Dismay at “toothless dog” Ofcom over Royal Mail price hike

Major customers of Royal Mail have expressed concern that Ofcom’s effective deregulation of postal rates will drive them into alternative communication channels. The regulator confirmed its decision yesterday to hand Britain’s universal service operator full control of its prices, other than for retail Second Class letters, with Royal Mail immediately announcing a 30% increase in its First Class rates and a 38% increase in its Second Class rates, effective April 30.

The commercial direct mail sector responded with dismay to yesterday’s announcements.

The Direct Marketing Association said it felt concerns it raised into the consultation regarding Ofcom’s new seven-year regulatory framework for Royal Mail were not reflected in the regulator’s decision.

The largest trade association in the UK’s communications industry said Royal Mail’s new freedom to change its prices and terms without notice meant customers had “little in the way of power to dispute any changes that affect their business”.

Mike Lordan, the DMA chief of operations said: “We hope that Royal Mail uses its new commercial freedom responsibly by consulting and listening to its customer before it implements any changes. Otherwise, granting Royal Mail the ability to raise its prices without consultation will drive more and more businesses away from mail to cheaper alternatives, which is concerning as mail volumes are already declining year on year.”

“Toothless dog”

Small business groups said that with the difficult UK economy, now was not the right time for a major postage rate increase.

The Forum of Private Business said yesterday that small companies would be driven towards the slower second class mail system to avoid “unaffordable” first class mail rates, hitting first class volumes further.

“Simple economics suggests this will, ultimately, force the cost of first higher as increasingly fewer people use the ‘premium’ service,” said the Forum’s Chief Executive, Phil Orford, said of the new regulatory framework. “The quickest way for the Royal Mail to decline further is by pricing businesses out of their service. The costs of business are already high. There needs to be some respite not further crude hikes.”

Orford suggested that Ofcom had turned itself into a “toothless dog”.

“Exactly how far down the path of prices rises would it go before weighing in and asking Royal Mail to think again?” he asked. “Surely it would have been better for Ofcom to have more of a direct say in any price increases rather than relinquishing this power?”

Attention on quality

Consumer watchdog Consumer Focus said the Royal Mail price increases were “not great news” for ordinary mailers, either, although it supported greater pricing freedom for struggling Royal Mail.

Robert Hammond, director of postal policy and regulation at Consumer Focus, said consumers would not care that Royal Mail was struggling financially when they were paying 60p for a stamp, and that the major increases in postal rates would put the pressure back on Royal Mail to improve its service quality.

Hammond said: “This is a very significant increase in the price of an essential service and those consumers who continue to use it will look much harder at the value for money and quality of service that they get.”

Consumer Focus said there were positives in Ofcom’s decision to extend its surviving price cap to second class small parcels and large letters, and in the fact that Royal Mail had not used the full reach of price cap available for second class letters in its price increases. Ofcom is allowing the second class letter rate to rise up to 55p within its seven-year framework.

Hammond suggested that Royal Mail was recognising that it could not push prices up to their maximum, but added that Ofcom would have to keep up the pressure on the postal service to continue improving its service efficiency.

“Our research suggests that for some customers there is a fine line between being willing to pay more and deciding to walk away from using the postal service,” he said. “It is essential that Ofcom keeps the pressure on Royal Mail and reserves the right to step in if consumers lose out in any way.”

Alternatives

Private sector mail service companies said yesterday that Royal Mail’s price rises would end up encouraging more customers to look for alternative options for their mailing and parcels.

Parcel collection network CollectPlus said Royal Mail was showing how “out of touch” it was with its customers.

CollectPlus CEO Mark Lewis said: “Not only is the service becoming more expensive, but with a shrunken Post Office network, it is falling short of meeting rising consumer demand for additional choice and convenience when sending their parcels.

“This demonstrates a need for alternative offers for consumers, offers that are more price competitive but importantly provide added convenience to fit into their everyday lives.”

US mail equipment manufacturer Pitney Bowes suggested yesterday that the fact that Royal Mail’s prices for metered mail will see smaller increases meant more of Britain’s SMEs should be thinking about investing in franking machines.

When first class stamp prices rise from 46p to 60p, and Second Class stamp prices rise from 36p to 50p, Pitney Bowes said users of franking machines would see first class rates go up from 39p to 44p, and second class rates from 28p to 31p.

Pitney Bowes has set up a website and a webinar to show how its franking machines offer an answer to the soaring stamp prices for SMEs.

Phil Hutchison, Pitney Bowes marketing director, said: “The gap between the cost of stamps and metered mail is widening each year and many SMEs would be well advised to consider moving to a franking machine if they haven’t already.”

CFH Total Document Management, which has been operating a hybrid mail service for the past five years with the offer of reducing postal rates for customers, said Ofcom had “ignored” its consultation with customers, and said it would be difficult to avoid passing on Royal Mail’s increasing prices to its customers.

The company based near Bath said that following the Royal Mail price rise, its Docmail rates would increase from 28p to 32p excluding VAT. The service allows customers to send electronic documents to be printed and mailed locally by Docmail.

Dave Broadway, who runs the Docmail print and post service, said of yesterday’s announcements: “I believe this is a potential threat to all business users of post in the UK. CFH will continue to try and ensure that our Docmail service can offset the costs imposed by Royal Mail, but Ofcom removing any sort of control from Royal Mail will make it that much harder to achieve.”