Royal Mail drafts in the lobbyists for battle on universal deliveries

 

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A lobbying battle broke out last night between the Royal Mail, the Government and regulators over the newly privatised company’s provision of universal postal services from Land’s End to the Outer Hebrides.

By law, Royal Mail must deliver letters all over the country, six days a week, for the same price. But since it was privatised last October, the company has been calling for a review, claiming rivals such as TNT’s Whistl were “cherry picking” the lucrative and cheaper-to-run urban routes.

Yesterday, in its half-year profits announcement, Royal Mail delivered a shock message to the City that, not only was Whistl having an impact, but that a beefed-up Amazon parcels business was hitting it too. The company’s share price plunged more than 8 per cent, sparking renewed pressure on the regulator Ofcom to bring forward its planned review of the so-called Universal Service Obligation.

Royal Mail’s chief executive Moya Greene said: “The threat is now.”

However, officials claimed the announcement was part of a lobbying campaign to bounce Ofcom, into acting. They pointed out that the company has hired the influential lobbyists Open Road to spearhead a concerted campaign on the issue. Royal Mail confirmed it had hired Open Road - which also acts for Google and Amazon - but would not say why.

 

Yesterday, Ms Greene declared Amazon’s move to set up its own next-day parcels delivery programme meant Royal Mail was more than halving its expected growth rate in the UK parcels market: having predicted 6 per cent growth when it floated on the stock market last October, it now expects just 1 to 2 per cent growth in the next two years.

UK parcels revenue fell 1 per cent to £1.5bn in the last six months, with overall operating profit plunging 21 per cent to £279m.

But Ofcom made clear that it did not see any need to hurry its review of the industry, which will begin by the end of next year. “Protecting the universal service is at the heart of Ofcom’s work, and our own evidence clearly shows that the service is not currently under threat,” a spokesman said.

Some sources accused Royal Mail’s lobbying effort of attempting to conflate Amazon’s impact on its parcels business with the universal letters service, although the two are completely separate issues. Ofcom figures suggest Whistl has just a 1 per cent share of the UK letters market.

Royal Mail denied any such strategy to blur the two sides of its business and said its share of the lucrative business letters market was far lower, and shrinking rapidly.

The regulator counters that it has access to all the postal companies’ intentions three months ahead of time and does not see the immediate threat to which Royal Mail refers.

One official said: “Rather than spending time and money on lobbying over universal service, Royal Mail should be delivering more efficiency and automated parcel handling.”

Some City analysts questioned Royal Mail’s slow progress on modernisation and efficiency, with RBC bank noting its “flat-to-down underlying cost control already seen in the first half”.

Royal Mail countered that its productivity growth of 2.1 per cent was within its 2 to 3 per cent target range but said that it was difficult to increase productivity when volumes of letters were falling. Addressed mail fell 3 per cent, helped by the pamphleting from the Scottish referendum.

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