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On Wednesday 24th January, Ofcom is set to unveil potential reforms to Royal Mail's service obligations, including the possible elimination of Saturday deliveries. The company's CEO warns of the need for a government subsidy to ensure its survival.
On Wednesday, Ofcom will release a consultation paper on the Universal Service Obligation (USO), likely proposing changes such as adjusting delivery targets, exploring alternate-day deliveries, providing state subsidies, and allowing higher stamp prices. Transforming the current six-day USO to a five-day model, leading to the removal of Saturday deliveries, is also on the table.
Despite calls for a complete USO removal, similar to Denmark's recent move, it's considered an unlikely option gaining ministerial support.
Royal Mail urges urgent regulatory changes, citing a system designed for 20 billion yearly deliveries now managing only seven billion, with a potential drop to four billion in the next five years.
The Ofcom document won't contain firm recommendations but will present ideas for a sustainable universal postal service. A 90-day call for input will follow, with formal proposals expected later in the year.
Ofcom announced last September its intent to reform the USO, which has remained unchanged since 2011, acknowledging significant changes in consumer demand for postal services.
Scrapping Saturday deliveries and adopting a five-day USO would require parliamentary approval. Last year, the government rejected Royal Mail's request for weekday-only deliveries, estimated to save the company hundreds of millions annually.
Since privatization in 2013, Royal Mail has faced industrial disputes and leadership changes. In November, Ofcom fined the company Β£5.6 million for failing to meet delivery targets.
Under the current USO, Royal Mail should deliver 93% of first-class mail within one working day and 98.5% of second-class mail within three working days. Ofcom noted in November that Royal Mail breached its obligations and took insufficient steps to address the failures.
Martin Seidenberg, CEO of Royal Mail's parent company, International Distributions Services, highlighted the challenges in meeting current USO requirements financially. He proposed options such as price increases, seeking a government subsidy, or reforming the USO to align with modern customer needs.
Seidenberg emphasized the urgency for reform, stating that delaying actions jeopardizes the long-term sustainability of the Universal Service. On Thursday, Royal Mail reported its best Christmas trading period in four years, with a 10% revenue increase in the final quarter.
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