Question time on Ofcom proposals

[POSTMAN]

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Q. What is Ofcom proposing?
A big reduction in regulation because they have concluded that the traditional approach has not worked to protect the Universal Service. In particular, fewer price controls, which will give us greater commercial flexibility so we can have the chance to earn a decent return for delivering to nearly 29 million addresses six days a week. We need to examine the details of what they are proposing closely and continue to fight for a fair approach to regulation as part of the consultation Ofcom is running.

Q. Why are these proposals important?
The current regulatory regime isn’t working. Our core Universal Service activities have been losing £2 million a week. The rules need changing to make sure the Universal Service is protected by making it pay for itself. The regulator understands that we need the commercial freedom to set our own prices.

Q. Isn’t there a danger that if we put up prices we’ll only drive more people online?
We haven’t made any decisions on future prices yet. We will need to make sure we have the right balance between pricing appropriately so we make money while protecting vulnerable customers and not accelerating the switch to online. We have had very low prices while giving high quality service for a very long time. We’re good value for money. Ofcom is proposing a cap on how much we can charge for a second class stamp.

Q. But we can charge what we like for our other products, in particular Downstream Access (DSA) mail?
Yes, though we will still have to abide by certain rules when setting our access prices and obviously we must follow competition law. This ensures we don’t charge other mail companies unfairly for processing and delivering the mail they’ve collected compared with what we charge customers for doing the whole job ourselves. Existing rules mean we haven’t been able to compete on access mail price for a long time. We make a loss on DSA.

Q. How was that ever fair?
The decision was made at a time when the mail industry was growing and there was more mail to go round. There has since been a downturn – just at the time when the market was opened up to other companies. From the research we’ve done, we are the only country where the national network provider has lost more than 50% of its bulk mail share of the market.

Q. Won’t other mail companies react badly to these proposals?
Anyone can have their say through the regulator’s website. We expect there will be lobbying against some elements of what Ofcom is proposing. We will need to provide further evidence to defend what we see as unfair current rules and submit this as part of the process ahead of the 5 January deadline. We will be doing all we can to ensure the right outcome for Royal Mail.

Q. What do you expect that will be?
It’s hard to judge. It is a genuine consultation. Ofcom has to be very open and evaluate all the responses. Its new approach is a very big step forward because it recognises the issues we face. We need this stake in the ground to make sure the Universal Service is protected and that we can compete like any other company.