Royal Mail control of direct mail prices worries DMA

Ofcom yesterday published proposals for a seven-year regulatory framework it said was designed to ensure UK consumers continue to benefit from a "universally-priced, affordable postal service, six days a week".

Having taken over the regulation of the postal market from Postcomm on 1 October, as mandated by the coalition Government, Ofcom wants to sweep away the regime of price controls on business and most public mail delivery charges.

The DMA's head of postal and environmental affairs, Alex Walsh, who is critical of Postcomm's over-complicated approach to price controls, mostly welcomed Ofcom's "fresh approach".

Walsh accepted Ofcom's decision to allow Royal Mail to set its own prices, saying the DMA "understands the need for Royal Mail to have more commercial freedom".

However, he added, "we are concerned that there doesn't appear to be safeguards for bulk mail users against potential abuses of that monopoly".

Ofcom is consulting the industry on its proposals, which include monitoring Royal Mail's performance closely, particularly the provision of universal service, efficiency, profitability and pricing.

Royal Mail would also be required to continue to provide competitors, such as TNT Post, with access to its delivery network.

It would have the freedom to set the wholesale price for access but would be subject to rules regarding the allowed margin between the wholesale and retail prices.

This was welcomed by Walsh, who said: "Customer choice has contributed to sustaining bulk mail volumes and funding the Universal Service."

TNT Post UK gave a cooler reception to the proposals, which did not refer to any removal of Royal Mail's VAT exemption, which it has long called for.

TNT said: "We are also pleased that Ofcom recognises that competition in principle brings substantial benefits, especially in terms of increasing pressure on Royal Mail to improve efficiency.

"To enable End to End competition to take place in the UK, the Government needs to level the competitive landscape in terms of VAT immediately, as currently Royal Mail is exempt from charging VAT on business mail services, unlike its competitors.

"We are concerned however that Royal Mail has more freedom to price at individual customer level and need to analyse the detail of the proposals."

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This article was first published on marketingmagazine.co.uk