Hewitt set to back mail group in row with regulator
Patricia Hewitt ispreparing to take Consignia's side in an increasingly angry row over prices between the mail operator and the postal regulator. The two sides traded accusations yesterday of recklessness, regulatory insanity and sabre-rattling.
The stakes could hardly be higher, if the company's dire predictions are to be believed. Consignia claimed the proposed controls risked jeopardising not just its own future but that of the postal service itself.
Publicly, the trade and industry secretary remained above the fray, saying simply that she was "disappointed" by the failure of Consignia – soon to be renamed Royal Mail – and Postcomm, its watchdog, to agree on pricing controls.
But this apparently neutral stance is understood to mask a great deal of sympathy for the embattled mail operator in its latest fight.
She has signalled privately that she is ready to use the government's influence as Consignia's single shareholder to fight the company's corner.
Allan Leighton, Consignia's chairman, will welcome her support. He said: "Postcomm's plans will destroy the one-price-goes-anywhere universal service which only Royal Mail provides. Incredibly, this is the very thing that Postcomm is charged to protect above anything else. Postcomm is behaving recklessly with the interests of customers. These are shocking proposals. The regulator is trying to put us in a straitjacket."
Mr Leighton's wrath might seem surprising, given that Postcomm has agreed that Consignia, which is losing Pounds 1.2m a day, can raise the price of first and second-class stamps by 1p from next April, in return for higher compensation for lost and delayed post.
But the company's ire has been roused by the third element of the package – a pricing formula that fixes the weighted average of a range of products and services at 29.1p. Consignia claims this will strip out Pounds 460m of revenue, more than cancelling the benefits of the price rise.
"The regulator is giving with one hand and grabbing even more back with the other. This is regulation gone mad," said Mr Leighton.
The company fears the use of an average, rather than a set, tariff will penalise it when the market is opened up to competition for the first time, in April.
But Postcomm rejected Mr Leighton's accusations. It said the company was overstating its case. "This is good old sabre-rattling stuff," said Graham Corbett, Postcomm's chairman.
The regulator would look carefully at the company's concerns and, if necessary, adjust the formula. But Mr Corbett was "profoundly distrustful of (Consignia's projected loss) number". Far from the Pounds 460m loss in revenue claimed by Consignia, the watchdog expects the controls to result in Pounds 46m of cash being generated by the company over three years. Editorial Comment, Page 20
Copyright © 2002: Financial Times Group
FINANCIAL TIMES UK 4th October 2002
NATIONAL NEWS: ADVERSARIES SQUARE UP IN BATTLE OVER PROPOSED PRICING CONTROLS
In a clash that could be billed as the showman versus the sharp-toothed regulator, neither showed any sign of backing down yesterday.
Allan Leighton, the flamboyant former Asda chief executive and now chairman of Consignia, met Graham Corbett, his regulatory adversary in the first of what will be a series of bouts to decide future postal prices.
Mr Leighton was adamant he was right and the regulator wrong. But Mr Corbett appeared equally convinced Mr Leighton was overplaying his hand. The Consignia boss claimed the regulator failed to appreciate the harsh commercial realities that confronted the mail operator. The company has borrowed Pounds 1.8bn to fund a radical restructuring plan to turn its disastrous financial situation around.
Mr Leighton warned that proposed pricing controls by Postcomm, the regulator, would seriously undermine the assumptions which this business plan, and its underlying funding, are based on.
"It doesn't matter what Postcomm thinks about our figures. I care more about what the people who lend us the money think," he said. "You have got a company that is bust trying not to be bust. The regulator says they understand that but I'm not sure that they do."
This might sound like bravado. But Mr Leighton's down-to-earth approach has won him important friends since he took on the part-time Consignia chairman's role in January.
His abrasive manner might not play well with senior managers but the postal unions appear fully onside. Billy Hayes, general secretary of the Communication Workers' Union, yesterday backed Mr Leighton's assault on Postcomm, claiming the regulator was "working against the interests of a popular public service. It is time they were reined in by the government".
The government may not be willing to undertake such "reining in" but it, too, appears on Consignia's side. By stoking the atmosphere of crisis, Mr Leighton this year persuaded ministers to give back the dividends of the past 20 years.
But those close to Mr Corbett warn that he should not be written off. The regulator has a reputation for being hard-headed and able to cope with pressure. His advice yesterday to Mr Leighton to "cool it" reinforces this impression.
Company failed to deliver a profit despite monopoly over essential service
The jeers that greeted the Royal Mail's decision to change its name to Consignia – a move that will be reversed later this month – are the least of the company's problems, writes Jean Eaglesham. Despite enjoying a 300-year monopoly over an essential service, it has run into dire financial problems.
High wage bills and other operating costs have long outstripped its income from government-controlled postal charges, as unions clashed with a management team characterised as "Victorian" by ministers earlier this year. This summer, Consignia revealed a loss of Pounds 1.1bn for its last financial year. The scale of the losses helped persuade the unions to agree to a radical restructuring under a largely new management team – 30,000 job cuts have already been announced. Post offices are being closed and the Parcelforce division cut back. A new chief executive and new non-executive directors are expected to be announced shortly. The medicine will have to work rapidly: Consignia faces direct competition from next April.
Copyright © 2002: Financial Times Group
