Royal Mail has repeated its plea to UK postal regulator Ofcom over what it claims is unfaircompetition in the mail delivery market from rival Whistl, formerly known as TNT Post UK, insisting
that it expects a response to a report it filed several months ago requesting an urgent marketreview.Group CEO Moya Greene told analysts yesterday that the company’s submission to Ofcom containedsubstantial, well-researched findings that demonstrate that continuing to allow unrestrainedcompetition in UK mail markets would rapidly and irreversibly damage Royal Mail’s ability todeliver a Universal Service across the UK. She repeated claims she made in June that Whistl’spublicly stated plans could reduce Royal Mail revenue by over £200 million in 2017-18.
“It is very unfair competition to allow someone to ‘cherry-pick’ our network and just dump intoour network what they don’t want to deliver and what is very high cost to deliver. If we allowsomeone to extract from the revenue pool in this way, it so steepens the decline in what is thereto pay for the universal service.
“It is not a difficult position to understand, and I think that Ofcom needs to look at this assoon as possible, because it will soon become very complicated if it is allowed to happen.”
She continued: “We do expect a reply from Ofcom; we put a lot of work into that document and wethink it makes a compelling argument for accelerating Ofcom’s review process. TNT [now Whistl] hasalso complained to Ofcom about our zonal access pricing [for ‘downstream access’ mail], and so thatalso has to be resolved. Ofcom has announced that it wants to do a review of access pricing, andthat has to give clarity on what we have to do.”
Royal Mail believes that Whistl can potentially ‘cherry-pick’ 40% of the UK direct delivery mailmarket with just 8% geographical coverage, fatally undermining Royal Mail’s ability to subsidiseuneconomic rural deliveries with higher-yield urban business. In its “evidence-based regulatorysubmission” to Ofcom in June 2014, it claimed to show “the real and growing threat to the UniversalService from direct delivery”, asking Ofcom to accelerate its review of direct deliverycompetition, currently planned for late 2015.
It claims to show that there is a structural cost advantage for direct delivery entrants; the UKhas a unique economic geography that enables entrants to the market to cherry-pick the servicesthey offer, putting the Universal Service at risk; and that the UK’s highly developed access marketprovides “a bridgehead” for direct delivery entrants to grow market share quickly.
However, Whistl has argued that although it processes more than 25% of all the UK’s mail, itcurrently delivers less than 1% of the mail in the UK. It argues that there is no evidence thatpostal delivery competition is a threat to the USO, and that Royal Mail needs to focus on reducinginefficiencies rather than attacking embryonic competition.
In June, UK postal regulator Ofcom said it would “carefully consider” the submission from RoyalMail “to see whether it constitutes new evidence” of a threat to the universal postal service as aresult of the “unfettered direct delivery competition”. TNT Post UK, now known as Whistl, begantrialling and rolling out final-mile deliveries to certain urban areas of England in late 2012.
Royal Mail Group’s share price fell more than 8% yesterday after the company reported a drop inprofits and warned that Amazon’s move into parcel delivery in the UK would have a material impacton the growth potential of the UK postal operator’s own parcel business.
The group’s shares started the day at £4.77 but closed at below £4.30 the company reported a 21%drop in first-half operating profit before transformation costs to £279 million. Operating profitafter transformation costs fell by 18% to £232 million in the six months to 28 September.
Overall revenue for the group’s UKPIL (UK parcels, international, and letters) business was flatat £3.7 billion, with letter revenue of £2.24 billion up 1%, primarily due to election mailings.Addressed letter volumes decreased by 3%, better than the expected range of a 4-6% decline perannum, mainly due to the improvement in UK economic conditions.
Parcel revenue within the group’s UKPIL business was down 1%, year on year to £1.46 billion,despite a 2% increase in parcel volumes, “primarily due to a change in the mix of the parcels wecarry and pressure on average unit revenues (AURs) due to the highly competitive environment”. Thecompany also warned that the medium-term growth prospects for its parcel business were limitedbecause of Amazon’s move into parcel delivery and other competitive factors.
The group’s European parcels business, GLS, performed ahead of expectations with a 7% increasein volumes and revenues and an 11% rise in operating profits. Revenues increased to £813 million(€1 billion), with revenue growth in all major countries.
