Consumers' needs at the heart of Royal Mail regulation

The Countryside Alliance welcomes Ofcom's assurance today (25th May) that 'the universal postal service is financially sustainable' following fears that competition was making the service unviable in rural areas. Ofcom began a review of Royal Mail regulation last summer but put the 'Universal Service Obligation' (USO) outside the scope of the review, which at the time was criticised by the Countryside Alliance.

Our concerns were based on the impact changes and competition in the postal delivery market could have on rural postal services and the knock-on effect for rural communities and businesses. We have been fierce advocates of the USO so today's announcement is a comfort. The postal services market is fundamentally influenced and shaped by the USO and has been under significant financial pressure after years of falling letter volumes. It was making a loss of more than £100m in 2011 and, coupled with increased competition in the end to end delivery service, the USO was under threat. Sarah Lee, Head of Policy at the Countryside Alliance said "Postal services and the USO are essential to those living and working in the countryside, particularly for individuals and businesses that rely heavily on the postal service. Digital communications provide alternative ways for people to exchange information, but many still rely on the post, as it is seen as reliable and secure.

The USO has played a vital role in e-commerce to date, so it is vital that the USO remains financially sustainable and the full potential of e-commerce growth can be achieved not only in rural areas but the whole of the UK. Ofcom must ensure that we have a fair postal market which can respond to the changing market and delivers to all communities."

"Without the USO it is likely that the market would not deliver affordable and accessible parcel drop-off and delivery services throughout the whole of the UK. Instead, many parcel operators would focus their energies on the cheaper-to-serve urban and suburban centres. Rural consumers and businesses would be likely to pay more than urban customers and some retailers and delivery companies may choose not to deliver to certain parts of the country. For example, Amazon Logistics choose only to operate in urban and suburban areas, putting rural businesses at a disadvantage."

Notes
• As the postal regulator, Ofcom has duties to secure the universal service, and ensure it remains efficient.
• After a review of the postal market, Ofcom has today found that Royal Mail's current return on sales is at the lower end of the 5-10% range which Ofcom considers to be compatible with a sustainable universal service. Until 2014/15, Royal Mail's return on sales was below this range, although it had been improving since 2010/11. • Royal Mail must, by law, fulfil the USO, which means it must maintain the six-day-a-week, one-price-goes-anywhere service that is essential to those who live and work in the countryside.
• The costs of delivering mail to less densely populated, harder to deliver rural areas are met using revenues generated from more densely populated urban and suburban areas. We are concerned that the current regulatory environment could allow competitors to choose where it delivers, what it delivers and when it delivers. If competitors are able to cherry-pick, then we believe this could pose a serious threat to the financial sustainability of the Royal Mail, which in turn puts the long term future of the USO under threat.

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