Royal Mail slides on Ofcom dismissal

Royal Mail’s share price has slid 2.9 per cent to 405.8p after the competition watchdog dismissed its plea for regulatory support against rivals.

The mostly privatised mail service complained to competition regulator Ofcom in June, saying its universal service obligation – the requirement to deliver post across the country at a flat price – leaves it at a disadvantage to rivals.

The largest competitor, Whistl, could “cherry pick” the most profitable areas to deliver without having to cross-subsidise costlier regions, Royal Mail argued. 

It wanted Ofcom to slap regulatory obligations on the company.

Ofcom today rejected the company’s concerns, confirming the universal service will remain, although it has announced a review of Royal Mail’s ability to carry out the promise. The report will be finished next year.

“We continue to consider that competition, including end-to-end letter competition at the delivery end of the network, provides an important degree of choice for users of postal services, and can have an important incentive effect on Royal Mail to provide the universal service in an efficient manner,” Ofcom says.

While there is “uncertainty” around Royal Mail’s financial position – particularly between 2017 and 2019 – that is due to many factors, not just competition, Ofcom continues.

The watchdog’s annual monitoring update of Royal Mail shows the company’s efficiency is improving, albeit at a slower pace than it strives for. 

It has lost out in parcel deliveries to Amazon and eBay, with volumes falling by 5.4 per cent. Letters have dropped at the same rate.

The Government retains an almost 30 per cent shareholding in the business after its controversial float late last year.