Royal Mail Access Contracts

10 January 2014

Royal Mail plc

Royal Mail Access Contracts

Royal Mail plc (RMG.L) today announces the 2014 Access tariff increases and some changes to its contracts with its 31 Access customers. These changes help secure the sustainability of the Universal Service, against the backdrop of a continuing decline in letter volumes. They are part of a longer term programme to adjust Access contracts so that they better reflect the structure, operation and costs of maintaining the Universal Service delivery network.

Underpinning the economics of the Universal Service

The Universal Service Obligation (USO) requires Royal Mail to maintain a high-fixed cost infrastructure capable of delivering to more than 29 million addresses six days a week. Access customers' volumes now constitute around half of the UK's inland addressed mail, and over 70 per cent of business mail. 

Royal Mail is changing the price differential for delivery between its four zones (London, Urban, Suburban and Rural), to ensure they are more reflective of relevant costs and market conditions. This change responds to Ofcom's comments in its March 2013 guidance document on end-to-end competition in the postal sector.

Sharing the cost benefits with Access customers

Access customers' future volume intentions, including their local geographic posting profile, are a key driver of the economics of the USO. For the first time, and as a result of the contractual changes, Royal Mail will share with some Access customers the cost benefits generated by the greater local volume certainty they provide. Access customers providing monthly volume forecasts, including significant changes, for up to 2 years ahead based on a national mailing profile across 86 local geographical districts, will pay 0.25p less per item. In return, Royal Mail will be able to realise a clear cost benefit by being able to plan more accurately at a local level, delivering greater efficiencies in the process.

Access customers who choose not to provide the more detailed volume certainty will continue to be charged for delivery on the basis of the existing four zones.

The changes we are making to our Access contracts follow careful consideration to ensure compliance with our regulatory and legal obligations. Price changes will come into effect on 31 March 2014, with average increases of between RPI1 +0.3 per cent and RPI +1.0 per cent, depending on customers' choice of price plans.

Stephen Agar, Royal Mail Managing Director, Consumer and Network Access said: "The UK postal regime is one of the most open and competitive in the EU. Royal Mail is constantly driving efficiency across our operations against the challenge of falling mail volumes. Our Access customers are responsible for around half of the mail we carry and we want to work with them to improve our planning and the generation of cost savings across our delivery network. The changes we are introducing will ensure Access customers can, where possible, share those benefits with us."

Ends

For further information please contact:

Media Relations

Mish Tullar

Phone: 07423 524154

Email: mish.tullar@royalmail.com

Investor relations

Catherine Nash

Phone: 020 7449 8183

Email: investorrelations@royalmail.com 

Notes

1 The RPI measure used is the ONS average measure of RPI over six months from May to October 2013, which was 3.1 per cent.

Access is where Royal Mail accepts mail that has been partially sorted by large customers and other postal operators, at our Mail Centre nearest the recipient's address. For an agreed price we then deliver that mail to the recipient.