Postcomm reveals new terms of Royal Mail price control

by Daniel Farey-Jones, Brand Republic 15-Mar-06, 07:00

LONDON – Postcomm has revised the terms of Royal Mail's 2006-2010 price control after industry consultation. The changes affect magazine delivery services, the front loading of price increases, and allows the postal operator to effect price increases should its pensions deficit climb.

Postcomm said the changes are limited and still mean that the price of a First and Second Class stamp can go up by no more than 2p this year.

However, by 2010 the First Class stamp price could be allowed to rise to 37p, rather than 36p as previously proposed by the regulator.

This concession, which allows Royal Mail to make extra revenues of 0.8% a year from April 2007 onwards, would take effect should the company's pension deficit increase above £5.9bn. The deficit is to be recalculated in the next few weeks -- the last estimate in March 2005 was £4.6bn.

Although this favours Royal Mail, Postcomm also helped out customers by reducing the "front-loading" of the revenue increase it will allow Royal Mail. In the year from April 2006 this increase is now 4% rather than 6.2%.

Magazine publishers have also been helped by Postcomm's climbdown on Presstream2, the second class magazine delivery service. Postcomm has decided to retain the service within the price control along with the first class service after accepting that effective competition to Royal Mail does not yet exist.

Royal Mail's board is yet to announce whether it will accept the terms or reject them and thus trigger a referral to the Competition Commission.

If it accepts, the agreement is subject to 28 days' statutory consultation before the changes can be incorporated into Royal Mail's licence and take legal effect. The changes can be backdated to April 3 once the 28 days are over.

Separate to the price control, Royal Mail's competitor TNT Mail is lobbying MPs and the European Commission to object to the state-owned company's application for £2bn of government money. TNT argues the funding would be "unfair state aid" and "add to an already distorted market".

Royal Mail's application is currently being studied by the Treasury.

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