The Competition Council imposed a fine of HUF 22 million ( EUR 94000) on Magyar Posta Rt. (MP) for abusing its dominant position through its discount policy on the postal item market. MP is the incumbent postal operator on the Hungarian market, active on not liberalised and already competitive markets, connected to postal services. MP was alleged to infringe the competition rules because it gave higher discount whenever the item to be delivered (generally invoices) were created by itself.
The proceedings originated form a public tender announced by ÉMÁSZ for the creation, preparation and delivery of its consumer invoices. Two markets have been investigated, the market of creating items and the market for delivery. At the time of the alleged behaviour, postal services were regulated by the "Post Act (Act)". MP was entrusted exclusively with the provision of basic postal services, like the clearance, sorting, transporting and delivery of items of correspondence. As to the first market, creation of postal items means the printing of electronically prepared letters, notices, invoice, balance sheets and other documents. Generally huge companies with several thousands of customers (banks, telecom companies, public utilities) have a regular, large amount of correspondence. They send via data-transmission or on a physical storage device to the producer of these items. The producer prints and cuts the items to shape, than they will be prepared to delivery (sorting out according to postal codes, bundling, sacking, etc.).
In the literature this service is often called hybrid mailing, however in Hungary providers do not transport the items electronically until the closest point to the customers, usually they have only one centralised production site.
The market of creating postal items could be divided into invoice and notice letters on the one hand and direct marketing letters (DM) on the other. However based on actual market conditions we cannot make this distinction in Hungary, where these two types are often combined and the DM market is only at the beginning of growth. We have to mention as well that at present 40-50 per cent of the potential customers organize the creation of their correspondence by outsourcing. The strongest players on this market are MP and Xerox with 10-10 per cent, than Állami Nyomda with 3-7 per cent and Drescher Kft with less than 5 per cent.
Potential customers select the supplier by tenders. Delivery and creation of items could be tendered in a package or separately. According to market players generally tenders are announced for the particular phases (creation, delivery), however customers prefer the packaged services, since they are interested in low cost solution.
Consequently only MP could have provide integrated services, since it had a monopoly for delivery. In other cases customers had to select and contract an item producer and they had to contract MP separately.
The competition Council found that MP was dominant on the market of basic postal services, since it had monopoly and occupied a significant market position on the market of creating postal items, which is closely connected to the former.
MP used its monopoly on the delivery market to restrict and distort competition on the separate, competitive market of creating postal items. The special discount system used by MP provided customers with higher discounts if they contracted MP for the creation of postal items as well. MP discrimination among competitors was unjustified. Thereby MP strengthened its position on the competitive market. The discount system was arbitrary, in particular contracts MP deviated even from its own internal guideline concerning discounts. Moreover the whole system was far from transparency.
The transparent, non discriminatory and uniform nature of the discount system would be extremely important for the following reasons:
Only MP can provide vertically integrated services, which is an obvious advantage for customers;
The effectiveness of competitors in end effects depends on the negotiating abilities of the customers, since he is the one who concludes the contract for delivery with MP, which often decides on case by case basis on discounts;
There are large capacity surpluses the market of creating postal items which is a strong incentive for increasing market shares;
Obtaining or losing orders could cause permanent advantages or disadvantages.
Universal service providers have to provide access on equal conditions to their postal network.
October 17, 2002. Budapest