Postcomm examines options for Consignia's price control
27 November 2001
Postcomm today took the first step towards setting a new price control for Consignia, formerly the Post Office, by proposing a number of options and asking for feedback from interested parties.
The prices that Consignia can charge for specific postal services are presently controlled by its licence granted by Postcomm on 23 March 2001. This interim control freezes the prices of some services, particularly those for letters weighing less than 350g and costing less than £1. Other services are limited to price increases in line with inflation.
A consultation document published today, looks at options for a new price control which is expected to operate from April 2003. The document seeks comments on a wide range of issues including the following:
- Coverage: should the price controls be limited to the licensed area – post weighing up to 350g and costing less than £1 – where Consignia currently faces little competitive pressure -- or extend beyond this?
- Structure of the price control: options here include a ‘price cap’ on individual services such as 1st and 2nd class post, a ‘total revenue’ structure where the price control limits the overall revenue Consignia can generate from price controlled services, or a mixture of these.
- Form of control: the control most commonly used in the UK is RPI-X where prices are adjusted by reference to the retail price index (RPI) minus an X factor which represents the expected efficiency gains over the duration of the price control. The document also considers other forms of price control such as ‘rate of return’ regulation common in the United States, and so-called profit-sharing controls which pass a share of the profits back to customers.
- Duration: a longer term price control provides a degree of regulatory certainty but, over time could distort the development of competition. Price controls in other UK regulated industries tend to be for 5 years where effective competition is not expected to emerge, and for a shorter period – for example 3 years – where competition is developing.
Responses are requested by 15 February 2002 and will inform Postcomm’s initial proposals for Consignia’s price control, which are due to be published in the Summer 2002.
Notes for editors
Copies of the document, Price Control Review for Consignia plc, are available on request from Postcomm at Hercules House, 6 Hercules Road, London SE1 7DB.
