Consignia prepares to take on its regulator
ALLAN LEIGHTON, interim chairman of Consignia, is preparing for a head-on battle with Postcomm, the newly formed Post Office regulator.
Leighton is writing a strongly worded attack to Graham Corbett, Postcomm chairman, stating that proposals to open up the network to competitors are unworkable and could cause Consignia's financial collapse.
The regulator has given interested parties until March 15 to submit replies to its recommendations. Consignia intends to send the letter within the next two weeks, which will give sufficient time for the issues to be considered by government ministers and the public.
Postcomm wants to allow outside firms to start competing with the Royal Mail for bulk deliveries for businesses from April. It wants competition for all mail within four years.
Consignia, which is obliged under law to provide a universal service, believes it will not be able to deliver mail everywhere in the country for the same price if other firms are allowed to take over its profitable operations.
To compound the issue, Postcomm will control pricing and Consignia will have to apply for each rise in stamp prices. Industry experts say early increases will have to be substantial. When competition was introduced in Sweden prices went up by as much as 70%.
One senior Consignia executive said: "We are not against competitors using our network, but we want to be able to turn it into a profitable revenue stream. We must also have flexibility on pricing."
The government may be forced to mediate between Consignia and Postcomm.
Some ministers have already said privately that Postcomm's recommendation to open up the market for bulk business mail within six weeks is "excessive".
Dozens of pressure groups, including the Women's Institute, are expected to write to Postcomm in opposition. The Communication Workers Union has warned that it may reduce its financial support for the Labour party if Postcomm's proposals are adopted.
In the meantime, continental postal operators in the Netherlands, Germany and France are preparing to bid for parts of Consignia's operations. It is believed that some would like to press for a full-scale merger. Several British groups, including Hays, the support-services company, are also keen to acquire some of the delivery businesses.
Just days after Consignia sends the letter to Corbett, the group will announce its long-awaited restructuring. This will include 30,000 job losses, the phased outsourcing of large parts of the operation and the closure of 3,000 urban post offices.
A substantial part of the Parcel Force operation, which is losing Pounds 15m a month, will be franchised and van drivers will become owner-drivers. Leighton is expected to warn that Parcel Force may be closed down altogether if this measure fails.
The government may have to forgo its annual dividend from Consignia. Ministers may also eventually have to approve the break-up of the group into two separate companies – distribution and retail.
Consignia's non-executives are carrying out a wholesale review of executive remuneration. The two latest board recruits – David Mills, head of the Post Office, and Marisa Cassoni, finance director – are both getting more than the Pounds 216,000 salary paid to John Roberts, Consignia's chief executive, last year.
Mills, the former general manager of personal banking at HSBC, was recruited last month on a package of Pounds 250,000. It makes him one of the highest paid executives in a government-owned organisation.
There are other similar pay disparities within the group's top management, and they are causing deep divisions.
It has also emerged that the Department of Trade and Industry, which has ultimate responsibility for Consignia, twice rejected proposals to increase Roberts's salary last year.
A Consignia spokesman said the group would pay the market rate only to external appointments. The pay of existing employees would remain linked to civil-service rates.
Leighton has told colleagues he wants to iron out these inconsistencies. Roberts is unhappy with being paid less than other directors who report to him. Unless something is done, he could leave within six months.
However, for the time being Roberts's priority is to lead the restructuring. One of the first hurdles facing him is a threatened strike that has been pencilled in for the first week of next month.
Sunday Times
