Postcomm publishes decision document on its interim review of 2006-10 Price Control

10 January 2008

Postcomm, the independent regulator for postal services, has published a decision document confirming its proposals made in August 2007 that Royal Mail should be given extra flexibility to increase some retail prices and that access margins should be left unchanged.

These decisions are in response to the requests by Royal Mail, TNT Post and UK Mail for a review of some aspects of the 2006-10 Price Control¹.

As set out in Postcomm’s proposals document published in August, this decision would allow Royal Mail to raise the price of a second class stamp to 29p by 2010, subject to inflation (the original price cap was 26p). The price cap on a first class stamp will not be affected by this decision².

In addition, Postcomm has decided to reject the requests from Royal Mail, TNT Post and UK Mail to change the margin between Royal Mail’s prices for bulk mail products and the amount Royal Mail charges other mail operators for access to its network and delivery of bulk mail over the ‘final mile’. Royal Mail had wanted to reduce the margin and the two Access operators argued that it should be increased.

Notes for editors

Postcomm’s decision on this matter was first made public on 26 November 2007 in the interests of reducing market uncertainty and to allow Royal Mail to meet its licence obligations to announce the price changes to take effect from 1PstP April 2008.

A full copy of the decision document is available on the Postcomm website (TUwww.psc.gov.ukUT).

1. The regulator examined requests from TNT, Royal Mail, and UK Mail to adjust the margin between the price Royal Mail charges its customers for bulk mail products and the amount Royal Mail charges other operators for access to its network and delivery of mail over the ‘final mile’. Royal Mail sought to reduce the average margin between ‘access’ prices and its retail prices, while TNT and UK Mail were seeking to increase this difference.

Separately, Royal Mail asked Postcomm to amend a second key feature of the 2006-2010 Price Control: the pricing flexibility which, it says, would help it increase the extent to which, and speed with which, it can more closely align its prices to its costs.

2. Royal Mail will be able to make the following changes to the rebalancing subcap:

• For products in Basket B, the ‘non-captive’ basket, increase in the price rebalancing sub-cap from 3% per year to 8.5% per year; and
• For products in Basket A, the ‘captive’ basket, whose prices are currently at least 6% below fully allocated costs, increase in the price rebalancing sub-cap from 3% per year to 8.5% per year.  As an amendment to the proposals made in August, this 8.5% sub-cap will now also apply to Royal Mail’s related Response Services.  For the remained of products in Basket A, the sub-cap will remain at 3% per year for the remainder of the price control.