OFCOM looks at the future of the Universal Service Obligation – April 2024 Update

At the beginning of April, the deadline passed for the public to feed their thoughts into Ofcom’s review of Royal Mail’s Universal Services Obligation (USO).

What is the Universal Service Obligation?

The “USO” is the obligation placed upon Royal Mail to deliver 1^st and 2^nd class letters, six days a week, at a ‘one price goes anywhere’ tariff. 1st class letters are supposed to be delivered the next day, no less than 93% of the time. Royal Mail also have an obligation to deliver parcels. Currently, only 2^nd class letters have a regulatory price control. Technically the majority of letters that are posted through an Access operator (such as Citipost) fall outside the USO, but Access letters are still dependent on Royal Mail’s USO network for delivery.

Why is Ofcom reviewing the scope of the USO?

In recent years, Royal Mail has been losing a lot of money, while the quality of service they have been achieving has not been good enough. At the half-year 2023-2024, Royal Mail made an operating loss of £319m. Ofcom is now concerned that given the number of letters being posted has fallen by half in the past ten years, it is no longer economical for Royal Mail to deliver letters in the way required by the USO.

Ofcom has been seeking views

Ofcom has concluded that post is still valued by consumers, but that many would be prepared to have a slightly slower service if it was more reliable. A majority of consumers would still like a delivery on Saturdays and some will still require a next-day service. Ofcom is considering allowing Royal Mail to deliver on fewer days or reduce the speed of the services it currently offers. Depending on what Ofcom decides, the savings to Royal Mail could be as much as £650m every year. Citipost made a submission to Ofcom which stressed the need for better quality of service, fewer price rises and real incentives for Royal Mail to make itself more efficient.

What happens next?

Ofcom has said it will produce an update in the Summer. We will report back when we know more. Changes will either require new legislation or new proposals from Ofcom, which would in turn require a further consultation. It is very unlikely there will be any change before April 2025.