Royal Mail shares take a hit after regulator rejects claims universal service under threat

‘We have concluded there is no present risk to the financial sustainability of the universal service’

Royal Mail confirmed Sarfo briefly worked for them as a postman in 2010

Royal Mail shares plunged to the bottom of the FTSE 100 as regulators shot down its claims that the six-day-a-week universal delivery service is under threat from fast-growing competition.

Even though it was part privatised last year, the five-century-old postal service is still forced to deliver to all 29 million UK addresses from Monday to Saturday at a uniform price.

Whistl, formerly known as TNT Post, has emerged as a serious rival in several big cities, including London. But it does not have to deliver letters to every address in an area or for a minimum number of days a week.

Royal Mail chief executive Moya Greene contends this means Whistl saves money by ignoring remote homes on loss-making routes, putting her company’s ability to finance the universal service in the long term at threat.

Royal Mail wants Whistl and other nascent competitors to face similar rules so that they don’t just “cherry-pick” the best routes.

But regulator Ofcom has dismissed Royal Mail’s claims and in a statement on competition today questioned whether Royal Mail had achieved a “reasonable rate of improvement” in making efficiency savings.

Whistl has claimed Royal Mail’s problems, which included a 21 per cent drop in profit to £279 million in last month’s interim results, were because “it lags behind its most modernised EU peers in terms of efficiency, cost reduction, productivity and flexibility”.

Ofcom chief executive Ed Richards, who wants to foster rather than discourage competition, pointedly said the regulator had come to its conclusion based on “Royal Mail’s own business plan and evidence”.

He added: “We have concluded there is no present risk to the financial sustainability of the universal service.”

But Ofcom will launch a broader review of factors that might be affecting the universal service, to be completed next year.

Ofcom also said it would consult on allowing Royal Mail to amend prices it charges competitors for “access mail”, which is when rivals collect and sort mail before paying Royal Mail to deliver it through its network. This could mean hiking charges for using posties on costly, remote rural areas.

Ofcom said changes would mean Royal Mail receiving a “fair profit” on these letters, “regardless of where they are being delivered”.

The regulator also published its third annual monitoring update on the performance of the postal sector today.

This criticised Royal Mail for falling below its productivity improvement target, pointing out that the rate of improvement has “slowed in recent years”.

The shares tanked 2.4 per cent to 407.9p.