December 13, 2013 5:08 pm

Royal Mail appeals to regulator on TNT venture

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Royal Mail has appealed to Ofcom, the regulator, after a joint venture was announced to fund an expansion of direct mail deliveries by TNT Post UK in a challenge to the newly privatised postal operator.

LDC, Lloyds Banking Group’s private equity arm, and Dutch postal operator PostNL said they had agreed a joint venture that would provide the funding and expertise to allow TNT Post UK to roll out its end-to-end delivery service.

PostNL, which currently owns TNT Post UK, will have a 40 per cent stake in the venture, which will encompass all the company’s operations. The move is subject to approval by the European Commission and is expected to be completed early in 2014.

TNT Post UK, Britain’s second largest postal operator, began its effort to break Royal Mail’s near-monopoly of “final mile” delivery in 2012 by launching its own service in west London, with the aim of creating a UK-wide delivery network to households by 2015.

It has since created more than 1,000 jobs in the capital and extended its delivery service to Greater Manchester in November. It expects to reach 20,000 jobs across the UK, covering 40-50 per cent of the country.

Royal Mail warned that “distortive cherry-picking” of profitable areas could undermine the financial sustainability of the universal service – under which it is legally obliged to deliver six days a week to every address in the UK at a uniform price – by making it more costly.

It urged Ofcom to review TNT’s “current and future plans and be prepared to intervene rapidly if needed”.

An Ofcom spokesman said: “Ofcom has a duty to secure the universal postal service. We watch the market very closely and, if we identify any threat to the universal service being posed by competition, we would be ready to step in to protect the needs of postal users.”

Ofcom, in its annual monitoring report on the postal sector last month, found that mail handled by Royal Mail’s end-to-end competitors so far represented only 0.2 per cent of volumes in 2012-13, so intervention does not look imminent.

Nick Wells, TNT Post UK’s chief executive, said in November: “There is not a shred of evidence that competition is undermining the universal service obligation. Competition is needed to help Royal Mail improve efficiency.”

The joint venture will be led by the current TNT management team. Expansion of its network will be funded by LDC and Royal Bank of Scotland.

Yann Souillard, LDC managing director, said the strategy was “an innovative and dynamic approach to postal delivery which should provide an exceptional platform for both customer requirements and the business growth plans”.

Royal Mail entered the FTSE 100 this week amid continued controversy about whether it was privatised too cheaply. It was floated at 330p a share in October and was up 0.8% on Friday.

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