authority to carry out an AEC test before finding that pricing conduct is abusive. The authority must consider all the circumstances. An AEC test is one tool among others. It may be inappropriate, impracticable or irrelevant where it does not provide useful information, and that conclusion is not confined to cases where the emergence of an AEC is practically impossible. The court relied particularly on Post Danmark II [EU:C:2015:651] and TeliaSonera [EU:C:2011:83].

3. Where an authority relies on an AEC test to establish abuse, it must carry out and apply the test correctly. Where the undertaking relies on the test, the authority must fairly evaluate it. It is not required to treat the test as determinative or highly relevant. Intel’s requirement that criticisms of a test on which the authority relied be examined did not displace Post Danmark II.

4. An AEC test must reflect economic reality. Although the dominant undertaking’s own costs will generally be the reference point, competitor costs may be relevant where the dominant undertaking’s costs are not identifiable or are not economically comparable. The Tribunal was entitled to find that the AEC concept was problematic in this market and that Royal Mail’s test had serious limitations concerning costs, common costs, customer investment, geographical roll-out and the use of a simple net present value calculation.

5. Ofcom had adequately considered Royal Mail’s AEC analysis. It was entitled to conclude that the analysis did not reflect the market’s economic reality and was unpersuasive in light of the contemporaneous evidence, the intended exclusionary effect and the actual consequences for Whistl. The Tribunal made no error of law in upholding Ofcom’s decision.

1. Court of Appeal (Civil Division): Royal Mail’s appeal was dismissed.
2. Competition Appeal Tribunal: Royal Mail’s appeal from Ofcom’s decision was dismissed in [2019] CAT 27.
3. Office of Communications: Royal Mail was found to have abused its dominant position contrary to section 18 of the Competition Act 1998 and Article 102 TFEU.