By Neil Maidment
LONDON (Reuters) - A British watchdog said it would review the regulation of Royal Mail (L:RMG) after the withdrawal of rival Whistl from the direct delivery letter market left the former state-owned provider with no national competition.
Ofcom said on Tuesday the review would ensure the universal postal service, which guarantees a single-priced, six day a week service across the country, was secured.
Ofcom said reviews already underway into Royal Mail's efficiency and its parcels performance would be included in its new work, which will consider if its prices are sufficient and affordable to cover the costs of the universal service and whether price controls might need to be introduced.
Shares in Royal Mail, privatised in October 2013, fell 2.2 percent to 494.2 pence by 0724 GMT (08:24 BST).
"It is clear to us that the regulator is somewhat concerned about Whistl's withdrawal from the direct delivery market, particularly given Royal Mail's active lobbying in this area," Cantor analyst Robin Byde said.
"The scope of this review is broad and looks likely to take more than a year."
Like other delivery companies, Whistl, owned by Dutch-based PostNL (AS:PTNL), competed to collect and sort Britain's mail before paying Royal Mail to deliver it through its network.
However, since April 2012 Whistl had run its own mail delivery service in a few cities and planned a UK rollout to rival Royal Mail, before funding issues emerged and forced its closure this month, putting 1,800 jobs at risk.
Royal Mail had said Whistl's plans to deliver only to the most profitable, easy to serve areas would undermine the financial viability of its universal service, a view Ofcom did not agree with, arguing a rival should be seen as an incentive to become more efficient.
Royal Mail still faces stiff competition in its parcels business, where pricing pressure is crimping growth prospects.
Ofcom said it would outline its initial thoughts in July and that it expected to complete the review and install a revised regulatory framework next year.
Royal Mail would not immediately comment.