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Citizens Advice response to the Ofcom Review of the Regulation of Royal Mail

9 August 2016

The Citizens Advice Service broadly welcomes the proposals set out in the Review document. 

On balance, we agree that Ofcom should not have moved towards the reimposition of the types of ex ante price controls used by Postcomm under the previous regulatory regime.  Whilst we are concerned about the pace of price rises in the first years of the existing regulation, we note that this has slowed recently and that Royal Mail has not raised its prices to the maximum allowed under existing caps.

Market conditions have changed since Postcomm introduced its detailed ex ante price control regime.  Both an increasing intensity of competition in the parcels market and growing pressure on Royal Mail’s (average unit) costs due to declining mail volumes now put it under greater pressure to manage its costs appropriately, despite its dominance of the mail delivery market.

In this context, we do not consider that the reintroduction of detailed ex ante controls would have been proportionate or effective. 

There are doubts that such controls would have been workable given continuing unpredictability about the level and pace of mail volumes decline and a lack of transparency of information about Royal Mail’s underlying cost base and the relative importance of different cost drivers

Reimposition of these controls could also foster market uncertainty and set Royal Mail perverse incentives towards regulatory gaming and pursuit of information advantage strategies leading to the type of regulatory conflicts seen under the previous regulatory regime. Ofcom could also have been subsequently drawn into a process of regulatory creep towards an ever more granular control.

We also agree that it is timely for Ofcom to reappraise the scope of consumer protections in light of rapid market development and ongoing changes to the needs consumers have for post.  It is important to ensure that consumer protections are targeted and proportionate and that they remain relevant and appropriate for consumer needs. 

However, we are a little concerned that moves to remove Mail Integrity Procedures and obligations may result in poorer quality of service for consumers.  We would expect that any changes follow extensive consideration and that their effects are monitored and, as a matter of principle, that any cost savings resulting from reduced regulatory obligations should be passed back to consumers and customers.    

Further, given the growing importance of e-commerce delivery for postal consumers, we would expect that there should be an increasing emphasis on the experience of consumers as recipients of parcels.  This needs to consider whether the existing mix of market incentives and consumer protections are sufficient to secure adequate standards in this increasingly important area.  We will be undertaking some research on these issues over the next few months.

The full response can be found here.  [ 260 kb]