Size-based pricing to come into force in a year from now

LONDON – Postcomm has approved Royal Mail's change to size-based pricing, allowing its introduction twelve months from now in mid-August 2006 at the earliest.

The response to the regulator's consultation on the change led it to concede that its proposed timescale for introduction by April 2006 was too short.

Royal Mail is allowed to choose the exact date for the change, and customer watchdog Postwatch believes it is likely to be in early September 2006.

The mail operator is not allowed to make any extra overall revenue from the pricing changes, and has to balance prices rises with reductions. It has also agreed to mitigate some of the effect of price rises for business customers that spend more than £100,000 a year and find the changes add 50% or more to their postage bill.

Lorna Clarkson, Royal Mail's director of commercial policy and pricing, greeted the decision as a "welcome step" in the direction of Royal Mail reflecting costs in its prices.

However, she said that the introduction would come nine months after rival mail companies, which will be free to set their prices at any level they choose, enter the market and added that Royal Mail "will be fighting very hard to achieve fair, fully cost reflective prices in the current price control negotiations with Postcomm".

Royal Mail will conduct a publicity campaign explaining the changes to customers, which Postcomm and customer body Postwatch will monitor.

Peter Carr, chairman of Postwatch, said the year's notice period was "essential" for customers.

"The way customers decide on postage will change for 100% of the mail they post. They will have to assess thickness, weight and size every time," he said.

Royal Mail has argued for the change for more than two years, claiming that current pricing by weight does not give it a "level playing field".

It introduced more flexible pricing distinctions after criticism of its first submission for "size-based pricing" to Postcomm and now prefers to refer to the new charges as "pricing in proportion".

"We've listened to the views of our customers and worked with them to accommodate the issues some of them have raised," Clarkson said.

Nigel Stapleton, Postcomm chairman, said: "This will promote the development of a successful and growing postal market by allowing Royal Mail to bring its prices much more closely into line with its costs."

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