NAO warns postal regulator of risks in bringing competition to industry

The National Audit Office has warned Postcomm, the new postal services regulator, that there are risks associated with its objectives to bring improvements to the industry through competition.

In a report, the NAO said there may be insufficient competition to generate an improved service to most customers due to the strength of Consignia’s brands, particularly Royal Mail and from the company’s response to competitors.

“Potential competitors may be reluctant to enter the market especially were Postcomm to continue their initial strategy of issuing short term licences to new entrants as this puts them at a disadvantage to Consignia, which has a 15 year licence,” the report said.

It also said the regulator may be constrained in promoting competition by its statutory duty to ensure the continuation of a universal service at a uniform price.

Consignia collects and delivers everywhere in the country at a price that does not vary with distance. If it lost a significant share of the market it might find it hard to finance a service at current levels, the NAO said.

“Postcomm are shortly to publish a consultation document containing their proposals for opening up the market to competition and so addressing these two risks,” it said.

“In doing so they will need to show that their proposals will indeed encourage competition.”

The NAO noted Consignia has rarely met delivery targets in recent years, its profits are sliding and there are serious industrial relations problems at the company and until there is effective competition Postcomm will have to regulate prices and service quality.

There is the risk that until competition arrives in force, Consignia will have little incentive to make efficiency improvements, the report said.

An indication of this was Consignia’s recent failure to meet its target of delivering 92.5 pct of first class mail the next day in 2000/01 managing only 89 pct.