Ofcom launches new Royal Mail regulation review

Sarah Cosgrove
Tuesday, June 16, 2015

Ofcom is to review Royal Mail regulation, following the withdrawal of Whistl from the end-to-end (E2E) delivery market last week.

Royal Mail half year results surge
Royal Mail half year results surge

The regulator has said its review “will ensure regulation remains appropriate and sufficient to secure the universal postal service” in a market where Royal Mail no longer has national competition in the delivery market.

It will look at Royal Mail’s efficiency, its performance in the parcels market and assess the company’s potential ability to set wholesale prices in a way that might harm competition.

The review will also consider appropriate possible changes to the regulatory framework that would secure the universal postal service and whether Royal Mail’s wholesale and retail prices are both affordable and sufficient to cover the costs of the universal service.

This review will take over Ofcom’s previous consultation on a new pricing framework, launched in December.

A Royal Mail spokeswoman said that Royal Mail participate fully in Ofcom’s 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.

"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."

Whistl announced its withdrawal from the market after private equity investor LDC, a division of Lloyds Banking Group, pulled out of a proposed investment to fund the further roll-out of the service, putting 2,000 jobs at risk.

Early last year it complained to Ofcom about changes to access contracts and pricing proposed by Royal Mail. In response, Ofcom launched an investigation to examine if there had been a contravention of the Competition Act 1998 in Royal Mail’s pricing structure to direct access providers. Meanwhile the proposed changes have been put on hold.

Royal Mail has said it is “robustly defending” its position. The investigation is expected to deliver a provisional decision to Royal Mail in July and a final decision in 2016.

Ofcom will begin seeking formal submissions on this new review from industry, consumer groups and other stakeholders in July, with the review expected to complete next year, when a revised regulatory framework will be established. 

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