Consignia asks to raise stamp price

Consignia warned of stamp prices spiralling out of control as it repeated demands to increase the cost of a first-class stamp from 27p to 28p.

The Royal Mail operator said yesterday that it had no choice but to ask the regulator for an immediate increase to cope with the threat of new competition in the letters market.

But in its formal response to the regulator's competition proposals, Consignia warned that this rise might not be enough to stave off a financial crisis caused by the ending of its monopoly.

It fears that new private sector operators will progressively undercut the price of a first-class stamp on profitable routes between cities.

This in turn would reduce the subsidy that Consignia receives from such routes to pay for unprofitable rural services and force it to raise the cost of the universal stamp price once again.

"Once you let the genie out of the bottle you can't put it back in," it said.

Postcomm, the independent regulator, has rejected such arguments in the past, but yesterday said it would review any new requests for a stamp price rise.

It plans to announce a final decision on the introduction of competition in late May after receiving more than 1,300 responses to its initial proposals.

The warning on stamp prices was contained in Consignia's 78-page response to the regulator. It confirms a number of objections to the way Postcomm wants to introduce competition but supports the basic principle.

"We accept that greater competition will spur us on to be innovative, improve customer service and become more efficient," said Allan Leighton, its chairman. "The key issues for us are how and at what pace the market is opened up."

In theory, the issue of Consignia raising stamp prices will not be resolved until 2003 when a separate regulatory review on price controls is due to conclude.

Postal managers believe they have a strong case for linking a price rise with the competition proposals, particularly since they have demonstrated efforts to cut costs with the announcement of 15,000 job cuts.

Postwatch, the consumer watchdog, opposes price rises and backs the regulator's tough proposals on competition. Gregor McGregor, its chief executive, said: "Consignia is in a financial mess of its own making. It has lost control of its costs. Customers should not be expected to bail out a failed management."

Postwatch believes the benefits of competition should not be delayed and need to be introduced as soon as possible: "If Consignia cannot deliver the reliable services customers want, then others must be given the opportunity."

"Customers may be willing to pay more for better postal services but not simply to shield Consignia from competition," it added.

——————

CONSIGNIA, the ailing Post Office, yesterday responded to its regulator's proposals for competition, by asking if it could put up the price of stamps. Allan Leighton, the organisation's chairman, said the group could raise pounds 150m from a 1p rise on first and second class postage. "That would be hugely helpful. It's pounds 150m that we haven't got today," he said. He added that Consignia was still losing pounds 1.5m a day. Consignia's other proposals for the regulator, which had suggested introducing competition on bulk mail as early as the next few months, included a gentler introduction of competition within its monopoly area, in line with the European Union. Postcomm, the postal regulator, had previously rejected an EU-style approach, which would involve reducing the monopoly area to letters under 100g as "unsuitable for the UK market". It had also previously advised Consignia to withdraw a request to raise the price of stamps. However, Mr Leighton said he was "positively hopeful" that the regulator would change its mind. Postcomm said the business was considering Consignia's application. Postwatch, the consumer watchdog for mail services, said that it was "not very impressed" with Consignia's proposals. "We all know Consignia is in a financial mess," said chief executive Gregor McGregor. "The reason for that is that the management lost control of the business. It is entirely wrong to ask consumers to bail out a failing management. The whole point about competition is that it drives prices down." Consignia also said it was in final negotiations over a pounds 1 billion deal with Balfour Beattie to partner its facilities service business, Romec. This is responsible for maintenance of Consignia's buildings. The organisation said that a joint venture between the two companies would result in Consignia retaining a 51pc share in the new business. "It will hopefully reduce costs, increase efficiency and give our people fresh opportunities within new companies." However, Billy Hayes, head of the Communication Workers Union, said: "We have searched in vain for any evidence that such a joint venture will produce any savings for the business. I am putting arrangements in hand today to consult with branches on whether to consider strike action."