On February 18, 2022, the Spanish Competition Authority ("CNMC") decided to fine the National Postal Company, Correos, EUR 32.6 million after concluding that the application of certain discounts would have had a potential foreclosing effect on the retail market for the provision of traditional letter mail services to mass mailers from at least 2015 until 2019.
1. Situation of the Spanish postal market and object of the CNMC's investigation
Correos, the parent company of the Correos Group established in 1716, is the main company in the Spanish postal market and one of the leading companies in the parcel delivery sector.
The market share of Correos in the relevant market remained stable at around 85% -with slight variations- from 2015 to 2018. However, in 2019, after its main competitor Unipost left the market, Correos' market share increased to over 95%. Therefore, the only relevant competitive pressure in the Spanish postal sector was exerted by Unipost until its effective disappearance in 2018.
On this basis, the CNMC considers that Correos has a position close to super-dominance in the retail market for the provision of traditional letter mail services to private mass mailers, as there is a near-monopoly.
Additionally, the CNMC has taken into consideration that there are important (natural and regulatory) barriers to entry to this market:
i) the existence of distinct economies of scale and scope - the higher volume of deliveries and the joint provision of different services leads to a reduction in the average costs of the postal services.; and
ii) in 2010, the Spanish Postal Act designated Correos as the operator entrusted with the provision of the universal postal service for 15 years (i.e., until 31 December 2025).
In this context, on November 20, 2019, the CNMC formally opened proceedings against Correos as there were reasonable grounds to believe that it had abused its dominant position by applying a rebate system intended to encourage customer loyalty and which would be able to have an exclusionary effect on the market.
This rebate model was structured in discount tranches which were dependent on the annual volume of contracted mailings and the destination of the deliveries of each customer. It also provided an additional system of bonuses or penalties reliant on the proportion of deliveries intended for high-cost areas, the regularity of the mailings, and other parameters such as the time of deposit, the degree of sorting and the percentage of returned mail.
2. CNMC's assessment on Correos' rebates model
After a thorough analysis of Correos' rebate scheme, the CNMC concluded that it has an abusive nature based on the following criteria:
1. Conditional and retroactive nature of the model: Correos applied the discount of the highest tranche achieved by each customer to all the units purchased during the implementation period (i.e., contrary to an incremental rebate system), conditional upon the estimated volume threshold being exceeded. Otherwise, adjustments and refunds were made. This conditional and retroactive application of the discounts:
i) allowed Correos to build customer loyalty and attract its competitors' clients; and
ii) meant that small variations in mail volume resulted in significant supply incentives for customers.
2. Length of the discount accrual period: Contracts generally had a one-year term, which was automatically extended for three months (in some cases, the term was even longer). Thus, the CNMC considers that the length of the contracts was sufficiently long to generate a loyalty-building effect.
3. Lack of transparency. The contracts only reflected the final discount applied to the estimated annual deliveries for each product, without disclosing the parameters of the rebate model. As a result, the customers were not able to know the breakdown of the final discounts, and this only reinforced their incentives to deal with Correos because of the uncertainty and the risk of losing the discount.
4. The rebate rate and the aggregation of volumes. Correos' rebate model was structured in discount tranches depending on three different destinations. In practice, the company aggregated the volume of deliveries related to two different destinations to which the same retroactive volume discounts were applied. That meant that clients could exceed the thresholds set by the model more easily due to the addition of shipments that should have theoretically been treated differently.
5. Lack of standardisation. Discounts have varied so significantly for similar shipment volumes that these cannot be justified based on cost efficiency-related criteria. Those variations led customers to refrain from diversifying deliveries with different suppliers.
The CNMC's assessment takes into consideration the position of the Court of Justice of the European Union ("CJEU") regarding abusive discounts under article 102 TFEU (i.e., Michelin I, Michelin II, British Airways, Tomra and Post Danmark II cases).
3. CNMC's assessment on the potential impact on competition
Following the CJEU's preliminary ruling in case Post Danmark II, the CNMC has verified that the anticompetitive exclusionary effects of Correos' rebate system were either likely, possible, or potential.
These anti-competitive effects of the rebates applied by Correos would have resulted from:
i) The structure of the discounts, and the particularly high rates applied.
ii) The significant variations between consecutive discounts tranches applied, which, depending on minor variations in contracted volumes, could have a relevant impact on customers' costs.
iii) The potential effect of punishing the dispersion of the sourcing of shipments through different providers. The decision to split the demand between several suppliers – wherever such an option was available - meant taking on a significant risk of falling into a significantly worse discount tranche.
iv) The fact that customers considered the loyalty and exclusionary effect. In their responses submitted to CNMC's Requests for Information, some customers explicitly stated that one of the reasons they engaged with Correos was the decrease in their costs by contracting the service exclusively with Correos.
v) The duration of the contracts, according to the CNMC, was not only objectively long but also unjustifiably extended automatically during a negotiation phase.
That is not the first time the CNMC fined Correos for abusing its dominant position. In 2013, it was sanctioned for refusing to continue providing wholesale access services to the public postal network for administrative notifications under the conditions established by law (see CORREOS case). Then, in 2014, this same company was sanctioned for preventing third party operators from competing in the segment of large postal customers (see CORREOS 2 case).
Now, eight years later, and for the third time, Correos has been sanctioned again for abuse of its dominant position. And, considering this track record, one might reasonably wonder whether there will be the fourth chapter of this saga.
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