Postcomm proposes new UK framework
UK-regulator Postcomm has set out its proposals for the introduction of the first phase of a new regulatory framework for the postal services market to replace the structure that has been in place since 2006. A new and stable regulatory framework is a key requirement for securing a successful future for postal services, especially a universal postal service, as outlined in the Queen’s Speech on Tuesday, 25 May, the regulator said.
The new regulatory framework will be founded on the principles of cost transparency and accounting separation – as recommended in the Hooper Report – and will reflect the significant market developments that have taken place in recent years.
“The market has changed dramatically since Postcomm put in place the current system of price controls,” said Nigel Stapleton, Postcomm chairman. “Mail volumes have fallen by 15% in the last four years, with considerable switching to email. At the same time, internet shopping has increased the volume of packets sent by post.
“Our intent is to focus our regulatory safeguards where it is necessary to help sustain a universal service, our primary duty, and to further the interests of all users.”
The full package of measures proposed is intended to give Royal Mail greater commercial freedom, now that parts of the market have become more competitive. At the same time, the measures are designed to provide assurance to the market and customers that, where Royal Mail continues to have market power, it is not able to hinder the development of competition.
Postcomm plans to introduce the first phase of these regulatory changes in April 2011.
“This is a challenging programme of change that can only be implemented with the active cooperation of Royal Mail and others. We are hoping for extensive feedback from all interested parties over the next three months and, based on what we hear from them, we aim to announce in November our decisions on the changes to regulation to take effect from April 2011”, said Stapleton.
Proposals in the consultation include:
• removing price controls from all packets and parcels services weighing more than 750g because evidence suggests that this market is increasingly competitive
• removing retail price controls on pre-sorted bulk mail, and replacing them with new regulatory safeguards on the wholesale prices Royal Mail is allowed to charge operators and other users accessing its network for ‘final mile’ delivery
• giving Royal Mail more flexibility in setting its prices for pre-sorted bulk mail and access services
Further proposals for changes to the regulatory framework are dependent on further work being completed. Postcomm is, therefore, also consulting on some changes to allow the other elements of the current price control to continue in place until April 2012.
If, following consultation, Postcomm were to implement all the above proposals it would allow Royal Mail to realise up to £75m of additional revenues (approximately 1% of current revenues) through price increases above retail price inflation. This would translate into a possible average increase of 2% above inflation in the price of stamps. Such an increase in revenue would help to support the universal service during a period of substantial cash outflows as Royal Mail invests to modernise its business to increase efficiencies and address the effects of lower mail volumes.
The consultation may be found at:
http://www.psc.gov.uk/policy-and-consultations/consultations/may-2010-consultation.html
