Postcomm proposes new regulatory framework

[POSTMAN]

Postcomm proposes new regulatory framework for a sustainable postal service

27 May 2010



Postcomm has today set out its proposals for the introduction of the first phase of a new regulatory framework for the postal services market to replace the structure that has been in place since 2006. A new and stable regulatory framework is a key requirement for securing a successful future for postal services, especially a universal postal service, as outlined in the Queen’s Speech on Tuesday, 25 May.



The new regulatory framework will be founded on the principles of cost transparency and accounting separation – as recommended in the Hooper Report[1] - and will reflect the significant market developments that have taken place in recent years.

The full package of measures proposed is intended to give Royal Mail greater commercial freedom, now that parts of the market have become more competitive. At the same time, the measures are designed to provide assurance to the market and customers that, where Royal Mail continues to have market power, it is not able to hinder the development of competition.


Postcomm plans to introduce the first phase of these regulatory changes in April 2011.



Proposals in today’s consultation include:



removing price controls from all packets and parcels services weighing more than 750g because evidence suggests that this market is increasingly competitive


removing retail price controls on pre-sorted bulk mail, and replacing them with new regulatory safeguards on the wholesale prices Royal Mail is allowed to charge operators and other users accessing its network for 'final mile' delivery


giving Royal Mail more flexibility in setting its prices for pre-sorted bulk mail and access services


Further proposals for changes to the regulatory framework are dependent on further work being completed. Postcomm is, therefore, also consulting on some changes to allow the other elements of the current price control to continue in place until April 2012.



If, following consultation, Postcomm were to implement all the above proposals it would allow Royal Mail to realise up to £75m of additional revenues (approximately 1% of current revenues) through price increases above retail price inflation (RPI). This would translate into a possible average increase of 4.5 per cent in the price of stamps, assuming inflation of 2.5%. Such an increase in revenue would help to support the universal service during a period of substantial cash outflows as Royal Mail invests to modernise its business to increase efficiencies and address the effects of lower mail volumes.



The consultation may be found at http://www.psc.gov.uk/policy-and-consul ... ation.html" onclick="window.open(this.href);return false; and is open until 31st August 2010.



Responses should be sent to:

Tim Brown

Chief Executive

Postcomm

Hercules House

6 Hercules Road

London

SE1 7DB



Alternatively responses can be emailed to may2010consult.responses@psc.gov.uk



[1] Modernise or decline: Policies to maintain the universal postal service in the United Kingdom – An independent review of the UK postal services sector, Cm 7529. December 2008.



For more information:

Ron Finlay, Press Office 020 7593 2192

07545 422293

ron.finlay@psc.gov.uk



Notes to Editors

Postcomm, the Postal Services Commission, is the independent regulator for postal services in the UK. It is our primary duty to seek to ensure the provision of a universal postal service and, subject to this, to further the interests of users of postal services, wherever appropriate by promoting effective competition between postal operators and to seek to promote efficiency and economy on the part of postal operators. We must also have regard to the need to ensure that our licensees, including Royal Mail, are able to finance their licensed activities.



Accounting separation and cost transparency



The principles of cost transparency and accounting separation have been successfully applied by regulators in a number of industries both in the UK and abroad. By giving clarity to the consistent and sound allocation of costs, market competitors and users can be reassured that the prices set by industry participants with market power are appropriately cost reflective.



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[1] Modernise or decline: Policies to maintain the universal postal service in the United Kingdom – An independent review of the UK postal services sector, Cm 7529. December 2008.