Zonal pricing

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Application by Royal Mail to introduce “retail zonal pricing”

On 5 July 2006, Postcomm received an application from Royal Mail under Condition 21 (paragraphs 17-19) of its licence in which it proposed introducing zonal prices for certain bulk retail mail products used by the largest mailers (e.g. banks, utilities, advertisers, charities and government).

On 20 February 2007, Royal Mail submitted a modified version of this application which still proposed zonal pricing but amended the proposed zones and prices.

The bulk mail products concerned were:

  • Mailsort 120 - first and second class, OCR and CBC
  • Mailsort 700 - first, second and third class
  • Mailsort 1400 - third class
  • Presstream - first and second class
  • Walksort - first and second class

Currently, Royal Mail charges these bulk mail customers geographically uniform prices, and said that introducing zonal prices would help align more closely its prices with its costs.

Under Royal Mail’s licence (paragraphs 18 and 19 of Condition 21), Postcomm had nine months in which to make a decision on this application, with that nine months starting once we were satisfied that we had received "sufficient information of good quality" to assess the application.

On 2 April 2007, Postcomm wrote to customers and operators about the application, letting them know that we had now been provided with sufficient information of good quality to assess Royal Mail's modified zonal pricing application, and that the nine-month assessment period had therefore begun.

Zonal pricing raises important issues and, if this application had been approved by Postcomm, it could have led to significant changes in the postal services market, with implications for customers and for the business plans of Royal Mail and other operators.

Unlike Pricing in Proportion - which was introduced on 21 August 2006 after a lengthy consultation and implementation period - this zonal pricing application would not have affected:

  • stamp prices;
  • any other service commonly used by household and small business customers, or
  • the bulk mail products that are included within the definition of the universal service.

On 20 April 2007, after a number of requests, Postcomm wrote to stakeholders informing them that the deadline for responding to the letter of the 2 April had been extended to 1 June 2007.

The consultation closed on 1 June 2007 and the responses we received are listed below.

On 23 July 2007, Postcomm announced that it proposes to reject Royal Mail's zonal pricing application. Full details followed in a consultation document published on 17 August 2007.

On 14 December 2007, Postcomm announced that it had rejected Royal Mail’s zonal pricing application. The reasons for this are set out in a decision document published on 5 February 2008.

On 30 April 2008, Postcomm received summons from Royal Mail that they intend to seek a judicial review of the regulator's decision to reject the zonal pricing application. Further updates will be added to the website as the case progresses.

Background

Zonal Pricing mini workshop - 30 November 2006

This small workshop was organised in response to demand from several licensed postal operators and other stakeholder groups.