Removing mail price controls "could drive UK firms away", warns DMA

Businesses could be driven away from using the mail in the UK if regulators remove price controls from Royal Mail’s commercial bulk mail services. That was the warning this week from the Direct Marketing Association, which said if Ofgem removes restrictions from commercial bulk mail prices, it could undermine competition and threaten the long-term prospects of the medium.

The comments follow a high-level summit of business mail users, postal service providers, senior marketers and industry trade associations, which was hosted by the DMA to address industry concerns about the current Ofcom public consultation on a raft of controversial changes to postal regulations to boost Royal Mail’s profitability.

Companies that use mail for sending customer bills or statements have already been squeezed by a 15%-20% price increase this year on the cost of transactional bulk mail services, the DMA said.

The Association that represents 800 direct marketing industry organisations said many companies had indicated they plan to withdraw from using mail if Royal Mail takes advantage of its new commercial freedom to impose another round of large price increases.

Commercial bulk mail users represent Royal Mail’s biggest customers and underwrite the cost of an affordable Universal Service.

Last month Ofcom, the new postal regulator, launched the public consultation about how postal services should be regulated over the next seven years. The proposals include continuing to allow access to Royal Mail’s network for competitors, monitoring Royal Mail’s price margins to prevent unfair treatment of competitors, and removing price controls to give Royal Mail the ability to set the cost of their retail products.

Concerns

Concerns about the potential impact of these changes prompted the DMA and the Postal Trade Association Forum to convene a summit for businesses and organisations affected by the proposals. Representatives at the summit reached agreement on a number of critical points in responding to the consultation.

As well as voicing fears about the potential for abuse of market dominance and threats to competition, all doubted the projections for future mail volumes and Royal Mail’s ability to meet efficiency and cost reduction targets particularly in light of current economic forecasts.

Mike Lordan, chief of operations for the DMA, said changes to the postal regulations were “clearly intended” to make Royal Mail more attractive for privatisation.

“However, we believe there’s a danger that the Government has gone too far in its plans to prepare Royal Mail for sale to the private sector,” he said.

“We called the postal summit to coordinate an industry-wide reply to the Ofcom public consultation because we want to see a healthy and vibrant Royal Mail. The businesses and organisations we’ve spoken to are in complete agreement that some of the proposed changes to postal regulation could be hugely damaging to the long-term prospects of transactional and advertising mail.

“Granting a monopoly the ability to raise its prices without adequate safeguards is very dangerous and could drive more and more businesses away from mail, which is concerning as mail volumes are already declining year on year.”

The DMA is currently canvassing opinions from its members for use in its official response to the Ofcom consultation, which closes on 5 January.