Royal Mail is being promised less regulation in the future as the British government movestowards splitting off the Post Office under its postal sector privatisation plans. Higher prices
are also in the pipeline.UK postal regulator Postcomm yesterday proposed ‘lighter touch’ regulation for the postaloperator in future and also approved an application for higher stamp prices. The proposed newregulatory regime grants Royal Mail more commercial freedoms in markets where competition isstarting to develop, while requiring Royal Mail to sign up to cross-subsidy safeguards to ensurethat it does not subsidise activities in competitive markets with profits made in markets where itstill has market power.
Postcomm said its extensive analysis demonstrated that Royal Mail still retained market power inmajor market segments that generate well over half of its revenue. But the regulator said it wouldde-regulate the following competitive markets:
* substantial deregulation of packets and parcels weighing more than 2kgs
* retail price controls will be removed from all packets and parcels weighing more than 500g,and in parts of the pre-sorted bulk mail market
* Royal Mail will be given greater freedom to compete in the pre-sorted bulk mail market,where the company has lost significant volumes to competitors
Nigel Stapleton, Chair of Postcomm, said: “This package forms the bedrock of a much needed new,lighter touch regulatory framework. We welcome the development of competition in parts of thepostal market and where this is clear we want to ensure that Royal Mail is free to compete on alevel playing field with its competitors.” However, Royal Mail would have to provide transparencyof product costings and to test new financial accounting to reassure customers and competitors thatthere is no inappropriate cross subsidisation.
Meanwhile, Postcomm said it planned to accept Royal Mail’s application for price increases tohelp maintain the pace of its modernisation programme, required to safeguard the provision of theUniversal Service. Prices increases would generate an additional £380 million over the next twoyears and could mean price increases of up to 12% across all regulated products. The moves willgive Royal Mail the flexibility to increase the prices it charges customers from April 2011 onaverage by 7%, which would mean it could realise up to £280 million in additional revenues. Stampprices could go up by 10%, adding 5p to the basic 46p price for a first-class letter. In addition,it would raise prices for business customers and competitor access to its network in 2011-12 togenerate a further £100 million in revenue.
Stapleton explained: “There is broad consensus that there is a risk to the Universal Serviceunless Royal Mail quickly becomes a lot more efficient. To help fund Royal Mail’s modernisation,Postcomm has allowed Royal Mail to increase the prices of stamped mail by double the rate ofinflation over the past five years. Postcomm therefore welcomes Royal Mail’s decision to completeits modernisation programme as fast as possible but regrets that the company is unable to do sowithout making further demands on its customers.”
In response, Royal Mail CEO Moya Greene said: “I am pleased that Postcomm clearly understandsthe need to continue to invest in Royal Mail’s future and to protect the Universal Service. Thecurrent regulatory framework is just not right and what is now proposed goes someway in the rightdirection. With mail volumes falling rapidly and set to decline further as competition fromelectronic communications and rival postal operators intensifies, it’s essential the currentregulatory constraints on Royal Mail are eased to allow it to compete fairly in the bulk businessmail, and packet and parcel markets, where competition is extremely robust and growing.”
Competitors now handle 60% of the British bulk mail market and more than half of heavier packetsand parcels in the 500-750g sector while more than half of all addressed mail will be handled byrivals by the end of the current financial year, the company pointed out.
But the CWU postal union criticised the moves, warning of even higher price increases in future.Billy Hayes, CWU general secretary, said: “This is an unpopular price rise but the public shouldrealise this is a sign of things to come under a privatised Royal Mail. “The sad thing is that ifregulation hadn’t failed the universal service obligation so completely we might not be in thismess. Over-zealous price controls and an obsession with preparing the British market for full-blowncompetition has destroyed Royal Mail’s market share and burdened the company with the fullresponsibility of the expensive final-mile network.”
In parallel, the British government today confirmed plans to convert the Post Office networkinto a mutually-owned organisation and said it would invest £1.34 billion in the network of 11,500branches over the next four years. Some 4,000 large branches will be modernised, the partnershipmodel with local retailers would be extended to 2,000 smaller branches, while subsidies would bemaintained for loss-making branches with important social roles.
Ed Davey, Minister for Postal Affairs, said: “We’re determined to turn the Post Office networkaround and end the years of decline. The Post Office is a tremendous national asset. It will not befor sale and there will be no programme of closures. To underline our commitment we have announced£1.34 billion of funding over the next four years. The money will put the Post Office on a stablefinancial footing. It will help modernise the network and make it even more appealing tocustomers.”
The minister added: “Our long-term goal is to convert the Post Office into a mutual structure,for example like the Co-operative Group, giving employees, sub postmasters and communities a muchgreater say in how the company is run. Our programme means the network is on the cusp of anexciting new era.” But the government confirmed it had decided against creating a new state-backedPost Office Bank which would be very time-consuming and extremely expensive.
Paula Vennells, Managing Director of Post Office Ltd, said: “We warmly welcome the Government’ssignificant level of support and commitment, which will allow us to invest in the network and inour service to customers, and help us develop new business.”
