Royal Mail is in big trouble

Royal Mail shares are diving right now after the UK's competition watchdog accused the postal service of "unlawful discrimination" against rivals.

Shares are off 2.18% 10 minutes after trade started on the London Stock Exchange.

Investing.com

Royal Mail shares have opened lower in strong volume after accusations of discrimination from the competition watchdog.

That's because Ofcom, the competition regulator that oversees Royal Mail, on Tuesday issued a "Statement of Objections" setting out a grievance against Royal Mail.

Its big accusation is that Royal Mail changed the way it did business with rivals in a way that "would act as a strong disincentive against entry into the delivery market."

In other words, Royal Mail deliberately and unfairly made it harder to compete against it.

The big problem is with Royal Mail's so-called "access services". Rival postal operators and parcel delivery services can tap into Royal Mail's infrastructure for a fee. The rivals collect letters from customers but then hand them over to Royal Mail to be sorted and delivered.

Ofcom claims that changes made last January to the price, terms, and conditions of these access services mean "in practice, higher access prices would be charged to access customers that competed with Royal Mail in delivery than to those access customers that did not."

Ofcom's probe, which began last February, was originally started after a complaint from a Royal Mail rival: Whistl. Whistl abandoned door-to-door delivery in May, instead relying on Royal Mail for getting letters that "final mile" through the door.

Royal Mail now has a chance to make its case before Ofcom makes any decision of possible actions. The postal operator abandoned the changes to its access services in March, but could still face a fine from Ofcom if things don't go its way.

Royal Mail said Tuesday it is "disappointed" with Ofcom's findings and will "submit a robust defence to Ofcom in due course."