Britain's Royal Mail warns over watchdog's price hike probe

LONDON, April 9 Wed Apr 9, 2014 1:18pm EDT

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LONDON, April 9 (Reuters) - Britain's newly-privatised Royal Mail warned an investigation into a rival's complaint over wholesale mail price rises would lead to a long period of uncertainty around the prices it charges other postal operators.

Royal Mail's regulator Ofcom on Wednesday said it would investigate the complaint from Britain's No.2 postal operator, TNT Post under its Competition Act powers, a process that can take up to two years.

An enquiry under the alternative Postal Services Act would normally take less than half that time.

TNT Post's complaint, made in February, is the latest in an increasingly fierce battle between the two groups, sparked by the former's plans to challenge Royal Mail's dominance by rolling out its own complete British delivery network.

Royal Mail says such competition could threaten its ability to sustain a six-days-a-week universal service, as TNT Post targets only profitable areas. On Wednesday it called for Ofcom to bring forward a review, planned for late 2015, of how it will protect the service.

TNT Post has complained about Royal Mail's decision to change conditions and increase the prices it charges to deliver post collected and pre-sorted by its competitors, an agreement known as an access contract.

Access contracts account for around half of the UK's inland addressed mail, with TNT Post making up over half of this.

Royal Mail wrote to wholesale customers following TNT's complaint to say its planned price hikes were suspended.

That, it said, would hamper the firm's ability to respond commercially to market conditions, but not its rivals.

It also creates uncertainty for Royal Mail around its pricing structure and for its customers, which as well as TNT Post include UK Mail and banks like RBS and Lloyds, now unsure what they will pay in future.

"We are concerned Ofcom's decision to investigate under its Competition Act powers may create a period of uncertainty in the UK postal market. We are keen the investigation is completed as quickly as possible," Royal Mail said, adding its contract changes were fair and TNT Post's complaint unfounded.

Ofcom did not give a time-frame for the investigation.

Royal Mail shares closed down 2 percent at 515 pence on Wednesday.

The price hikes, announced in January by Royal Mail as a means to counter shrinking letter volumes, would see rises of between 0.3 percent and 1.0 percent above inflation.

A discount would be given to access customers who could supply the firm with monthly forecasts of mail volumes for up to two years ahead, which would allow Royal Mail to save money by being able to plan ahead more efficiently. (Editing by Erica Billingham)

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