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Competition blow for Royal Mail

Royal Mail has been dealt a fresh blow after regulator Ofcom said it would not impose new conditions on the firm's direct-delivery competitors.

Ofcom added that the universal postal service - where letters are posted anywhere in the country for the same price - is not under threat because of the impact of competition.

However, it said it will initiate a broader review of factors affecting Royal Mail's ability to deliver the universal service and will consider the company's efficiency and its parcel delivery performance.

The regulator believes that competition from rivals such as Whistl - formerly known as TNT Post - will make the service more efficient.

Last week Royal Mail chief executive Moya Greene told MPs that its universal service obligation (USO) costs it £7.2 billion and is being threatened by rivals "cherry-picking" lucrative urban routes and shunning loss-making rural areas.

But Ofcom said: "We do not currently consider the evidence shows that end-to-end letter competition by Whistl presents a threat to Royal Mail's ability to provide the universal postal service."

Under the current USO, Royal Mail must deliver letters six days a week for a uniform price.

Ms Greene told the Business Select Committee last week that the USO is ''essential'' for most people, but it has a high fixed cost and needs subsidies between rural and urban areas to make the economics work.

She said: "If you allow cherry-picking you undermine the economics."

She said Royal Mail has already seen a "structural" decline of between 4% and 6% in the volume of letters it handles every year.

Ofcom chief executive Ed Richards said today: "Ofcom's board has considered all the evidence in the postal market carefully over the past few months. We have concluded that there is no present risk to the financial sustainability of the universal service."

Rivals Whistl and UK Mail deny they are cherry-picking work, or that they threaten the universal service.

Ofcom also proposed a change to the rules governing the prices that Royal Mail can charge for "access mail", where competitors collect and sort mail, before paying Royal Mail to deliver it through its network.

The regulator said proposed new rules would allow Royal Mail to make a fair profit on all "access" letters regardless of where they are being delivered.

Royal Mail shares opened 2% lower today.

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