Ofcom publishes discussion document for Royal Mail review

Ofcom has today (17 July) published its discussion document on its review of the regulation of Royal Mail. The document sets out the proposed scope of the review, and asks stakeholders for views and evidence to assist Ofcom’s analysis. Ofcom announced that it would be conducting the review on 16 June, with a view to ensuring that “regulation remains appropriate and sufficient to secure the efficient and financially sustainable provision of the universal postal service”.

In its preface to today’s discussion document, Ofcom said: “The review will incorporate our existing work to assess Royal Mail’s efficiency, consider its position within the parcels sector, and assess the company’s potential ability to set wholesale prices in a way that might harm competition. In addition, the review will address the implications of Whistl’s withdrawal, which represents a significant change in the potential level of competition for end-to-end letter delivery.”

Whistl announced its withdrawal from the UK E2E sector on 10 June, because it could not see a sustainable future for its service. Speaking at the Mail and Express Delivery Show in London on 30 June, Whistl CEO Nick Wells made it clear that he believed Whistl had been treated unfairly by Royal Mail over the E2E business.

In today’s discussion document, Ofcom said that Whistl’s withdrawal “leaves Royal Mail without any end-to-end competition of significant scale for letters, although competition is stronger in relation to other postal products such as parcels and ‘access mail’ – where operators collect and sort mail before handing it over to Royal Mail for delivery”.

Ofcom added: “Whistl’s exit is against the backdrop of our provisional view in December 2014 that Royal Mail has, in successive years, proposed or notified changes to its contract terms and conditions which could discourage and potentially prevent entry and expansion into bulk letters mail delivery.”

Ofcom said that it welcomed stakeholder views on the following questions:

• Question 1: Do you agree with Ofcom’s view that there is a need to consider the effectiveness of the existing regulatory structure?
• Question 2: To what extent do you consider Royal Mail’s pricing and non-pricing behaviour is constrained by other postal operators and additional factors such as esubstitution?
• Question 3: To what extent do the competitive constraints faced by Royal Mail vary by different types of mail, e.g. for letter services, between advertising mail, transactional mail (mail sent following a consumer’s interaction with a company), and publishing mail (such as newsletters and magazines); and for parcel services, between single-piece and bulk parcels?
• Question 4: Do you consider that Royal Mail faces appropriate incentives to deliver efficiency improvements?
• Question 5: Do you consider that there are any areas of existing controls on Royal Mail activity where there is the potential for deregulation?
• Question 6: Do you have any further comments or views on the issues identified in this discussion paper?

Click here to access Ofcom’s discussion document, which will include information on how to submit your contribution to the review process.

UPDATE (12:15 17 July)

Responding to the publication of Ofcom’s discussion document this morning, Royal Mail has issued a statement highlighting the “need for a consistent approach to regulation”.

The full statement from Royal Mail reads: “Royal Mail notes Ofcom’s call for evidence in relation to its fundamental review of the regulation of the Company, to ensure the regulation remains appropriate and sufficient to secure the universal postal service.

“Royal Mail will continue to participate fully in Ofcom’s review. In particular we will be highlighting the need for a consistent approach to regulation. Ofcom’s existing framework, put in place in 2012 was to have provided certainty for seven years. Royal Mail believes it has used the commercial freedoms granted by Ofcom in a responsible and appropriate manner to help secure the financial sustainability of the Universal Service in the face of significant ongoing change across the postal market.”