The UK postal market has been fully open to competition since 2006. The UK postal market was one of the first in Europe to liberalise its postal market. Many European member states did not fully liberalise their postal services market until 31 December 2011, the last possible date allowed under European law.
Open postal market
Since liberalisation, the pace and degree of access competition has been higher than many other countries in the European Union (EU).
This is where rival companies use the universal service provider’s network to deliver bulk business mail. Elsewhere in Europe, most competition has evolved as straightforward end-to-end collection and delivery, with up to a maximum of 10 – 20 per cent of market share.
But the UK faced a regulatory framework that gave access entrants a guaranteed margin through headroom regulation. Royal Mail now faces end-to-end competition as well as highly developed mandated access competition – a situation unique anywhere in Europe.
There are now more than 50 UK mail providers that are free to compete with Royal Mail’s services.
Together they handle 45 per cent of all UK letters, including 75 per cent of bulk mail. Royal Mail continues to face price control of its access contracts through a margin squeeze test. We consider this unnecessary in the now highly competitive marketplace.
The UK is one of the small minority of EU Member States where both access and end-to-end competition have emerged to challenge the universal service provider.
Whilst Royal Mail welcomes competition, we do not support cherry picking, which threatens the sustainability of the universal service.
Royal Mail has to continue to deliver at great cost to all 29 million addresses in the UK, irrespective of whether someone else is delivering there too. We also have to deliver six days a week but others can choose to deliver just a few days a week.
Access competition – where a rival postal operator collects mail from customers and then uses Royal Mail’s delivery network to deliver to the final address – is currently the main form of mail competition in the UK.
Royal Mail is happy to provide access to its rivals on fair, commercial terms. But the terms of access imposed by the regulator have, until recently, been costly for Royal Mail and have distorted competition.
Until 2012 access contracts operated under a system called “access headroom”. This established a fixed margin between Royal Mail’s retail prices and access prices for competitors. In practice, it gave a guaranteed margin to competitors with Royal Mail access contracts, and stimulated artificial and distorting competition.
This access regime led to a substantial decline in the volume of business bulk mail that Royal Mail delivers. Ofcom, the new postal regulator, has recognised the failure of the previous regulatory framework for access, and reformed it.
Royal Mail now has more flexibility to agree access to the universal service network with other postal operators on commercial terms which reflect current market realities.
In securing the universal postal service, Ofcom has a statutory duty to have regard to the need for its provision to be efficient and financially sustainable, which includes the need for a reasonable commercial rate of return.
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