End-to-end competition in the postal sector

  • Start: 31 October 2012
  • Status: Statement published
  • End: 09 January 2013



1.1 Historically certain parts of the postal sector have been reserved for the incumbent postal operator. However, the Third Postal Directive required the abolition of such reserved areas by 31 December 2010 in most Member States, with a further two years allowed for the remaining 11 Member States. In the UK the market was fully opened to competition in 2006.

1.2 In October 2011, the Postal Services Act 2011 ("the Act") came into force and Ofcom gained the responsibility and powers to regulate postal services. Our principal duty under the Act is to secure the provision of a universal postal service. In our statement of 27 March 2012 ("the March 2012 Statement" ) Ofcom put in place a new regulatory framework which proposed to grant Royal Mail pricing freedom coupled with key safeguards to ensure that it would have strong incentives to improve efficiency and to protect vulnerable consumers. One of these safeguards was the existence of competition, in the form of both access competition and end-to-end competition. In this regard we noted that while end-to-end competition could potentially provide powerful incentives on Royal Mail to reduce its costs across the full length of the value chain, it also posed a greater threat to the sustainability of the universal service than access competition, in that it would remove proportionately greater amounts of revenue from Royal Mail.

1.3 In April 2012, TNT Post began a trial of end-to-end delivery services in the west London area in competition with Royal Mail. Given this significant development, in July 2012 Ofcom published an update on end-to-end competition. This was intended to provide greater certainty and clarity on the position we had set out in the March 2012 statement on the new regulatory framework for post. In this July update, we concluded that, on the basis of the evidence provided to us and the analysis we conducted, it was not necessary, at that time, to impose any regulatory conditions on end-to-end operators to secure the provision of the universal service.

1.4 However, we did note that given the ongoing nature of our duty, if circumstances change, it may be necessary to intervene at some point in the future. In the interests of providing greater regulatory certainty we also committed to providing the market with guidance on how we would approach such an assessment in the future. This led to us publishing the draft guidance on 31 October 2012 (the "Draft Guidance").

1.5 Two subsequent announcements suggest to us that the decision we took in July 2012 was appropriate.

1.6 First, on 13 November 2012, Royal Mail published its interim financial report for the first half of 2012-13. Royal Mail's results were its best for several years; with its division UKPIL (UK Parcels, International and Letters) reporting an operating profit (after exceptionals) of £99 million (compared to an operating loss of £41 million for the first half of 2011/12). However, although Royal Mail's performance is now on an improving trend, its profitability is still below the target range we have identified as being consistent with the financial sustainability of the universal service (5% to 10% EBIT margin).

1.7 Second, on 25 February 2013, PostNL - TNT Post's owner - published its Q4 and full-year 2012 results. In these results and related presentations, PostNL published information on the current scale of its end-to-end operations in London and its intentions. In particular, it said that as of December 2012 TNT Post was delivering 345,000 letters per week as part of the London operations. This is about 0.13% of the relevant market (by volume). PostNL also said that due to its cash constraints it was looking for €50 to €80 million of external investment to complete a full rollout of end-to-end services in the UK.

1.8 We received 15 responses to our consultation on the Draft Guidance from:

  • Royal Mail;
  • Five other postal operators (both access and end-to-end operators) including TNT Post;
  • Three consumer groups (Consumer Focus, the Citizens Advice Bureau (CAB) and the Ofcom Advisory Committee for Wales (ACW));
  • Three associations (the Mail Competition Forum (MCF), Mail Users' Association (MUA) and Intellect);
  • Two unions (Communication Workers Union (CWU) and Unite); and
  • Alan Reid MP.

1.9 Ofcom's final Guidance on this matter has been published separately today. This statement sets out stakeholders' responses on the issues raised in the Draft Guidance and provides our response on these issues. We have set out those areas where the final Guidance differs from the Draft Guidance to take into account consultation responses. The structure of this statement is as follows:

  • Section 2 - The circumstances under which we would undertake a review of the need for intervention - this section covers responses to Section 4 of the Draft Guidance.
  • Section 3 - Assessing the potential financial impact of end-to-end competition on the universal service - this section covers responses to Section 5 of the Draft Guidance, namely the steps that we would take to form a detailed view of the likely impact of end-to-end competition on Royal Mail's financial position and its ability to provide the universal service in a financially sustainable way.
  • Section 4 - The implications of the analysis of the impact of end-to-end competition - this section covers responses to Section 6 of the Draft Guidance, where we set out how we would assess the findings of our analysis to form a view as to whether the financial sustainability of the universal service is threatened as a result.
  • Section 5 - Options for regulatory intervention in relation to end-to-end competition - this section covers responses to Section 7 of the Draft Guidance, which set out the main regulatory interventions that we might consider taking if we reached the view that intervention was necessary and appropriate.

1.10 Comments from stakeholders relating to the other sections of the Draft Guidance (including Section 3 on the legal framework) are addressed where relevant in the above sections.

1.11 As a result of stakeholder responses and our analysis, we have decided to make three substantive changes to the final Guidance. We have:

  • made a change to be clearer about the circumstances under which we would initiate a review;
  • made a clarification in relation to the issue of the treatment of exceptional items;
  • removed reference to the current work Ofcom is doing to understand the appropriateness of different methodologies for assessing efficiency. We have instead included an update on the efficiency work in this statement.

1.12 We have also made other minor modifications to reflect the change in status of the Guidance from draft to final, include a summary of our approach to securing the provision of the universal service in the presence of end-to-end competition , add a paragraph to the introduction to Section 5 and to improve clarity in relation to a comment on the universal service compensation fund and competitive tendering.

Main documents

Supporting documents

Supporting documents

Supporting documents

loading icon


Responder name Type
ACW.pdf (PDF File, 59.1 KB) Organisation
CFH.pdf (PDF File, 24.4 KB) Organisation
Citizens_Advice_Bureau.pdf (PDF File, 31.7 KB) Organisation
Consumer_Focus.pdf (PDF File, 499.2 KB) Organisation
CWU.pdf (PDF File, 270.7 KB) Organisation
Load more