Royal Mail’s Proposal to Implement Size Based Pricing – Next Steps Following Postcomm’s First Consultation

. Summary
Postcomm and Royal Mail have agreed that, in view of the complexity of the issues involved and the significant implications for many Royal Mail customers, more time is required to assess Royal Mail’s Size Based Pricing (SBP) proposal. Accordingly, the earliest implementation date, if the application is allowed to proceed, will be April 2006.

2. Response to Postcomm’s Consultation
In April 2004, Postcomm issued a consultation document seeking the views of interested parties on Royal Mail’s proposal to introduce SBP. This consultation ended on 27 July 2004.

Postcomm received more responses (over 120 individual responses, about 1,400 standard letters and around 8,000 postcard petitions) than in any consultation we have previously conducted. Postcomm has published the non-confidential individual responses on its website (www.psc.gov.uk). All of the standard letters and postcard petitions were opposed to Royal Mail’s proposal, while fewer than 25% of the individual responses that were received, were in favour of Royal Mail’s proposal. Whilst this does not reflect the balance of actual ‘winners’ and ‘losers’ from the implementation of SBP, these responses raise some important issues requiring further consideration.

3. Follow Up Work
It will take Postcomm some time to evaluate the responses and follow-up with certain of the respondents. Postcomm has also asked Royal Mail if they want to take the opportunity, in the light of responses to the consultation, to make any amendments to their proposal.

Postcomm has also to complete their work with Royal Mail, which has been ongoing since October 2003, to assess the robustness of its costing and cost attribution and to verify the quality of the cost information supporting Royal Mail’s proposal.

Postcomm is also seeking to understand in more detail Royal Mail’s plans for the implementation and communication of SBP, if it is introduced as currently proposed or with any amendments proposed by Royal Mail.

4. Proposed Next Steps
Once the further work described above is completed, Postcomm will initiate a further consultation for 3 months. This will summarise the responses to the first consultation and set out our proposed decision on Royal Mail’s SBP proposal. Postcomm expects this consultation to commence towards the end of this year or early next year.

Postcomm will continue to work closely with Postwatch and keep them updated about progress with its consideration of SBP.

If you have any questions about this issue please contact Paul Smith (02075932150 or [email protected]) or Derek Sibley (02075932163 or [email protected]).

5. Explanatory Notes
Royal Mail must demonstrate that its proposal meets the criteria in Paragraph 13 of Condition 19 of its licence. Postcomm will assess Royal Mail’s proposal against these criteria, and take account of its statutory duties under the Postal Services Act 2000, and Royal Mail’s other licence requirements. The criteria in Paragraph 13 of Condition 19 of Royal Mail’s licence include that any change in pricing will:

be revenue neutral;
lead to prices for the service being more reflective of costs than they would be if the existing pricing basis was retained; and
be introduced in a manner that avoids unreasonable changes for users of the service.