The UK’s independent postal regulator Postcomm has strongly criticised RoyalMail for its ”inability to control costs” amid reports that the state-owned company is seeking a
rise in the price of stamps of six pence (nearly nine Euro cents), over 18%, to 38 pence.Royal Mail said yesterday it was losing an average six pence on every stamped letter, whichit subsidises from business mail profits, putting at risk its ability to deliver a universalservice.
The group called for an end to such cross-subsidising by raising stamp prices ”to arealistic level to fund the service”. It also asked for other changes to the regulatory regime tohelp it compete with rivals who do not have the universal service obligation (USO).
But Postcomm chairman Nigel Stapleton said the key threat to Royal Mail performing the USOwas not competition, but the company’s lack of progress in tackling high labour costs.
”The decline in Royal Mail’s profits is not due to competition from other postaloperators,” Stapleton argued. ”It has two root causes: Royal Mail’s inability to control itscosts, and its need to finance (its) growing pension fund deficit.
”In the six months to 30 September 2006, Royal Mail raised its prices on average by over 4%,but this generated only 1% in additional revenues to cover labour and pension costs.”
Stapleton accused the postal operator of attacking the regulatory structure as a”smokescreen” for its inefficiency. ”Royal Mail has failed to bring its costs into line as wouldbe expected of an efficient mail operator,” he said.
Royal Mail yesterday called for four changes Postcomm should make ”to create a fairermarket”: a refocusing of the universal service on stamped mail and which excluded businessproducts; removal of Royal Mail’s obligation to cross-subsidise, creating more transparency forbusiness clients; the full deregulation of business mail services, and a commitment to maintainingthe integrity of the postal network, the breaking up of which would endanger quality of service andRoyal Mail’s modernisation programme.
Adam Crozier, Royal Mail’s CEO, said: ”The regulatory framework is no longer fit fortoday’s environment where Royal Mail is competing against a growing number of rivals on a widevariety of mail services.
”The best solution to the massive pressures building up against Royal Mail is for Postcommto focus the universal service on stamped mail to ensure its future for everyone while liftingregulatory constraints on Royal Mail to allow it to compete fairly for business mail.”
Royal Mail said it was also losing money on the access price of 13p it receives fordelivering mail collected and transported by rival companies (”the last mile”). Rivals were nowhandling 25% of bulk business mail, deregulated in 2003, and that would grow to 30% by 2010.
Earlier in February, the UK postal operator announced a fall in profits of 86% to GBP 22million in the first six months of the 2006-2007 financial year, down from GBP 159 million duringthe same period a year earlier, whereas revenues rose 1.4% to £4.4bn .
Falling profit, it said, was due to the widening pension deficit, which has risen by GBP 1billion to GBP 6.6 billion over the past year. Last year the debt cost GBP 730 million just toservice.
