Splitting of Royal Mail operations proposed (UK)

Royal Mail’s postal operation could be split in two under proposals put forward by the postal regulator to increase competition and reduce the burden of regulation.

Postcomm has written to all postal operators, organisations representing mail users and Postwatch, the consumer watchdog, asking them for their views on five options for regulating the industry from 2010.

Two of the options involve the principle of “wholesale equivalence”, which would split Royal Mail’s collection arm from its delivery arm by creating separate business units. That would make it easier to eliminate cross-subsidies; ensuring competitors had equal access to Royal Mail’s network, which they rely on for final delivery to homes and businesses.

At present, equal access is ensured by regulating a range of Royal Mail prices, including what it charges competitors for final delivery. This means 77 per cent of the state-owned operator’s revenues are controlled by Postcomm – a split, it says, could reduce the proportion to as little as 15 per cent.

This would be similar to the approach adopted by Ofcom, the media regulator, to reduce the regulatory burden on BT by requiring it to separate its retail operation from Openreach, the wholesale arm that handles calls for other telecom companies.

Postcomm said a split was unlikely to be effective in creating a level playing field for competitors unless the two organisations were physically separated. The businesses would need different management incentives, for example, so that the delivery arm was encouraged to offer equal service to Royal Mail and competitors.

Royal Mail’s postal operation could be split in two under proposals put forward by the postal regulator to increase competition and reduce the burden of regulation.

Postcomm has written to all postal operators, organisations representing mail users and Postwatch, the consumer watchdog, asking them for their views on five options for regulating the industry from 2010.

Two of the options involve the principle of “wholesale equivalence”, which would split Royal Mail’s collection arm from its delivery arm by creating separate business units. That would make it easier to eliminate cross-subsidies; ensuring competitors had equal access to Royal Mail’s network, which they rely on for final delivery to homes and businesses.

At present, equal access is ensured by regulating a range of Royal Mail prices, including what it charges competitors for final delivery. This means 77 per cent of the state-owned operator’s revenues are controlled by Postcomm – a split, it says, could reduce the proportion to as little as 15 per cent.

This would be similar to the approach adopted by Ofcom, the media regulator, to reduce the regulatory burden on BT by requiring it to separate its retail operation from Openreach, the wholesale arm that handles calls for other telecom companies.

Postcomm said a split was unlikely to be effective in creating a level playing field for competitors unless the two organisations were physically separated. The businesses would need different management incentives, for example, so that the delivery arm was encouraged to offer equal service to Royal Mail and competitors.

Guy Buswell, chief executive of Business Post, whose UK Mail subsidiary handles 10 per cent of mail collected in the UK, said wholesale equivalence would push Royal Mail to re-engineer its network. “With 100m items a week now handled by competitors, it is failing to grasp the opportunities in a liberalised industry,” he said.

Royal Mail said: “Raising the issue of separation is a pointless distraction when the debate should focus on how to protect the one-price-goes-anywhere universal service in a competitive market.”