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110/05 17 June 2005
The OFT has accepted undertakings in lieu of a reference to the Competition Commission in relation to the supply of postal franking machines and their ink cartridges, and in the provision of maintenance and inspection services.
The undertakings – given by the two leading suppliers Pitney Bowes and Neopost, together with Royal Mail which licenses machines and inspectors using its delivery services (see note 4) – will help increase choice and competition in the market.
Download undertakings (pdf 80 kb).
The OFT has accepted these new undertakings following its finding that undertakings given following a report by the Monopolies and Mergers Commission (MMC, now Competition Commission) in 1988 had been ineffective.
Postal franking machines allow companies to frank mail for delivery by Royal Mail in place of using stamps or pre-paid envelopes. There are over 210,000 franking machines in the UK with the supply and maintenance of franking machines worth an estimated £100-115 million a year. The two leading suppliers account for around 90 per cent of installed franking machines and also have a high share of aftersales markets.
The OFT has concluded that effective competition has not emerged in aftersales markets such as maintenance and inspection work and the supply of ink cartridges. Neither has the supply of second-hand franking machines via independent sources developed. Furthermore, the Royal Mail's approval procedures have meant that only a small number of firms have received approval to maintain and inspect franking machines since the MMC's report in 1986.
The undertakings will:
By opening up the market to greater customer choice and competition the OFT believes that users of franking machines should also benefit from lower prices and better service.
This is the first time the OFT has accepted undertakings in lieu of a market investigation reference under the Enterprise Act.
Sir John Vickers, OFT Chairman, said:
'Competition in the market for postal franking machines is still restricted. These undertakings will help open up the market and strengthen competition, in particular by making it easier for third parties to become involved in the supply and maintenance of franking machines.'
The undertakings come into effect today.
1. The MMC's report on the supply maintenance and repair of postal franking machines found that competition in the market was restricted with the price of franking machines much higher than it would be in a competitive market. It also believed there was insufficient competition in the after sales market and that Post Office regulations prevented the development of competition from independent suppliers of second-hand machines and maintenance inspection services.
2. Undertakings were given by Pitney Bowes and Alcatel (now Neopost) to the Secretary of State for Trade and Industry in 1988 under the Fair Trading Act. Alcatel ceased being bound by them in the changeover to Neopost in 1992. In light of the new undertakings, the Secretary of State has released Pitney Bowes from the 1988 undertakings.
3. The OFT's review also examined the wider issues relating to the supply and maintenance of franking machines including Royal Mail.
4. Royal Mail approval is required before someone can maintain or inspect a postal franking machine used to frank post for delivery by Royal Mail. Royal Mail also requires that such postal franking machines are inspected for evidence of fraud at least once a year.
5. The undertakings were accepted by the OFT under section 154 of the Enterprise Act 2002. A consultation on the proposed undertakings, in accordance with section 155 of the Enterprise Act 2002, was held in February and March this year.
6. The OFT will be responsible for the undertakings and has the power to vary them or release parties from them.
7. The OFT's advice to the Secretary of State, and the undertakings, are published on the register of orders and undertakings on this website.
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