Royal Mail's £480M monopoly losses spark fear of dearer stamps
Royal Mail made a loss of £480 million on its monopoly business last year, heightening fears that the price of stamps could be forced up again and that the postal group is on course for a another clash with its regulator.
Details of the losses will be presented today to Postcomm, the regulator in control of pricing and in charge of the four-year programme to allow competitors into the postal market. Postal executives are expected to seize on the scale of the losses to demonstrate the danger of setting access charges too low. Postcomm is considering how much Royal Mail should be allowed to charge rivals to use its network. It has suggested a fee of 11.5p per letter, against the 28p cost of a 1st-class stamp and 19p for second 2nd-class mail.
Royal Mail will tell the regulator that the huge loss shows that the organisation has to make substantial cross-subsidies to provide a uniform price service for UK destinations. It will say that this must be taken into consideration in any pricing plan for rival operators.
The £480 million loss for the year to March was incurred on post weighing 100g or less. This makes up three quarters of Royal Mail’s volume and is not yet open to competition, although rivals will be able to make some inroads if they handle business mail in bulk. Nearly £300 million of the loss was from 1st-class and 2nd-class stamped mail. The 2nd-class service also lost money on franked mail.
Mailsort, the bulk service that largely carries catalogues and advertising material, made a loss partly because it offers discounted prices and partly because Royal Mail does not have machinery to sort most wrapped magazines and catalogues. Although this service is a key part of the mail market, Royal Mail has not invested in the new equipment. It has blamed the lack of investment mostly on previous governments’ regimes that took a large part of the organisation’s profits.
Overall, Royal Mail made an operating profit of £80 million on all items included in its universal service compared with £9 million the previous year. The rise was a result of mail volumes increasing by 1% and to the organisation’s good performance in handling heavier items, an area in which it faces strong competition.
The losses in the regulated business emerge as Royal Mail bosses are engaged in pay talks with the Communication Workers Union.
Royal Mail, which is meeting union officials at an hotel near Heathrow airport, has offered a potential 14% pay rise over 18 months but the union has condemned the offer as having “more strings than the philharmonic orchestra”.
