Neutral citation [2019] CAT 27 IN THE COMPETITION Case No: 1299/1/3/18 APPEAL TRIBUNAL Victoria House 12 November 2019 Bloomsbury Place London WC1A 2EB Before: PETER FREEMAN CBE QC (Hon) (Chairman) TIM FRAZER PROFESSOR DAVID ULPH CBE Sitting as a Tribunal in England and Wales BETWEEN: ROYAL MAIL PLC Appellant - v - OFFICE OF COMMUNICATIONS Respondent - and - WHISTL UK LIMITED Intervener Heard at Victoria House on 10-13, 17-21, 24-28 June and 1, 8, 15-17 July 2019 JUDGMENT (NON-CONFIDENTIAL VERSION) APPEARANCES Mr Daniel Beard QC, Ms Ligia Osepciu and Ms Ciar McAndrew (instructed by Ashurst LLP) appeared on behalf of the Appellants. Mr Josh Holmes QC, Ms Julianne Kerr Morrison and Mr Nikolaus Grubeck (instructed by Ofcom Legal) appeared on behalf of the Respondent. Mr Jon Turner QC, Mr Alan Bates and Ms Daisy Mackersie (instructed by Towerhouse LLP) appeared on behalf of the Intervener. Note: Excisions in this Judgment (marked “[]”) relate to commercially confidential information: Schedule 4, paragraph 1 to the Enterprise Act 2002. 2 CONTENTS A. SUMMARY ....................................................................................................... 7 B. INTRODUCTION ............................................................................................ 8 C. FACTUAL BACKGROUND ........................................................................... 9 (1) The Appellant: Royal Mail ................................................................... 9 (2) The Intervener: Whistl ......................................................................... 9 (3) The position prior to 2012 .................................................................. 10 (a) The regulatory regime under Postcomm .................................... 10 (b) Explanation of the universal service .......................................... 11 (c) Market changes in 2005 ............................................................. 12 (d) Economic impact on Royal Mail ................................................ 13 (e) The Hooper Reports ................................................................... 13 (f) The different pricing plans ......................................................... 17 (4) The position after 2012 ....................................................................... 19 (a) The Postal Services Act 2011 ..................................................... 19 (b) Royal Mail’s engagement with Ofcom over its concerns regarding direct delivery ........................................................... 20 (c) The Access Letters Contract ...................................................... 22 (d) Royal Mail’s access arrangements ............................................ 24 (e) The price plans in the Access Letters Contract ......................... 24 (5) The preparation of the 2014 Contract Change Notices ................... 28 (a) Royal Mail’s development of the January 2014 price changes . 28 (b) Royal Mail’s finalisation and approval of the January 2014 Contract Change Notices ........................................................... 29 (c) The Contract Change Notices .................................................... 30 (d) Developments in relation to Whistl ............................................ 33 (e) Whistl’s and its investors’ responses to the Contract Change Notices ........................................................................................ 35 (f) The formal introduction of the Contract Change Notices, delay to Whistl’s external investment, and Whistl’s complaint to Ofcom ..................................................................................... 38 (g) Ofcom’s decision to open an investigation and Royal Mail’s response ..................................................................................... 39 (h) Whistl’s and LDC’s agreement to a revised MAE condition and further delay to Whistl’s roll-out progress ......................... 40 (i) Further events ............................................................................ 41 D. THE DECISION ............................................................................................. 42 E. THE APPEAL ................................................................................................. 44 3 (1) Overview .............................................................................................. 44 (2) Factual witnesses ................................................................................. 46 (3) Expert witnesses .................................................................................. 48 (a) The parties’ experts .................................................................... 48 (b) Concurrent evidence .................................................................. 50 (c) The evidence of Mr Harman ...................................................... 50 F. THE LEGAL FRAMEWORK ...................................................................... 51 G. ECONOMIC AND LEGAL CONTEXT ...................................................... 53 (1) Market conditions for the disputed conduct ..................................... 53 (a) Background ................................................................................ 53 (b) The decline in bulk mail volumes ............................................... 56 (c) The tight profit margins in the retail market for bulk mail ........ 56 (2) The relevant market: bulk mail delivery .......................................... 57 (a) Product market ........................................................................... 57 (b) Geographic market .................................................................... 57 (3) Royal Mail’s dominant position ......................................................... 57 (4) Ofcom’s consideration of the USO and the possible threat from direct delivery ...................................................................................... 60 (5) Royal Mail’s strategic intention ......................................................... 63 (a) Introduction ................................................................................ 63 (b) The Development of Royal Mail’s strategy ................................ 65 (c) Royal Mail’s decision to introduce the CCNs ............................ 73 (d) Oxera’s advice to Royal Mail .................................................... 76 (e) Amending Oxera’s advice .......................................................... 79 (f) Oxera’s definitive advice ........................................................... 79 (g) Oxera’s further involvement ...................................................... 82 (h) Our assessment of Royal Mail’s strategic intention .................. 83 H. GROUND 1 - THE PRICE DIFFERENTIAL WAS NEVER APPLIED . 90 (1) Introduction ......................................................................................... 90 (2) The parties’ submissions ..................................................................... 90 (3) Discussion ............................................................................................. 96 (a) General approach ...................................................................... 96 (b) Did Ofcom take the correct approach? ..................................... 98 (c) Does the case law prevent Article 102 applying to the publication of the CCNs? ......................................................... 102 (d) Was the publication of the CCNs competition on the merits? . 114 4 (e) Was the publication of the CCNs likely to lead to anti- competitive effects? .................................................................. 116 (f) Did the suspension of the notice period in the CCNs prevent any anti-competitive effects from arising? ............................... 121 (4) Conclusion .......................................................................................... 124 I. GROUND 2 – NO IMPROPER DISCRIMINATION .............................. 125 (1) Introduction ....................................................................................... 125 (2) The parties’ submissions ................................................................... 125 (3) Legal principles ................................................................................. 127 (4) Discussion ........................................................................................... 129 (a) Issue 1: Equivalence ................................................................ 129 (b) Issue 2: Cost justification ......................................................... 130 (c) Issue 3: Eligibility .................................................................... 133 (5) Conclusion .......................................................................................... 136 J. GROUND 3 – NO COMPETITIVE DISADVANTAGE .......................... 137 (1) Introduction ....................................................................................... 137 (2) The parties’ submissions ................................................................... 137 (3) Legal principles: (1) the issue of the AEC test and its consideration by Ofcom .................................................................... 138 (4) Legal principles: (2) the assessment of materiality ........................ 141 (5) Discussion ........................................................................................... 142 (a) The AEC test ...........................................................................