Question and answer

Q. What is the issue?

A: Postcomm, the postal regulator, has a responsibility to control and regulate the prices of those postal products and services provided by Royal Mail where competition for those products and services is not sufficiently developed to protect customers' interests.

Postcomm has just completed a 'Price Control' review, setting out its recommendations for the next 4 years of which products should and shouldn't have the protection of price controls.

As part of these recommendations it has proposed that all regulatory protection should be removed from the second class magazine delivery service, Presstream 2, i.e. that it should be removed from Price Control.

Postcomm has accepted that the first class equivalent, Presstream 1 should continue to benefit from regulatory protection and therefore stay within the Price Control.

Q. But shouldn't this be good for competition and good for the industry?

A: PPA understands the wish of the regulator to encourage competition but PPA challenges the need to de-regulate sections of the mailing community in order to do so. Any changes that may discourage a user from using one monopoly provider MUST only be made if there is an alternative provider.

However, despite the fact that for the past 20 years publishers have actively been seeking alternatives to Royal Mail, there are currently no realistic alternatives and only long-term prospects for reasonable coverage. Royal Mail still delivers around 97% of all magazines.

PPA has provided detailed concrete evidence to Postcomm demonstrating the lack of alternatives in not just the short-term but in the longer-term also.

PPA's own market analysis shows conclusively there will only be 50 per cent of national coverage by competitors to Royal Mail by the end of 2010, a point beyond the end of the new Price Control period (which ends in March 2010).

Q. Isn't it to be welcomed that Presstream 1 will continue to be price controlled?

A: To put this in context, the first-class service Presstream 1 covers only around 25 per cent of magazine postal traffic; the remaining 75 per cent is delivered through Presstream 2 from which Postcomm intends withdrawing any kind of regulatory protection.

So whilst welcoming the regulator's proposal to keep Presstream 1 within the Price Control, PPA and its publisher members strongly believe that the competitive market for magazine delivery as a whole is simply not sufficiently developed to justify such a decision.

Q. Isn't opening up the market in this way following other regulatory practice?

A: The approach that Postcomm has taken is unprecedented:

In conventional regulatory practice, the regulator ought to assess the current market in determining which services should or should not have the benefit of price controls; it is not usual practice to assess the future likelihood of competition in the market when making that determination.

This is backed up in a recent document published by the Competition Commission as part of its enquiry into the classified directory market.

It ruled that while competition was still not sufficiently developed and Yell had an 80 per cent market dominance, price caps should be retained on charges to advertisers to avoid monopoly abuse.

As Diana Guy, of the Competition Commission said: “Yell's strong position may give it market power and it seems likely that the prices offered to a significant number of advertisers across the market would be higher than at present without the current price cap.”

Bearing in mind Royal Mail's 97 per cent market share of the magazine delivery market, it seems beyond comprehension that Royal Mail should be given this freedom by the postal regulator and PPA is extremely concerned that Royal Mail will exhibit exactly the same sort of monopoly abuse of power that the CC fears about Yell.

Who is in the right, the CC or PostComm?

Q. But surely Postcomm can defend its position on economic grounds?

A: The consultancy firm, Frontier Economics, who advised Postcomm gave them very different advice. They recommended that price controls should be retained whilst the monopoly remains unchallenged and they acknowledged that there was only limited competition for Presstream.

So not only is Postcomm's ‘logic' unprecedented in regulatory history, it also flies in the face of their own advisors, bizarre behaviour at best!

Q. But aren't changes to the postal services market potentially affecting all customers equally, in the need to encourage competition?

A: Inexplicably no, while there will be no change for direct mail, which will continue to remain within price control, (viewed as unwanted junk mail by many consumers), magazines will be penalised, despite being actively requested by those who receive them.

Deregulating the magazine industry service in this way whilst continuing to offer protection to virtually all other regular mail services appears both arbitrary and discriminatory and goes in the face of the advice of its own consultants.

The regulator seems to be happy to send out the message: junk mail, good; magazines, bad.

Q. Surely there are competitors to Royal Mail who will benefit from these changes, encouraging the kind of competition needed?

A: The truth is that the best that can be hoped for at the most optimistic of expectations from any competitor is a 50 per cent of national coverage by the end of 2010.

Even where alternative providers offer a 2-3 day delivery service, the coverage is still very limited, even to business addresses in city centres. Additionally alternative providers STILL have to use Royal Mail for downstream access to get anywhere near a national coverage.

Q. OK, so publishers might end up paying more to post their magazines, but is this such a big deal?

A: Postal costs account for the major part of non-editorial costs.

The fear is that publishers will be exposed to significant price increases from Royal Mail due to the lack of regulatory controls and no notable competitive threat for at least the next 5 years to keep in check what remains a de facto monopoly for Royal Mail.

These cost increases for publishers would either:

Feed through into higher prices for consumers: or
Lead to the closure of the title, reducing consumer choice

Q. Can't publishers consider other routes to market i.e. retail sales?

A: Sales through retail outlets are not an option for the majority of business to business magazines as 90 per cent are delivered by post, either as paid-for subscriptions or controlled (free) circulation, the latter accounting for 70 per cent of postal circulation.

Additionally postal delivery remains a critical route to market for a large number of specialist consumer magazines and new launches, due to increasing pressure at retail and supermarket policy of only stocking the top selling titles.

Retail distribution is simply not an option for customer magazines either.

Q. Can't publishers use other Royal Mail products such as Mailsort?

A: the special nature of magazine traffic, with the long-standing proven benefits previously accepted by Postcomm; namely long-term, and on fixed days per week and month, give substantial cost and service benefits to Royal Mail as well as meeting the special service needs of publishers.

Royal Mail has recognised these special needs over more than 40 years through the provision of Presstream and its forerunner the PPA Post Contract.

PPA rejects Postcomm's assertion that Mailsort provides a safe harbour for Presstream customers both on the grounds that it is not a dedicated service and also that there would be a unjustified price penalty for publishers were they forced to move to Mailsort 2.


OFT campaign Question and answer Press releases Letters Articles Presstream campaign Question and answer Press releases Home	Question and answer Q. What is the issue? A: Postcomm, the postal regulator, has a responsibility to control and regulate the prices of those postal products and services provided by Royal Mail where competition for those products and services is not sufficiently developed to protect customers' interests. Postcomm has just completed a 'Price Control' review, setting out its recommendations for the next 4 years of which products should and shouldn't have the protection of price controls. As part of these recommendations it has proposed that all regulatory protection should be removed from the second class magazine delivery service, Presstream 2, i.e. that it should be removed from Price Control. Postcomm has accepted that the first class equivalent, Presstream 1 should continue to benefit from regulatory protection and therefore stay within the Price Control. Q. But shouldn't this be good for competition and good for the industry? A: PPA understands the wish of the regulator to encourage competition but PPA challenges the need to de-regulate sections of the mailing community in order to do so. Any changes that may discourage a user from using one monopoly provider MUST only be made if there is an alternative provider. However, despite the fact that for the past 20 years publishers have actively been seeking alternatives to Royal Mail, there are currently no realistic alternatives and only long-term prospects for reasonable coverage. Royal Mail still delivers around 97% of all magazines. PPA has provided detailed concrete evidence to Postcomm demonstrating the lack of alternatives in not just the short-term but in the longer-term also. PPA's own market analysis shows conclusively there will only be 50 per cent of national coverage by competitors to Royal Mail by the end of 2010, a point beyond the end of the new Price Control period (which ends in March 2010). Q. Isn't it to be welcomed that Presstream 1 will continue to be price controlled? A: To put this in context, the first-class service Presstream 1 covers only around 25 per cent of magazine postal traffic; the remaining 75 per cent is delivered through Presstream 2 from which Postcomm intends withdrawing any kind of regulatory protection. So whilst welcoming the regulator's proposal to keep Presstream 1 within the Price Control, PPA and its publisher members strongly believe that the competitive market for magazine delivery as a whole is simply not sufficiently developed to justify such a decision. Q. Isn't opening up the market in this way following other regulatory practice? A: The approach that Postcomm has taken is unprecedented: In conventional regulatory practice, the regulator ought to assess the current market in determining which services should or should not have the benefit of price controls; it is not usual practice to assess the future likelihood of competition in the market when making that determination. This is backed up in a recent document published by the Competition Commission as part of its enquiry into the classified directory market. It ruled that while competition was still not sufficiently developed and Yell had an 80 per cent market dominance, price caps should be retained on charges to advertisers to avoid monopoly abuse. As Diana Guy, of the Competition Commission said: “Yell's strong position may give it market power and it seems likely that the prices offered to a significant number of advertisers across the market would be higher than at present without the current price cap.” Bearing in mind Royal Mail's 97 per cent market share of the magazine delivery market, it seems beyond comprehension that Royal Mail should be given this freedom by the postal regulator and PPA is extremely concerned that Royal Mail will exhibit exactly the same sort of monopoly abuse of power that the CC fears about Yell. Who is in the right, the CC or PostComm? Q. But surely Postcomm can defend its position on economic grounds? A: The consultancy firm, Frontier Economics, who advised Postcomm gave them very different advice. They recommended that price controls should be retained whilst the monopoly remains unchallenged and they acknowledged that there was only limited competition for Presstream. So not only is Postcomm's ‘logic' unprecedented in regulatory history, it also flies in the face of their own advisors, bizarre behaviour at best! Q. But aren't changes to the postal services market potentially affecting all customers equally, in the need to encourage competition? A: Inexplicably no, while there will be no change for direct mail, which will continue to remain within price control, (viewed as unwanted junk mail by many consumers), magazines will be penalised, despite being actively requested by those who receive them. Deregulating the magazine industry service in this way whilst continuing to offer protection to virtually all other regular mail services appears both arbitrary and discriminatory and goes in the face of the advice of its own consultants. The regulator seems to be happy to send out the message: junk mail, good; magazines, bad. Q. Surely there are competitors to Royal Mail who will benefit from these changes, encouraging the kind of competition needed? A: The truth is that the best that can be hoped for at the most optimistic of expectations from any competitor is a 50 per cent of national coverage by the end of 2010. Even where alternative providers offer a 2-3 day delivery service, the coverage is still very limited, even to business addresses in city centres. Additionally alternative providers STILL have to use Royal Mail for downstream access to get anywhere near a national coverage. Q. OK, so publishers might end up paying more to post their magazines, but is this such a big deal? A: Postal costs account for the major part of non-editorial costs. The fear is that publishers will be exposed to significant price increases from Royal Mail due to the lack of regulatory controls and no notable competitive threat for at least the next 5 years to keep in check what remains a de facto monopoly for Royal Mail. These cost increases for publishers would either: Feed through into higher prices for consumers: or Lead to the closure of the title, reducing consumer choice Q. Can't publishers consider other routes to market i.e. retail sales? A: Sales through retail outlets are not an option for the majority of business to business magazines as 90 per cent are delivered by post, either as paid-for subscriptions or controlled (free) circulation, the latter accounting for 70 per cent of postal circulation. Additionally postal delivery remains a critical route to market for a large number of specialist consumer magazines and new launches, due to increasing pressure at retail and supermarket policy of only stocking the top selling titles. Retail distribution is simply not an option for customer magazines either. Q. Can't publishers use other Royal Mail products such as Mailsort? A: the special nature of magazine traffic, with the long-standing proven benefits previously accepted by Postcomm; namely long-term, and on fixed days per week and month, give substantial cost and service benefits to Royal Mail as well as meeting the special service needs of publishers. Royal Mail has recognised these special needs over more than 40 years through the provision of Presstream and its forerunner the PPA Post Contract. PPA rejects Postcomm's assertion that Mailsort provides a safe harbour for Presstream customers both on the grounds that it is not a dedicated service and also that there would be a unjustified price penalty for publishers were they forced to move to Mailsort 2.
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