Postcomm agrees to Royal Mail bulk price hike

UK regulator Postcomm has given permission for Royal Mail to increase prices on bulk mail. The watchdog also said it would reduce a number of the regulatory restrictions that the operator currently adheres to.

The extra funding and the loosening of regulatory confinements will help the operator carry out its modernisation programme.

Royal Mail says that the programme is essential in order to safeguard the provision of the universal postal service.

Postcomm said that the measures put in place for 2011-12 “should provide a secure basis for a final transitional year, until a new price control is implemented in April 2012, anticipated to be under a new regulatory and legislative framework”.

The regulator confirmed it was working with Ofcom to develop initial proposals for consultation in the coming months.

Postal operators across the world have been hit by falling mail volumes, in light of a growth in technology and e-substitution.

Postcomm said that although it acknowledges that price rises could prompt mail volumes to fall even more sharply, the need for modernisation is far greater.

A statement said: “The impact that such price rises are likely to have on customers and the risk that this may result in a further decline in mail volumes.

“However the Hooper Report, published in December 2008 and updated in September 2010, clearly identified that the universal service will remain under serious threat if Royal Mail fails to modernise and tackle its long standing inefficiency.

“We agree with this assessment. We have therefore concluded on the basis of the information presently available that agreeing to Royal Mail’s request will provide a much needed contribution to funding the company’s ongoing modernisation programme.”

It was also confirmed today that Postcomm’s decision will have no bearing on the price changes announced by Royal Mail for first and second class stamps.

Postcomm has said that there will be deregulation of packets and parcels weighing more than 2 kilograms, as anticipated.

There will also be a removal of retail price controls from all packets and parcels weighing more than 1 kilogram and from second class pre-sorted bulk mail services.

Furthermore the regulator confirmed there would be a reduction in access headroom for letters to 3p, but still working on a price point basis as currently; and a removal of headroom controls from all packets and parcels weighing more than 1kg.

Finally, Postcomm confirmed that it will implement a move to a ‘wholesale-led’ form of price control for second class pre-sorted bulk products.

“Royal Mail will have greater freedom to compete in the pre-sorted bulk mail market, where the company has lost significant volumes to competitors,” a statement said.

“Further, in agreeing to Royal Mail’s request for additional allowed revenue and reducing headroom, we are substantially addressing Royal Mail’s concern that it makes a loss on each item of mail delivered on behalf of its competitors and helping to ensure that access will no longer be loss making.”

A document detailing Postcomm’s final position on these measures will be published early next week.