Royal Mail could be made to cap prices

ROYAL Mail could be made to cap the prices it charges customers and rivals as part of a “fundamental review” of regulation launched by watchdog Ofcom.

The review was launched after the recent collapse of a rival letters service. Picture: PA

The review was launched after the recent collapse of a rival letters service run by Whistl left Royal Mail with no competitors in that market – and is designed at ensuring efficiency for the service in the absence of such competition.

A cap on the cost of first-class stamps – which is currently unregulated – is not being ruled out, though the focus is understood to be on the charges for providing services used by rivals.

Ofcom said the review would consider “whether wholesale or retail charge controls might be appropriate”.

It will also look at whether wholesale and retail prices “are both affordable and sufficient to cover the costs of the universal service”.

Currently there is some regulation over the way Royal Mail provides wholesale services to rivals, but this could be tightened. For stamps, second-class prices are capped at the rate of inflation, but there is no such limit for first-class.

Ofcom may follow a similar model to the one it has recently proposed for telecoms giant BT, which has been told to slash the wholesale prices it charges for using “leased line” high-speed data links.

The review of Royal Mail could also see changes to delivery time and quality of service obligations.

Ofcom said: “The review will ensure regulation remains appropriate and sufficient to secure the universal postal service.”

Shares in Royal Mail fell 1 per cent.

Last year, it called for a review of the direct delivery market, saying the fact rivals could “cherry-pick” the best routes threatened its ability to use these to subsidise universal services covering harder-to-reach communities.

However, one of these competitors, Whistl – formerly known as TNT – itself complained to Ofcom about Royal Mail’s charges.

Existing regulations for Royal Mail from 2012 were designed to ensure the continuation of a flat-price, affordable service six days a week. It eased some rules meaning that today, only 5 per cent of revenues are subject to price controls, compared with about 80 per cent before.

Ofcom’s review will incorporate an existing probe to assess Royal Mail’s efficiency, as well as looking at its performance in the parcels market and its potential ability to set wholesale prices in a way that might harm competition.

It said that it would also investigate the implications of the decision last week by Whistl to withdraw from the market for direct delivery – where an operator collects, sorts and delivers mail entirely using its own network.