UK Royal Mail accused over price controls

Royal Mail has been accused by Potwatch of "gamesmanship" by threatening to reject proposed postal price controls if the government refuses its application for Pounds 2bn of investment. Postwatch, the consumer body, said it was "ridiculous that customers, particularly large business customers, were not told months ago what the pricing structure from April will be". The uncertainty stems from complex negotiations between Royal Mail and both its regulator, Postcomm, and its sole shareholder, the government. Yesterday marked the deadline for comments on Postcomm's proposed price controls to 2010, which will come into effect next month unless Royal Mail forces a referral to the Competition Commission. Royal Mail said it was "not in a position to say yes or no to the price control . . . because we have not had the final proposals from Postcomm". Postwatch accused Royal Mail of threatening to reject the price control "beyond the eleventh hour" and said such "gamesmanship" was unfair to customers.

Postwatch Press Release
Monday 6 March 2006
POSTWATCH'S RESPONSE TO POSTCOMM'S PRICE CONTROL PROPOSALS

Postwatch, the watchdog for postal services, has today submitted its detailed and thorough response to Postcomm's Final Price Control proposals for the Royal Mail, which were published in December 2005. The response can be viewed and downloaded from the Postwatch website www.postwatch.co.uk

Postwatch is concerned that Postcomm will allow Royal Mail to continue to 'game' the process and that this will lead to continued uncertainty as to what will happen to prices in April. Postwatch therefore urges Postcomm to put customers first, to reject after deadline submissions from Royal Mail, and to confirm as soon as possible the details of its absolutely final proposed Price Control. Royal Mail will no doubt keep threatening to reject the Control, which would trigger a Competition Commission referral. Postcomm should call that bluff and not concede one further penny to avoid rejection. Royal Mail is putting playing the regulatory game above the needs of its customer, who demand certainty.

Millie Banerjee, Chair of Postwatch, on submission of the response to the price control said: "Postcomm's proposed Price Control is generous and should be readily accepted by Royal Mail. But Royal Mail wants to have the last word and will threaten to reject the control beyond the eleventh hour. Such gamesmanship is unfair to the Royal Mail's customers who want definite prices confirmed as soon as possible.

"It is ridiculous that customers, particularly large business customers, were not told months ago what the pricing structure from April will be. Postcomm must examine its processes to prevent such an error from being repeated.

"Royal Mail should also be carefully considering whether they should be fully utilizing the flexibility Postcomm are giving them. For example, the Direct Marketing Industry is concerned that volumes may not be holding up. An ill timed, bigger than inflation price increase may have a dramatic, albeit unintended, effect on volumes. Once lost the volumes will be hard to win back. "

Postwatch is concerned that since Postcomm issued its initial proposals in June 2005 most of the changes made have been in Royal Mail's favour. Postwatch calculate that the changes, if confirmed, would result in Royal Mail receiving an additional £ billion in revenue. Postwatch urges Postcomm not to make any further concessions to Royal Mail and to instead carefully consider what changes can be made in favour of customers to restore a better sense of balance.

The changes to move the pendulum back towards customers could include:

· Altering the profile of the control to smooth prices (so as to avoid the front end loading);

· Putting Presstream 2 back into the control in line with the wishes of customers and the considerable number of MPs who have signed the supportive Early Day Motion;

· Scrapping the pensions deficit mechanism or at least make it symmetrical so prices can when appropriate decrease; and

· Restore the link between individual product failures and compensation.

NOTES TO EDITORS

1. The current price control for Royal Mail ends at the end of March 2006. Postcomm are consulting on what controls will replace the existing ones. Clearly, the regulator is running out of time and this puts it under pressure. Royal Mail increases that pressure by constantly submitting additional information late in the day or after deadline.

2. Royal Mail should have published indicative prices for April 2006 by 31 December 2005. Indicative prices were eventually published on 18 January. However, at the time Royal Mail emphasised that they were subject to it accepting the Price Control.

3. Millie Banerjee has been Chair of Postwatch since 1 December 2005. She is also a non-executive Director of OFCOM.

MORE INFORMATION

Call Andy Frewin on 020 7259 1223 or 079 00263 004 or

Daryl Barrett on 020 7259 1239 or 079 00263 020