DMA view on … Deregulation of postal services
Every year brings a degree of change on the postal landscape, but perhaps none more so than 2006.
Last month saw the UK mail market open to competition; April is likely to see the price of first-class stamps rise from 30p to 32p; and in September Pricing in Proportion (PiP) becomes a reality for consumer and business users.
The increase in stamp prices will cause a sharp intake of breath among the DM community. It is significantly ahead of inflation – although it’s worth remembering that Royal Mail told Postcomm that it needed first-class stamp prices to rise to 39p by 2010. In fact, it will be capped to 36p by 2010 if Postcomm’s price and service quality proposals, announced last December, remain unchanged after the three-month consultation period passes (see box).
Competition is starting to have an impact for bulk mailers. According to Alex Walsh, head of postal affairs at the DMA and former head of mailing agents and trade associations at Royal Mail, companies are experimenting at the very least with different postal options. “A recent DMA survey of mailing house members found that 80 per cent have been approached by competitors to Royal Mail and a fair proportion are using alternatives,” he says.
One of the provisions of Postcomm’s proposals could also bode well for competitors looking to access ‘the last mile’ of Royal Mail’s delivery network. Included in the price control is a new provision preventing Royal Mail from squeezing the margins between the access price operators pay Royal Mail to deliver post and Royal Mail’s retail price.
“Royal Mail believes it has achieved fair prices with competitors with the precedent set by UK Mail, but Postcomm believes that freezing the margins is necessary to encourage competition and innovation,” says Walsh.
It is believed that some Royal Mail competitors are developing their own distribution network. While this will have little effect on business users, zonal pricing could impact greatly. It is possible that products, which are not part of the universal service, could be subject to variable prices, depending on where they are delivered. “Key to this is whether all bulk mail products are included or not, as some fall under the universal service,” he says. If this changes, Walsh says that zonal pricing could bring average postal price down as most direct mail is delivered from one urban area to another – so would enjoy a lower zonal price.
POSTCOMM PRICE AND SERVICE QUALITY PROPOSALS FOR 2006-2010
– Safeguard the one-price-goes-anywhere universal service
– Provide £1.2bn for Royal Mail to invest in modernising its network
– Allow Royal Mail an average of £320m a year to reduce the £4bn deficit in its pension fund
– Require Royal Mail to increase its efficiency by three per cent a year
– The customers’ contribution towards funding these initiatives will require an increase in stamp prices that will be capped to a maximum of 36p.
– Allow a one-off 6.2 per cent average price increase on Royal Mail’s regulated letters business from 1 April 2006.
