Ofcom is to lay down options next week to reform Royal Mail’s service obligations – which could make it easier for the beleaguered company to axe Saturday postal services.
It comes amid warnings from its chief executive that the 500-year-old courier firm may require a government subsidy in order to remain afloat.
On Wednesday, Ofcom is expected to release a consultation paper over the future of the Universal Service Obligation (USO), which currently stipulates Royal Mail must deliver to every UK address six days per week if postage has been paid, Sky News reports.
Industry experts believe changing the model to a five day structure, thereby removing Saturday deliveries, is likely to be one of the options on the table.
Other possibilities include changing first and second-class delivery deadlines in line with Germany and Italy; and granting permission for Royal Mail to raise stamp prices.
Martin Seidenberg, chief executive of Royal Mail’s parent company, International Distributions Services (IDS), wrote to MPs this week: ‘Delivering the current Universal Service requirements – in a financially sustainable way – is increasingly difficult, if not impossible, to achieve’
Ofcom is to lay down options next week to reform Royal Mail ‘s service obligations – which could make it easier for the beleaguered company to axe Saturday postal services
Royal Mail has long argued for an overhaul of its regulatory framework, which it says was designed for a system that once delivered 20 billion letters a year – not the seven billion it does now
Martin Seidenberg, chief executive of Royal Mail’s parent company, International Distributions Services (IDS), wrote to MPs this week: ‘Delivering the current Universal Service requirements – in a financially sustainable way – is increasingly difficult, if not impossible, to achieve as the mix and number of parcels and letters changes.
‘The bar set by the regulations is unrealistic given the market realities.’
READ MORE: IS ROYAL MAIL PLOTTING A 25 PER CENT RISE IN COST OF SECOND-CLASS STAMPS?
‘With Ofcom due to publish options for the future of the Universal Service imminently, now is the time for urgent action.
‘We are doing all we can to transform, but it is simply not sustainable to maintain a delivery network built for 20 billion letters when we are now only delivering seven billion.’
Some of the remedies, he suggested, were ‘significantly increasing prices, seeking a government subsidy, and/or reforming the Universal Service so that it is more reflective of the customer needs and market realities of today, not the needs of the past’.
Another prospect – scrapping the USO altogether, following in the footsteps of Denmark – is unlikely to be supported by ministers.
Royal Mail has long argued for an overhaul of its regulatory framework, which it says was designed for a system that once delivered 20 billion letters a year – not the seven billion it does now.
If trends continue, it is estimated the service will drop to delivering four billion letters annually within five years.
The consultation document will be open-ended in its approach to ideas, all aimed at making the service more sustainable, according to industry sources.
After its publication on Wednesday, a 90-day window for responses will follow before official proposals are made later in the year.
Stamp prices have spiked in recent years. The cost of sending a letter first class has increased from 70p in 2019 to £1.25 today, while second-class prices have increased less dramatically but still risen by 23 per cent in that time – to 75p from 61p.
Mr Seidenberg sparked a backlash last November after he said the £1.25 cost of a first-class stamp was a ‘bargain’ compared with takeaway coffee.
Critics say the hikes would come despite the group falling short of its delivery targets, with only 73.7 per cent of first-class mail delivered on time in the 2022-23 financial year, well short of the goal of 93 per cent.
Royal Mail has been approached for comment.