By Neil Maidment
LONDON (Reuters) - Britain's postal regulator Ofcom said Royal Mail (L:RMG) has breached competition law by proposing wholesale prices that were designed to be more expensive for any firm looking to run a rival mail delivery service.
The dispute is the latest in a line of headaches for Royal Mail. Last month Ofcom announced it would also review the regulation of Royal Mail, while it faces declining volumes in its letters business and slower than expected growth in parcels.
Shares in the firm fell 2.9 percent in early trade, the biggest fall on the FTSE 100 Index.
The price changes for bulk mail delivery services, whereby other postal firms pass letters collected from large businesses to Royal Mail for sorting and delivery, were set out in January 2014, but claimed to be anti-competitive by Whistl -- a company looking to rival Royal Mail by delivering some mail itself.
The price changes were never implemented after being suspended following Whistl's complaint and later withdrawn. Whistl, owned by Dutch-based PostNL (AS:PTNL), has since ended plans to launch a delivery network after funding issues.
Ofcom said on Tuesday it was of the view that the price changes included unlawful price discrimination, whereby higher amounts would have been charged to customers that competed with Royal Mail in delivery than to those that did not, thereby posing a deterrent to competition.
Ofcom said its initial view had been sent to Royal Mail in a statement of objections and that the postal firm could now make representations to it before it takes a final decision.
The regulator has the power to fine Royal Mail up to 10 percent of its 9.4 billion pound ($14.62 billion) group revenue.
Royal Mail said the pricing changes were fully compliant with competition law and that it would submit a robust defence to Ofcom in due course.
Ofcom said in June it would review the regulation of Royal Mail after the recent withdrawal of rival Whistl from the direct delivery letter market left it with no national competition.