Postcomm issues consultation on proposal to reject Royal Mail's zonal pricing

Postcomm, the independent regulator for postal services, has issued a consultation on its proposal to reject Royal Mail’s application to charge large mailers – using products which are not part of the universal service – different prices depending on where in the UK their mail is delivered (Royal Mail calls this zonal pricing).

To reduce industry uncertainty, Postcomm announced that it was proposing to reject Royal Mail’s decision on 23 July. This consultation sets out in detail the reasons for the regulator’s decision.

The main reason why Postcomm proposes to reject Royal Mail’s application is because it could result in a pricing structure that would discriminate between different classes of postal users. Postcomm concluded that there could be pricing discrimination between:

– two of the five zones proposed by Royal Mail;
– different areas within the London zone; and
– the proposed zonal retail tariff and Royal Mail’s existing zonal access tariff for delivery of other operators’ mail over the so-called ‘final mile’.

The regulator also found that Royal Mail’s application could be introduced in a manner which would result in unreasonable changes for customers. Royal Mail did not propose a sufficient notification period for customers to prepare for the withdrawal of geographically uniform prices. The company also offered limited help to customers in managing the transition and communicating the necessary changes. Postcomm believes Royal Mail should give postal users a notice period of 12 months before geographically uniform prices are withdrawn completely.

This proposal to reject Royal Mail’s retail zonal pricing application does not mean that Postcomm is ruling out any future moves towards more cost-reflective pricing, including retail zonal pricing for products outside the universal service. Postcomm is supportive of pricing that is more reflective of costs.

Notes

Comments on the proposals need to be submitted by 17 October 2007. Postcomm has until 2 January 2008 to make its final decision and it currently expects to be able to announce its decision before the end of December 2007.

Royal Mail’s ‘zonal pricing’ application did not include services paid for by stamps or those bulk mail products that are included within the definition of the universal service which must, under the Postal Services Act, remain priced at a uniform rate regardless of delivery zone across the country. It is open to Royal Mail to submit a new application if it can be framed to meet the regulatory tests in Royal Mail’s license and Postcomm’s statutory duties.