Royal Mail (RMG) bulls will tell you that it’s the postal group’s scale that makes it an appealing investment. Bears will tell you that it’s that scale that might unravel the current strategy. Royal Mail has been fined £50m by Ofcom after the regulator determined it had abused its dominant position in the market due to price changes it had considered (though did not implement) in 2014. Royal Mail is appealing the decision, asserting the price change "was designed to support the sustainability of the Universal Service from 'cherry picking' end-to-end letters delivery and the general decline in mail volumes".
The £50m fine itself is not a material concern for a company the size of Royal Mail. What is a concern is the potential implication for the parcel business. Analysts at Liberum say the fine should act as a reminder that “Royal Mail must act with restraint” considering its market share in both letters and parcels, and this could limit its ability to grow the parcels division. This is problematic considering that management is relying on that business to make up for an expected decline in letter volumes of between 4 per cent and 6 per cent each year, which could be made worse by the impact of new data protection regulations on marketing mail.
