Royal Mail Warns of 'Period of Uncertainty' in Ofcom Price Probe

Royal Mail said Ofcom would create a period of uncertainty in the UK postal market because of its investigation into planned price rises.

The regulator opened the inquiry into Royal Mail after a complaint was lodged by rival TNT Post UK.

"We are concerned that Ofcom's decision to investigate under its Competition Act powers may create a period of uncertainty in the UK postal market," said Royal Mail.

"We are keen that the investigation is completed as quickly as possible."

It centres around Royal Mail's "Access" contracts to deliver mail sorted by others, such as TNT, on the last leg of its journey.

In January, Royal Mail said it would offer a discount on Access contracts of 0.25p per item for customers who provide monthly forecasts of mail volumes that allow the firm to better prepare itself for deliveries.

However, the newly privatised firm also hiked Access contract prices by as much as RPI inflation plus 1% to protect revenues as the UK postal market declines in size.

TNT lodged a complaint with Ofcom about the rises and the watchdog opened an investigation. As a result of the probe, Royal Mail suspended its planned price rises.

Royal Mail has said competition from TNT is threatening its ability to meet the Universal Service Obligation, which requires it to run a high-cost infrastructure so it can deliver mail six days a week to all parts of the country.

This is because TNT has begun to deliver and sort its own mail in Manchester and some parts of London, rather than use Royal Mail's Access service.

While Royal Mail is obliged to target loss-making areas for delivery, such as remote parts of countryside, the firm says TNT is able to "cherry pick" profitable areas, putting it at a competitive disadvantage.

Royal Mail was privatised in October 2013 in a controversial flotation onto the London Stock Exchange. The government has been accused of undervaluing the firm by as much as £750m.