Ofcom publishes Review of the Regulation of Royal Mail
Ofcom has today (25 May) published its Review of the Regulation of Royal Mail. The regulator has concluded that the “universal postal service is financially sustainable” and also announced that “given the declining letters market, and increased competition in parcels” it is not proposing to impose new price controls on Royal Mail’s wholesale or retail products. The review document stretches to 130 pages so it will take some time for the industry to absorb and analyse the full details. However, Ofcom helpfully provided this topline summary of its main conclusions:
- The universal postal service is financially sustainable, while current rules and safeguards for postal users are generally working well.
- Royal Mail’s current return on sales is at the lower end of the 5-10% range which Ofcom considers to be compatible with a sustainable universal service. In recent years, the company had fallen below this range.
- Royal Mail has made notable modernisation improvements, but it could still do more to improve efficiency, in the interests of postal users.
- Consumer satisfaction with postal services, and value for money, are high.
- There has been increased competition and innovation in the parcels sector. Royal Mail has retained its strong position in the delivery of small, individual parcels.
In addition, all postal operators who deliver ‘untracked’ letters must minimise the risk of loss, theft, or damage, under plans in today’s consultation.
One of the key issues in the UK postal sector has been the access market, where rival operators collect and sort mail before handing it over to Royal Mail to complete delivery.
Ofcom said that its review “demonstrates strong competition in the access market” – but it added that it is proposing to tighten some rules in this area.
In its statement about the review, Ofcom summarises its plans for rule-tightening: “First, to stop shorter notice periods around contractual terms being imposed by Royal Mail on access operators. Second, to respond within six weeks when a wholesale customer requests a product similar to one already sold by Royal Mail.”
The regulator added: “Ofcom is also concerned that Royal Mail has the potential to cross-subsidise its parcels business through its letters business – where it has a much larger market share and an established delivery network – in a way that might disadvantage other parcel operators.
“So Ofcom will closely monitor whether Royal Mail is appropriately allocating its costs between parcels and letters.”
The Review has been made publicly available so stakeholders and interested parties can comment on its proposals. The consultation period will close on 3 August 2016 and Ofcom expects to publish a statement on its final decisions later this year.
UPDATE AT 12:30 on 25 May: Royal Mail has informed Post&Parcel that it is currently assessing the Review and it will issue a response later today.
