Ofcom has announced a “fundamental review” into the regulation of Royal Mail, after the withdrawal of Whistl’s final mile delivery service left it without a major competitor in the postal market.

In 2012, new regulations gave Royal Mail more freedom to set its own prices, to protect it from rivals in a competitive market.

The removal of that competition, however, sees the company gain an effective monopoly on the UK postal market again, which may require new regulation to ensure the universal postal service remains affordable.

Ofcom said review “will ensure regulation remains appropriate and sufficient to secure the universal postal service” now that Royal Mail is no longer subject to national competition.

This will include an investigation into potential changes to the overall postal framework, which might be required to protect the universal postal service.

The review will also address how the Royal Mail can continue to become more efficient in the absence of the dricing force of competition, as well as whether its wholesale and retail prices are sufficient to cover a delivery service to the whole of the UK.

Ofcom said it will outline its initial thoughts next month, and expects the results of the review, along with a revised regulatory framework, to be published sometime in 2016.

Royal Mail issued the following response to the announcement of the new review. “Royal Mail will 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.

"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.”

Separate investigation

This latest review is separate to an Ofcom investigation into whether Royal Mail “abused a dominant position” against the terms of the Competition Act when it put access prices up for its final mile delivery.

Whistl, which was TNT Post at the time, made a formal complaint to Ofcom that Royal Mail had breached its regulatory terms in doing so. Royal Mail responded by saying the claim was “unfounded”.

Royal Mail went on to call for protection from Ofcom, claiming that Whistl didn’t have to submit to the same regulations and was therefore at a operational advantage.

Whistl, it said, was “cherry picking” areas to roll its final mile delivery service into to maximise profitability, whereas it was obligated to fulfil the universal postal service, regardless of cost.

When asked for comment on the newly announced Ofcom review, a spokesman for Whistl said: "We will review the terms of reference for the Ofcom review and contribute to the process as required.”

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