Royal Mail owner International Distribution Services PLC (LSE:IDS) has got the green light for most of its proposals to relax obligations under the UK's "universal service" rules, analysts say.
Telecoms regulator Ofcom proposed some changes to the Univeral Service Obligation as part of its ongoing review, including cutting second class postal deliveries to alternate weekdays and removing Saturday rounds, with a requirement remaining to deliver first-class mail six days a week and cap second-class stamp prices.
These changes will be consulted on.
"These meet some of Royal Mail's proposals, but not all," said analysts at broker Peel Hunt.
As such, the analyst said this "may jeopardise" the ability of the company to reach the full £300 million cost savings target eyed by IDS and prospective owner Daniel Kretinsky’s EP Group, which has its takeover approved by the government last month.
However, Susannah Streeter, head of money and markets at Hargreaves Lansdown, said the Ofcom statement will be "music to the ears" of Royal Mail’s incoming owners.
"Changes were expected, but the announcement from Ofcom has come more quickly than forecast."
Ofcom's proposals include keeping parcel USO requirements unchanged and refinements to quality-of-service targets to value reliability over speed, as Royal Mail wanted.
The regulator's proposal is for 99.5% of first-class post arriving within three days of posting and five days for second-class.
Royal Mail had proposed 99% within five days for second class.
For next-day delivery, first class would move from 93% to 90% and second class from 98.5% to 95%, both as Royal Mail wanted.
Ofcom also proposes regulating access mail as it does currently, but allowing the removal of Saturday deliveries within five days of posting.
After Kretinsky's EP Group received government approval for deal before Christmas, but Ofcom's proposal to reduce second class letter obligations and lower delivery targets will "give the new owners a head-start in turning around Royal Mail, without the threat of fines", said Streeter.