Royal Mail pledge over post market competition

Royal Mail today vowed to “fight for every letter” following the New Year's Day postal revolution in which it will lose its 350-year monopoly on deliveries.

The UK's postal service market will be opened up on January 1, allowing rival companies to collect, sort and deliver mail for the first time since the reign of Charles II.

Royal Mail faces competition from 14 companies which have already registered with regulator Postcomm to handle post in the UK, including German firm Deutsche Post and Dutch postal service TNT.

Most of the competition is expected to be in business mail, which accounts for 80% of the market and helped boost Royal Mail profits by 20% to £159 million in the first half of 2005.

Despite competition from European rivals in the UK, Royal Mail will not be allowed to compete in their countries because the markets on the Continent have not yet been liberalised.

Postcomm said competition in the UK market would give customers choice and create a more efficient and reliable service.

Watchdog Postwatch backed the move but unions have warned an erosion of Royal Mail's business mail operations could jeopardise the cherished but loss-making universal postal service, which guarantees daily deliveries across the UK.

Royal Mail currently loses 5p for every first-class letter delivered and 8p for every second-class letter.

Royal Mail said it was ready to take on its new rivals but warned its ability to compete would be hampered by years of under-investment which meant only 50% of its letters were sorted mechanically compared with 90% among competitors.

Spokesman David Simpson said: “Royal Mail will fight hard for every single letter.

“Royal Mail is determined to compete successfully in the open market – but in order to do so we need a fair regulatory regime and the ability to invest £2 billion in the modernisation of the business.

“Royal Mail is already delivering record quality of service to its customers and we are determined to do even better.”

At present, rival companies can compete with Royal Mail in the bulk mail market of more than 4,000 items – around 30% of the market by value – although Royal Mail still has a market share of over 97%.

Much of the mail that is collected and sorted by rival companies is then passed on to Royal Mail for final delivery.

In the six months to the end of September, Royal Mail's competitors handled 350 million items of mail, up 2,700% on the 13 million a year earlier although still only 1% of the mail market.

Full market opening means that licensed operators can collect and deliver any mail, from single letters to bulk mailings.

But Postwatch said it expected most of the competition to remain in business mail and that rivals will continue to use Royal Mail for final delivery.

The watchdog said large businesses would be the first to benefit from the reforms while social customers would see “little practical difference in the mail services they use”.

It said: “For the foreseeable future, social customers are unlikely to be able to post mail into pillar boxes provided by another mail company.”

Postwatch added: “A competitive market place will offer customers greater choice and better, more efficient services and is the best way to protect customers' interests.

“Competition will also reinforce, not undermine, the provision of a universal postal service. The main threat to this service is an inefficient Royal Mail.

“Competition will maintain the pressure on Royal Mail to deliver quality of service to customers, improve efficiency and drive innovation.”

But the Communication Workers' Union (CWU) warned that the universal service was “officially under threat”.

General secretary Billy Hayes said: “Postcomm is threatening the universal service. They should not under-estimate the public affection for daily mail delivery to home addresses.”

New Zealand and Sweden are the only other two countries to liberalise their postal markets, five years ago and 12 years ago respectively. The original postal service in each country still supplies at least 90% of mail.

end