“Wreck-u-lation” damages chances of agreement on stamp prices, says Leighton
Postcomm has stunned Royal Mail by slipping into its proposed price controls a potentially fatal condition on how competitors will get access to the company’s network of sorting and delivery offices, Royal Mail Chairman Allan Leighton said today.
Mr Leighton said he was appalled at the way the regulator, without any prior warning or publicity, had buried a ruinously low assumption on access price in the detail of the 240-page document on Royal Mail’s future prices, published last Thursday.
“The impact of the regulator’s proposals for access would, as Postcomm knows, strip out up to £1.2 billion from Royal Mail by giving competitors the green light to force the company to sort and deliver letters for a price well below the economic cost to Royal Mail,” said Mr Leighton.
“Postcomm’s regulatory action amounts to ‘wreck-u-lation’,” he said. “There wasn’t a line about access prices in the draft price control which Postcomm published in early October so there has been no consultation on this issue. Yet, in the new document, Postcomm acknowledge that access pricing ‘may have a significant impact on the cash flow of Royal Mail’.”
Earlier drafts seen by Royal Mail make clear that the assumed core price at which access to the company’s delivery network can be sold to rivals will be 14p. At the last moment, the published proposal from Postcomm dropped an explicit reference to 14p but Mr Leighton explained that the final draft of the regulator’s proposals infers that Postcomm is committed to the 14p price level.
“It is now very clear that Royal Mail can expect just 14p for First Class letters if competitors collect mail and then give it to our sorting and delivery offices for the journey to customers’ letter boxes. 14p is an absurdly low price compared to the basic 27p First Class stamp. We''''re ready and willing to provide access to our network but it has to be at a realistic commercial price. Our calculations suggest an appropriate price would have to be around 21p.”
Postcomm has nonetheless, in its words, “concluded that it is reasonable to proceed to set the price control on this [14p] basis”.
Mr Leighton said the new information and the manner of its publication represented a significant setback. “Last week we thought we had made progress with the regulator,” he said. We weren’t sure whether it was enough, but we accepted publicly that things were shifting in the right direction, and the regulatory mistakes contained in Postcomm’s original proposals were being corrected. But you always need to read the small print.
“The prices at which our competitors can make use of our delivery offices and postmen and women is now the crucial issue facing the company. Get it wrong and the 300 tortuous days of consultation over stamp prices become irrelevant – the numbers are likely to be dwarfed by the impact of ‘wholesaling’ at little or no margin.
“Wholesale prices must be set at a level that allows us to make a commercial margin, isn’t loss making and does not undermine our ability to deliver the one-price-goes-anywhere universal service.”
Royal Mail has told Postcomm that it should adhere to the provisions of the EU Postal Directive by setting access prices on the basis of standard tariffs less the actual upstream costs avoided by Royal Mail in providing access to rival operators.
Mr Leighton said: “To drop such a major policy assumption into the middle of a 240 page document, to fail to draw it to the attention of the company in the daily conversations which have taken place in recent weeks, to omit it from the press release and executive summary distributed to the media while leaving the detailed document unpublished, is quite astounding behaviour.
“We’ve had 300 days of consultation on a simple, and overdue, rise in stamp prices, to which Postcomm admit they have not received a single objection, but no consultation at all on the complex and crucial long term issue of access. This can’t be right.”
The access pricing bombshell which Postcomm has dropped will make it much harder for Royal Mail to accept the price control package.
Royal Mail still intends to take the full 28 days allowed for a formal response to Postcomm’s proposals. However, we have now informed Postcomm in writing. “The risk to business finances from access prices at this level (14p) is immense. The Board will clearly have to factor Postcomm’s approach to access pricing, as set out in the document and supported by the detailed analysis not now being published, into its decision on whether to accept the proposed Postcomm price control proposals or seek to have them referred to the Competition Commission. That influence can only expect to be negative,” wrote Finance Director Marisa Cassoni.
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