Postcomm launches review of Royal Mail's charges for 'final-mile' delivery
Postcomm, the UK postal services regulator, has launched a review of the charges Royal Mail imposes on other operators for access to its network and the delivery of mail over the so-called ‘final mile’.
Royal Mail and its biggest private competitor, TNT Post, have both requested changes to the margin between the price Royal Mail charges its customers for bulk mail deliveries and the amount it charges other operators for end delivery.
The former monopoly provider wants the margin narrowed, saying the 13 pence per item it is allowed to charge its competitors for providing final-mile delivery to homes and businesses is not enough to cover its costs.
It added it cannot compete fairly in the business mail market under the current price controls because any cut in its prices must be matched by a reduction in the amount it charges its rivals to use its network.
‘[Competitors] can always offer the same customers a price which clearly undercuts Royal Mail,’ it said in its submission to the review.
Competition is developing at a much faster pace than originally predicted, according to Royal Mail, with new entrants such as TNT Post and DHL securing about 25 pct of the bulk business mail market since it was opened on 1 January 2006.
TNT Post, however, said Royal Mail was attempting to ‘squeeze its competitors out of the market’ by requesting a reduction in the margin.
‘By closing the gap between wholesale prices and retail prices and reducing margin headroom, Royal Mail could severely restrict the competitive landscape and prevent business customers, large and small, from enjoying the benefits of competition,’ it said.
TNT Post said the limited margin protection currently in place made it difficult to invest in the infrastructure required to compete with Royal Mail.
‘Royal Mail is trying to squeeze us out of the market without any justification,’ said TNT Post CEO Nick Wells.
‘An increase in wholesale price could destroy our business and we want tougher controls which stop Royal Mail from doing this in the first place.’
Postcomm said it will study the rationale behind both requests, but all operators should note it is determined to ensure a level playing field for competition.
‘The experience of other sectors such as telecoms showed the importance of ensuring new market entrants are not crushed under the weight of ‘access’ charges and Postcomm shall be similarly vigilant,’ said Postcomm chairman Nigel Stapleton.
Royal Mail has also called for an end of the cross-subsidy of stamped letters by business mail.
Stamp prices need to rise by 6 pence to a level that can realistically fund the Universal Service, which lost more than 200 mln stg in the last financial year, it said.
‘Because stamped mail is subsidised by business mail our business mail prices remain artificially high, which makes it easier for rivals to ‘cherry pick’ business customers,’ it said.
The review of Royal Mail’s pricing and service quality levels until 2010 will be completed within six months, Postcomm said.
