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First-class stamp prices could be controlled as Royal Mail faces more regulation

Royal Mail could be made to accept further controls on stamp prices as part of an inquiry announced by the communications watchdog.

Ofcom said it would carry out a complete review of how it regulates Royal Mail to make sure the company maintains its obligation to deliver to all parts of the country.

The regulator decided to undertake the review after Whistl, Royal Mail’s only national competitor for direct delivery of letters, pulled out of the market.

Ofcom said it was concerned that without competition for letter delivery Royal Mail might fail to make itself more efficient, threatening the universal postal service in the long run.

One of the options is the introduction of additional controls on prices Royal Mail charges for its service.

Price increases for second-class stamps are limited to the rate of inflation but there is no cap on the cost of first-class stamps. There are also limits on the charges Royal Mail makes for competitors to use its network. Both retail and wholesale charges are part of the review.

Ofcom gave Royal Mail greater commercial freedom in 2012, designed to support the universal postal service, after the watchdog took over postal regulation. But Royal Mail is now stronger financially and operates as a public company after the government sold most of its stake in 2013, Ofcom said.

Royal Mail shares dropped 2% to 494.5p in early trading and were the biggest fallers in the FTSE 100 index.

Ofcom said: “The review will ensure regulation remains appropriate and sufficient to secure the universal postal service, given the recent withdrawal by Whistl from the ‘direct delivery’ letters market, which has resulted in Royal Mail no longer being subject to national competition.

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“Ofcom will consider … whether Royal Mail’s wholesale and retail prices are both affordable and sufficient to cover the costs of the universal service and whether Royal Mail’s commercial flexibility remains appropriate in the changing market. And, if not, whether wholesale or retail charge controls might be appropriate.”

Whistl, formerly known as TNT and owned by Dutch private postal group PostNL, suspended deliveries last month and withdrew permanently from the market on 10 June. It has complained to Ofcom about Royal Mail’s charges.

Ofcom said it would set out its initial thoughts and seek the views of interested parties next month. It will complete the review next year.


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