Licence awards leave Royal Mail facing death by a thousand cuts

A threat to Consignia

ARE WE about to witness the death, by a thousand cuts, of the Royal Mail? Yesterday Hays, the distribution and logistics company, was awarded the first licence to operate against Royal Mail. But no sooner had the regulator signed off Hays’s licence to operate business services in London, Manchester and Edinburgh than two other would-be rivals popped up.
UK Mail, a division of Business Post, is applying for permission to offer a service to about 5,000 business customers in Birmingham, Bristol, Edinburgh, Leeds, Leicester, Liverpool, London, Manchester and the Thames Valley.

The other rival is tabling a more innovative — and controversial — proposal. Deya, a small Wokingham-based distribution company, is offering a strike-breaking service. It wants to deliver council tax bills and utility bills if services are hit by industrial action. The company, which delivers Yellow Pages, BT telephone directories and other commercial items, devised the plan after being approached by a utility more than five years ago in the aftermath of the Post Office’s national strike.

Postcomm, the regulatory body, has already said that it is minded to grant a short-term licence. For them, the plan is a gift: the regulator has a duty to try to ensure that Royal Mail maintains an appropriate level of service, even in the face of appalling industrial relations.

And as the rivals circle, Royal Mail is also looking at its own shake-up and could ditch the second mail delivery service. It shares the opinion of Postwatch, the postal users’ organisation, about the second service. No one really wants it. Domestic customers invariably have left for work before the first service arrives, let alone the second one. It is immaterial to them whether they miss their post at 9.30am or noon or later. They would probably prefer a premium service that delivered mail before they leave for work.

Of course, it is all easier said than done. The Communication Workers Union has said that abolishing the second delivery would mean tens of thousands of job losses. It is also likely to mean a fundamental change in working practices with more workers on part-time contracts. The CWU, as it has demonstrated in the past, is unlikely to take such a move lying down. Royal Mail already accounts for more than half of all strikes in the UK. It has been the subject of an independent review into its industrial relations and has a temporary ceasefire with the CWU as both sides try to resolve some of the issues.

A clash over job losses is likely to dent confidence further in the organisation and lead more businesses to turn to rival companies. Royal Mail would seem to be caught in a vicious circle.

It may be attempting to adopt a more commercial approach but its moves could be too late. The Post Office, which has renamed itself Consignia, was granted more commercial freedom six months ago when it became licensed and for the first time became vulnerable to competition. However, it has known for years that it would have to be more commercially astute in the face of international competition and deregulation in Europe.

But Consignia has failed to inspire confidence beyond a sentimental public fondness for a national institution. Many businesses are exasperated with its service. It has failed to hit customer service targets by a substantial amount and it has failed to make any significant inroad into e-communication.

It should be easy for a monopoly to keep customers in the early stages of competition. Inertia generally prevails and newcomers can be regarded with some suspicion. However, observers believe that business service rivals to Royal Mail could have a field day.

Gregor McGregor, chief executive of Postwatch, holds regular meetings with disgruntled business users who have increasingly taken up expensive document delivery services to bypass Royal Mail. He says: “Most say they are being forced away from Consignia. They weren’t actively looking to leave but the service is so poor that they have had to look elsewhere. The management at Royal Mail must be one of the few that is driving business away.”

The CBI is unable to comment on the state of postal services because Consignia is one of its members, but the British Chambers of Commerce agrees with Postwatch. A spokesman says: “There are problems, and they are patchy rather than national, but they can cause severe disruption for local business communities. Even in an age of e-commerce, it is a concern.”

The CWU reacted strongly to yesterday’s licences and to the possibility that the second service will be axed. Pat O’Hara, national officer, says: “We are faced with an unholy alliance of Postcomm and Postwatch, one of which seems intent on ruining the business’s finances, and the other its standard of service. Someone needs to stand up for the universal service at a standard, affordable tariff. We will take on this challenge, and I believe we will have the backing of the public.”

The public affection for Royal Mail and the Post Office network and the Government’s commitment that mail posted from one end of the country to the other should cost the same as that posted from one road to another is one of the biggest factors governing how the postal network evolves. Stuart Sweetman, Consignia’s group managing director, was yesterday quick to warn of impending ruin. “In giving a licence to Hays, there is a clear message being sent. Postcomm is prepared to look favourably on applications for postal licences from any company that wants to pick its customers and offer a mail service at less than the basic 27p first-class stamp.”

The regulator believes that Consignia is crying wolf. It has granted Hays a licence for just a year and the same duration is likely for Deya and UK Mail, if they win approval. The short span is so that the effects on Consignia and the universal service can be judged once evidence is available. However, Postcomm wants to award more substantial licences in the future. It believes that periods of between five and ten years are essential if companies are to be encouraged to invest in infrastructure.

Consignia had wanted deregulation to be wound out with a gradual reduction in the weight of items for which it has a monopoly over rather than opening up isolated pockets of activity to rivals. That would mean a substantial reduction in the weight from the present 150 grammes before any other players would be encouraged into the market. The plans by Hays, Deya, and UK Mail are relatively modest. But their arrival may well bring in a host of other businesses that are more anxious to get experience and establish a foothold than they are to make profits. Later on down the line it will become clear whether the ad hoc licensing of rivals is really compatible with the social obligation the Government has set out under the universal service.

The regulator is contemplating a review of the universal tariff, if only in its business application. If that happens, Consignia will have little to shield it from a full onslaught on its business.
The Times