Removal of Royal Mail price controls 'bad for DM'

By Simon Nias, Friday 16 December 2011

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Ofcom's proposal to remove Royal Mail price controls is expected to be "bad news" for the direct mail sector and could result in double-digit price hikes for transaction mail.

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Ofcom's proposed changes, which are intended to make Royal Mail more competitive in order to safeguard the universal service, include the removal of pricing controls on business and bulk mail and greater freedom in the price it charges rivals for access to its network.

Lance Hill, sales and marketing director at 4DM Group, said: "The harsh reality is that this is going to be another difficult challenge for the mailing sector - Royal Mail is not in a good place and the only way for it to get in a better place is to put prices up.

"The gut feeling is that the proposals will go through in April and there will then be a big increase in transactional mailing costs, with another smaller increase in DM. I can see this impacting the DSA providers a lot and resulting in more people moving back to Royal Mail."

Hill stopped short of criticising Ofcom and Royal Mail for the anticipated price hikes, saying that the organisation needed to "get back onto a sustainable footing and into profit long-term".

However, he added: "It will be bad news for us [DM printers] and for the DSA providers."

Meanwhile the DMA has warned that Ofcom's proposals, which it claimed were intended to help achieve a privatisation of Royal Mail, could undermine competition and threaten the long-term prospects of the medium by driving businesses away from using mail.

Mike Lordan, chief of operations for the DMA, said: "The proposed changes to postal regulations set out in the public consultation are clearly intended to make Royal Mail an attractive proposition for investors. However, we believe there’s a danger that the Government has gone too far in its plans to prepare Royal Mail for sale to the private sector.

"We want to see a healthy and vibrant Royal Mail. The businesses and organisations we’ve spoken to are in complete agreement that some of the proposed changes to postal regulation could be hugely damaging to the long-term prospects of transactional and advertising mail.

"Granting a monopoly the ability to raise its prices without adequate safeguards is very dangerous and could drive more and more businesses away from mail, which is concerning as mail volumes are already declining year-on-year."

According to the DMA, transactional mailers have been squeezed by a 15-20% price increase on the cost of bulk mail services in the past year and many have said they plan to withdraw from using mail if Royal Mail abuses its new commercial freedom by imposing another round of large price rises.

Hill also warned that any hike in transactional mailing costs was bound to have a knock-on impact on direct mail. "I'm worried as a non-transactional mailing house because if transactional mail gets hit it will affect marketing budgets," he said. "These companies only have so much money to spend and if a larger portion goes on their billing, which is compulsory, that will leave less of the pot for advertising."


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