Postcomm's Strategy Review

A summary of emerging themes from Postcomm's Strategy Review 

In August 2006 Postcomm published a Strategy Review document for consultation.  The review looked at whether we needed to alter our regulatory policies so we can continue to protect mail users in the future – from 2010 and beyond – and yet allow mail operators the flexibility to adapt to changes in the market.

This document briefly summarises emerging themes in the responses we received to that Strategy Review document.

What respondents told us

  • Royal Mail said the current regulatory framework is no longer fit for purpose and is subjecting the company to serious financial pressure.  It said Postcomm should allow Royal Mail to compete in the business market without any restrictions and limit regulatory interventions to stamped mail.
  • Royal Mail’s competitors pointed out that Royal Mail, which is focusing hard on retaining every item of mail, enjoys the advantages of economies of scale and the unique privilege of VAT exemption.  They questioned whether our current regulatory tools are sufficient to deal with Royal Mail’s market dominance.

Postcomm’s main conclusions in the emerging themes document, on which we are seeking feedback, are:  

  • Customers are benefiting from competition. However, Royal Mail is finding the impact of competition and of new media very difficult to cope with, in part because of its slow progress in improving efficiency and in developing new services.  The universal service (USO) remains profitable and is being provided to a very high quality of service.
  • More innovation is needed in order to exploit the changing mail market. Mail operators in the UK are not fully grasping the opportunities - or facing up to the challenges - of new communications media to the extent that some of their European and North American counterparts are. Mail has some important characteristics, such as personalisation and hand delivery, which valuably differentiate it in a digital world.  If operators focus on how their mail products can add value for users, there is no reason to accept the prospect of a contracting mail market.
  • Postcomm reaffirms its aim to move to less detailed regulation. If Royal Mail can improve its cost transparency and respond better to the changing market, Postcomm should be able to scale back the regulatory regime from 2010 onwards.
  • The universal service will be secured in a changing mail market. Postcomm is responding to Royal Mail’s request to remove business products from the universal service and, in doing so, it wants to promote a wider debate as to how the scope and specification of the USO should  adapt to changing social, economic and technological conditions. However, the basic right to post a stamped letter anywhere in the UK for the same price will remain at the centre of the universal service.

More questions

Many people responding to our Strategy Review concentrated on short-term problems, such as zonal pricing, which we are already tackling.  We would like to hear more views on a long-term regulatory strategy before we prepare specific proposals, in particular on questions such as these:

Universal service

  • In what ways, if any, do you believe that the universal service should evolve to meet changing social, technological and economic factors and over what time period?
  • What do you believe are the advantages or disadvantages of removing the requirement to provide existing universal bulk mail services at geographically uniform tariffs while maintaining the requirement to provide them on a universal basis? 
  • What risks or benefits can you see to adopting a two stage approach (described in the full document) to taking bulk services out of the universal service?

Promoting effective competition

  • What do you think is holding back greater innovation in the UK mail market?
  • By what route, if any, should there be more transparency of Royal Mail’s costs and ring-fencing of its activities (such as requiring Royal Mail to prepare separate accounts for competitive and non-competitive parts of its business)?
  • What do you believe are the potential benefits or problems of imposing greater cost transparency on Royal Mail (i.e. requiring Royal Mail to prepare separate accounts for competitive and non-competitive parts of its business)?
  • What do you believe are the advantages or disadvantages of Postcomm moving from ex ante (before) to ex post (after) measures for tackling anti-competitive behaviour?
  • Where in the longer term are customers likely to remain captive to Royal Mail such that continued price regulation is required?

Price control and regulation

  • What, if any, further pre-conditions (beyond cost transparency, strong ex post controls on anti-competitive behaviour and equalisation of VAT treatment) do you think are required to justify a reduction in the scope of the post 2010 price control?
  • If Royal Mail implements better cost transparency, which commands the confidence of the industry, between now and 2010, what would be the benefits or risks of reducing considerably the scope of price and service quality controls on Royal Mail?
  • What would be the impact (positive and negative) of restricting the next price control on Royal Mail (due to come into force from April 2010) to benchmark services (such as stamped single piece items and access services), rather than covering a wide range of similar services?
  • What alternatives are there to the current approach of regulating minimum headroom for access products?

Feedback

Stakeholder responses to the Emerging Themes document can be found by clicking the link at the bottom of this page. Along with further research and analysis in a number of key policy areas, the responses we received will help inform our work to shape the future of postal regulation in the lead up to 2010 and beyond.

If you would like to meet Postcomm to discuss any of the issues raised by this Review or have any questions please contact James Francey (email link).