Postcomm investigation into pricing RM Packets services

[TrueBlueTerrier]

Postcomm launches investigation into the pricing of Royal Mail's wholesale and retail packets services

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24 March 2009

Today Postcomm is beginning an investigation into the way Royal Mail prices access and retail packets services for business users.

This issue was highlighted to Postcomm through two complaints from the Mail Competition Forum and TNT Post Group, submitted in January and May 2008. They both alleged that margin squeeze was occurring for some 2nd class packets services.

The investigation will examine the margin allowed between the retail and access prices between 0-2kgs, whether it is sufficient for other operators to be able to access Royal Mail’s wholesale network profitably, and whether they are able to compete in the retail market. It will also look at the allegedly unfair differential pricing structures which exist between some Royal Mail retail and wholesale packets services.

If proven, the allegations could potentially contravene Condition 10 and 11 of Royal Mail’s Licence which prevent Royal Mail from gaining any unfair commercial advantage from access arrangements, and which forbid undue preference or undue discrimination in a market where there is no effective competition.

Postcomm undertook a preliminary market assessment, and requested costing information from Royal Mail in October 2008. Postcomm also undertook its own costing exercise to help establish whether there were reasonable grounds for suspecting an infringement of the Licence.

Postcomm has found that there is sufficient information to open a full investigation for potential breaches of Condition 10 and 11 of the Licence from 2006/07 to date. Any breaches which may be proved through the investigation could, if uncorrected, harm the future development of competitor retail packets delivery services.


Notes for Editors

* A margin squeeze will occur on operators purchasing wholesale access services from Royal Mail when there is insufficient margin between the wholesale price they need to pay Royal Mail and the retail price they have to compete against in the retail market, for them to be able to operate profitably.

* Postcomm will now carry out a full investigation on this matter which will, if necessary, be passed to Ofcom once the legislation currently before Parliament to transfer Postcomm’s regulatory powers to Ofcom comes into force.

* As outlined in Postcomm’s Enforcement Guidance, we will aim to set out within six months the likely timescale for the full investigation to reach a conclusion.

* Please contact Philip Groves (philip.groves@psc.gov.uk) if you wish to discuss the investigation.

The retail services that are being investigated are as follows:

* Packetpost Second Class - This rewards customers with lower prices if they send large volumes of large letters and packets. A Packetpost daily rate applies for a mailing volume of more than 5,000 items per year while a Packetpost Flat rate applies for spend of more than £15K a year. The daily rate is charged according to the average weight and format of each day’s posting. The flat rate is a pre-agreed price which is regularly reviewed. The service is available for items weighing between 0 and 2kg.

* Packetsort 8 Second Class – This offers discounts of up to 4 per cent on Packetpost and is applicable to customers who send more than 250 packets or large letters in each posting and over 5,000 packet items each year (up to 2 kg) from a single site on each of the service speeds available. Customers also need to sort their mail into eight postcode groups and present each of these eight selections in separate containers (bags or cages) with labels to help identify them. If a customer sends more than 5,000 items a year, it can use the daily rate service which gives a price based on average weight, format and class of all the items for that posting. If a customer sends more than 10,000 items a year then Royal Mail can pre-agree an average weight to set their price.

* Packetsort Plus – If a customer sends more than 1,000 packets a day and can sort over nine ways, it can earn discounts of up to 9 per cent on Packetpost prices.

Mailsort 2 1400 Packets – Mailsort 1400 offers discounts in return for customers sorting their items to Delivery offices (up to 1600 selections) before handing them to Royal Mail. A customer needs to mail at least 1,000 large letters, A3 packets or packets in a single posting to qualify for the discount.

* Walksort 2 A3 Packets - The minimum mailing size for Walksort is 4,000 letters (1,000 large letters or A3 packets) for national mailings. It is designed for mailings where all the addresses have accurate postcodes and where the mailer sorts the items down to delivery walk level. Delivery is normally within three working days.

Related Documents:

* Postcomm's Investigation into Packets Services: Scope Of Full Investigation (pdf, 44KB)
* Postcomm's Investigation into Packets Services: Annex B (pdf, 27KB)

[DGP1]

I'm sorry but Royal Mail is being investigated because their prices are too low I thought that's what competition was all about (having companies competing with each other to drive down prices or to increase quality).

And looking at the services that are to be investigated, they're the ones that give discounts for companies delivering their packets to the relevent MC and for sorting their mail to walk level which will save RM money on transport and sorting costs.

[johnsouthwales]

could swear they don't want a cheaper and effective public service innit...

and i tell you something for nothing, if and when 30% of royal mail sold 31st december 2010, who is to govern any price rises.. would someone be in a position to recommend to rm that they have to put up their prices? rm should turn around and say to these "you work for us, not we work for you".

price rise means higher costs for business. higher business costs means consumer pays more..

tnt are expensive on parcels. so are dhl.. a country's own national postal service are cheapest.. people get annoyed when parcels get damaged, so they use independent couriers who charge more. in other words, don't lose or damage post...

then again, tnt have lost packages.. why are a company who lose government data allowed to operate, or even worse, buy into royal mail?

[janitor]

If TNT think that they cannot make a profit because the price we charge is them is to near what the public pay , the answer is simple they should deliver them themselves. Then they need pay us nothing all the money they make is theirs .

[theflyingpostman]

They're now eying up those light bulb contracts.

[ghostgirl]

They're now eying up those light bulb contracts.

They can bloody have them...

[janitor]

They're now eying up those light bulb contracts.

They can bloody have them...

Why can they, they will still expect RM to deliver them but at a loss.