Ofcom review of Royal Mail shows improvement

Mail and communications regulator Ofcom has completed its review of Royal Mail’s universal postal service and found that the postal operator has improved its performance. Ofcom found that “most people are largely happy with postal services”.

Ofcom released a statement said that the rules and safeguards that it had introduced in 2012 are “generally working well for people and businesses who use the post”, and that Ofcom has decided to retain the current framework for postal regulation, originally due to expire in 2019, until 2022.

Ofcom’s review has also concluded that:

·       Royal Mail’s profit margin for 2015/16 was within, but at the lower end of, the 5-10% range, which Ofcom considers “likely to be consistent with a sustainable universal service”.

·       Royal Mail has made efficiency improvements in recent years, but there is scope for it to go beyond those currently planned.

·       The company’s delivery performance has improved since Ofcom’s framework was put in place in 2012, but some targets are still being missed. If this continues, Royal Mail could face significant fines.

·       Consumer satisfaction with postal services, and value for money, are “generally high”.

·       “Consumers in the UK benefit from having one of the most competitive parcels markets in the world. However, Royal Mail retains a strong position in the delivery of small, individual parcels.”

Ofcom has decided not to impose new controls on Royal Mail’s wholesale or retail prices, as the company already has strong commercial incentives to improve its efficiency.

Jonathan Oxley, Ofcom Competition Director, said: “We know people value the universal postal service and we will continue to ensure that it remains effective. Our review has shown that current rules are generally working well for companies and households.

“Royal Mail still has room to improve. So we’ll keep a very close eye on all aspects of the company’s performance, and step in if we need to protect consumers from high prices.”

Focusing on Royal Mail’s role in the parcels sector, Ofcom said: “Competition in the parcels sector has intensified in recent years with the emergence of several rival postal operators, particularly for heavier parcels (above 2kg) and those requiring fast delivery. This has delivered significant benefits to consumers through innovation, choice and value for money.

“But despite increasing competition, Royal Mail retains an advantage in the delivery of small, individual parcels. So Ofcom has decided to keep the safeguard cap on Second Class parcel prices in place, to protect consumers from high prices.”

The Ofcom review also found “strong competition” in the ‘access’ market for large senders of letters. Some 58% of all letters in the UK are delivered this way.

“We have decided to tighten some of the rules in this area,” said Ofcom, “This will stop Royal Mail being able to give shorter notice periods for changes in its contractual agreements with access operators.”

With regard to Royal Mail delivery targets, Ofcom said: “Royal Mail’s performance against its delivery targets has generally improved since current rules were introduced in 2012, but it has missed some targets. In the last financial year 2015/16, Royal Mail failed to meet its target of delivering 93% of First Class mail within one working day.

“Ofcom decided not to impose a fine on this occasion, noting some circumstances beyond Royal Mail’s control – including the surge in online shopping deliveries around ‘Black Friday’, which has become a day of pre-Christmas discounting in the UK.

“Royal Mail is exempt from performance targets during December, to reflect the volume of pre-Christmas deliveries. But promotional days such as Black Friday and ‘Cyber Monday’ usually fall in November.

“So we are now considering whether any changes to the rules are needed to reflect these shifting online shopping habits. However, Ofcom expects Royal Mail to hit the delivery targets it is set.”  
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