Supporting Postcomm with costing, pricing and regulation

Project experience | Regulation and policy

When Lord Hooper completed his report on the UK postal sector in 2008, he set Postcomm the task of making the costs of the Royal Mail more transparent.

Postcomm was to develop an understanding of the detailed cost structure of the UK letters business during 2010 and 2011. Postcomm also anticipated the need to develop solid foundations for proposed regulatory separation of different parts of the Royal Mail.

As such, Postcomm conducted three major workstreams during the period, calling on Analysys Mason's help on each of those workstreams.

  • Cost Transparency: we built up a detailed knowledge of the way in which Royal Mail produces its cost calculations – from the ABC database through to product costs.
  • Accounting separation: we undertook complex trial account separations which required us to solve profit and loss, balance sheet and cashflow issues, such as how to define downstream transfer prices for 100s of products.
  • Costing system compliance and change control: we assisted in defining a set of guiding principles and methodological principles which should apply to the costing system; provided our professional opinion on parts of the costing system which were not compliant with the Principles; and supported Postcomm through the early stages of its change control procedures.

Despite being classed as ‘new entrants’ to the postal sector, we rapidly leveraged our extensive telecoms regulatory knowledge, applied our deep understanding of the economic costing and pricing issues facing network industries, and built upon our established abilities in cost modelling for communications services (top down and bottom up, fully allocated costs (FAC) and long-run incremental costs (LRIC).

Our team was directed by James Allen, Partner at Analysys Mason, who has 17 years’ consulting experience and in-depth knowledge of the telecoms market.

Each workstream project was managed by Ian Streule, Partner at Analysys Mason. Ian has a unique understanding of the costing issues affecting postal network operators.

Andrew Daly,  Lead Consultant at Analysys Mason, undertook the detailed modelling, review activities and costing system compliance checking, and was seconded to Postcomm for three months, where he provided support to develop a suite of integrated product costing and accounting separation models.

In addition to the support delivered during the last two years, we continue to support Postcomm on a range of market regulation and costing issues.

Postcomm was tasked with achieving a greater understanding and transparency of the costs of Royal Mail. Anlaysys Mason was able to help, applying our deep understanding of the economic costing and pricing issues facing network industries.