Postcomm reply to Consignia MP Letter

I am writing to express my disappointment at the irresponsible and inaccurate letter that Consignia sent to MPs on 6 March, compounded by an equally inaccurate press release the same day. I am particularly sorry that, during a period of consultation on the introduction of competition to the UK postal market, you should think it appropriate to put pressure on an independent regulator in this way. You seek to justify your action by suggesting that Postcomm is proceeding with reckless haste and has a flawed understanding of the postal market. Both these claims are untrue. <<>>> You have known since the 1999 White Paper that a postal regulator would be charged with bringing forward arrangements for the introduction of competition. And as long ago as July 2000 Postcomm published a Corporate Plan which said that “Postcomm will consider all appropriate mechanisms for introducing competition, including … liberalisation by class of mail (e.g. excluding direct mail or bulk mail [from the monopoly])”. We have since carried out a number of major consultation exercises, including one last year which explicitly asked for views on the advantages and disadvantages of various market-opening options. Consignia and many others have participated in all these exercises, including by submitting formal documents and information as well as by participating in meetings and discussions. Your arguments and information have significantly shaped our proposals. <<>> We published our proposals on 31 January. The formal period for consultation does not end until 15 March. We will then give most careful consideration to the representations put to us. We will show, as we have shown at every stage in the process, that we take our responsibilities and our commitment to openness and consultation very seriously indeed. <<>>> The statement that “£2 billion of [Consignia’s] revenue would be up for grabs within weeks unless Postcomm changed its far-reaching proposals for the UK’s mail market” has no basis in reality. Indeed, you seem to run down your own company, managers and staff. Even assuming that many new entrants are queuing up to enter the market, Consignia is in by far the best position to compete for and retain the lion’s share of the bulk mailing business. <<<>>> Your mail volumes and revenue continue to rise. You have the huge commercial advantages of your infrastructure, experience, customer loyalty, brand name and many dedicated staff. Everything you have told us throughout the consultation period suggests that the Royal Mail is a fundamentally sound business which has temporarily lost its way. It provided an excellent service and generated good profits in the 1990s and there is no reason why it should not do so again. <<>>> You state, inaccurately, that we have offered no safeguards for the universal service. Parliament (through the Postal Services Act) and Postcomm (through your licence) have demonstrated an absolute determination to protect the universal service and we devoted an entire chapter of our recent proposals document to safeguards which could ensure that it can be financed. The universal service is also assured by the fact that your business customers, who between them post about 70 million items every day, need to communicate with all their customers whether they live in a city or on a farm. The universal service is a commercial imperative as well as a social necessity. <<>>> It seems evident, however, that Consignia’s acknowledged inefficiencies pose an ongoing problem for the financing of its whole business and not just the universal service. Our extensive research on the UK postal market, confirmed by Consignia’s own day-to-day experience, suggest that the universal service would be at far greater risk if Consignia failed to make efficiencies than it would be from the introduction of competition. <<>> I was grateful for your agreement to withdraw the accusation that Postcomm had itself made an error when suggesting that bulk mailings of 4,000 or more items would constitute around 30% of your market by revenue. Our intention, subject to consultation, is to open 30% of your market by revenue:- no more and no less. The suggestion that this might require a threshold of 4,000 letters was entirely based on figures provided and confirmed by Consignia which is, as the monopoly service provider, the only company in a position to provide detailed statistical data. In the light of the confusion caused by your recent comments we have required you to provide further detailed information. If it then appears that we need to adjust our proposals, including adjusting the threshold so as to open only the proportion of the market which we intended, we will certainly do so. Your comments drawing attention to the risk to the universal service identified in the National Audit Office report are similarly misleading. You are well aware that the NAO report gave equal prominence to the opposite risk that Postcomm might open the market so slowly as to fail to encourage real competition. <<>>> You question why we are not simply following the EU approach, like "every other EU member". You are of course well aware that several member states have already liberalised their postal markets significantly beyond the EU minima. And we have explained at length why the EU approach (maintaining the monopoly for the large volumes of lighter letters) is very unlikely to encourage effective competition in a market which depends upon volumes to generate adequate profits. <<>>> You draw attention to price rises (for domestic mail) in Sweden following liberalisation in 1993. But you fail to mention that business prices fell substantially at the same time and that there was a very weak price control which was corrected only in 1998 since when prices have been held steady. But at least you and we can agree on one thing. We were pleased to note your statement that the introduction of competition would benefit customers. Our firm conviction, too, is that customers’ interests will be best served in a competitive market that offers choice, encourages rivalry and efficiency, and stimulates innovation on the part of postal operators. <<>>> In order to correct the record, I am copying this letter to Members of Parliament. Martin Stanley Chief Executive Direct Line: 020 7593 2110 Email: [email protected]