The Market Court decides

The Market Court decides -Posten's zone prices constituted abuse- The Competition Authority has, in a series of cases, held that Posten has abused its dominant position on the postal market. In the Market Court's decision, the position of the Competition Authority is upheld on important matters of principle, such as the fact that the whole of Sweden constitutes one market for major dispatches of mail, and that price reductions by Posten only where competition exists requires that such price reductions are commensurate with the cost differences for Posten. In the instant case, the Court held that one of Posten's price lists was justified by costs, but not the other. The Market Court held that Posten's competitive measures during the period in question were intended, as far as possible, to prevent competition from CityMail and thereby constituted an abuse of Posten's dominant position. "The decision means increased transparency in the market which is beneficial for customers. The fact that competition law issues have now been clarified means that CityMail's growth can continue," says Jan Freese, former General Director of the Swedish Post and Telecom Agency and newly elected chairman of the Board of Directors of CityMail, in a commentary. The Market Court's decision In important matters of principle, the Court has held in favour of the Competition Authority's view that the whole of Sweden constitutes one market for major dispatches of post and that the price reductions by Posten only where competition exists requires that the price differences are commensurate with Posten's cost differences. In the instant case, which affects Posten's so-called zone prices, the Market Court held, amount other things, as follows: "In light thereof, the Market Court finds that a particularly high demand must be imposed on Posten's behaviour from a competition prospective." "There exist, however, a number of circumstances which, taken together, point to the fact that Posten's competitive measures during the period relevant to the case were intended, as far as possible, to avoid competition from CityMail." "It may also be noted that Posten announced zone price reductions without having clearly based knowledge with regard to its distribution costs in various geographical areas. When judged in its entirety, there is thus reason to regard Posten's behaviour during the phase in question, and primarily the announcement of the new zone prices, as a form of abuse." CityMail's legal counsel "It can be regarded as sensational that a state-owned former monopoly undertaking has been held by the highest court in competition cases to have intentionally attempted to hinder competition from new participants and thereby, in fact, chose to sabotage the intentions of the Government with the deregulation of the postal market. In addition, the Market Court has, in common with the District Court, held that Posten's geographical price differences must be justified by its costs. The principle established means that Posten's future possibilities to meet competition through selective price reductions, have been severely restricted. The Market Court is the highest court in competition law matters and the court's decision cannot be appealed. Hopefully, the decision will put an end to years of competition law disputes", says CityMail's legal counsel, Carl Wetter of the Vinge law firm." Background For a number of years, the Swedish Competition Authority and Posten AB have held different opinions concerning the application of the Competition Act. The Competition Authority has been of the opinion that the zone pricing which Posten has employed for its so-called major dispatches was not justified by costs and was intended to eliminate competition. Zone pricing means that Posten offers lower prices in the 19 largest cities compared with other parts of the country. Ever since deregulation, CityMail has been Posten's main competitor. CityMail has, however, only 3-4 percent of the total postal market in Sweden. Much of the discussion has concerned whether Posten has different costs for distribution in heavily populated areas compared with rural areas. In the Market Court, Posten has now confirmed that it is generally 8 percent more expensive to deliver mail in the major urban areas than in other parts of the country. This is the opposite of what was previously claimed. The cherry-picking is dead "With the competition law issues behind us, we can now look forward and devote all of our energies to the market and our customers. Perhaps the most important outcome of the case is possibly that the myth that it is generally cheaper to distribute post in major cities is dead. Now, customers will know what applies and the uncertainty on the market will diminish, says Bror Anders Månsson, Managing Director and one of the founders of CityMail." For additional questions, contacts: Håkan Ohlsson, Deputy Managing Director and Head of Information: +46 70 752 42 01 Jan Freese, Chairman of the Board of Directors: +46 708 56 72 25 Carl Wetter, attorney, Vinge law firm: +46 70 714 30 76 Appendix: Concerning geographical cost differences Appendix concerning geographical cost differences Ever since the Swedish postal market was deregulated, Posten's competitors have been charged with "cherry picking". The reasoning is based on the fact that when people live closer to each other, it must be cheaper to distribute letters. In the litigation in the Market Court, Posten has now confirmed that its own figures show that both distribution by postmen and box distribution is, on average, approximately 8 percent more expensive in zones 1-3, i.e. the 19 major cities, than in other parts of the country. "The Competition Authority and CityMail have conclusively shown that distribution should be cheaper in rural areas than in urban areas. With regard to zone pricing, Posten stipulates that distribution in zone 4 is cheaper than in zones 1-3." (Quotation from Posten's presentation of facts) There are a number of reasons for this. In the first place, one must bear in mind that that which the general public regards as a postman's work, the actual distribution, constitutes only between 30-40% of the total work time. The rest is preparatory work and supplementary work. There is a whole range of factors, which make distribution in the major cities more expensive, at the same time as there are a number of factors making distribution cheaper in the rest of the country. Factors making distribution more expensive in major cities: Preparatory and supplementary work takes significantly more time as a result of more multi- story buildings (higher complexity), significantly higher frequency of relocations, a high frequency of temporary mail forwarding and storage. The work is made more difficult by traffic queues, door codes, etc. In addition, rents for premises are significantly more expensive, primarily in major cities. Factors making distribution cheaper in the rest of the country: It should be noted that "the rest of the country" is not the same as rural areas. The greatest part of the rest of country consists of smaller towns and small communities, i.e. small and medium urban areas. Just under 15% of the population lives in what might be called rural areas. The same factors as make distribution more expensive in the major cities work in the opposite direction in the rest of the country. Lower complexity in delivery work, a lower degree of relocation, fewer traffic problems, and lower rents. In addition, external subcontractors such as Länstrafiken and Waxholmsbolaget carry out the distribution work in the extremely sparsely populated areas. This means that the distribution is relatively cheap also in these areas. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1998/11/11/19981111BIT00180/bit0001.doc http://www.bit.se/bitonline/1998/11/11/19981111BIT00180/bit0002.pdf