Royal Mail regulation to be reviewed by Ofcom

The regulation of Royal Mail is to be reviewed by Ofcom after the withdrawal of rival Whistl from the direct delivery letters market.

Ofcom said the "fundamental" review would "ensure regulation remains appropriate and sufficient to secure the universal postal service".

Royal Mail no longer faces any national competition for direct delivery of letters, Ofcom said.

Royal Mail said "clarity and certainty" was needed for all market participants.

Whistl confirmed last week that it was pulling out of the direct delivery market. The company had been operating direct deliveries in London, Liverpool and Manchester.

The Dutch-owned firm had suspended deliveries last month after a potential investment partner decided not to fund expansion plans.

Commercial flexibility

Ofcom said that Whistl's withdrawal from direct delivery represented "a significant change" in the market.

The review will look at whether Royal Mail's prices are "both affordable and sufficient to cover the costs of the universal service".

Ofcom's review will also consider whether Royal Mail's "commercial flexibility remains appropriate", and whether wholesale or retail charge controls might be necessary.

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

Ofcom expects its review to be completed during 2016. It will incorporate an existing probe that is looking at Royal Mail's efficiency.

It will also weigh up its performance in the parcels market, and assess the firm's potential to set wholesale prices in a way that may harm competition.

Royal Mail said it would continue "to participate fully in Ofcom's review".

"As the regulator notes, there is significant competition in the UK market in the mails and parcels segments," the company said.

"At the same time the letters segment is in structural decline of 4-6% a year. There is therefore a need for regulatory clarity and certainty for all market participants.

"It is essential that Royal Mail is able to sustain the UK's valued, high quality, high fixed cost universal service for the benefit of all consumers and businesses."

Royal Mail shares fell 1.9% in morning trading on Tuesday.