Consignia must give rivals fair access to mail system

Consignia, formerly the UK Post Office, was told on Monday to give potential competitors “fair” access to its network infrastructure as it faced up to the threat of competition in its core letters business for the first time in 350 years.

The company, which became a government-owned plc, is the first postal operator to be licensed by the Postal Services Commission, which is now responsible for regulating the market.

The licence forbids the company from using its commercial muscle to squeeze out competitors through “predatory” pricing, and makes clear that PostComm is determined to promote effective competition as quickly as possible.

It also freezes prices on most postal services – including first and second class letters – for two years, and restricts price increases on many others – mainly packages weighing more than 350 grammes – to the rate of inflation.

Consignia must meet tougher service standards for letters, but there are no price or service controls in market sectors where there are a significant number of competitors, such as express and courier services.

Graham Corbett, the PostComm chairman, said the publication of the licence was “the first step in PostComm’s task to set a framework for a healthy and competitive postal services sector across the UK”.

John Roberts, Consignia’s chief executive, said the licence conditions would exert pressure for higher standards and lower prices. “Overall, the licence is balanced but it will stretch us.”

PostComm is talking to most of the big European post offices and express mail companies, and is expected to license Consignia’s first competitor within a few months, possibly to deliver services in a single city.

However, Consignia appeared to have won important changes in its licence in tough negotiations with PostComm since a draft was published several months ago. The licence says that competitors must be given access to the company’s infrastructure on terms not less favourable than Royal Mail, Consignia’s letters arm, but adds that the allocation of costs must be “reasonable.”

This amounts to a substantial change from the wording of the draft licence, which Consignia feared would allow PostComm to force it to give access to competitors at prices below its own costs.