Post regulator looks at UK Royal Mail break-up

Postcomm, the postal services regulator, is to investigate breaking up Royal Mail as part of a drive to increase competition in the market. The review, planned for next year, could result in the separation of the postal delivery network, including all postmen, from the rest of the group. It may prompt the resignation of Allan Leighton, the man brought in by the Government to revive the fortunes of the loss-making company. Royal Mail insiders say that the investigation itself could prove the final straw for Leighton, whose relationship with the regulator has become increasingly strained. Leighton has launched a sweeping three-year reconstruction plan for Royal Mail. He has already complained that the group's recovery is being jeopardised by heavy-handed regulation. This weekend, he told The Sunday Telegraph: "This is another example of other people trying to run this company. The renewal plan is there to save the company and the reorganisation strategy is clear. I would not tolerate any internal interference in how this company should be run or structured." According to one company insider: "Any investigation would mean another 12 months sending tonnes of documents backwards and forwards. If the Royal Mail is going to be internally focused, always looking at what pleases the regulator, then I think we might find Leighton has other things to do. "He has made it plain he will not remain running the company while other people try to run it from a distance when they have no relevant experience in any shape or form." The pressure to break up Royal Mail comes from Postwatch, the consumer group. Under their proposals, the delivery "pipeline" of postmen, vans, delivery offices and sorting centres would be owned by a separate company, with its own accounts and management. It would sell its services to the marketing arm of Royal Mail and rival delivery businesses. If the pipeline company were to remain within the Royal Mail group, Postwatch argues there should be strict "Chinese walls" between the two operations. The regulator plans to examine the potential break-up in the first half of next year. According to one industry watcher: "This investigation is something Postcomm has to do. It is unavoidable." Peter Carr, who heads Postwatch, said:"The greatest fear for Royal Mail's rivals in handing over their post [for delivery by Royal Mail] is that they will be unfairly disadvantaged. There is not a queue of people diving into this market and we believe that access to the delivery pipeline is key to that. "We have come round to the view that unless the regulator separates the pipeline from the marketing side, we will never get the benefit of choice for consumers. As far as the consumers are concerned, we do not care who owns it as long as we see the consumer getting the benefits of separation." However, a Royal Mail executive said that any separation would make the company "unmanageable". "Can you imagine the chaos? It might well be a bridge too far. Leighton is already sick of the interference of regulation and consumer groups and takes the view that you can only save a business that wants to be saved and that is allowed to be saved. It would ensure the failure of the renewal plans and would put him in a a very difficult position." Leighton has clashed with Postcomm over a proposed price control regime which he says will cost the business pounds 460m. He also believes that new rules allowing rivals to access the Royal Mail delivery network will cost a further pounds 300m. However, Postcomm says that the price control proposals are still the subject of consultation. It adds that work on the price of access to the network is still at a very early stage.