Postwatch, the watchdog for postal services, welcomes most of Postcomm’s initial proposals for Royal Mail’s price control/standards of service package for 2006 to 2010. The Regulator’s proposals begin to force Royal Mail to improve its efficiency and service but they could have gone further.
Postwatch welcomes the protection that has been given to ‘captive’ domestic customers. Royal Mail proposed that 1st class stamp prices should rise from today’s 30p to 48p by 2010. An increase of 60 per cent. Postcomm’s proposals allow for 1st class stamp prices to increase by 1p for each of the four years of the control and 2nd class stamps can increase by 2p to 23p during the same period. Even these increases are unwarranted unless minimum service standards are at least achieved.
Peter Carr, Chairman of Postwatch, welcoming the proposals said: “The Regulator has clearly learnt some of the lessons from the expiring price control. This allowed Royal Mail to increase prices rather than focus on service and internal efficiency. The new proposals represent a better deal for customers and we strongly urge Postcomm’s commissioners to resist outside pressure to weaken them post consultation.
“As well as protecting captive customers from excessive price increases. The Regulator has accepted Postwatch’s suggestion that the annual penalty for failing to meet 1st and 2nd class performance targets be increased from £30 million to £150 million. This increase should incentivise Royal Mail to achieve these targets.”
“We also welcome that action is at long last being taken to regulate the access price to Royal Mail’s delivery network for other postal operators. The current access price is too high and is the single biggest factor affecting the entry of competitors.
“Royal Mail is a monopoly and still has 99 per cent of a growing market. It is unlikely to lose more than a few percentage points of market share between now and 2010.
The often quoted higher margins of foreign operators have been achieved though investment, efficiency and diversification. These same opportunities remain open to Royal Mail.
“We regret that Postcomm have not included in its proposals additional standards of service targets for:-
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the time mail is delivered (by 1pm in urban areas and by 3pm in rural areas);
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that last collections are not made earlier than the time advertised;
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the delivery of mail over the Christmas period – when 1st class performance
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historically dips significantly; and
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that no-one should queue for more than 5 minutes in a main Post Office.”
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We will continue to press for these changes.”
NOTE TO EDITORS
1. The reference to Royal Mail wanting a 48p 1st class stamp is in paragraph 8.19 of the proposals.
2. Postwatch notes with interest that Postcomm have valued Royal Mail’s regulatory business at around £2.3 billion. If is difficult to reconcile this figure with Royal Mail’s estimated value for the Group of around £5 billion. But this is only an issue that customers would become interested in if the company were to be sold.
3. Postwatch welcomes Postcomm’s 20-year strategy for dealing with the pensions deficit. This approach should help prevent price shocks.
4. Postwatch is surprised to learn (Paragraph 7.22 of the proposals) that Royal Mail has underspent by £40 million on its capex budget during the period of the existing control. In its Strategic Plan Royal Mail projects that it will undertake capex of about £1.4 billion but according to Postcomm’s consultants (paragraph 7.26) Royal Mail did not provide enough information to demonstrate that the benefit of the investment would outweigh the cost.
