Tough control for UK stamp prices
Postcomm today announced its proposals for the Price Control setting Royal Mail Letters’ prices for the next four years. Royal Mail believes it is not yet possible to assess fully the impact of the proposals as it has yet to see the supporting details.
Royal Mail has outlined the need for fair, cost reflective prices, as well as a £2 billion investment programme to renew equipment and invest in the automation technologies already used by other entrants to the UK postal market, which will be opened to full competition in less than four weeks time on 1 January 2006. The company must also address a £4 billion deficit in its pension scheme, which from next year is likely to require an annual cash injection of £400-500 million over and above business-as-usual contributions.
The Price Control set by the regulator governs around 90% of Royal Mail revenues and determines the profit that can be generated by the Group’s £6 billion turnover regulated business. As Postcomm has said today, the rises in stamp prices under the latest proposals are substantially less than Royal Mail wanted. The final outcome of the Price Control process, which is expected next March following a final three month consultation, will be crucial to Royal Mail’s prospects in a deregulated market.
Royal Mail notes that today’s announcement from Postcomm shows a significantly changed position from the original position in May this year:
May 2005 proposals from Postcomm
Royal Mail able to move stamp prices closer to real costs, to a maximum of 34p for a First Class stamp by 2009-10
Average allowed price increase, over duration of Control, for products open to competition set at RPI-2%
Average allowed price increase, over duration of control, for products without effective competition set at RPI-3%
No initial one-off price increase to help meet costs of pension deficit
Royal Mail allowed to invest £0.8 billion in equipment and technology
Royal Mail’s regulatory business valued at £2.2 billion
Royal Mail targeted to make annual efficiencies of 3%
November 2005 final proposals which Postcomm proposes to implement from April 2005
Royal Mail able to move stamp prices closer to real costs, to a maximum of 36p for a First Class stamp by 2009-10
Average allowed price increase, over duration of control, for products open to competition set at RPI-0.6%
Average allowed price increase, over duration of control, for products without effective competition set at RPI+0.5%
Ability to increase prices by 6.2% from April 2006 to help meet costs of pension deficit
Royal Mail allowed to invest £1.2 billion in equipment and technology
Royal Mail’s regulatory business valued at £2.3 billion
Royal Mail targeted to make annual efficiencies of 3%
The Regulator intends to implement these proposals from April 2006, if Royal Mail, which has not yet seen all the supporting details, gives agreement.
Royal Mail Chief Executive, Adam Crozier, said: “Today’s announcement from Postcomm shows the Regulator has moved a long way from its initial stance – but no one should regard today’s proposals as anything other than tough – particularly for a business with challenges on the scale that Royal Mail faces. We need to see all the detail and assess the full impact on our business, our people and our ability to go on delivering the record high quality service that customers have seen over the past year.
“Now that we know broadly what the Regulator is proposing we’ll be talking to our Shareholder about the future financing of the company and of the investments we need to make, and to our Pension Trustees about our ability to meet the scheme’s liabilities.”
Royal Mail has the opportunity to give its final views on the detail of the proposals to Postcomm over the coming weeks, before taking a final decision on the acceptability of the total Control.
Ends
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