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Stamp price control possible

Whistl withdrawal leads to ‘fundamental review’ of Royal Mail regulations

ROYAL Mail could be made to accept further controls on stamp prices as part of an inquiry announced by the communications watchdog Ofcom.

The Guardian reported that Ofcom said they would carry out a “fundamental review” of how they regulate Royal Mail to make sure the company maintain their obligation to deliver to all parts of the country.
The regulator decided to undertake the review after Whistl, Royal Mail’s only national competitor for direct delivery of letters, pulled out of the market.
Having planned to expand to deliver to a quarter of the UK from an initial network in west London, Liverpool and Manchester, Whistl, formerly known as TNT and owned by Dutch private postal group PostNL, suspended deliveries last month and withdrew permanently from the market on June 10.
The newspaper reported that Ofcom expressed concern that, without competition for letter delivery, Royal Mail might fail to become more efficient, threatening the universal postal service in the long run and one of the options is to introduce additional controls on the prices Royal Mail charges for services.
After Ofcom gave Royal Mail greater commercial freedom in 2012, they increased the price of first and second-class stamps by 14p to 60p and 50p respectively. Prices rose to 63p for first class and 54p for second class in March.
The price of second-class stamps is capped at 55p until 2020 with increases linked to inflation but there is no cap on first-class stamps. There are also limits on the charges Royal Mail makes for competitors to use their network. Both retail and wholesale charges are part of the review which Ofcom said they will complete next year having set out their initial thoughts and seek the views of interested parties next month.
Ofcom gave Royal Mail greater freedom to help support the fixed-price universal postal service but they are now stronger financially and operate as a public company after the Government sold most of its stake in 2013.
The Guardian reported that Ofcom said: “The 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.
“Ofcom will consider 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.”
David Kerstens, an analyst at the stockbroker Jefferies, told the Guardian further curbs on Royal Mail’s charges could make the company less profitable as people post fewer letters, adding that it looked as though Ofcom were caught unawares by the decision which means other ways to drive efficiency at Royal Mail must be found.

Image from www.theguardian.com


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