Ofcom to investigate Royal Mail dominance

[TrueBlueTerrier]

http://www.theguardian.com/business/201 ... -dominance" onclick="window.open(this.href);return false;

Regulator will examine whether market changes could result in rising prices and the parcels sector becoming less competitive

An investigation by the postal regulator is to focus on whether recent changes in the market have left Royal Mail in such a dominant position that it could drive up prices and hit competition.

Shares in the company, which was largely privatised in October 2013, fell more than 3% after Ofcom gave more details of its planned inquiry in a discussion document released on Friday.

“The review will incorporate our existing work to assess Royal Mail’s efficiency, consider its position within the parcels sector, and assess the company’s potential ability to set wholesale prices in a way that might harm competition,” the regulator said.

“In addition, the review will address the implications of (former postal rival) Whistl’s withdrawal, which represents a significant change in the potential level of competition for end-to-end letter delivery.”

Ofcom said it would review whether Royal Mail’s commercial rate of return was still acceptable given the state of the financial markets, developments in the postal sector and the company’s privatisation.

Royal Mail replied with a veiled warning to Ofcom that tinkering with the regulatory system was not helpful to its business.

“We will continue to participate fully in Ofcom’s review but will be highlighting the need for a consistent approach to regulation. Ofcom’s existing framework, put in place in 2012, was to have provided certainty for seven years,” it said.

Gert Zonneveld, head of research at the stockbroker Panmure Gordon, said the Ofcom document made clear this was a root-and-branch review, which was not helpful for the company’s investors.

“In 2012 most people expected a seven-year framework and they are already tinkering with it and that’s disappointing in terms of the long-term visibility that investors require,” he said.

The chancellor, George Osborne, said last month that he planned to sell off the government’s remaining 30% holding in Royal Mail, which last year recorded revenues of £9.5bn.