Irish Competition Authority Decisions

1. This decision concerns a standard licence agreement issued by An Post to business firms for the use of a postal franking machine. The licence agreement was notified to the Competition Authority on 11 May 1995 with a request for a certificate under Section 4(4) or, in the event of a refusal by the Authority to issue a certificate, a licence under Section 4(2) of the Competition Act, 1991.

2. The notification concerns a ´Licence for the use of a franking machine for denoting Prepayment of Postage'. Under the terms of the agreement An Post authorises large numbers of business customers to use postal franking machines as a means of payment for postage services. There are approximately 10,000 holders of such licences in Ireland at present.

3. An Post is the State owned national postal authority and has a statutory monopoly in respect of the provision of postal services. It also operates money transmission services and provides agency services for Government Departments, An Post National Lottery Company, Telecom Eireann and other bodies. The company's turnover in 1994 was £288.8m and it recorded a profit of £10.8m. There are approximately 10,000 holders of licences for franking machines in Ireland. Most of these would be industrial and commercial companies engaged in various types of business.

4. Under the terms of the licence An Post grants the licensee the right to use a franking machine. The machine is then used to affix postage marks on envelopes, parcels and packages denoting payment of postage. An Post is the sole provider of national and international postal services in the State. Parties wishing to use such services pay for them by purchasing postage stamps to the necessary value and fixing them to the letter or package to be posted. Franking machines print labels which can be used instead of postage stamps. The machines have meters and users pay for postal services in advance at a local post office which then sets the meter so as to allow the user to produce postage labels on the machine up to the pre-paid amount. An Post is the only body in Ireland which can issue licences to use franking machines, since such machines are used as a means of paying for postal services over which it has a statutory monopoly.

5. The market concerned is that for postal services. Franking machines represent one means of payment for such services, while the alternative is to purchase postage stamps directly from post offices. Franking machines allow firms which send large volumes of material through the post to pay for such services in a convenient manner. While An Post has a statutory monopoly in respect of postal services, this does not apply in respect of parcels. For larger items there are a number of private sector courier firms who provide delivery services on a local, national and international basis. In addition, some businesses operate their own delivery services for documents and packages where either speed or security is of major importance. In the case of larger packages the services of private courier firms are to some degree substitutes for the services of An Post.

6. Franking machines are supplied by a number of companies authorised by An Post. At present there are three authorised suppliers and the agreements under which they are licensed by An Post to supply franking machines are the subject of separate notifications. Under the terms of the agreements between An Post and the suppliers, the supplier of franking machines is required to ensure that every customer obtains a licence from An Post to use his franking machine. The franking machine is of no value to the customer without the licence because the customer cannot obtain an initial or new supply of postage from the post office for the franking machine without being licensed (except in a case of fraudulent use). Franking machine users are charged at the standard postage rates.

7. The notified arrangements concern a standard licence agreement between An Post and its customers for the use of postal franking machines for affixing postage marks on envelopes, parcels and packages denoting prepayment of postage. The licence sets out the terms and conditions which apply to the licence and use of such machines.

8. Clause 1 provides that no meter shall be used until it has been presented with the licence at a defined Meter Setting Post Office and the amount due in respect of the use of the machine for postage or other charges has been prepaid by the user. The operator of the machine must ensure that all parcels and letters stamped by the machine are prepared for posting in the manner set out in the licence to facilitate easy handling and efficient delivery by An Post. Facilities must be given to officers of An Post to inspect the machine during normal business hours. In addition the customer is obliged to have the machine inspected and maintained by the manufacturers or their authorised agents once every six months. According to An Post, only the manufacturer's authorised agent/engineers would have the detailed knowledge of the particular machines which is required to detect the more technical faults which might not be apparent to post office staff. In effect this obliges the customer to enter into a maintenance agreement with the supplier of the machine.

9. An Post submitted that it placed no restrictions on the number of customers who may have franking machines. The customer has the alternative of purchasing postage stamps and affixing them to his letters and parcels if he so wishes at no additional cost. An Post also submitted some arguments in support of their request for a licence these are not considered here.

10. Section 4(1) of the Competition Act states that 'all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void.'

11. Section 3(1) of the Competition Act defines an undertaking as 'a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service'. The parties to the present arrangement are An Post and its customers who obtain licences from it in order to use franking machines. An Post is a body corporate which is engaged for gain in the provision of postal and other services to the public and is an undertaking. The majority of the licensees are engaged for gain in various businesses involved in the provision of goods and services and are undertakings. Therefore the standard licence agreements constitutes an agreement between undertakings.

12. Under the terms of the licence agreement An Post authorises the use of postage franking machines by various businesses and institutions who apply to it for such a licence. Essentially this is an agreement to use the franking machine as a means of paying An Post for using its postal services and clearly is not in itself anti-competitive. An Post does not restrict the number of users who may obtain licences and the only criterion necessary to obtain a licence is compliance with the terms and conditions of the licence. Franking machines are a convenient and efficient method of paying for postage, especially for large businesses, government departments and other institutions where a high volume of post is processed each day.

13. The licence contains certain restrictions relating to the inspection and maintenance of machines. The Authority considers that these conditions are essential for the efficient operation of the system and the prevention of fraud. Consequently, in the Authority's opinion the licence does not offend against Section 4(1).

14. In the Authority's opinion, An Post and its customers are undertakings within the meaning of Section 3(1) of the Competition Act, 1991 and the notified arrangements constitute agreements between undertakings. In the Authority's opinion the arrangements concerning the Licence agreement for the use of franking machines for denoting prepayment of postage do not have as its object or effect, the prevention, restriction or distortion of competition and do not offend against Section 4(1).

15. The Competition Authority has issued the following certificate:

The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the standard agreement between An Post and its customers relating to the licence by An Post of franking machines for denoting prepayment of postage (notification no. CA/15/95), notified on 11 May 1995 under Section 7, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

18 December 1995.