25th May 2016 15:40
LONDON (Alliance News) - Royal Mail PLC shares were given a boost on Wednesday after UK media and communications regulator Ofcom proposed no new price controls as part of its regulatory review of the postal operator, a decision welcomed by the postal firm.
Royal Mail shares closed up 1.1% to 526.50 pence per share on Wednesday.
Concerns had been raised that Ofcom would impose a series of new measures on Royal Mail, which continues to work on cutting costs amid a very competitive parcel delivery environment and a secular decline in letter deliveries.
In July 2015, Ofcom issued a statement of objections to Royal Mail with the provisional view that the company had breached competition law by discriminating in its wholesale pricing against postal operators that competed with it on delivery.
Earlier the same month, Ofcom published the scope of its review of the regulatory framework for the postal service operator, which confirmed that new price controls were still on the table.
On Wednesday, however, Ofcom said has not proposed any new price controls on Royal Mail's wholesale or retail products, removing a key concern for investors.
"Royal Mail welcomes Ofcom's finding, as part of its review of the regulation of Royal Mail, that customer satisfaction with postal services and value for money is high," Royal Mail said in response late Wednesday.
Ofcom did, though, outlined proposals covering the "access" market, in which rival operators collect and sort mail before handing it to Royal Mail to complete delivery. It also addressed the handling of untracked letters.
Ofcom said it proposed tightening rules on the access market, first by stopping shorter notice periods around contractual terms imposed by Royal Mail on access operators, and second by ordering Royal Mail to respond within two weeks when a wholesale customer requests a product similar to one already sold by Royal Mail.
Ofcom also said it was concerned Royal Mail may be able to "cross subsidise" its parcels business through its letters business in a way that would disadvantage other parcels operators. It will monitor this closely in the future, the UK regulator said.
In addition to this, the watchdog said it has proposed new rules which will require postal operators in the UK to ensure untracked letters arrive safely.
All operators who deliver these letters, including medical letters, bank statements and birthday cards, will have to minimise the risk of loss, theft or damage under the proposals.
Ofcom is planning to introduce new rules to clarify how postal operators must look after these items, with a shift in emphasis in the regulation away from logistical and procedural requirements towards assessing the actual performance of postal operators.
Those failing to meet the new standards would face fines, Ofcom said.
Ofcom said the consultation on the review will close on August 3, and it expects to publish a statement on its final decisions later in 2016.
Royal Mail noted the publication of the Ofcom statement earlier Wednesday, and published a further response later in the day welcoming the findings.
Royal Mail also reiterated its plans concerning its efficiency programme, which is aiming to make GBP500.0 million of annual costs by 2017 to 2018.
"Royal Mail will actively participate in the consultation process, including providing a detailed, evidence-based submission to Ofcom," the company said.
By Sam Unsted; [email protected]; @SamUAtAlliance. Updated by Joshua Warner; [email protected]; @JoshAlliance
Copyright 2016 Alliance News Limited. All Rights Reserved.
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