Postcomm do more to encourage competition
31 March 2005
The postal services market continues to grow. Figures provided by Royal Mail show that inland letter volumes grew by 1.5% in 2003/04 and the company expects the market to grow by at least 2% per annum for the next two to three years.
Royal Mail’s rivals in the market – which is currently open to limited competition -- have made inroads, offering innovative services, but face many obstacles. Since March 2001, Postcomm has issued nine long-term licences to new operators. During the first three quarters of 2004/05, these new entrants carried only 0.6% of mail in the regulated market by value (0.7% by volume).
In a report published today into barriers to postal competition, Postcomm pledges to do more to stimulate the competitive market. In particular it will:
- Closely monitor Royal Mail’s access regime to ensure that it is not hampering effective competition, and also look at the possibility of including access in Royal Mail’s price control
- Monitor Royal Mail closely for any signs of anti-competitive behaviour
- Provide more information to customers about the choices available to them in the competitive market
- Continue to pursue with the government the possibility of a reduced rate of VAT for all licensed postal operators, including Royal Mail.
“The size and scale of Royal Mail’s operations in the UK, and the privileges it has historically enjoyed, give it tremendous advantages over its smaller rivals,” said Sarah Chambers, chief executive of Postcomm. “For the market to work properly, we need to make sure companies entering it can compete fairly.”
Today’s report takes account of responses to the competitive market review proposals published by Postcomm in September 2004. It also takes account of responses to a separate consultation, published in January 2004, on Royal Mail’s privileges which date from the time when it was the sole national postal service.
Postcomm recommends that some historical privileges, such as Royal Mail’s power to require ships or aircraft to carry mail, which have not been used for ten years, be removed. However, it says Royal Mail’s vehicles should continue to be exempt from parking restrictions when collecting mail from post boxes, although the same exemption should not apply to Parcelforce vehicles.
Royal Mail’s exemption from certain traffic regulations is justified because it is required to deliver a universal service of one collection and one delivery each working day throughout the UK, the report says. But Parcelforce, which has no universal service obligations, should be treated the same as other parcel companies.
Royal Mail’s VAT exemption, which gives the company a competitive advantage in around 50% of the mail market, was regarded by respondents as a barrier to entry. VAT policy is a matter for government, not Postcomm. However, Postcomm hopes to work with government to find a solution that does not disadvantage customers.
The report says that any solution on VAT should provide equal treatment for all postal operators and not significantly increase the price of stamps. Postcomm has advised the government that a uniform rate of 5% applied to postal services would achieve this.
The report, Tackling Barriers to Entry in Postal Services, is published today on Postcomm’s website www.psc.gov.uk. Printed copies will be available shortly from Postcomm at 6 Hercules Road London SE1 7DB
