The French Competition Authority accepts commitments from the French incumbent postal operator to put an end to loyalty and bundled rebates in the parcel delivery sector (La Poste)

On 2nd April 2020, the French Competition Authority (“FCA”) closed its investigation on the merits of an abuse of dominant position case started in 2010, by accepting and rendering legally binding the commitments offered by the French incumbent postal operator La Poste, designed at putting an end to loyalty and bundled rebates in the parcel delivery sector [1].

This commitment decision is noteworthy not only for the length of the investigation, but also for the mixed results brought by the “as-efficient-competitor" test as well as for the depth of detail regulating rebate calculation as per the commitments.

Background of the investigation

The investigation began in 2010 with referrals from the French Minister for Economic, Financial and Industrial Affairs and from new entrant Kiala, which was later acquired by the American operator UPS. In 2011, at Kiala’s request for interim measures, the FCA prevented La Poste from entering into a partnership agreement with its main competitor Mondial Relay, through which La Poste would have been able to offer its shipping clients – chiefly online sales websites - parcel delivery services at collection points combining its own network of post offices and local pick-up stores with Mondial Relay’s network [2]. This partnership agreement, which was deemed to put at risk competition in the sector, was to remain suspended until the FCA issues a decision on the merits of the case.

Through its 2nd April 2020 decision, the FCA finally decides on the merits of the case, focusing on loyalty and bundled rebates while leaving aside several other practices criticized by the claimants. The six other alleged practices which did not give rise to competitive concerns in the FCA’s view are (1) the partnership agreement between La Poste and Mondial Relay, which was suspended by the FCA’s 2011 interim measures decision, (2) encouragement and participation to the violation of an exclusivity agreement and to the termination of business relationships, (3) access to La Poste’s delivery facility, (4) cross-subsidisation and predatory pricing, (5) tying practices, and (6) confusion of brand image to La Poste’s benefit.

Markets at stake and La Poste’s position

The loyalty and bundled rebates which gave rise to competitive concerns relate to the market of postal services which was fully opened to competition in France in 2011 [3] . The postal sector’s specificities lead the FCA to consult on several occasions throughout the investigation the French sectorial regulatory authority in charge of electronic communications, the postal sector, and print media distribution, ARCEP (Autorité de régulation des communications électroniques, des postes et de la distribution de la presse). It should be noted that the markets at stake in the present case, which relate to BtoC parcel delivery, do not fall within the scope of La Poste’s obligations as current single universal postal service provider. However, what is relevant for the present case is the fact that since 2010, La Poste has extended its range of services from its historical core business of postal home delivery to out-of-home parcel delivery.

Indeed, the practices at stake concern the national market for BtoC parcel delivery services, which can be segmented between home delivery and out-of-home delivery. Both segments are related markets, but the FCA left open the question whether a single market for home and out-of-home parcel delivery could be retained, considering that the outcome of the competitive analysis would remain the same whichever market segmentation is applied.

On the market for BtoC home parcel delivery, La Poste is, in light of its consistently high market shares, considered as likely to hold a dominant position. The same conclusion is reached for the potential market of BtoC home and out-of-home parcel delivery. However, on the market for BtoC out-of-home parcel delivery, La Poste has grown to become a significant but not a leading operator.

Thus, not only in light of La Poste’s market shares but also of the outcomes of the market test, La Poste is considered as an unavoidable provider of parcel delivery services to shipping clients, i.e. essentially online merchants.

Practices raising competitive concerns Against the above-mentioned background, the FCA considered that the loyalty and bundled rebates implemented by La Poste were likely to consist of abusive practices.

Regarding the bundling practices, the rebate thresholds were defined on the basis of home deliveries and out-of-home deliveries (in terms of number of parcels or turnover) cumulatively. The rebates also applied retroactively. Such rebate structure could prompt shipping clients to choose La Poste’s out-of-home delivery services in order to benefit from rebates on home delivery services, to the detriment of operators who only offer out-of-home parcel delivery services and who, being absent from the home parcel delivery market dominated by La Poste, could not counter-attack with the same levels of rebates.

As to the loyalty practices, the rebates were defined on the basis of home deliveries or on the aggregate of home and out-of-home deliveries (in terms of volumes). Here also, the rebates applied retroactively. Such retroactive rebates on home parcel deliveries could incite shipping clients to choose La Poste’s home delivery services instead of competitors’ home or out-of-home delivery services.

It is worth stressing that during the span of the investigation, some of La Poste’s practices have evolved. Bundled rebates between home and out-of-home parcel deliveries have progressively been discontinued, but not in a systematic fashion. In particular, bundled rebates still applied to the most significant clients in terms of parcel volumes.

As-efficient-competitor test

The FCA recognized that the “as-efficient-competitor" test, designed to assess whether La Poste’s rebate schemes would still have enabled equally efficient competitors to compete with it, resulted in mixed results in the case at hand.

Indeed, the lack of sufficiently detailed data provided by La Poste led the FCA’s investigating services to run tests on several, but not all, sample client groups and timespans, and to resort to approximations. Plus, the FCA noted that the impact of fixed costs on delivery activities could question the very relevance of running an “as-efficient-competitor" test, since unit costs per delivery could depend on the volumes delivered. The outcomes of such test also depended on the type of client contract examined: a foreclosure effect could be retained for some contracts, but not for others.

What is more, the margin levels achieved by La Poste were not of the kind to foreclose as efficient competing providers of home delivery services. That being said, the FCA underlined that, in certain years, La Poste had realised a negative margin on avoidable costs or on incremental costs for certain client categories. Faced with La Poste’s retroactive rebates, competitors would have had to incur significant losses to effectively compete with La Poste’s prices.

However, all in all, the FCA considered that as-efficient-competitors were able to effectively compete with La Poste for home and out-of-home parcel delivery services, except for a very marginal share of client contracts. This is one of the reasons, amongst others, why the FCA chose the commitments path instead of imposing financial penalties.

But since it was not demonstrated that the rebates at stake were unable to trigger anticompetitive effects, notably because La Poste did not provide any “as-efficient-competitor" test and results of its own, the FCA ultimately reached the conclusion that the rebate schemes at stake were likely to qualify as abuses of a dominant position. Thus, the shortcomings of the “as-efficient-competitor" test in the present case, recognised not only by the FCA itself but stressed by respondents to the market test, did not prevent the FCA from reaching a finding of anticompetitive concerns and from making commitments legally binding to address such concerns.

Commitments

Regarding the commitments proposed, it should be noted that the results of the market test as well as the hearing of the case before the FCA’s Board led La Poste to fine-tune several times its proposed commitments, notably to reduce possibilities of circumvention.

The commitments consist in a wide range of behavioural measures, including:

  1. Commitments designed at putting an end to any bundled pricing between home and out-of-home deliveries, through a separate calculation of the rebates applying to the two types of deliveries.
  2. Commitments designed at removing the loyalty effects from the rebates on home deliveries, through the definition of a list of net prices based on rebates calculated in an incremental way. The price determination methods, including the definition of volume thresholds and the extent of price evolutions in case of switch of applicable volume threshold, are strictly regulated and tailored to each client category. The list of clients having benefited from additional rebates, and the related justification, will be shared with the trustee.
  3. Commitments designed at ensuring the effectiveness of the first two commitments. This notably includes putting in place an IT archiving tool to keep records of quotes, client contracts, rebate lists, invoices, as well as the softwares used by sales teams to calculate rebates. Dedicated trainings on competition law will also be carried out. A steering committee, as well as an independent trustee, will respectively be in charge of monitoring the implementation of the commitments.
  4. Commitments regarding the commitments’ duration and roll-out period. For implementing the commitments, which apply for five years, a three-year roll-out schedule is set. La Poste is required to first focus on rendering compliant its contracts with the most significant clients in terms of parcel volumes and of turnover generated.

Finally, due to the Covid-19 related state of health emergency in force in France at the date of the FCA’s decision, this decision will become enforceable as from the expiry of a one-month period following the end of the state of health emergency [4].

Footnotes

[1FCA, decision n° 20-D-06 of 2 April 2020 concerning practices implemented in the parcel delivery sector.

[2FCA, decision n° 11-MC-01 of 12 May 2011 concerning the application for protective measures submitted by Kiala France and Kiala SA in the parcel delivery sector.

[3Pursuant to the transposition into French law of EU postal Directives, namely Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service, Directive 2002/39/EC of the European Parliament and of the Council of 10 June 2002 amending Directive 97/67/EC with regard to the further opening to competition of Community postal services, and Directive 2008/6/EC of the European Parliament and of the Council of 20 February 2008 amending Directive 97/67/EC with regard to the full accomplishment of the internal market of Community postal services.

[4Article 8 of ordinance n° 2020-306 of 25 March 2020, relating to the extension of expired deadlines during the health emergency period and the adaptation of procedures during this same period ; FCA, press release of 27 March 2020, Adaptation of the time limits and procedures of the FCA in times of health emergency.

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Camille François, The French Competition Authority accepts commitments from the French incumbent postal operator to put an end to loyalty and bundled rebates in the parcel delivery sector (La Poste), 2 April 2020, e-Competitions April 2020, Art. N° 94933

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