Ofcom tightens Royal Mail letters rules and warns of potential fines

Ofcom has tightened some of the rules governing Royal Mail's role in the parcels and letters market, and warned the postal group that if it continues to miss its targets it could face "significant fines".

The regulator also acknowledged that while Royal Mail has made efficiency improvements in recent years, there was "scope for it to go beyond those currently planned".

Following its year-long review of the market, Ofcom decided not to impose any new controls on Royal Mail’s wholesale or retail prices, saying the FTSE 100 company "already has strong commercial incentives to improve its efficiency".

But, noting that Royal Mail retains an advantage in the delivery of small, individual parcels despite increasing competition in recent years, the regulator said it had "tightened up" some rules and decided to keep the safeguard cap on Second Class parcel prices in place.

In the ‘access’ market for large senders of letters, where rival operators collect and sort mail before handing it over to Royal Mail to complete delivery, Ofcom has decided to stiffen the rules as it noted 58% of all letters in the UK are delivered this way.

It said the tightening "will stop Royal Mail being able to give shorter notice periods for changes in its contractual agreements with access operators".

The regulator said the company’s delivery performance has improved since new rules were put in place in 2012, "but some targets are still being missed. If this continues, Royal Mail could face significant fines."

Otherwise, Ofcom decided to retain the current regulatory framework until 2022.

Competition Director Jonathan Oxley said: “Royal Mail still has room to improve. So we’ll keep a very close eye on all aspects of the company’s performance, and step in if we need to protect consumers from high prices.”

On the broader market review he said the regulator will continue to play its part in ensuring the universal postal service remains effective.

"Our review has shown that current rules are generally working well for companies and households."