Royal Mail Tells Ofcom Universal Service Obligation Is Threatened by Unfair Competition

Royal Mail’s mandate to deliver post to any UK address six days a week is being threatened by competing services, according to the recently privatised company. Royal Mail issued the warning to Ofcom and has asked the communications watchdog to bring forward a review scheduled for 2015. The review would determine whether changes are required to protect Royal Mail’s UK-wide flat rate service.

According to Royal Mail, the firm is already dealing with a structural decline of 4-6% in the volume of letters it handles. However, in its submission to Ofcom, Royal Mail warned that competing services – which are not bound by its own strict regulatory requirements – could lead to a significant drop in revenue. One competitor, TNT Post, already has a local market share of 14% in areas it covers and plans to extend this to 42% of all UK addresses by 2017. Royal Mail estimates that competition by TNT alone could cost the firm over £200m in 2017/18.

In its submission, Royal Mail warned that its universal delivery service is being threatened by competitors who are able to “cherry pick” the services they offer due to their less stringent regulations. The Universal Service Obligation (USO) requires Royal Mail to deliver post to any UK address for the same price six days a week. The company does this by subsidising less profitable areas – including the Highlands and Islands – with more profitable routes and services.

In response to Royal Mail’s submission, an Ofcom spokesperson said: “We will consider the report Royal Mail has given us carefully. Protecting the universal service is at the heart of Ofcom’s work, and our current evidence clearly shows that the service is not currently under threat. We would assess any emerging threat to the service quickly, in the interests of postal users.”

However, deputy general secretary of the Communication Workers Union, Dave Ward, said that the unfair advantages enjoyed by Royal Mail’s competitors were threatening not only the firm’s mandate to deliver a flat-rate service for customers but jobs as well:

“Ofcom’s primary duty is to protect the universal service which allows us to send a letter to Belfast, Bristol or Brighton all for the same price. If Ofcom does not carry out an immediate review of the impact of direct delivery on universal service, it will have failed in its duty.

“The government needs to wake up and realise the implications Ofcom’s lack of action will have on Royal Mail’s ability to deliver the universal service obligation. TNT is not introducing new jobs, they are just replacing decent and well-paid Royal Mail jobs with minimum wage employment and supporting the growth of a low-pay economy. In the end, workers everywhere will suffer through this race to the bottom.”

TNT Post UK has already launched its own direct letters delivery service in London, Liverpool and Manchester and is considering plans to extend the service into Edinburgh. The company said that Royal Mail’s biggest threat came not from its competitors but from the internet and urged it to find ways to address current inefficiencies in this area.

A TNT spokesperson said: “Royal Mail should respond to the challenge of the internet and the opportunity presented by postal competition which will actually make for a more sustainable Royal Mail which is better able to deliver the USO in the years ahead.”

However, Rob Jenson, Royal Mail operations director north, disagreed, saying: “We all know the communications market is changing – and changing fast. Royal Mail has been meeting the challenge of declining letter volumes.

“Now we face a new threat. This is not competition in the normal sense of the word. Unlike true competition, direct delivery doesn’t provide an extra spur to make the postal market more competitive and efficient. Royal Mail cannot choose not to deliver in certain areas or on certain days – the universal service requires postmen and women to walk every street, six days a week, whatever the mail volume.

“As a consequence, we fear that a point could soon be reached where direct delivery competition leads to the universal service being unviable. Were this to happen, it could represent the loss of a vital service upon which thousands of communities up and down the UK rely.”