Video:Moya Outlines Postal 'Threat'

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The boss of Royal Mail has told MPs its UK postal obligation of 'one price goes anywhere' is uneconomic because its rivals are "cherry-picking" the best work.

In evidence to the Business Select Committee, Moya Greene accused rivals of undermining Royal Mail's universal service obligation (USO) under which under letters are posted anywhere in the country for the same price.

She put the annual cost of operating under the USO at £7.2bn, citing the high cost of delivering post to rural and remote areas of the UK.

Ms Greene argued that because it was essential for most people, the USO needed internal subsidies to make the economics work.

She said: "Low cost, high density areas are needed to cross subsidise suburbs and rural areas which are much higher cost.

"If you allow cherry picking you undermine the economics."

She said pressures included a 4-6% decline in annual letter volumes and competitors taking business off the Royal Mail in urban areas, where delivery costs were cheaper.

Union leaders echoed her remarks, but officials from Whistl and UK Mail, who were also present at the hearing, denied they were cherry picking work, or that they threatened the universal service.

Ms Greene was speaking just a week after Royal Mail revealed a 21% fall in half-year profits and warned of a weaker outlook for parcels growth citing the start of Amazon's own delivery network.

Days later, Royal Mail signed a deal with the e-retailer to deliver Amazon parcels to Post Offices to expand the company's expanding pick-up point network.

Royal Mail commented on what it saw as the threat to the USO in its results statement.

It said: "We believe the current regulatory framework does not fully address the problem posed by unfettered direct delivery competition.

"We think there is an urgent need for a new framework that will secure the sustainable provision of the universal service for the future.

"We made an evidence-based regulatory submission to Ofcom in June 2014, showing the real and growing threat to the universal service from direct delivery.

"The submission asked Ofcom to accelerate its review of direct delivery competition, which is currently planned for late 2015."

A spokesman for Ofcom responded: "Protecting the universal service is at the heart of Ofcom's work, and our own evidence clearly shows that the service is not currently under threat."

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Royal Mail boss Moya Greene has told MPs that there is a genuine threat to the continuation of the firm's "universal service".

She accused Royal Mail's competitors of "cherry-picking" the most profitable business.

Under the Universal Service Obligation (USO), the Royal Mail is obliged to deliver to all corners of the UK, six days a week, and for the same price.

However, competitors such as Whistl and UK Mail are under no such obligation.

"If you allow cherry-picking in the urban areas, it syphons off a lot of revenue," Moya Greene told MPs on the Business, Innovation and Skills Committee.

"It makes the universal service unfinanceable and uneconomic," she said.

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Nick Wells
We pay Royal Mail a fair and reflective price to cover the rural areas, which takes out any opportunity for cherry-picking.”

Nick Wells
Chief executive, Whistl

'Fair price'

However, some of the Royal Mail's competitors denied that they were stealing the profitable part of the business.

Guy Buswell, the chief executive of rival UK Mail, said all 15m items they handle a day are delivered by Royal Mail.

"It all ends up in the postman's sack, so effectively there is no cherry-picking whatsoever," he told MPs.

UK Mail collects its own mail, but uses Royal Mail to deliver to individual addresses, paying an access fee for the privilege.

But competitors given a licence can also carry out their own deliveries as well, a process known as end-to-end competition.

Whistl, formerly known as TNT Post, has been making deliveries in urban areas like London and Manchester since 2012, but relies on Royal Mail to deliver in rural areas, where costs are higher.

"We pay Royal Mail a fair and reflective price to cover the rural areas, which takes out any opportunity for cherry-picking," said Nick Wells, the chief executive of Whistl.

Review

Ms Green told MPs that the USO cost £7.2bn a year to finance, so needed cross-subsidy from profitable urban deliveries.

She said Royal Mail had already seen a "structural" decline of between 4% and 6% in the volume of letters it handles every year.

Mr Wells said it was that structural decline - rather than unfair competition - which was hurting Royal Mail.

Ms Greene called for the regulator, Ofcom, to bring forward a review of the USO, which it is planning for next year.

"We need to accelerate that review," she said. "Don't wait."

The government has guaranteed that the USO will continue at least until 2021.