Postcomm: Royal Mail must transform for a healthier mail market (UK)

Postcomm, the independent postal services regulator, has argued that fundamental reforms are essential if Royal Mail is to have a long-term sustainable future and the needs of all users of mail are to be met.

In its first submission to the independent panel reviewing the postal services market, Postcomm has highlighted the positive impact for customers since the addressed letters market was opened fully to competition over two years ago:
* Larger customers have enjoyed lower prices and increased innovation;
* Residential mail users have experienced record levels of service quality from Royal Mail; and
* Smaller businesses and public sector customers are also now beginning to reap the benefits of choice.

During this period, there have also been significant structural changes in the mail market that are directly linked to advances in technology and the increasing use of alternative forms of communication such as email and the internet. These changes pose challenges but they also create new opportunities. Royal Mail's performance in rising to meet these new challenges has been disappointing.

Royal Mail continues to lag significantly in terms of investment, efficiency and substantial product innovation. Their recent focus has been on forestalling new entrants to the mail market and far less on adapting to these more far-reaching structural changes. This situation is unsustainable and unless addressed will result in accelerating decline.

Postcomm believes the future health of Royal Mail, the universal service, and the addressed letters market as a whole are inextricably linked. Decisions about fundamental reform have to be taken swiftly if Royal Mail is to lead a healthier mail market and provide a strong universal service.

Postcomm Chairman Nigel Stapleton said:

"Royal Mail's problems are a lot more deep-rooted than having to deal with modest amounts of mail competition and regulation. Royal Mail is experiencing some fundamental changes in how senders are using mail following the rapid growth in the use of email, text messages and the internet for communications and marketing.

"Sweeping change and innovation can make both Royal Mail and the public winners from these far reaching market developments, but nothing less is required to ensure that the much valued universal service remains at the core of the market.

"There has to be a step change in strategy and approach, such that Royal Mail moves forward decisively to address its legacy issues of under-investment, difficult labour relations and the massive burden of its pension fund deficit. Recent experience in the parcels market demonstrates that more competition, particularly over the final mile, will help rather than hinder this fundamental transformation.

"The clock cannot be wound back on the competitive developments facing Royal Mail which are bringing significant benefits to customers. It is perfectly possible, however, for an organisation of the scale and reach of Royal Mail to transform its business and customer services rather than to remain locked in the past. We have been waiting far too long for this to happen and decline will be irreversible if these nettles are not grasped quickly."

In accordance with the Review Panel's request, this submission of evidence sets out Postcomm's diagnosis of the problems. A second submission will be made in early May 2008 in which the independent regulator will explain its proposals for addressing these problems and securing a successful future for the postal services market.

Notes

The Government announced a review of the postal services sector on 17 December 2007. The review's terms of reference are:

1 to assess the impacts to date of liberalization of the UK postal services market, including on the Royal Mail, alternative carriers and consumers;
2 to explore trends in future market development and the likely impact of these on Royal Mail, alternative carriers and consumers; and
3 to consider how to maintain the universal service obligation in the light of trends and market developments identified.

Today's submission to the review addresses the first two terms of reference which accords with the procedure set out by the review panel. Postcomm will make a second submission addressing the third term of reference in due course.

More background on the review, including a full list of related documents, is available at:
http://www.psc.gov.uk/independent-review.html