Chief Executive's statement - source: Postcomm annual report 2005-06

This has been a very busy year for all of us at Postcomm – but ultimately a highly productive one, with several key projects successfully completed.

In particular, we have:

• Completed the full opening of the postal market on 1 January 2006, together with a new licensing framework, and codes on common operational procedures and on mail integrity which are needed to make a competitive market work smoothly in the interests of customers.
• Completed, and agreed with Royal Mail, the price and service quality control which will set the framework of prices and regulation for the next four years. It was a difficult balancing act to ensure that the needs of customers, Royal Mail and other operators were all taken care of, in line with our statutory duties to ensure the provision of a universal postal service and to further the interests of customers, wherever appropriate through the promotion of effective competition. The context was particularly challenging on this occasion, because of the need to recognise the impact on Royal Mail’s finances of its huge and volatile pension fund deficit.
• Completed three major investigations into Royal Mail’s licence compliance: on mail integrity; quality of service in the worst performing postcode areas; and anticompetitive behaviour in downstream access. In all three cases we found Royal Mail to be in breach of its licence obligations, and decided that the breaches were sufficiently serious to warrant financial penalties. The combined penalties proposed (subject to further consideration following consultation) amount to £13.8 million. In a year when Royal Mail’s Business Unit made an operating profit of £344 million, this will not in any way threaten its viability, but we believe it will act as an incentive to the company to take its licence obligations very seriously.

All of this has been on top of our regular work such as our annual Competitive Market Review and report on the Post Office network, and a number of other substantial projects such as the approval of Royal Mail’s new ‘Pricing in Proportion’ pricing structure.

Getting through this workload has required a slight increase in the number of staff working at Postcomm – and we have been fortunate to have recruited some very able new people – but with a total of 64 people we are still one of the smallest of the economic regulators, and aim to remain so. We have also been able to offset some of the increase in staff numbers with a reduction in our consultancy costs.

We were pleased to welcome Colin Sharples on to our executive board as director of resources in September 2005, and Peter Swattridge as director of competition and regulation in April 2006 (on promotion from within the team). Also promoted was Richard Moriarty, who became deputy chief executive in February 2006 and was appointed as a commissioner in May. A special word of thanks to Andrew Starkey, who is leaving us at the end of June this year; he has built a strong foundation to our market intelligence capability, as well as keeping the licensing work on track.

We are now fortunate to have the opportunity to reflect on what has been achieved and on whether the framework we have built will need any adjustments in the medium to longer term to take into account future developments in the market. In doing this we will pay particularly close regard to the principles of better regulation which guide us in the way we work.

Our aim in everything we do is to keep our regulation proportionate and to reduce it as competition begins to become effective (which is why genuinely new products are excluded from price control, and why we have introduced various mechanisms to allow pricing flexibility even in the price controlled area).

Our participation in debates on European regulation is aimed at promoting effective competition and a level playing field in Europe as the best way to secure the universal postal service, and to promote innovation for users of postal services.

We consult stakeholders on everything we do, both through conventional consultation documents and web-based information, and also through forums, workshops, road shows, industry seminars and other more focused meetings. We will review our consultation procedures this year to ensure that they effectively reach out to all people affected by our policies.

There is little danger, therefore, that those who are interested in our activities will not be hearing from us in the year ahead. We are always happy to receive new ideas and feedback on what we do, so please do not hesitate to get in touch with us on any matter covered by this report.

Sarah Chambers