Royal Mail urged to split postal business

Royal Mail, which is rapidly losing contracts for handling mail since the market was opened to competition, should follow BT’s example by splitting its postal operation into two independent businesses, according to a former chief executive.

In an interview with the Financial Times, Bill Cockburn said that while competitors were collecting and sorting an increasing share of business mail, they continued to rely on Royal Mail to deliver more than 98 per cent of it to homes and workplaces across the UK.

“The delivery force has a fantastic reputation and is trusted by its customers,” he said. “Royal Mail has a strategic opportunity to develop this part of the business and use the spare capacity it undoubtedly has.”

Mr Cockburn, who joined the then Post Office in 1961 and rose to become its chief executive in 1992, stood down in 1995 and was managing director of BT’s UK operations between 1997 and 2001. He is now deputy chairman of Business Post, whose UK Mail division handles more than 5 per cent of Britain’s mail.

He said Royal Mail, which faces the threat of strikes over pay and modernisation, had been too defensive since it lost its monopoly. It needed to learn from the privatised utilities how to take advantage of a competitive market.

BT was split into a retail operation, which sold services to customers, and a wholesale business – Openreach – that runs the local networks used by all telephone companies.

“The wholesale side has burgeoned into a huge business that makes a big contribution to profit,” Mr Cockburn said. “It made a lot of sense to open it to competitors.”

Royal Mail’s competitors already use its wholesale delivery services by handing over the sorted post for delivery over “the final mile” under so-called access agreements. This had given customers more choice and lower prices, Mr Cockburn said, while bringing back almost all the post for delivery by Royal Mail, which still collected 75 per cent of the cost of postage.

But the state-owned operator needed to become more like BT, where the two arms were wholly independent.

“If it did that, it could see real benefits,” Mr Cockburn said. “It could devise new products for its customers to use the spare capacity through its unrivalled delivery network.

“Royal Mail must accept the reality of competition and drive innovation on the wholesale side rather than being defensive over a part that is not sustainable.”