ANALYSIS: Stapleton stands firm over postal wrangles

Recent weeks have seen bitter complaints levelled at Postcomm by Royal Mail, Postwatch and direct marketers alike. So chairman Nigel Stapleton has a tough job trying to find some middle ground. Sebastian Burford reports

By anyone's standards, Postcomm chairman Nigel Stapleton has had a turbulent few weeks. After squaring up to discontented direct marketers at the recent pricing in proportion (PIP) summit (PM last week), this week began with accusations from Postwatch. The postal watchdog claimed the regulator's tardy introduction of a liberalised market has skewered Royal Mail's performance targets and amounted to deliberate "misleading".

The week ends with Stapleton in a war of words over Postcomm's call for a domestic price freeze until 2010, which Royal Mail's chairman Allan Leighton has called a "blueprint for the service's inexorable decline". Meanwhile, the dust has yet to settle on Royal Mail's non-payment of compensation for missing the performance targets from the last Postcomm review.

When Stapleton took over the Postcomm chair from Graham Corbett in November 2003, could he have predicted such a rough ride? His commercial experience certainly left him well placed to oversee the postal market's transition from monopoly to liberalisation. More than 18 years at Unilever were followed by chairmanships at Reed, merchant bank Veronis Suhler Stevenson & Associates, convenience food supplier UNIQ and Cordiant Communications Group.

Given its privileged market position, Stapleton has little sympathy for Royal Mail's claims that the latest price caps of no more than 4 per cent will lead to meltdown: "Royal Mail has consistently cried wolf at proposals made by the regulator. It thought the last price control was Draconian, yet it has outperformed it by nearly 100 per cent in terms of profit."

In response to Royal Mail chief executive Adam Crozier demands that "Postcomm take off the handcuffs and let us compete", rather than fitting a regulatory "straitjacket", Stapleton brings his commercial mettle to bear: "In most regulated businesses, the challenge for the management is to jump over regulatory hurdles."

Stapleton also dismisses Leighton's latest headline-grabbing complaints over the new proposals. Firstly, he says the suggestion that #2bn will be written off the business' value is "laughable", because the market valuation is based on a shaky comparison with more profitable European rivals. The continental operators do not have the same #4.5bn pension black hole to pour money into.

The second complaint is that the UK service is hard done-by in terms of return on sales at less than 5 per cent, while TNT Post of the Netherlands achieves 22 per cent and Deutsche Post 16 per cent. "Royal Mail's return on sales, before funding its pension deficit, is 10 per cent. It should be compared with that. Also, you are comparing a business that is significantly underinvested in capital and automation with the two best-invested mail systems in Europe.

"Royal Mail, under its own business plan, won't be as efficient as TNT Post and Deutsche Post are today until 2011. So how can it expect equal margins?"

A crucial sticking point between Postcomm and Royal Mail is the cost of its 'final mile' delivery. Without regulation, the so-called access price would give Royal Mail a firm grip to squeeze the profit margins of its rivals. Further price controls are due in November.

At the same time, Royal Mail complains that it is forced to carry letters to isolated rural areas at a loss, while competitors can cherry- pick which stage of delivery they provide. Yet Stapleton believes these particular handcuffs are golden: "Most marketing people would give their bottom dollar for the unique service opportunity that daily delivery holds. We are not saying Royal Mail can't charge higher prices for rural delivery; just that it needs to prove to us that whatever zonal pricing it introduces is justified."

And, finally, to the issue most likely to boil the blood of direct marketers, their clients, and their service providers: pricing in proportion.

How long will confusion reign? "The answer is becoming certain, not withstanding that this is only a 'minded to' decision by Postcomm. How we will do it, what sort of mitigation is offered, what sort of communication programme is required, and the time needed to prepare is still debatable.

"Royal Mail would like to implement the structure in April 2006; we say this is still up for consultation and there won't be a decision until July."

He concludes: "I, as a business person, have often been in situations where I don't have complete certainty, but have planned for the worst. If I was a direct marketer, operating with the signals that are out there in the market, I'd already be testing my products in terms of PIP, so I'd be fully prepared if it were to be here in April 2006."

Postcomm's six commissioners

In 2003, Janet Lewis-Jones was reappointed commissioner, having already served three years. She is vice-president of the British Board of Film Classification, and has wide experience of public affairs through working as a civil servant at companies such as the British Waterways Board and Strategic Rail Authority.

Robin Aaronson was appointed Postcomm commissioner in 2000, on a five- year contract. He is an economist by trade, and an associate at LECG. Before joining Postcomm, he was a member of the Post Office Users' National Council. He was also an economic adviser at the Treasury, and partner at financial services company PricewaterhouseCoopers.

Sarah Chambers has been Postcomm's chief executive since December. The former director of licensing at Oftel headed the Department of Trade & Industry's Automotive Unit from early 2001, before taking up the Postcomm role, and has held various senior posts at the DTI.

Netherlands-based Simone Bos was appointed commissioner for three years in 2004, having spent the early part of her career at the Dutch Ministry of Transport. She works as an independent consultant in business strategy and European affairs, as well sitting on various supervisory boards and committees, such as Unicef.

Tony Cooper, previously joint general secretary of the union Prospect, is also a former member of the TUC General Council. He spent his early career at the Forestry Commission, is a member of the DTI Energy Advisory Panel, a non-executive director on the DTI Strategy Board, and chairman of the Nuclear Industry Association.

Wanda Goldwag has spent 25 years in direct marketing, and is Postcomm's strongest link to the industry. Her career began at Yves Rocher, since when she has held senior posts at Fidelity Investment Management, Thorn EMI, Thomas Cook and Air Miles, as well as direct marketing agencies WWAV Rapp Collins and Smith Bundy.