UK Royal Mail’s monopoly to end on 1 January 2006

Britain’s postal service market will be fully liberalised from 1 January 2006, Postcomm announced today (18 February 2005). The move completes the process of removing the monopoly enjoyed by Royal Mail for more than 350 years.

Nigel Stapleton, chairman of Postcomm said: “After three months of consultation, a substantial majority gave the thumbs-up to competition. We can now look forward to a more innovative and efficient postal industry focused on providing customers with the services they want, rather than being told by a monopolist what services they can – and cannot — have.”

The decision means that from 2006 – fifteen months earlier than originally planned — licensed companies other than Royal Mail will be able to collect, transport and deliver letters and charge customers for the service. It follows extensive consultation in which a large majority of respondents said they favoured an early introduction of full market opening.

Big businesses are likely to be the first to take up the wider services that will be introduced, but the benefits are also expected to feed through to domestic users. Even in the limited competitive market that already exists, Royal Mail has seen some of its business customers switch to other postal service providers, and in response has tightened up its own service standards.

“Today’s decision gives customers a real choice and increases the pressure on Royal Mail to raise its game and take on the competition,” Mr Stapleton said. “However this is only the first step in a process which the commission hopes will eventually see market forces replace regulation as the main driver of an efficient and effective mail industry.”

Mr Stapleton emphasised Postcomm’s resolve to take all necessary steps to make the market work for customers.

“Postcomm will shortly publish arrangements for the multi-operator market. These will include a code of practice to ensure that all mail companies cooperate on common operational issues such as the forwarding of mail and handling mail that is returned to sender, and a separate code to safeguard the integrity of the mail,” he said.

In addition there are a number of barriers to competition that need removing. For example, Royal Mail alone is exempt from VAT, which means for many major customers it has a significant price advantage over rival firms. There are also a number of other special privileges enjoyed by Royal Mail that Postcomm must address.

Royal Mail will still provide the one-price-goes-anywhere universal postal service throughout the UK, and Postcomm will continue to regulate its prices and services, but as competition develops, Postcomm would expect to reduce the amount of regulation.

Notes
Full market opening means that licensed operators can collect and deliver any mail, from single letters to bulk mailings, in competition with Royal Mail. They can set up collection boxes, provide collections and deliveries between businesses, offer tracked mail services or mail deliveries at a guaranteed time and much more, depending on what customers want.

Up to now, competition in mail services has been restricted to 30% by value of the letters market and to companies handling bulk mail in batches of 4000 letters or more. This was introduced in January 2003 and will continue until full market opening in January 2006.

Full market opening was originally envisaged for April 2007. When this was proposed, in 2002, Royal Mail – then Consignia — was losing £1million a day and struggling to introduce a three-year renewal plan. Since then it has returned to profit and continues to dominate the UK licensed letters market with a market share of more than 99%. This part of the market is worth around £4.5bn per year.

In the liberalised market Royal Mail will still be required to provide a universal postal service for first and second class mail of one delivery and one collection each working day at a uniform price throughout the UK, and provide a business mail service on universal service terms. But it will have the freedom to compete with services provided by rival specialist mail operators.

Today’s decision document: Giving customers choice: a fully open postal services market is published on Postcomm’s website, www.psc.gov.uk. Printed copies will be available shortly from Postcomm at 6 Hercules Road, London SE1 7DB. The decision follows publication of three consultation documents on 20 September 2004. Further details are in Postcomm’s press notice: Postcomm proposes a faster route to ending Royal Mail’s monopoly which can be found on Postcomm’s website under media brief/press notices/20 September 2004.

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