Postcomm proposes access arrangements to enable UK Mail Ltd to use Royal Mail’s network

Postcomm today sought views on arrangements to allow UK Mail Ltd, an
independent postal company owned by Business Post Plc, to use Royal Mail to
provide final delivery of its post.
Once it is in place, the arrangement will enable UK Mail to collect mail from its
customers, transport it to its Birmingham hub, and from there transport it direct
to Royal Mail’s 1,400 delivery offices for final delivery by postmen and
postwomen along with the mail they already handle.
The access arrangements, as they are called, have been proposed today in a
formal Notice of a proposed direction by Postcomm after the two parties were
unable to agree terms between themselves. The prices proposed by Postcomm
range from 11.46p up to £4.06 depending on the weight of the letter or package
and the work done by UK Mail Ltd. The proposed prices would allow Royal
Mail to recover a 6% operating profit from this business by 2006.
More information on the proposals – including price details — is in the summary
of the Notice which is attached.
Graham Corbett, chairman of Postcomm said:
“This is a crucially important step in opening up the postal market in a way
which supports the universal service. To make access work, we have had to
ensure that Royal Mail and UK Mail both have a business proposition that they
will want to develop.
“We are aware that Royal Mail is sensitive to loss of volumes. But if the price is
pitched too high that would not only deter the development of effective
competition, but in due course drive competitors to set up alternative delivery
networks, leading to a much riskier market for Royal Mail and everyone else.
Conversely too low a price would be damaging to Royal Mail and discourage
them from developing the access market.
“We believe we’ve got this balance right, but because the decision is going to
have far reaching implications it is important for us to hear now what both
parties and others think about these proposals.
“We want this to be the first step in establishing generic access arrangements.
This will enable postal competition to develop more rapidly, providing more
choice for users and opportunities for Royal Mail to offer an attractive final
delivery service in an expanding market.”
UK Mail wants to offer a guaranteed two-day delivery service for business
customers. It would pre-sort the mail and deliver it to Royal Mail’s 1,400
delivery offices, where it would be further sorted into “walks” by Royal Mail’s
staff before delivery. Alternatively UK Mail will be able to insert mail into the
network at major mail centres, from where it would be transported by Royal Mail
vehicles to delivery offices. The proposed direction provides a range of prices by
weight for both options.
Why Postcomm is doing this
Under Condition 9 of its licence, Royal Mail is required to negotiate access to its
postal facilities with licensed operators or users. If Royal Mail and the access
seeker are unable to agree terms, then either party can request that Postcomm
makes a determination. UK Mail wrote to Postcomm on 11 April 2002
requesting a determination.
How access will work
UK Mail aims to pick up bulk business mail, sort it into localities and then
transport it to Royal Mail’s 1,400 delivery offices throughout the country. There,
Royal Mail postmen and women would sort it to streets and house numbers and
deliver it. Alternatively, for a slightly lower price, the mail can be inserted into
the network at major mail centres from where it would be transported by Royal
Mail vehicles to delivery offices. The lower price reflects the fact that such mail
centres machine-sort much of their mail which costs Royal Mail less than hand
What Royal Mail can charge to deliver UK Mail’s letters
For each letter weighing less than 60 grams, Postcomm proposes UK Mail pays
Royal Mail a price of between 11.46p and 13.01p, depending on the point of
access (i.e. delivery office or inward mail centre) and the amount of sorting
already done. The price increases with the weight of the mail, up to a maximum
of around £4 for a package weighing 1750 -2000 grams. Our calculations show
that the wholesale operating profit on access business in 2005-6 is likely to be
around 6% of turnover, taking into account the efficiencies flowing from Royal
Mail’s renewal plan.
Access and the universal service
A universal postal service of at least one collection and delivery every weekday
at a geographically uniform price is a legal requirement and Postcomm has the
task of safeguarding it. Postcomm does not expect these access proposals to have
any significant effect on Royal Mail’s ability to provide the universal service. If
they did, there are safeguards that allow either party, with Postcomm’s consent,
to vary the contract to increase the access price. Alternatively, Postcomm could
reopen Royal Mail’s price control and provide extra funding to ensure the
universal service continues. In setting Royal Mail's price control, we have
already taken account of a range of scenarios on access, and we are satisfied that
the financial position of their mails business is robust.
Changes to access arrangements
Royal Mail or UK Mail may propose a variation to the agreement. If the parties
cannot agree then Postcomm may determine whether it should have effect.
This is the first
Postcomm could just have issued a Notice to Royal Mail setting out the terms
under which Royal Mail should allow UK Mail access to its network. Because
this is the first access determination by Postcomm, the Notice is also being made
public and Postcomm is inviting interested parties to comment. At the end of the
consultation period in August, Postcomm will decide whether or not to proceed
to the final direction, or whether, if there should be a material change to the
proposal, to give notice of an amended proposal.
Notes for editors
The formal Notice, Notice of a proposed direction to Royal Mail on downstream
access by UK Mail to Royal Mail’s postal facilities is published today on
Postcomm’s website. Responses are requested by 20 August 2003. Printed
copies will be available shortly from Postcomm at 6 Hercules Road, London SE1
Postcomm – the Postal Services Commission – is an independent regulator. It has been
set up to further the interests of users of postal services. Postcomm’s main tasks are to:
• Seek to ensure a universal postal service at an affordable uniform tariff
• Further the interests of users wherever appropriate through competition
• License postal operators
• Control Royal Mail’s prices and quality of service
• Give advice to Government on the future of the post office network.
Postcomm’s policies are steered by a board of seven commissioners, headed by the
chairman, Graham Corbett CBE.
More information: Chris Webb Tel 020 7593 2114
Mobile 07779 635881
E [email protected]
Jonathan Rooper Tel 020 7766 1210
Pager 07693 352732
E [email protected]

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