Postcomm Proposes Price Control for Royal Mail

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Postcomm, the independent regulator for Britain's postal service, yesterday proposed a price control for Royal Mail that it said would allow modest increases in stamp prices in order to let the company modernize its operations, secure its universal service, serve its customers better and help plug its $6.9 billion pension fund deficit.


Postcomm said its final proposals for 2006-10 would safeguard the one-price-goes-anywhere universal service as well as provide $2.1 billion for Royal Mail to invest in modernizing its network. It also allows Royal Mail an average of $555 million yearly to reduce its deficit.


Customers will help fund the initiatives via an increase in stamp prices. Royal Mail will be able to raise first class stamp prices next year from 30 pence to 32p, and by 2010 prices will be capped at 36p.


The proposal also requires Royal Mail to increase efficiency by at least 3 percent yearly.


"Royal Mail has indicated that it accepts the price caps proposed and its responsibility to finance its business within these constraints," Postcomm said.


"We have made three major changes to our initial proposals, allowing Royal Mail more money for pensions, more for investment and protection against risk if mail volumes or its pension assets alter significantly," said Nigel Stapleton, Postcomm chairman. "The rises in stamp prices are substantially less than Royal Mail wanted and a little more than we planned. But without a contribution from customers, Royal Mail's weak financial position, brought on by its large pension deficit, would have put its ability to provide the universal service at risk."


Royal Mail had told Postcomm it needed first class stamp prices to rise to 39p by 2010. Postcomm's initial proposals published June 1 suggested 34p. The increase in these final proposals reflect new information provided by Royal Mail on the threat posed by its pension deficit, revised volume forecasts and the value added by its investment program.


In a statement, Royal Mail said it is not yet possible to assess fully the effect of the proposals. The regulator intends to implement these proposals from April 2006 if Royal Mail, which has not yet seen all the supporting details, gives agreement.


Melissa Campanelli covers postal news, CRM and database marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters


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