Royal Mail calls for end to price controls after profits collapse (UK)
Royal Mail's chief executive, Adam Crozier, is to call for price controls in the market to be lifted after revealing that the company lost GBP 200m on its regulated letters and parcels business last year.
The loss, which resulted in a 30 per cent collapse in Royal Mail profits, was announced yesterday, less than 48 hours after an independent investigation into deregulation of the postal market said the reforms had delivered no benefits to most customers and put the finances of the state-owned company under severe strain.
An interim report from the Government-commissioned review of the deregulation of mail services in 2006 warned this week that only large businesses were benefiting from competition and that the statutory requirement on Royal Mail to offer daily deliveries to every address in the UK would cause it substantial financial problems.
That conclusion appeared to be supported by the publication yesterday of Royal Mail's 2007 results, which showed the universal service lost GBP 100m last year. A further GBP 100m was lost on other areas of Royal Mail's business where prices are controlled. Overall, the company made profits of GBP 162m last year, compared with GBP 233m in 2006.
Despite Mr Crozier's warning, Postcomm, the industry regulator, pointed out that Royal Mail had already been allowed to raise the cost of stamps ahead of inflation and said it believed the current level of price controls governing the company was appropriate. "Royal Mail now needs to raise its efficiency levels and cut its costs," a spokesman said.
However, Royal Mail is currently most taxed about the regulation of its services to larger businesses, where it now faces significant competition from around 20 rival suppliers. While the company is free to set prices for services in this area as it sees fit, it has to offer the same price to all businesses on each of its tariffs. It is also required to offer rival services access to its delivery network, at a cost fixed in relation to the charges it makes its own customers.
Mr Crozier believes these restrictions reduce the competitiveness of the business services offered through Royal Mail Letters, undermining the company's ability to subsidise the universal service.
Allan Leighton, Royal Mail's chairman, claimed the company had already made huge strides in modernising, with a deal on working practices finally agreed with staff last year following a long-running dispute. He added: "However, the company continues to face significant risks, which unless tackled will impact on its performance."
The Government's review of deregulation is due to conclude later this year but has already said the status quo should not be allowed to continue.
Nevertheless, relaxation of regulation of Royal Mail is likely to be stiffly contested by both Postcomm and the company's commercial rivals, such as UK Post and TNT, which are facing similar market pressures. The overall size of the mail market in the UK is declining as the internet replaces both personal and business mail. More people pay bills online or by direct debit, and businesses have moved away from direct mailshot activities towards online marketing.
While Royal Mail's rivals now collect and sort a fifth of all mail in the UK – before paying Royal Mail to deliver much of it – they insist they still need protection from the former monopoly. Nick Wells, chief executive of TNT Post, said: "Competitors need a strong regulatory regime to ensure fair competition, including protection on the difference between retail and wholesale prices."
