Ofcom, the UK regulator for communications services, has called for urgent reform of the UK’s postal service as the universal service obligation (USO) becomes unsustainable amid declining letter mail volumes.
In a statement released today (January 24), Ofcom argues that while postal services and postal workers remain essential, reform is needed to ensure its future.
“Eight in 10 people (79%) say some things will always need to be sent by post,” the report stated. “And three quarters of those who use postal services (74%) say they rely on the post for letters. However, while Royal Mail’s obligations have not changed since 2011, letter volumes have halved, and parcel deliveries have become increasingly important. Given the significant cost to Royal Mail of delivering the universal service, there is an increasing risk it will become financially and operationally unsustainable in the long term.”
The regulator is now inviting views on a range of options for redesigning the universal postal service to secure its future, while ensuring it reflects the way people use it. Views on Ofcom’s analysis and the options for reform should be submitted by April 3, 2024, after which the regulator will hold events to discuss the evidence and options, bringing together a range of people and organizations with different perspectives. After carefully considering the feedback, it will provide an update in the summer.
Dame Melanie Dawes, Ofcom’s chief executive, commented, “Postal workers are part of the fabric of our society and are critical to communities up and down the country. But we’re sending half as many letters as we did in 2011 and receiving many more parcels. The universal service hasn’t changed since then, it’s getting out of date and will become unsustainable if we don’t take action.
“So, we’ve set out options for reform so there can be a national discussion about the future of universal post. In the meantime, we’re making sure prices will remain affordable by capping the price of Second Class stamps.”
Options for reform
At this stage, Ofcom is not consulting on specific proposals to change the USO, but it has set out two primary options that should be considered.
- Making changes to existing First and Second Class and business products so that most letters are delivered through a service taking up to three days or longer, with a next-day service still available for any urgent letters.
- Reducing the number of letter delivery days in the service from six to five or three. This would require government and parliament to change primary legislation.
“We estimate that Royal Mail could achieve a net cost saving of £100m-£200m [US$128-US$255m] if letter deliveries were reduced to five days; and £400m-£650m [US$500-US$829m] if reduced to three days,” Ofcom stated. “If the large majority of letters were delivered within three days, it could achieve net cost savings of £150m-£650m [US$191m-US$829m].”
According to the regulator, downgrading delivery targets is not an option for reform but changing the specification of the USO is likely to be preferable to using a subsidy to maintain the existing levels of service and products, given it no longer aligns with the way people use it.
A serious situation
Commenting on Ofcom’s statement today, Martin Seidenberg, Royal Mail’s group chief executive officer, said, “Ofcom’s report demonstrates that reform is urgently needed to protect the future of the one-price-goes-anywhere universal service. We are doing everything in our power to transform, but it is not sustainable to maintain a network built for 20 billion letters when we are now only delivering seven billion.
“We have been calling on government and Ofcom to tackle this issue for four years, and the lack of action means that we are now facing a much more serious situation.
“While other countries have grasped the opportunity to change, the UK is being left behind. There has been a lot of discussion about dropping Saturday letter deliveries in the UK, but as other countries have shown, there are a range of options to consider.
“A modern and sustainable postal service is crucial for our people, our company and the customers we serve. We want to engage with all stakeholders as part of the process to find an outcome that will allow us to compete and adapt to today’s realities.”