UK postal regulator Ofcom has judged Royal Mail’s prices, including upcoming price increases, as‘affordable’ in its latest review.
The review follows a price hike last year as the result of the greater pricing freedom thatRoyal Mail gained from the new regulatory framework that Ofcom issued in March 2012. In an attemptto boost Royal Mail’s revenues and help secure the ongoing provision of the universal postalservice, Ofcom granted the UK postal operator significantly more pricing flexibility last year.
As a result, Royal Mail raised its retail prices by 30% while the average proposed priceincrease across its range of business products for contract customers was 11%. The price of a FirstClass stamp for a standard letter rose from 46p to 60p, and the price of a Second Class stamp for astandard letter increased from 36p to 50p.
Despite the removal of price control, Ofcom left annual price caps on Second Class letters andlarge letters as well as parcels weighing up to 2kg so ‘vulnerable consumers could afford a basicuniversal postal service’. It also committed itself to monitor Royal Mail’s performance withrespect to improving efficiency on a regular basis, along with service quality and theaffordability of universal postal services.
In its analysis, Ofcom mainly targeted those residential consumers and businesses that itconsiders ‘most likely to be at risk of not being able to afford universal postal services’. Theresidential consumers are for example people with low income and those who particularly rely on thepostal service such as the elderly and disabled citizens or those not having internet access. Thebusinesses concerned include small and medium businesses for which postal services areessential.
As the result of the evaluation, Ofcom found that Royal Mail’s current prices and the upcomingprices increases for some services are affordable for both residential customers and businesses. “We have reviewed the price changes that are due to take effect from 2 April 2013 (as announced byRoyal Mail in March 2013), and consider that universal postal services will continue to beaffordable following these changes,” Ofcom added.
However, the regulator noted ‘some very limited circumstances where a consumer could be at riskfrom not being able to afford universal postal services’. “These circumstances are where a consumersuffers both significant financial difficulty or very low income, and has a frequent need to sendpost items they consider to be essential. This reflects very particular circumstances and severefinancial hardship. It is likely that consumers in such circumstances would unfortunately haveconcerns about the prices of universal postal services, even at much lower prices. “
There are also some indications of a few businesses not being able to afford the prices, but ithasn’t been proved, though. “Although we found that a very small proportion of businesses might beat risk of being unable to afford universal postal service prices, we have not found (nor has itbeen raised with us) any evidence to show that such businesses are in fact unable to afforduniversal postal services or that the commercial viability of businesses would be significantlyimpacted by current prices or prices due to take effect from April 2013. “
Ofcom added that it will continue to monitor the affordability of Royal Mail’s prices andefficiency.
