Royal Mail turns tables on regulator
Royal Mail last night moved closer totaking its regulator, Postcomm, to the competition commission despite winning final approval to increase first and second class post charges by 1p from April 17
Accusing Postcomm of asking Royal Mail to "sign up to three years of regulatory treacle" through strict price controls, chairman Allan Leighton insisted these would impose cuts in real terms.
Royal Mail, which says it is losing more than pounds 1m a day, has been given 28 days to respond to Postcomm's latest proposals but its new board is expected to argue that the price controls put at risk its "renewal" plan to restore profitability within three years.
Relaxing its stance of last October, which would have left Royal Mail with a net deficit of pounds 460m, Postcomm said the service could raise pounds 750m extra cash over the three years, including pounds 510m from the price increases due in April.
A further pounds 240m will come from a less stringent pricing formula – retail prices index minus 1% – which will allow Royal Mail to increase the cost of a second class stamp by a further 1p in either 2004 or 2005. The regulator had originally planned a price freeze.
Graham Corbett, Postcomm chairman, denied he had succumbed to intense political pressure and said Royal Mail could raise up to pounds 250m more through being allowed to shift more of its business to higher-price products.
He told Mr Leighton: "We believe that these proposals should encourage Royal Mail to push ahead with rebuilding both its reputation and its profitability."
Pointing out that it had taken 300 days to gain approval for the increased stamp prices, Mr Leighton asked: "Do these complex and tight price controls give us sufficient financial headroom over the next three years? "If the answer is no . . . we will have to trigger a referral of the proposals to the competition commission."
Insiders suggested that this was a strong bet. The crux of Royal Mail's complaint is that the complex new controls, in cluding a "tariff basket," will constrain its ability to increase prices when competitors will be free to do so – and that it will be virtually impossible to trigger a review within the three-year period if costs, especially pension fund charges, rise unexpectedly.
Mr Corbett said monopoly operators such as Royal Mail, with 98% of the postal market, should not be allowed to "jack up" prices without control nor "play hanky-panky" with competitors. He said the forecast of losing 20% market share was "ridiculously pessimistic".
Rejecting Royal Mail's request for the automatic triggering of price reviews, he said, however, that if unexpected jumps in costs put the universal service at risk, Postcomm would allow the group to make an application. "We'd have to prove we were bankrupt," Mr Leighton's aides said.
The proposals, which set Royal Mail the target of 93% next-day delivery for first class post, will give customers at least 12 first class stamps as compensation for late delivery – and up to pounds 10 if the delay is 10 days or more.
FINANCIAL TIMES UK 6th February 2003
NATIONAL NEWS: POSTCOMM'S REVISED PRICE CONTROLS MORE PALATABLE TO ROYAL MAIL
Postcomm has relaxed its plans to control the price of stamps after months of heated discussions with Royal Mail.
But the company said yesterday it would make full use of its 28-day response period before deciding whether to take the new price controls to the Competition Commission.
The regulator's revised price controls will allow Royal Mail to add 1p to the price of first and second-class stamps from April.
It will give the operator the option of raising second-class stamp prices by a further 1p in 2004 or 2005, reversing the original proposal, made in October, for a three-year freeze.
Allan Leighton, Royal Mail chairman, said the "fine detail" of the 240-page document would be crucial. "The question the board now faces is: do these complex and tight price control proposals give us financial headroom over the next three years? If the answer is no we will have to trigger a referral to the Competition Commission," he said.
The group said the decision was "progress". It gave an indication on Monday it might accept the new framework when it announced its intention to raise stamp prices in April. Graham Corbett, Postcomm chairman, said: "If they don't accept these proposals they will have to make a new application and will not have a price increase in April."
Postcomm's new plans were a response to data submitted by MPs, Postwatch – the consumer watchdog – Royal Mail and other parties involved in the consultation since October, when the row over prices started. Postcomm had already indicated it was likely to relax its original proposals.
Mr Corbett said: "We have found mechanisms to respond to concerns about our pricing formula and have made changes to lighten Royal Mail's ability to respond to competition. Within the framework, they will be able to change the prices of individual products and new products will be exempted from price controls until 2006."
Postwatch said the proposals were entirely different from those that had gone out for consultation in October. "Royal Mail should have its 1p/1p price increase now but the rest should go out to a further consultation," Peter Carr, the chairman said.
The government said it was now up to Royal Mail to react, but privately officials believe the regulator has taken "an important step in the right direction". But the trade union Amicus said the price control decision could disrupt Royal Mail's three-year renewal plan and threaten the continuation of the company's final salary pension scheme.
Copyright © 2003: Financial Times Group
