Other than letters to Santa, small children and vast postal concerns might appear to have little in common. Watch one complain to its parent about siblings or to its regulator about rivals, however and you can start to see some similarities.
When Royal Mail went to Ofcom about supposedly unfair competition from the likes of Whistl, it got much the same answer as a boy whining about his sister dismantling his Lego pyramid to make a stable (even though that’s just ridiculous because she doesn’t even have any Lego horses and pyramids are way cooler anyway) – stop moaning and learn how to share.
Ofcom said in a statement today that it wouldn’t impose tougher regulatory conditions on Royal Mail’s rivals, despite boss Moya Greene’s complaints that Whistl et al were putting the universal service at risk by making it ‘unfinanceable and uneconomic’.
Greene’s argument is that the universal service, which requires it to deliver to any address in the UK six days a week, has become an unfair burden because it makes Royal Mail subsidise deliveries to remote areas without letting it pass any of the cost on to its rivals. These rivals can therefore, it says, undercut it by ‘cherry-picking’ services in urban areas.
After a careful analysis of the industry, including Royal Mail and Whistl’s confidential business plans, Ofcom has decided that universal service is not under threat. In fact, Ofcom chief executive Ed Richards went so far as to say ‘competition is likely to provide Royal Mail with a further incentive to become more efficient’. That’s got to sting.
This ruling hardly comes at a good time for Royal Mail, which recently reported a 21% fall in first half profits in the wake of falling letter volumes and increased competition. Even Ofcom in its ruling said there was ‘uncertainty about Royal Mail’s future financial position’, particularly looking forward to 2017-19. To make matters worse, it’s facing a separate Ofcom investigation itself into whether it abused its dominant position to stifle competition.
There is some good news for the firm, however. Ofcom has proposed a zonal fee system, whereby the fee Royal Mail charges its rivals to use its network will be proportional to costs, which should cut back on Greene’s ‘cherry picking’.
That appears to be little consolation to shareholders, however. Stock in Royal Mail fell 2.7% to 406.86p this morning after the announcement.
