Author: Archive

Postcomm’s proposals would – if implemented – lead to the inexorable decline of Royal Mail by ensuring it cannot compete in the open market, the company warned today.

Royal Mail also said that Postcomm’s proposed massive extension of regulation into all aspects of its pricing would threaten the Universal Service and encourage widespread cherry-picking by rivals from April next year. The company added that, unless the proposals are substantially changed to give Royal Mail a level playing field, it will have no alternative but to go to the Competition Commission.

Royal Mail chairman Allan Leighton said: “These proposals will literally starve Royal Mail of vital investment and so wreck the quality of service we have fought so hard to improve. We cannot accept them. It’s as simple as that.”

Postcomm today published initial proposals for regulating Royal Mail’s prices and quality of service that will enable customers to benefit from a more efficient Royal Mail as a fully competitive mail market develops. The proposals include a freeze Royal Mail’s average domestic prices from 2006-2010 the introduction of service quality targets more suited to customers’ needs, and creating the conditions that will enable new operators to establish themselves successfully in the mail market. Nigel Stapleton, chairman of Postcomm said: “These proposals offer customers a better deal and secure the universal service. The revised price caps are challenging but achievable as Royal Mail’s prepares for the full opening of the market in 2006. Royal Mail still has over 99% of the letters market, but even limited competition so far in the marketplace has made the company more efficient and more customer-focused. The UK mail market is dynamic and growing. These proposals build on the momentum already generated by competition.”

Postcomm is to change the way it regulates Royal Mail by establishing price controls linked to efficiency improvements and freezing average prices until 2010. The proposals, published today, toughen up existing controls on Royal Mail less than a month after it announced record profits of Pounds 537m from operations. The plans, which also include changing Royal Mail’s service standards to reflect customer needs better, are to be introduced in April 2006, three months after the market is opened up to full competition. But Royal Mail reacted angrily and vowed to fight the proposals, if necessary, through the Competition Commission. It claimed they threatened universal service, the commitment to deliver to every household, and encouraged cherry-picking by rivals. The price controls, based on an asset value for Royal Mail of Pounds 2.2bn, would allow the company to make a regulated profit of about Pounds 285m a year until 2010, although it could improve this by raising its efficiency levels and growing volumes.