Meeting With The Chief Executive, OFCOM

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Letter to Branches





No. 802/11
Ref: GS: 10.5
Date: 21/09/11






To All Branches



Dear Colleagues,


Meeting With The Chief Executive, OFCOM

The Deputy General Secretary (Postal), Head of Research and the General Secretary met with the Chief Executive of OFCOM, Ed Richards and his team, yesterday – Tuesday September 20th.

OFCOM has now assumed responsibility for the regulation of the postal sector.

Attached is the briefing note prepared by the Head of Research, which Branches may well find useful.

Any enquiries on this LTB should be forwarded to the General Secretary’s Department quoting the reference GS 10.5

Yours sincerely



W HAYES
General Secretary
















BRIEFING NOTE
CWU MEETING WITH ED RICHARDS, CHIEF EXECUTIVE, OFCOM


Ofcom is in the process of taking over responsibility for the regulation of postal services.

The regulator is currently finalising a consultation paper that will set out its vision for regulation from April 2012.

While Ofcom is yet to indicate its position, there are concerns as to whether the regulator will go far enough in terms of the regulatory change necessary to give Royal Mail the freedom it needs to generate sufficient revenue to continue to provide the universal service.

The meeting is an opportunity for the CWU to stress the need for Ofcom to meet its primary obligation - to secure the provision of a universal service - by instituting the regulatory change needed to allow Royal Mail to compete fairly.

There are concerns that Ofcom will fail to learn the lessons of past regulatory failure – including access and unrealistic growth and efficiency projections – which saw the business stripped of revenue at a time where proper investment was essential.

Regulatory failure was central in bringing Royal Mail to the point of needing government intervention. This culminated in the two Hooper reviews and the subsequent Postal Services Act.

There was largely consensus among stakeholders that regulatory change was necessary. Richard Hooper argued that regulatory change, not only privatisation, was necessary for Royal Mail’s survival. In his most recent 2010 report Hooper urged deregulation as quickly as possible.

The previous regulatory regime has been very damaging to Royal Mail. Downstream access has meant Royal Mail losing more than two-thirds of the upstream pre-sorted bulk mail market. Royal Mail made £3bn less in cash over the last price control than Postcomm had predicted. And Royal Mail made a loss again last year on access due to headroom controls (£70m in 2010/11).

Ofcom should be careful to avoid promoting additional competition without regard to Royal Mail’s precarious financial position and the implications for the financing of the universal service.

The CWU made submissions over the summer to the current debate about future regulation calling for:

Significant deregulation for Royal Mail including the removal of price controls and headroom regulation on access;
No mandated access in future;
Continued control on the prices charged for universal service products to protect domestic customers – though recognising the need for some pricing flexibility

Under the Postal Service Act, Ofcom is required to ensure that the universal service is financially sustainable and that the universal service provider is able to earn a reasonable commercial rate of return on expenditure in connection with the universal service. Ofcom should apply this duty broadly, ensuring that all postal operators contribute to the maintenance of the USO (through access prices or a support fund).

Royal Mail submitted evidence to the same consultations calling for the regulator to:

Ensure the USO is self-financing and that Royal Mail can earn a reasonable commercial return.
Remove all price controls
No mandated access, including on universal service products (RM should not be obliged to access to its networks; access should be a commercial arrangement only).

802-11.doc