Postwatch accuses Royal Mail of misleading Postcomm over competition

A row is set to break out this week as the postal services watchdog Postwatch accuses Royal Mail of misleading the industry’s financial regulator.

The charge comes days before the regulator Postcomm publishes its initial proposals on how much Royal Mail can charge for deliveries for the three years beginning next spring.

Postwatch, whose relations with Royal Mail under chairman Allan Leighton have been strained since it advised customers not to use first- class post over the Christmas rush, claims Royal Mail exaggerated the threat it faced from competition in order to get a lenient regulatory settlement last time around, in 2003.

The dispute focuses on forecasts made by Royal Mail for mail volumes, a key driver of its profits, which it said would suffer from the introduction of competition.

Figures published last September in a consultation document put out by Postcomm show that Royal Mail claimed volumes would fall from 20.4 billion items a year in 2002-03 to 19.9 billion in 2003-04, 19.2 billion in 2004-05 and 18.3 billion next year. Volumes actually rose from 20.4 billion to 20.9 billion in 2003-04; Royal Mail’s 2004-05 results show it delivered 22 billion.

A Postwatch spokesman said: ‘Royal Mail’s declining volume forecasts for the three years of price control are so out of line with the increases that happened that they should be embarrassed. If they are not . . . it is because they knew they were misleading.’

Royal Mail says volumes remained higher than anticipated because Postcomm delayed the introduction of competition. The bulk mail market – which constitutes 30 per cent of the total – was opened up in 2003, with full liberalisation due in January.

Postwatch points out that the company moved from losses of more than pounds 1bn in the first year of its three-year turnaround plan to making a profit of pounds 527m in 2004-05, the third year of the plan.

Postcomm is believed to agree that the 2003 settlement – which allowed a 3 per cent price increase for 2003-04 followed by inflation minus 1 per cent – was ‘generous’. An industry source said: ‘Royal Mail did extremely well out of the first price review.’

In 2003, the first year that it broke into profit, Royal Mail said the 1p rise in first and second-class postage that spring was the prime driver in pushing profits in the letters business to pounds 161m.

Royal Mail has continued to warn of the threat to its revenues from competition. Last August, chief executive Adam Crozier said: ‘If – as is likely – competitors take profitable volume from us, our ability to maintain the one-price-goes-anywhere mail service is going to be severely weakened.’