Royal Mail plc

28 July 2015

Royal Mail response to Ofcom statement

Royal Mail confirms that it has received today a Statement of Objections setting out Ofcom's provisional, preliminary findings in relation to its investigation into the terms on which Royal Mail proposed to offer access to letter delivery services, alleging a potential distortion of competition. The investigation was launched in February 2014 following a complaint brought by TNT Post UK (now Whistl) about certain proposed changes to Royal Mail's Access contracts.

Royal Mail takes its compliance obligations very seriously and is disappointed by Ofcom's announcement. The Company considers that the pricing changes proposed in 2014 were fully compliant with competition law.  They were an important part of Royal Mail's commercial response to both changing market conditions and to Ofcom's statements in its March 2013 guidance document on end-to-end competition in the postal sector¹. Under the terms of our access contracts, these pricing proposals were suspended following the opening of Ofcom's investigation.  Accordingly the pricing proposals were never implemented and were withdrawn altogether in March 2015.

Royal Mail is considering carefully Ofcom's provisional findings. It will submit a robust defence to Ofcom in due course. Royal Mail has cooperated fully with Ofcom throughout its investigation to date and will continue to do so.

ENDS

For further information please contact:

Media Relations

Mish Tullar

Phone: 07423 524154

Email: mish.tullar@royalmail.com

Investor Relations

Catherine Nash

Phone: 020 7449 8183

Email: investorrelations@royalmail.com

Company Secretariat

Claudine O'Connor

Phone: 020 7449 8163

Email: cosec@royalmail.com

Notes

Access is where Royal Mail accepts mail that has been partially sorted by large customers and other postal operators, at our Mail Centre nearest the recipient's address. For an agreed price we then deliver that mail to the recipient.

1 Ofcom: End-to-end competition in the postal sector: Final guidance on Ofcom's approach to assessing the impact on the universal postal service - (27 March 2013):

"Royal Mail could change its commercial strategy (i.e. pricing and terms). In particular, under the current regulatory regime Royal Mail has the ability to change the prices it charges access operators. This includes the ability to change how access prices are set for different geographic areas (currently the "zonal access pricing regime") to ensure they are reflective of relevant costs. This is particularly important given that in general an end-to-end competitor will still need to rely on access to Royal Mail's network to offer its customers full coverage of all addresses in the UK. Royal Mail's flexibility in setting zonal access prices can enable it to ensure that end-to-end competitors pay a cost reflective price for Royal Mail delivering mail in the areas where it has chosen not to enter (which may be the harder to reach, and hence less profitable parts of the UK). In this way, Royal Mail may be able to mitigate the impact on the universal service from an entrant 'cherry picking' by delivering in lower cost areas and handing over the rest of the mail to Royal Mail to deliver. In addition, Royal Mail has the flexibility to negotiate changes to its contracts both with its retail and access customers (subject to competition law and the existing ex ante regulatory conditions on access)."