Postcomm proposes to reject Royal Mail's zonal pricing application
23 July 2007
Postcomm, the independent regulator for postal services, has announced that it is proposing to reject Royal Mail’s application to charge large mailers – using products which are not part of the universal service – different prices depending on where in the UK their mail is delivered (Royal Mail calls this zonal pricing).
Postcomm will issue a consultation document in August that will set out in detail why it is proposing to reject Royal Mail’s application. However, in the interests of reducing market uncertainty, the regulator is making this announcement today.
Nigel Stapleton, Postcomm chairman, said:
“We are proposing to reject Royal Mail’s application mainly because it has put forward a pricing structure that appears to have a number of discriminatory features and would have been introduced in a way that would lead to unreasonable changes for customers.
“This does not mean that we are ruling out any future moves towards more cost-reflective pricing, including zonal structures for non-universal service products, if Royal Mail can design an application that meets the requirements of its licence and our statutory duties.
“Although any decision must be based on these tests, we note that Royal Mail’s application has also proved highly unpopular with its customers – both senders of mail and recipients in rural areas. We hope that, following the publication of the consultation document in August, Royal Mail will engage constructively with its customers to see whether their concerns can be addressed.”
Notes for editors
Postcomm will issue a consultation document in mid-August explaining the reasons for its intention to reject Royal Mail’s zonal pricing application for which there will be a two-month consultation from the date of the publication of that paper. Postcomm will make a final decision by the end of the year.
Royal Mail’s ‘zonal pricing’ application did not include services paid for by stamps or those bulk mail products that are included within the definition of the universal service which must, under the Postal Services Act, remain priced at a uniform rate regardless of delivery zone across the country. It is open to Royal Mail to submit a new application if it can be framed to meet the regulatory tests in Royal Mail’s licence and Postcomm’s statutory duties.
The following figures from Royal Mail illustrate the price premiums and discounts that it proposed to make on the current geographically uniform prices in the first year of implementation:
| Greater London | Business District | High Density | Average Density | Low Density |
|---|---|---|---|---|
| +2.5% | -4.9% | -2.0% | -1.7% | +4.8% |
This second table shows the differences in cost to Royal Mail of delivering to each zone relative to the national average cost of delivery:
| Greater London | Business District | High Density | Average Density | Low Density |
|---|---|---|---|---|
| +12% | -28% | -11% | -4% | +11% |
Royal Mail used this set of variables to determine its zones:
| Name | Business Density | Delivery Point Density |
|---|---|---|
| Greater London | Not applicable | Not applicable |
| A: Business District | Greater than 10% | Greater than 500 per km2 |
| B: High Density | Not applicable | Greater than 1000 per km2 |
| C: Average Density | Not applicable | Greater than 100 per km2 and less than or equal to 1000 per km2 |
| D: Low Density | Not applicable | Less than/equal to 100 per km2 |
Royal Mail wanted to introduce this new pricing structure to these business mail products:
- Mailsort 120 – first, second and third class, OCR and CBC;
- Mailsort 700 - first, second and third class
- Mailsort 1400 - third class;
- Presstream - first and second class; and
- Walksort - first and second class.
Full list of documents relating to Royal Mail's zonal pricing proposals.
