Jim Fitzpatrick Speech: The Mail Show

Jim Fitzpatrick Speech: The Mail Show

Wednesday 1 November 2006

Introduction

I’m delighted to be here to set out the Government’s position on what we consider to be the key issues facing a fully competitive postal market: both here in the UK, and in Europe.

My thanks to Triangle, and to the host sponsors of the Mail Show: DHL Global Mail, Royal Mail, TNT Mail, and Oce for giving us this important opportunity to consider the forces which will shape the postal sector as we look forward over the next few years.

Main Theme

The Government’s policy and priority in a fully open postal market, is to ensure the sustainable provision of a universal service obligation which reflects the needs of consumers, including the most vulnerable.

We consider that fair competition, within an appropriate regulatory framework, can make an important contribution to the postal sector: not just in terms of stimulating innovation, but also in encouraging operators to reduce their cost base, improve their efficiency, and become more responsive to their customers.

For the foreseeable future, it is unlikely, that any company, other than Royal Mail, will have the scale and capacity to deliver to all of the UK’s 27 million addresses. It holds a critical position in the market, and we cannot have a thriving, and effective postal sector in the UK, without a thriving and competitive Royal Mail.

Our vision for Royal Mail is one of, public ownership: sustainable profitability: excellent customer service: and rewarding employment for its employees. That is the best guarantee of the sustainable provision of a universal postal service offering individuals and small businesses uniform and affordable prices.

European Liberalisation

We’re also committed to competitive markets, and for this reason we have been giving our full support to the European Commission’s proposals to accomplish a single market in postal services by 2009.

European postal liberalisation has been under discussion since a European Parliament resolution of 1993. The time has come to stop talking, and get on with the job. A fully open market by 2009 will do not just that, it will also give those countries which have chosen to retain a reserved area, sufficient time to prepare. The European Directives have been progressively opening the market since 1997. No one can surely argue today, that they need more time.

When you know competition is coming, in business or politics, it works wonders in helping you transform your company. Just consider Triangle’s World Mail Awards for 2006. Who won the transformation award? La Poste of Belgium. Only a few years ago you would not have thought of Belgium Post as a model of efficiency, with respect to Belgium Post. So allow me to quote from the judges’ comment on why the company received the award. In their opinion, Belgian Post has, dramatically transformed itself into a high performing, motivated, and well-regarded postal business. The transformation has succeeded on all measures, including “quality, revenue, profitability, costs, and customer satisfaction.” I am sure that many of us here today will consider that the anticipation – some might say the threat – of a single European market, was an important catalyst in inspiring the company to transform itself. Changes such as these are good for the market, good for the operator: and above all, good for the customer.

Neither is this an isolated example. Reforms at Swedish Post, which has operated in a fully open domestic market since 1993, have enabled the company to reduced prices to its business customers by 30% since that time.

Nor do such reforms necessarily mean job cuts. At TNT, one of the sponsors of this event, market liberalisation in the Netherlands and other markets in which it is active, has enabled the company to increase employment in its postal operations, from 59,000 in 1989 to 77,000 in 2005.

The postal sector in Europe is a vital component of our communications infrastructure. It provides employment for some 5 million people, and contributes over 2% of European GDP. I want that percentage to grow. I’m sure we all want it to grow. Open markets, governed by the right type of regulatory regime, offer the best way for it to do so.
Regulation / Strategic Review

But what, you may ask, is “the right type” of regulatory regime? Well, I don’t pretend to have all the answers here today, but Postcomm, I’m pleased to say, is asking just that question. It has, as I’m sure you know, launched a strategic review and is actively consulting with postal stakeholders, to establish the appropriate regulatory framework for a fully open market. Such a review is a bold but necessary step. I applaud it, and I encourage all of you to actively participate.

The workshop Postcomm hosted last month developed an important and stimulating debate on a range of important questions. To what extent should ‘zonal pricing’ be allowed? What is the right balance between ‘downstream access’ and ‘end-to-end’ competition? What is the scope of the universal service and the nature and / or extent of regulatory control?
You know the detail of these issues. One thing however is already clear. Market liberalisation does not necessarily imply the end of regulation. Indeed, the potential tension which exists between a fully open market and the need to sustain an affordable and uniformly priced universal service for the citizen, implies a degree of regulatory control: as does a market which is still dominated by a national operator, accounting for over 95% of mail volumes.

When a customer hands over a letter – or maybe thousands of letters – for delivery, it is placing trust in the operator that the letter will be delivered in good condition, to the right address, within an agreed timescale. Licensing does have a role to play in assuring operator integrity: and maybe more importantly in a multi-player market, in assuring inter-operability between operators. We must never forget that the customer’s primary concern is the safe delivery of their postal item.
They are less concerned which – or how many – operators perform that service, than they are that the service is performed well.

That is why we need good regulation. Good regulation is balanced regulation, drawing the right balance, is the challenge facing Postcomm today. It is in all of our interests that it gets it right. The best way of ensuring that it does so, is for all the stakeholders to fully participate, and to openly and objectively debate the issues. I am confident that you will do so.

Convergence

Markets and regulation of course can be impacted by developments in technology. In the technology sector itself we hear an awful lot about ‘convergence’. I cannot help wondering how much scope exists for convergence in the postal sector. Today, mail, small packages, parcels, and express are reasonably discrete components of the market, each with their own characteristics and business dynamics.

But it is possible, that the future might see a blurring at the edges. One of the drivers for this is the internet. We order something electronically on our computer, and pay with a credit card. The order confirmation is sent to us either via e-mail or letter mail. What we have ordered is sent to us as a package. In due course we are billed via our credit card company, and receive the statement in the mail.

Today, these different flows may be handled by different companies, they may be handled by one. We can’t be sure how the market will evolve.

The Future

We do however need to look forward, to consider what sort of market we should prepare for in the future? Will mail volumes grow, or decline? We don’t know of course. Many observers consider that direct mail has growth potential, as does the conveyance of packages in fulfilment of the growing number of purchases made via the internet. Single piece letter mail is now a small proportion of overall mail volumes.

If the mail ‘mix’ is changing, and volumes overall, grow only slowly, then the successful operators will be those who are customer responsive, offer reliable services, and continuously reduce their cost base. That is true of so many sectors of business today, and it is no less true of the mail business.

TNT

One of the postal businesses which is making its mark today, not only in Europe, but right across the world, is TNT. As the Dutch national operator of course it has only a small domestic market to serve, and that has undoubtedly acted as a stimulus to the development of its international business. Last month I had the pleasure of opening their new UK offices in Marlow.

TNT’s Chief Executive, Peter Bakker, was interviewed recently by the Universal Postal Union, the specialist United Nations Agency responsible for international mail exchanges, falling within the universal service. His is a clear vision of what the future holds, and as with any business sector, there are both threats and opportunities. He considers that electronic substitution is likely to continue to result, in a decline in mail volumes overall: and that the fundamental nature of the postal industry is that of a network industry.

Put those two points together, and it is clear that the successful operator of the future, is one which is able to restructure its pipeline so that it can continue to be profitable when handling reduced mail volumes. The days when cost inflation could be disregarded in the face of anticipated volume growth are now long gone. As elsewhere in the economy, service providers must learn to produce more with less.

Innovation

One way to do that of course is to innovate. Cynics might observe that innovation has long been the holy grail of the postal sector, but has yet to come up with the growth opportunities seen in the telecoms sector following the development of mobile phones.

But let’s not be too cynical. Not all new business opportunities are the result of completely new initiatives. Much development is the result of a series of incremental, but continuous, improvements, and it doesn’t matter where those improvements – or innovations – come from. What matters is, that we have them. They won’t necessarily come only from within the UK, or only even within Europe.
In Japan, the one country in the world where postal reform was so important, that it was credited with winning an election for their Prime Minister! Many of you will be familiar with the headline news about structural reform in Japan Post, but consider some of the innovations which have been quietly developing away from all the publicity.

I understand that ‘Post Cubes’ are becoming increasingly popular in Japan, a type of post box which is placed in shopping malls and railway stations. It is linked to mobile phone technology and allows the customer to both send and receive postal items. This development has enabled Japan Post to provide its customers with a more flexible service, as they can collect items they have ordered from the internet at a Post Cube close to their place of work: and of course use the same Post Cube, for anything they want to return.

So here we have an example of a different type of convergence: not between letters, packets, and express services, but between new technology and the traditional postal infrastructure, to create added value for customers, so ensuring the continuing relevance of postal services to individuals and businesses.

It is innovations such as these which will ensure that postal services remain important to consumers; and in the long run, it is that importance which is the only real guarantee of survival.

Ladies and gentlemen, thank you for listening and to the organisers for rescheduling my session. I am sorry I am unable to take any questions today, but I do hope that I have contributed some thoughts for your conference as we look back today over the first 10 months of competitive markets: and look forward to the opportunities which beckon ahead.

Thank you very much.

End