The British postal market regulator Ofcom today announced a fundamental review of the regulation of Royal Mail which now has a de facto monopoly on letter deliveries in the UK after competitor Whistl quit the business.
Whistl, owned by Dutch postal group PostNL, announced last week that it is terminating its small loss-making final-mile mail delivery service, which operated in London, Manchester and Liverpool, for financial reasons, based partly on regulatory issues. The decision killed off the company’s original aim of creating an end-to-end nationwide delivery network to compete with Royal Mail.
Ofcom said its review “will ensure regulation remains appropriate and sufficient to secure the universal postal service, given the recent withdrawal by Whistl from the ‘direct delivery’ letters market, which has resulted in Royal Mail no longer being subject to national competition”.
In 2012, the authority established a new regulatory framework for Royal Mail that ensured UK consumers and businesses continued to benefit from a universally-priced, affordable postal service, six days a week. The framework included greater commercial freedom for Royal Mail to operate in what is a challenging market, removing regulations that threatened to undermine the universal service, and adding safeguards to protect postal users.
Since then, however, the postal market has changed, the regulator pointed out. In addition to Whistl’s withdrawal from the direct delivery business, Royal Mail itself has been privatised and is in a stronger financial position than previously. Nevertheless, competition remains strong in other postal markets such as parcels and ‘access mail’, where operators collect and sort mail before handing over to Royal Mail to complete delivery.
In the new review, Ofcom will examine:
* what changes to the overall postal regulatory framework might be appropriate to secure the universal postal service;
* how best to ensure Royal Mail continues to become more efficient in the absence of national competition for the direct delivery of letters (so helping the universal postal service to remain sustainable);
* whether Royal Mail’s wholesale and retail prices are both affordable and sufficient to cover the costs of the universal service; and
* whether Royal Mail’s commercial flexibility remains appropriate in the changing market; and, if not, whether wholesale or retail charge controls might be appropriate.
In addition, the review will incorporate ongoing investigations into Royal Mail’s efficiency, its performance in the parcels market, and its potential ability to set wholesale prices in a way that might harm competition. Moreover, the review will address the implications of Whistl’s withdrawal, which represents a significant change in the direct delivery market.
In response to Ofcom’s announcement, Royal Mail said it will continue to participate fully in the review. “As the regulator notes, there is significant competition in the UK market in the mails and parcels segments. At the same time the letters segment is in structural decline of 4-6% a year,” the company stated. “There is therefore a need for regulatory clarity and certainty for all market participants. It is essential that Royal Mail is able to sustain the UK’s valued, high quality, high fixed cost universal service for the benefit of all consumers and businesses.”
Ofcom said it will outline its initial thoughts and begin seeking formal submissions from industry, consumer groups and other stakeholders in July. The review is expected to be completed, and a revised regulatory framework put in place, during 2016.
