Delay in postal delivery – comment on competition by FT

Like far too many letters, competition in postal services will be delivered late. Postcomm has agreed to extend the deadline for introducing greater competition in the post. The regulator’s decision, made at the request of Consignia, which operates the Royal Mail and its staff union, delays the process by only one month. But after almost two years of planning and consultation, no further delays must be conceded in liberalising a market crying out for competition to improve the appalling service provided to mail users.

Opponents of Postcomm’s plan have so far resorted to scaremongering in their campaign against the proposals published in January. “Cherry-picking” by competitors will leave Consignia with only the least profitable mail, they say, and undermine the universal postal service that delivers letters across the UK for a single price. Unless stamp prices rise sharply, Consignia will go under – leaving all mail users worse off.

These arguments are nonsense, and ignore powerful evidence Postcomm published with its proposals. Rural services more than cover their direct costs, so even if competitors chopped off all the urban mail, what remained could still be profitable.

Competitors will do no such thing, of course – they would be forced to replicate Consignia’s universal service, at great cost. The experience of liberalising postal markets elsewhere in Europe is that the incumbent operator retains 90 per cent of the business. Consignia’s universal postal service is its competitive strength, together with its brand, experience and staff. Competitors will have to use it for the final leg of delivery.

Nor should stamp prices rise. The only reason why Consignia is making losses is that it has allowed expenses to spiral out of control. It has already identified Pounds 1.2bn of savings that would more than wipe out this year’s expected losses of about Pounds 600m.

What makes Consignia loss-making now is absence of competition. It makes a profit on the heavier and more expensive items where it already faces competition, and then squanders it in the areas of its monopoly where it says it is losing Pounds 1.5m a day.

Consignia’s problem has been poor management, which instead of improving efficiency has been devoted to fighting off the threat of competition. The arrival of Allan Leighton, former Asda chief executive, as interim chairman has already led to a new realism about the company’s future. With Mr Leighton likely to be confirmed in the post, he has an unrivalled chance to start anew in a competitive market. Further delay to liberalisation will only prolong the agony for mail users and Consignia itself.

Page 18; Edition London Ed1; Section LEADER

Copyright 2002: Financial Times Group