Royal Mail share price drops as Ofcom says the postal service "isn’t under threat"

 
Lynsey Barber
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Ofcom: The postal service isn't under threat (Source: Getty)

The UK’s postal service is not under threat, Ofcom has said, delivering a blow for Royal Mail, whose boss Moya Green told MPs it faced competitors which made a universal service “unfinanceable and uneconomic”.

Shares in the newly-privatised Royal Mail fell 3.2 per cent in mid-morning trading, after it emerged its complaints competitors were undercutting it by “cherry-picking” more lucrative delivery areas, while it was forced to ensure universal delivery, had fallen on deaf ears.

Now Ofcom has ruled the firm’s remit to deliver a universal postal service is not under threat however the regulator will open a broader investigation into Royal Mail’s ability to deliver the universal service, including its efficiency and its parcel delivery performance.

Shares in Royal Mail opened more than two per cent down this morning after Ofcom said the competitive environment, with Whistl its largest rival, is likely to provide Royal Mail with a further incentive to become more efficient. "Continued progress on efficiency is crucial if the universal postal service is to be financially sustainable in the longer term," said Ofcom.

In Ofcom’s overall monitoring of the postal sector, which it took responsibility for in 2011, it found Royal Mail’s performance was improving, however the rate of progress was flat on previous years and below Royal Mail’s own targets, while it was losing volumes in the parcel delivery sector.

The regulator has also proposed new rules on prices which will mean Royal Mail's varying charges to competitors for the ability to make deliveries across its network based on locations must be tied to Royal Mail's own costs.

"The new rules would allow Royal Mail to set fair prices for access services in different parts of the country based on the costs of delivery in those areas, allowing Royal Mail to make a fair profit on all ‘access’ letters regardless of where they are being delivered."

The broader review will be concluded next year, while Ofcom did not rule out a further review of competition next year as it would "continue to monitor carefully any risks that may arise and, if necessary, will act accordingly," said Ofcom boss Ed Richards.

“Ofcom’s board has considered all the evidence in the postal market carefully over the past few months. We have concluded that there is no present risk to the financial sustainability of the universal service. This conclusion is based on Royal Mail’s own business plan and evidence as well as a range of other data," added Richards.

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