Postcomm has published its final decisions and recommendations paper on tackling barriers to entry in postal services. The document forms part of Postcomm's annual competitive market review and carries extra significance in this, the year that the postal services market in the UK was opened to full competition.
The paper is also likely to be subject to scrutiny from the European Commission who, two days before Postcomm's paper was published, launched infringement proceedings against the UK and Germany for exempting the former monopoly postal services providers (as opposed to new entrants) from VAT under the postal services VAT exemption directive.
Postcomm's paper recognises that exempting the Royal Mail from VAT creates a distortion in the postal services market but notes that the Royal Mail's VAT status is the Treasury's responsibility. Whilst Postcomm's report does not specifically refer to the European Commission's infringement proceedings, it recommends that any resolution to the question of the Royal Mail's VAT status achieves both a level playing field for operators and no significant price rises for customers. The report suggests that either extending the exemption to other operators or reducing the applicable VAT rate for all operators would achieve these objectives.
Other than Royal Mail's VAT exemption, Postcomm has identified a number of other barriers to quicker and deeper evolution of competition in the postal services market, the key ones of which are: lack of customer awareness or inertia, less than 50% of business customers surveyed by Postcomm could identify an alternative to the Royal Mail; and the low level of the margins that are available to new entrants - Postcomm recognises that the price controls it imposes on the Royal Mail will have a big impact on the availability of margins to new entrants. However, the conclusions document emphasises Postcomm's commitment to the interests of all service users and so an adjustment of Royal Mail's access prices, perhaps to bring them more into line with its costs, is unlikely. This, combined with Postcomm's focus on protection of the universal service obligation, means that there will be some interesting challenges in tackling these barriers and nurturing the fledgling competitive market.