Irish Competition Authority Decisions

1. This decision concerns an agreement dated 15 November 1993 between Neopost Limited, Banque Nationale de Paris (BNP) and An Post setting out the conditions under which An Post will allow Neopost to supply franking machines to the Irish market. The agreement was notified to the 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. This notification concerns an agreement ´as to the use of franking machines', dated 15 November 1993 between Neopost, BNP and An Post. The agreement sets out the conditions under which An Post will allow Neopost to supply postage franking machines to users in the Irish market.

3. An Post is the national postal authority which has a statutory monopoly in respect of the provision of postal services by virtue of the Postal and Telecommunications Act 1983. In addition to providing 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. Neopost supplies mailing systems equipment and services. BNP is a French based clearing bank.

4. The market concerned is that for the supply of franking machines to various businesses and institutions throughout the country, which use the machines for affixing postage marks on envelopes, parcels and packages, thus denoting prepayment of postage. As described in the Authority's decision in respect of the standard licence agreement between An Post and users of franking machines, such machines are a means whereby users pay An Post for postal services. Franking machines represent an alternative to purchasing stamps directly from post offices. In addition it is possible, in the case of parcels, for firms to use firms other than An Post to provide delivery services. Franking machines are generally purchased, leased or rented from authorised suppliers to users. The market is that for franking machines.

5. Firms must obtain a licence from An Post before they can use a franking machine and suppliers must be approved by An Post. There are currently three authorised suppliers of franking machines in the Irish market, Ascom, Pitney Bowes and Neopost. Agreements with the other two companies are the subject of separate decisions. They supply to customers largely in the business sector. Each supplier has an authorised agent in Ireland for supply, distribution and maintenance of their equipment. There are approximately 10,000 franking machines in Ireland at present. The franking machine is of no value to the customer without the user licence (except in a case of fraudulent use), because the customer cannot obtain an initial or new supply of postage from An Post.

6. Neopost has supplied [ ] of the franking machines presently in use and has approximately [ ]% of the market for franking machines in Ireland.

7. The notified arrangements concern an agreement between An Post, Neopost and BNP, whereby An Post agrees to permit the use, as licensed postal franking machines by authorised persons, certain postal franking machines including meters and dies to be supplied by or on behalf of Neopost. BNP is involved in the agreement for the purpose of providing a guarantee to An Post for the obligations of Neopost under the agreement.

8. Clause 1 of the agreement provides that Neopost shall not, without the consent of An Post, appoint any person as distributor or maintainer of franking machines in the State. Clause 2 provides that any equipment to be supplied must be of a type approved by An Post. Any person to whom a franking machine is supplied must be the holder of a licence from An Post in respect of it. Clause 4 provides for minimum maintenance standards which must be complied with by every customer. Clause 5 provides that repairs to sealed parts of a franking machine may take place only with the consent of An Post. Clause 6 provides that Neopost shall retain legal ownership of the dies which are essential for the operation of the machine. Clause 10 provides that Neopost may not supply any equipment except on such terms approved by An Post. Clause 12 imposes a liability on Neopost (subject to a maximum for one case of misuse and in each twelve monthly period) to indemnify An Post in respect of loss of revenue due to misuse of a franking machine as a result of negligence on the part of Neopost.

9. An Post submitted that they place no restrictions on the number of suppliers who may supply franking machines to the Irish market. They stated that clause 10, which required the approval of An Post for the terms on which Neopost supplies any equipment, did not relate to sale, hire, rental or lease charges, with which An Post was not concerned. They also submitted some arguments in support of their request for a licence but 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'. An Post is a body corporate which is engaged for gain in the supply of postal and other services to the public. Neopost is a limited company which is engaged for gain in the provision of mailing systems and services. BNP is engaged for gain in providing banking services. Therefore the parties to the agreement are undertakings and the notified arrangements constitute an agreement between undertakings.

12. This agreement concerns the authorization of Neopost by An Post to supply postal franking machines to users in the Irish market. At present there are three licensed suppliers of franking machines to customers in Ireland. An Post has stated that it does not restrict the number of suppliers who may supply machines to the Irish market and that it would enter into a similar agreement with any reputable supplier of franking machines.

13. The equipment may only be supplied to firms licensed by An Post. An Post also requires that the machines be serviced and maintained by the supplier or the agent or distributor and that they must be returned to the supplier in the event that An Post terminates the user's licence. Essentially the machines are a means whereby users pay An Post for using its postal services. The Authority believes that such restrictions are simply entended to prevent fraudulent use of the equipment to the detriment of An Post. The only legitimate use for such equipment is to produce postage labels which are affixed on packages sent through the An Post postal service. In the event that there were competing suppliers of postal services, the position might be different, in that it might prevent competitors from offering customers the option of using franking machines. Given the statutory monopoly in respect of postal services conferred on An Post, this does not arise. The Authority does not consider that the agreement is anti-competitive.

14. The terms of the agreement do not include any provisions which prevent, restrict or distort competition. The restrictions on Ascom in relation to the appointment of agents, supply and repairs to machines and supply and approval of equipment, are necessary in order to protect against fraudulent use of the machines and also to ensure the accuracy, efficiency and reliability of the system. The provisions could be used to restrict competition, in which case they would offend against Section 4(1). There is no indication that they have been used in this way. Neopost is not restricted by An Post in respect of its charges to customers. Therefore the agreement does not have the object or the effect of preventing, restricting or distorting competition in the State and does not offend against Section 4(1).

15. In the Authority's opinion, An Post, Neopost and BNP 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 agreement of 15 November 1993 between the above parties, as to the use of franking machines for denoting prepayment of postage does not have as its object or effect, the prevention, restriction or distortion of competition and does not offend against Section 4(1).

16. 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 agreement of 15 November 1993 between An Post, Neopost Limited and Banque Nationale de Paris as to the supply of franking machines for denoting prepayment of postage (notification no. CA/18/95), 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.