Deregulation of bulk mail moves a step closer

On 13th April, the government published a number of amendments to the Postal Services Bill that incorporate feedback from MPs, Lords, Royal Mail, other postal operators and the Communication Workers Union. The amendments aim to give clarity to the regulatory regime and safeguard the universal service so that Royal Mail can continue to deliver to the UK’s 28 million addresses, six days a week.
The Postal Services Bill, which has been approved by the House of Commons and is currently being considered by the House of Lords, is designed to secure the long-term future of Royal Mail. It will enable private sector investment into Royal Mail, and will see the government take on the company’s historic pension deficit. The Bill will also transfer regulatory responsibility from Postcomm to Ofcom, the communications regulator.

The amendments include giving new powers to regulator Ofcom to allow it to better monitor threats to the universal service (one-tariff-goes-anywhere promise) arising from increased competition. They have also instructed that Royal Mail will remain the sole provider of the universal service for at least the next decade and that the regulator will be required to “have regard” for the universal service provider to have a “reasonable commercial rate of return on the provision of that service”.

Decluttering bulk mail
A further step towards deregulation saw Postcomm accept a request from Royal Mail in February to increase the price of its bulk mail service. This, said a Postcomm statement, will “help maintain the pace of the modernisation programme required to safeguard the provision of the universal postal service”. The decision was announced at the same time as Postcomm published its proposals to deregulate certain services including packets and parcels weighing more than 2kg and removal of retail price controls from second class presorted bulk mail services. According to Postcomm, this will give Royal Mail greater freedom to compete in the presorted bulk mail market, “where the company has lost significant volumes to competitors”.

Following the announcement, Postcomm began a consultation period to seek views on whether bulk mail should be removed from the universal service. In a statement, Postcomm said it found that the needs of bulk mail users show that they prioritise the importance of low price bulk products, but appear less attached to the key features of the universal service, in particular uniform pricing. Nigel Swabey, chief executive of multititle catalogue firm Scotts & Co agrees. Already, Scotts & Co has moved all its packets away from Royal Mail to more competitively priced lifestyle couriers. With a deregulated postal market, and potentially better prices elsewhere, there won’t be much stopping Scotts & Co from moving its catalogue mailings out of Royal Mail’s system too.

And yet, at the Mail & Express Delivery Show in April, Royal Mail’s media director Mark Thomson said the company had no immediate plans to change from one-price-goes-anywhere if bulk mail services were deregulated. At the same conference session, however, Alex Walsh of the DMA and Ian Paterson of mail and parcel carrier UK Mail believed zonal pricing was a real possibility—and essential if Royal Mail wants to compete on a level playing field. For Swabey, this means cost-reflective pricing; if it costs more to deliver to Truro or Inverness, then Royal Mail should charge more. Mailers targeting those areas specifically can either factor those costs into their circulation strategy or use mailing houses nearer to the final destination in order to take advantage of local-rate discounts—“let the math determine who you mail,” says Swabey. 

Postcomm expects a decision about removing bulk mail from the universal service in early 2012 and the new regulatory framework to take effect in spring 2012.