Royal Mail demands regulatory probe into its delivery competition

Royal Mail has called on the UK postal regulator to launch an immediate investigation into the growing competition from rivals TNT Post UK. The company was responding yesterday to the launch of regulator Ofcom’s review into its pricing proposals for downstream access mail.

The newly-privatised universal postal service provider in Britain said Ofcom should complete its review into proposed discounts that would encourage business mailers not to use TNT Post UK’s services “as quickly as possible” in order to avoid a “period of uncertainty” within the UK postal market.

At the same time, Royal Mail demanded that Ofcom launch a fresh probe into the growing presence of TNT Post UK in the UK’s last mile of postal delivery.

Royal Mail said: “We are again calling for Ofcom to commence immediately a full review of how it will protect the universal service from the serious risk presented by unfettered direct delivery competition. It should take action as soon as possible to safeguard the finances of the universal service. This is necessary to give clarity and certainty to all market participants.”

TNT Post UK is the only significant competition against Royal Mail in the delivery of mail to the doorstep within the UK. The company first launched its services in West London in April 2012, and now has about 3,000 delivery staff operating through various parts of west and central London, in Manchester and most recently Liverpool. The company ultimately has ambitions to deploy 20,000 delivery staff around the UK within five years.

Review

The Ofcom investigation is looking into changes Royal Mail is making for pricing of services in which rival mail businesses collect and sort mail before injecting it into the UK’s universal postal service network for the final stage of delivery.

Royal Mail has suspended the changes pending the Ofcom review, although inflation-based price increases went ahead. The changes that are on hold include the offer of discounts for business mailers providing it with monthly forecasts of their expected mail volumes up to two years ahead.

The discounts would require business mailers to use Royal Mail end-to-end postal services across 86 local districts in the UK.

Royal Mail said the discounts would reflect the savings it would make from being able to plan more accurately when providing its services, and delivering greater service efficiencies.

The geographical spread requirements would mean the discounts would not be available if businesses choose to use TNT Post UK’s new last mile services in the areas where they are available.

Royal Mail is also looking to change its zonal price differentials between its four zones — London, Urban, Suburban and Rural — so they are “more reflective of relevant costs and market conditions”.

“Fair, reasonable”

The company said yesterday that these planned changes to its downstream access contracts were an “important part” of its commercial response to the changing conditions of the UK postal market, including the progress of competition in the direct delivery business.

“We believe the changes are fair, reasonable and fully within the guidance provided by Ofcom’s March 2013 document on end-to-end competition,” Royal Mail said.

“The regulator highlighted the importance of this to mitigate the impact on the universal service from a competitor cherry-picking easier to serve parts of the country, while Royal Mail is required to deliver mail in higher cost areas.”

Royal Mail said it was complaints from TNT Post UK that prompted Ofcom’s review into its downstream access pricing. As well as operating new end-to-end mail delivery services, TNT Post UK is also one of the largest postal companies using Royal Mail’s own last mile network for its downstream access mail.

Royal Mail said suspending its intended changes would create a “significant asymmetry” in the postal market, with downstream access companies and TNT Post UK’s end-to-end delivery service “not constrained in the same way”.

The company warned that the result would impact on the economics of the universal service, which Ofcom has a primary duty to protect.