On 1 March 2017 Ofcom completed its review of the regulation of Royal Mail, which covered a wide range of areas, including: Royal Mail’s efficiency and financial sustainability; competition in the parcels and letters sector; levels of customer satisfaction; and, the appropriateness of the current regulatory regime. Ofcom concluded that the current regulatory framework, which had been due to expire in 2019, would be retained until 2022.
In response to significant pressures on the universal postal service Ofcom introduced a new seven year regulatory framework for the postal sector in March 2012. This framework was designed to give Royal Mail greater commercial and operational flexibility in order to return the universal service to a position of financial sustainability. It also included three safeguards:
(i) A monitoring regime to track Royal Mail’s performance in respect of the universal service, efficiency levels, pricing and competition;
(ii) A price cap for Second Class stamps for letters and parcels up to 2kg to protect vulnerable customers; and
(iii) A requirement for Royal Mail to continue to provide access to its network for ‘letter competitors’.
A number of significant developments in the postal market, including the improvement in the financial position of the universal service and the exit of Whistl (Royal Mail’s only significant competitor) from the end-to-end letter delivery market, prompted Ofcom to announce a review of this regulatory framework on 16 June 2015.
The review has found that the current framework and safeguards are generally working, with the “majority of consumers… satisfied with postal services… stamps represent[ing] fairly or very good value for money… [and] satisfaction levels… high amongst SMEs”.11
Significantly, Ofcom has decided not to impose new controls on Royal Mail’s wholesale or retail prices on the basis that it already has strong commercial incentives (in particular market conditions and shareholder discipline) to improve its efficiency.