Postcomm tells Royal Mail cut costs not universal service

by Daniel Farey-Jones, Brand Republic 27-Feb-07, 16:10

LONDON - Postcomm has launched a withering attack on Royal Mail following the postal operator's call for its business services to be freed from its obligation to provide a 'one price goes anywhere' universal service.

Royal Mail is arguing that competition in business mail is now strong enough to remove the need for the regulatory constraints that apply to its business products.

The publication of its submission to Postcomm's consultation on its strategic review of the postal market led to newspaper headlines warning of a 6p rise in the cost of stamps.

The amount is what Royal Mail claims to lose for each stamped letter delivered, which it says is currently subsidised by its business mail activities. It warned that its business mail profits are being squeezed by rivals offering more attractive prices to their customers and this will lead in the long run to dearer stamps.

Adam Crozier, chief executive of Royal Mail, said: "The best solution to the massive pressures building up against Royal Mail is for Postcomm to focus the universal service on stamped mail to ensure its future for everyone while lifting regulatory constraints on Royal Mail to allow it to compete fairly for business mail."

Postcomm chairman Nigel Stapleton has now hit back at the operator, accusing it of attacking the regulatory structure as a smokescreen for its own lack of progress in tackling its high labour costs.

"Royal Mail has failed to bring its costs into line as would be expected of an efficient mail operator. Royal Mail has not asked us for an increase of 6p on the price of a stamp, and competition and regulation are not threatening the Universal Service.

"Royal Mail remains the dominant player and retains well over 90% of the addressed letters market, and still delivers more than 99% of all mail in the UK. It has a unique VAT advantage, which acts as a significant barrier to competition for new entrants.

"The decline in Royal Mail's profits is not due to competition from other postal operators. It has two root causes: Royal Mail's inability to control its costs, and its need to finance its growing pension fund deficit.

"Competition has taken less volume away from Royal Mail than was predicted a year ago and, on 95% of the volume they have lost, they retain more than 70% of the revenue to cover their costs of delivering over the final mile."

Royal Mail claims it is now losing money on the 13p access price it receives from rivals for delivering their mail.