Ofcom to review Royal Mail’s regulation following loss of end-to-end competition
Britain’s postal regulator, Ofcom, has launched a “fundamental” review of regulation governing Royal Mail. The review follows the withdrawal of Royal Mail’s only major challenger in the end-to-end mail delivery market.
Whistl, which is owned by Dutch postal operator PostNL, pulled out of its end-to-end business this month after its major co-investor decided not to support the operation.
The business had always faced the difficulty that Royal Mail as universal postal service provider enjoyed exemptions on VAT in some of its mail services.
Now Ofcom has said it will review the situation now that Royal Mail is “no longer being subject to national competition”. This will include “the company’s ability to set wholesale prices in a way that might harm competition”.
Ofcom said in a statement that Whistl’s withdrawal from the end-to-end delivery market represents a “significant change” in the direct delivery market. Whistl continues to operate in the downstream access market, collecting and sorting business mail before handing it to Royal Mail for the last stage of delivery.
Competition remains “strong” in the parcels industry, and in the downstream access market, Ofcom said, but the regulator’s review will also look into Royal Mail’s performance in the parcels market, as well as the universal service provider’s overall efficiency “in the absence of national competition for the direct delivery of letters”.
Ofcom noted that it will look into steps needed to secure the universal postal service, but also at whether Royal Mail’s current commercial flexibility “remains appropriate in the changing market”.
The last major review of Royal Mail’s regulation, in 2012, saw Ofcom moving to a lighter approach to the universal service provider, granting Royal Mail more commercial freedoms and powers over pricing, other than for Second Class Mail which retained its price cap.
This approach reflected the presence of Whistl’s growing end-to-end delivery business. Since then, Royal Mail has also been privatised, and is in a “stronger position financially”, Ofcom stated today.
The regulator is now expected to outline its initial thoughts on the review some time in July, when it will invite views from industry, consumer groups and other stakeholders.
Ofcom said the review should be completed, with a revised regulatory framework put in place, during 2016.
UPDATE:
Royal Mail has now issued a response to the Ofcom announcement, in which it stated: “Royal Mail will continue to participate fully in Ofcom’s review. As the regulator notes, there is significant competition in the UK market in the mails and parcels segments. At the same time the letters segment is in structural decline of 4-6% a year. There is therefore a need for regulatory clarity and certainty for all market participants. It is essential that Royal Mail is able to sustain the UK’s valued, high quality, high fixed cost universal service for the benefit of all consumers and businesses.”
LINKS:
Whistl to end UK end-to-end operations
http://postandparcel.info/65583/news/whistl-to-end-uk-e2e-operations/
Whistl’s investor backs out:
