Price control

The final consultation on the changes that Postcomm proposed to Royal Mail’s licence to bring into force a new package of price and quality of service controls on Royal Mail ended on 2nd May 2006. Royal Mail’s new licence was finally agreed and sealed on 25th May 2006. Royal Mail has been operating since 3 April 2006 as if the new licence was in place.

Postcomm has made a very limited number of changes to the proposed licence modifications which it issued on 31 March 2006. These changes have been made in response to stakeholders’ views as part of the consultation, and to ensure that the licence correctly reflects the policy intention as written in the Final Proposals document and the Proposed Licence Modifications document. The significant changes have been made to:

Condition 4 – the definition of Special Delivery and European International Delivery have been changed to ensure consistency with the policy intent and other parts of the licence.
Condition 7(5) – changes have been made to this Condition as a result of Stakeholder responses. The changes have been made to ensure that Royal Mail provides Postcomm with the necessary details of any agreements made through the tender process within seven days. The condition also now requires Royal Mail to notify the market about agreements won through tenders 14 days after the final day in the month when an agreement is struck. Both of these changes are to ensure transparency of Royal Mail’s pricing behaviour and to allow Postcomm to deal effectively with any anti-competitive behaviour.
Condition 19(5) – changes have been made to this Condition to ensure that the licence properly reflects the policy intent to maintain headroom between access and retail prices, as set out in the Initial and Final Proposals.

These licence modifications should be read in conjunction with the existing licence. A consolidated licence will be published shortly.

This document contains the licence revisions that Royal Mail agreed to on 25 May 2006, and the explanation for the changes that have been made to the proposed licence modifications published on 31 March 2006.

Royal Mail's website now includes details of prices that will be introduced in April 2008 (external link).

Royal Mail applied to Postcomm for a Direction under Condition 21 (29) to make a change to the price terms for some of the price controlled products formally notified to Postcomm on 17 December 2007. Specifically Royal Mail would like to make change to the reconciliation payment that Term Contract customers may have to pay if they terminate the contract early or fail to post the contracted volume. The Direction would cover Term Contracts for all classes of Mailsort 700 and 1400 and Mailsort 120 2nd and 3rd class.
Postcomm has, by Direction, approved this change to the reconciliation payment for Term Contracts. This decision is without prejudice to any aspect of the investigation which Postcomm is conducting into Term Contracts. It has been taken because the change addresses Postcomm’s most immediate concern about Term Contracts, that the reconciliation payment had been set at a level that exacerbates the potential tie-in effects of such payments, and therefore alleviates (although it may not entirely eliminate) these effects. Postcomm also noted that it appears that the change is likely to benefit Royal Mail’s customers and concluded that it would be inappropriate and disproportionate to restrict Royal Mail from proceeding to offer the Term Contract tariff for Controlled Services as amended.
Royal Mail has delayed the introduction of Term Contracts for Mailsort 120 3 until 13 June 2008.
Royal Mail’s application and Postcomm’s Direction are available from the links below.

Price control

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