The Royal Mail now has a new regulator, Ofcom, which took over the role from Postcomm on 1 October. Ofcom has already issued a report in which a number of changes are proposed. There is a public consultation under way, which closes on 5 January 2012.
The most contentious of the proposals is the one to lift the cap on what the Royal Mail can charge for its principal service. According to some reports this could mean the price of a first-class stamp going up to £1. Less well recognised, but equally important, is the proposal to lift the cap on the price of bulk mail and business mail, which could also have an impact on customers further down the line.
The move to Ofcom follows on from proposals made in the Hooper report, which has been the basis of policy for successive governments since it was first published in 2008. It was updated at the request of the current government in 2010.
Hooper makes a number of recommendations, of which the change of regulators is just one. Other recommendations include the introduction of private capital through a "strategic partnership with a company with corporate experience of modernisation" – privatisation – and the removal of the pension deficit to the public purse, thus lifting the burden from any future buyer. In March 2010 the deficit stood at £8bn. Hooper states that his proposals must be taken as a package, which implies that privatisation is not far off.
The stated aim of both the Hooper report and the Ofcom proposals is the protection of the Universal Service Obligation (USO) by which the Royal Mail is required to collect and deliver letters six days a week at an affordable and uniform price across the UK. None of the other mail companies has this obligation. It is interesting to note that these proposals come on the eve of privatisation. They allow any future buyer the freedom, not allowed to the Royal Mail for the past few years, to set a price in line with actual costs.
Meanwhile Ofcom also offers safeguards to protect vulnerable consumers from onerous price rises by placing a cap on the price of second-class stamps of between 45-55p. It also, very significantly, promises "to require Royal Mail to continue to provide competitors with access to its delivery network".
It's at this point that we enter the bizarre world of "downstream access". Hooper explains the term in his report, in a footnote on page 12:
"Royal Mail delivers 99% of all letters downstream. Royal Mail is required by the regulator … under the terms of its licence to deliver letters for competitors who collect and sort upstream in competition with Royal Mail. This is called the access regime or downstream access regime. Competition in physical mail happens upstream whereas downstream delivery of physical mail has the characteristics of a monopoly."
Do you get that folks? "Competition in physical mail" – that is competition for profits – "happens upstream", while "downstream delivery of physical mail" – that is, the actual work – "has the characteristics of a monopoly". Royal Mail has a monopoly of the work, while the other companies get a share of the profits. And you wonder why the USO is under threat?
The Ofcom proposals continue: "Royal Mail would have the freedom to set the 'wholesale price' for access to its network but would be subject to rules regarding the allowed margin between the wholesale and retail prices. This would help ensure that efficient competitors can compete effectively with Royal Mail." This is known in the business as "headroom". It is the difference between what the Royal Mail is allowed to charge, and what the "competitors" – who don't, in any recognisable sense of the word, actually compete – require in order to continue to generate profits for themselves.
Ofcom makes a sort of nod of recognition to the absurdity of the situation when it promises, in the next sentence, "to assess on a case-by-case basis any interest in providing so-called 'end-to-end competition' in the UK, where a postal operator receives the letter and delivers to an address without using Royal Mail's network." It is interesting to speculate what this might mean. Are we going to see rival pillar boxes on our street corners, and rival posties with different coloured uniforms vying with each other to get to the letter box first? Will there be a kind of postal workers' turf-war going on, in which I meet my rival at the gate and have to fight him off for access to your letter box?
Of course not. The rival companies will only consider an end-to-end service if there is profit to be made, which means they won't be in the slightest bit interested in the USO. If such a thing happens at all it will be delivery within one city, or between cities, no more. Rural and remote areas of Britain will never be graced by any but the Royal Mail's characteristic uniform. Whatever else happens, the Universal Service Obligation will remain the obligation of one company alone. Which is the reason why the Royal Mail will always remain a special case.
