UK Royal Mail Profits Could Hasten Privatization
The Royal Mail’s return to profit could speed a move to full competition, according to the chairman of regulator Postcomm. Sir Nigel Stapleton said a decision on “liberalisation” would not be taken until later this year, following a consultation exercise, but still ahead of the planned April 2007 deadline. Stapleton’s hints at faster liberalization will be welcomed by new entrants to the UK market including Deutsche Post and Dutch postal operators TPG, which recently obtained licenses and which are keen to grow their presence in the business market which accounts for 80% of the postal market. Stapleton said that when the decision was taken in 2002 to have a three-stage liberalization process, the Royal Mail was making heavy losses. Chief executive Adam Crozier who is leading a turnaround of the Royal Mail, last month announced profits of £220 million in 2003-04, the first profit in four years. “Its financial capacity to deal with the winds of competition was much more in doubt [in 2002] than I believe it is today, that factor would argue for a faster pace of liberalization,” Stapleton said. Also, Royal Mail had anticipated losing significant volume to new rivals during the first stage of liberalization and also expected an overall contraction in the market. “It has lost virtually no volume and the market has continued to grow therefore the Royal Mail position is healthier than we believed it would have been,” Stapleton added. Royal Mail has several advantages over new entrants, including exemption from value added tax (VAT), which Stapleton argues acts as a major block to competition. “If you take Royal Mail’s improved financial position, a greater share of a growing market rather than a smaller one of a declining market, and the VAT impediment you could argue that those factors would argue for a faster pace of liberalization,” Stapleton said. However, he added: “The consultation will no doubt bring out other factors. No way have we made a decision on these indicators yet.”
