Regulating the UK Mail Industry
UK Mail Conference
12 March 2002
Remarks by Postcomm Chief Exec
Ladies & Gentlemen
It’s very good to be at this conference and to meet so many old friends. I can hardly believe that it is only two years since my colleagues at the DTI persuaded me to take on this job. They assured me that it would be a piece of cake. Increase prices by a penny each year. Follow European Union market opening. And then go back to sleep. Foolishly I believed them.
And then I met Gregor McGregor, an experienced regulator who became my deputy and is now Chief Executive of the consumer body Postwatch. We started meeting Consignia’s customers and their representatives including the Mail Users Association, the Direct Marketing Association and the Periodical Publishers’ Association. I still remember our first lunch with John Ivers and Jeremy Partridge of the MUA. And Greg and I became increasingly concerned about the wasted opportunity represented by Consignia’s collective attitude to its business and its customers.
We hope and expect that our recent market-opening proposals – beginning with bulk mail and ending with full liberalisation in 2006 – will be the spur that they need to begin to change.
Indeed, we believe that Consignia, despite its present problems, is fundamentally a very sound company.
Consignia
Despite the noise in the press, mail volumes and revenues continue to rise. Their problem is their costs which are rising far too fast. And why are they rising so fast? Because there is no competition.
Competition will therefore be good for Consignia because it will help its better managers face up to the need to behave in a different way.
Competitors will of course take some time to get going. Statutory hurdles mean that it will not be possible to issue licences until the autumn, so significant competition is unlikely to appear on the ground until around the end of the year.
And Consignia is in the meantime in an excellent position to compete for and retain the lion’s share of the bulk mailing business. It has the huge commercial advantages of its infrastructure, experience, customer loyalty, brand name and many dedicated staff. Indeed, everything they told us throughout the consultation period suggested 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.
We want to create a vibrant and self-confident postal industry. We will not achieve that unless the industry has a vibrant and self-confident Consignia at its core.
And we believe that we have already seen the first signs of improvement. The industrial relations scene is much better than it was, as is evidenced by the recent pay deal.
Also, year on year, it looks as though service quality is on an improving trend. That’s not a bad thing when you are trying to retain your customers.
It looks as though Consignia might give the rest of the industry a run for its money – and that is ultimately good for everyone.
Universal Service
But what about the universal service and the threat of cherry picking?
Put simply, we have come to realise – what many of you knew from the beginning – that the universal service is a commercial imperative as well as a social necessity.
The mail is totally unlike the other utilities. Electricity companies and so on dislike the high fixed costs and low revenues associated with rural customers. It is true that the Royal Mail’s customers are also mainly in towns and cities. But they are mainly big organisations. (86% of all mail is posted by business and half of all mail is posted by only 500 customers.) And big organisations need to get through to their customers wherever they are. They are not going to stop sending bills – or tax returns – or even advertising material – to people who live on farms.
It’s a sort of daily postal tsunami:- 80 million items last night, another 80 million tonight, another 80 million tomorrow night, and so on. An unstoppable tidal wave whose weight ensures that it reaches every corner of the land. We couldn’t stop it even if we wanted to. Nor will Consignia’s competitors be able to refuse to carry their share of these huge volumes of mail, to difficult addresses as well as easy ones.
Access Pricing
Which leads me to the big task of the coming year. As John Whittingdale has said, it will probably make sense for the Royal Mail itself to continue to deliver most of this mail. So we and the industry will need to get the access price right. If we set it too low we cripple the company. If we set it too high we deter competition and even encourage wasteful competing networks. So please don’t expect rapid decisions. We need to get this one right.
Consultation
I want to leave plenty of time for questions. So let me finish with an action point for you in this room – especially if you are big customers of the Royal Mail. We hope that you will benefit from our market opening proposals, most of all because you will soon have a choice of supplier and so able to buy products tailored to your needs. But we need to know whether you agree with our analysis.
Our consultation period ends on Friday. It would be a shame if the only responses were from Consignia and its unions. So do please let us know what you think – even if you simply say that you agree with us – and even if you don’t!
Thank you very much
