Prices to rise as Royal Mail gets “lighter-touch” regulation
UK-regulator Postcomm has announced plans to give Royal Mail more “commercial freedom” as well as lending support to any future price rises. The move is aimed to provide Royal Mail with a stronger platform in the face of growing competition in the postal market.
Postcomm said that the reform “can no longer wait”.
Under the proposals, Royal Mail could increase prices for a first class stamp by 5p, as well as a 4p rise for second class stamps.
The regulator described the final consultations as providing a “lighter touch regulatory regime”, which will aid modernisation and safeguard the provision of the Universal Service.
Moya Greene, Royal Mail Group CEO, said: “I am pleased that Postcomm clearly understands the need to continue to invest in Royal Mail’s future and to protect the Universal Service. The current regulatory framework is just not right and what is now proposed goes someway in the right direction.”
The proposed new regime grants Royal Mail more commercial freedom in markets where competition is starting to develop. It also requires Royal Mail to sign up to ensure that it does not subsidise activities in competitive markets with profits made in markets where it still has market power.
Postcomm proposes that there should be substantial deregulation of packets and parcels weighing more than 2 kilograms. The body also suggests that retail price controls will be removed from all packets and parcels weighing more than 500 grams, and in parts of the pre-sorted bulk mail market.
Furthermore, the organisation outlines that Royal Mail will be given greater freedom to compete in the pre-sorted bulk mail market, where the company has lost significant volumes to competitors.
Before this deregulation is possible, Postcomm will require Royal Mail to provide transparency of its product costings and to pilot the preparation of new forms of financial statements, said Postcomm. The regulator added: “Such safeguards are crucial to reassure customers and competitors that there is no inappropriate cross subsidisation.”
Nigel Stapleton, chair of Postcomm, said: “This package forms the bedrock of a much needed new, lighter touch regulatory framework. We welcome the development of competition in parts of the postal market and where this is clear we want to ensure that Royal Mail is free to compete on a level playing field with its competitors.”
Greene added: “With mail volumes falling rapidly and set to decline further as competition from electronic communications and rival postal operators intensifies, it’s essential the current regulatory constraints on Royal Mail are eased to allow it to compete fairly in the bulk business mail, and packet and parcel markets, where competition is extremely robust and growing.
“We fully support fair competition but even if all the changes proposed today by Postcomm were implemented, Royal Mail, unlike all other participants in the market, would still face regulatory controls on packets and parcels and on bulk mail. The key to a flourishing postal market going forward is a stable Universal Service.”
Postcomm also plans to accept Royal Mail’s request for additional revenues, to boost the modernisation process, which is “behind plan”.
Under the proposals, Postcomm will “roll forward” price control giving Royal Mail flexibility to increase prices on stamped mail by up to 10%, which would mean it could realise up to £280m in additional revenues.
Royal Mail made the request after demonstrating that it is close to fully utilising its borrowing capacity, leaving the Universal Service under threat.
Stapleton said: “There is broad consensus that there is a risk to the Universal Service unless Royal Mail quickly becomes a lot more efficient. To help fund Royal Mail’s modernisation, Postcomm has allowed Royal Mail to increase the prices of stamped mail by double the rate of inflation over the past five years.”
Greene said she was confident Royal Mail was modernising faster and reducing its operating costs more than any postal company around the world had achieved in recent years.
“We are making good progress transforming our operations and I pay tribute to postmen and women for the scale of the changes they are undertaking. But it’s vital we step up the pace of modernisation and invest substantially more in the business – and the ability to set fair prices will boost Royal Mail’s modernisation drive,” said Greene.
