Royal Mail facing regulation probe

Ofcom said its review would ensure that regulation “remains appropriate and sufficient to secure the universal postal service”.

It will look at how best to ensure efficiency in the absence of national competition as well as whether wholesale and retail prices are both affordable, and sufficient to cover the costs of the universal service.

The regulator said it would consider whether Royal Mail’s “commercial flexibility remains appropriate” and if not whether wholesale or retail charge controls might be needed.

Existing regulations for Royal Mail from 2012 were designed to ensure the continuation of a flat-price, affordable service six days a week.

Ofcom said this framework included greater commercial freedom for the firm to operate in a “challenging market”, removing regulations that threatened the universal service and adding safeguards to protect postal users.

The review will incorporate an existing probe to assess Royal Mail’s efficiency, as well as looking at its performance in the parcels market and its potential ability to set wholesale prices in a way that might harm competition.

Ofcom said it would also investigate the implications of the decision last week by rival Whistl to withdraw from the market for direct delivery - where an operator collects, sorts and delivers mail entirely using its own network.

The regulator said this left Royal Mail without any competition for direct delivery of letters - though competition remained strong in parcels and “access mail” where rivals collect and sort mail before handing over to Royal Mail to complete delivery.

Ofcom also said the group was now in a stronger position financially than when the framework was last reviewed. The Government has just sold off a 15% chunk of the business and intends to dispose of the remaining 15% it still holds.

The regulator said it would outline initial thoughts and begin seeking formal submissions next month, with the review expected to be completed and revised regulations put in place in 2016.