Reform of DSA contracts

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Royal Mail’s discussion document on the reform of the Access contract

Royal Mail is seeking views from its Access customers on the terms of a new model standard Access contract. Royal Mail is focused on securing the financial sustainability of the Universal Service, against the backdrop of a continuing sharp decline in letter volumes. An appropriate Access regime with fair and reasonable terms has a key role to play in the sustainability of the Universal Service.


Access is where Royal Mail accepts mail at its mail centres that has been partially sorted by large customers and other postal operators, and delivers it to the recipients for an agreed price.

Change is vital

Some of the proposed changes are a result of ongoing dialogue with customers. Some are a natural response to the changing shape of the Access market and the recent changes to the regulatory framework for Access.

The UK already has one of the most open and liberal postal regimes in the EU, and was one of the first countries to adopt the relevant Postal Services Directives in full by requiring Royal Mail to negotiate with customers on access to its postal facilities. Access provision was first introduced in 2001, at a time when the overall postal market was forecast to grow, and the terms that were agreed reflected this. Postal services have since changed and have been in structural decline since 2005: letter volumes are actually down from 20 billion (2004/5) to 15 billion (2011/12). By contrast, the terms of Access have remained substantially unchanged, even though Access now accounts for about half (7.2 billion items) of all addressed letter volumes in the UK.

Since the introduction of Access contracts, Royal Mail has lost a significant amount of upstream revenue that used to support the network that provides the Universal Service in the UK. Royal Mail has also lost £800 million handling the end delivery of mail on behalf of Access customers, over the same period. Royal Mail broke even on its Access provision and recorded £1 million cash inflow for the first time in recent years in 2011/12. The increasing importance of Access mail to the financial sustainability of the Universal Service combined with the continued decline in letter volumes has prompted Royal Mail to commence a fundamental reform of the terms of Access.

The Main Proposals

One of the key proposals in the Royal Mail review is a volume commitment from Royal Mail’s Access customers who choose to post on a national basis in order to receive a uniform national price. This will help to secure Royal Mail’s ability to provide a sustainable Universal Service organised to deliver to 29 million addresses, six days a week, with all the fixed costs entailed by this commitment.

A commitment by Access players in advance to send a certain volume with a national profile reduces the risk to Royal Mail of an unexpected drop in mail volumes which leads to an increase in unit costs for Royal Mail. Royal Mail proposes to reflect the value of such a commitment by offering lower prices to customers who agree to commit volumes under the national profile. Volume commitment is common in other industries including express parcels, freight transport, utilities and wholesale telecom.

Royal Mail now has 33 Access contract holders with different service requirements. The proposed changes to Access terms and conditions will allow Royal Mail to respond to changing customer needs quickly and efficiently. Recent changes to the regulatory regime now make this possible. Ofcom now has extensive powers to adjudicate on any Access dispute to protect customer interests. In light of these changes, it is appropriate the contracts follow common commercial practice.

Royal Mail also seeks customer views on creating tailored contracts for packet delivery arrangements, removing them from the standard model Access contracts. In 2011/12, packets represented less than 0.5% of total Access volumes.

Stephen Agar, Royal Mail Managing Director, Consumer and Network Access said: “Royal Mail is committed to providing Access players with entry points to its network and appropriate sorting and delivery services on fair and reasonable terms. We believe this must be done in a way that allows Royal Mail to sustain the Universal Service for the benefit of households and businesses across the UK and provide our customers with the service they require. By putting Royal Mail’s Access contracts on a commercial footing, we will help secure the future of the Universal Service and continue to ensure the UK postal regime is one of the most open and competitive in the EU.”

Next Steps

Royal Mail encourages Access customers to send their views on these topics as part of this dialogue by 16th November 2012. Following the closing date for comments, Royal Mail intends to consider the responses with a view to finalising proposals by mid January 2012. During this period of dialogue Royal Mail will seek to engage with customers directly wherever possible to ensure a full understanding of their views.

For further information please contact:



Mish Tullar
T: 07423 524154
E: mish.tullar@royalmail.com

Candice Macdonald
T: 07436 267324
E: candice.macdonald@royalmail.com

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Royal Mail is looking to amend its Access service contract, saying it has lost £800 million in handling the end delivery of mail on behalf of Access customers since the service was introduced in 2001.

Access is where Royal Mail accepts mail at its mail centres that has been partially sorted by large customers and other postal operators, and delivers it to the recipients for an agreed price.

Customers include large delivery and postal businesses who are also its competitors in other areas of the market, as well a large businesses such as banks.

Postal services have been in structural decline since 2005 with letter volumes down from 20 billion in 2004/5 to 15 billion in 2011/12. However the terms of Access have remained substantially unchanged, even though Access now accounts for about half of all addressed letter volumes in the UK, at some 7.2 billion items.

The Access provision broke even and recorded £1 million cash inflow for the first time in recent years in 2011/12.

Royal Mail is seeking views from its Access customers on the terms of a new model standard Access contract.

One of the key proposals in the Royal Mail review is a volume commitment from Royal Mail’s Access customers who choose to post on a national basis to receive a uniform national price.

A commitment by Access players in advance to send a certain volume with a national profile reduces the risk to Royal Mail of an unexpected drop in mail volumes which leads to an increase in unit costs for Royal Mail.

Royal Mail proposes to reflect the value of such a commitment by offering lower prices to customers who agree to commit volumes under the national profile.

It is also seeking customer views on creating tailored contracts for packet delivery arrangements, removing them from the standard model Access contracts. In 2011/12, packets represented less than 0.5 per cent of total Access volumes.

Stephen Agar, managing director, consumer and network Access said: “Royal Mail is committed to providing Access players with entry points to its network and appropriate sorting and delivery services on fair and reasonable terms.

“We believe this must be done in a way that allows Royal Mail to sustain the Universal Service for the benefit of households and businesses across the UK and provide our customers with the service they require.

“By putting Royal Mail’s Access contracts on a commercial footing, we will help secure the future of the Universal Service and continue to ensure the UK postal regime is one of the most open and competitive in the EU.”

Customers have until 16th November to submit their views