Royal Mail put under new pressure to deliver

Royal Mail must deliveror die, as it faces serious competition for the first time.

From tomorrow, theEuropean postal services directive will reduce the part of the postal market that can be reserved to national monopoly operators.

At the same time, the domestic regulator will go further in opening up the market – allowing rival operators to handle the post of companies sending more than 4,000 items in one go.

The prospect has provoked howls of outrage from Allan Leighton, the Royal Mail's outspoken chief executive, who has said "anyone with a shed and a van will be able to set up a rival operation".

Graham Corbett, chairman of Postcomm, has said the regulator's approach was designed "to provide the incentives . . . Royal Mail needs to push ahead with an appropriate level of urgency with the changes which need to be made".

Royal Mail has not been faring well in spite of its position as a monopoly. It is losing £1.1m a day.

However, the regulator has limited opening up the market – only 30 per cent of mail volumes will be up for competition – giving Mr Leighton's three-year renewal plan a chance to get the group back on its feet.

Meanwhile Postwatch, the consumer watchdog, and rival operators complain that the process is too slow.

Hays, the first rival to get a one-year interim licence, has said that, without an access code setting out how much competitors will need to pay Royal Mail to use its network over the last mile of delivery, market opening means little.

The European directive reduces the part of the market reserved for the national monopoly from 350g letters and parcels to those weighing up to 100g.

In Britain – unlike the rest of Europe – licences will be required between 100g and 350g, but with no restrictions on the nature of the services provided. "This is the best way to safeguard the universal service and to ensure that postal users benefit from competition in the early stages of market opening," Postcomm has said.

But Royal Mail says the regulator's move adds an unnecessary layer of bureaucracy to what should be a simple process. At the same time, "Postcomm's fast-track approach to opening the UK postal market at a much quicker pace than in the rest of the EU is putting at risk the UK's one-price-goes-anywhere universal service", says Royal Mail.

The European postal services directive will result in a significant opening of the UK market – 22 per cent by value, according to Royal Mail. Postcomm's decision to open bulk mail to competition will represent an extra 35 per cent of the market by value.

But market opening will make no real difference for the public, says Postcomm, since operators already have one-year interim licences. The new standard licences will be valid for seven years.

"The real difference will be for operators who can now go to existing customers saying: you can give us your business knowing our navel cord won't be cut off at 12 months' notice," said Mr Corbett.

Three rival operators are set to benefit most from market opening tomorrow – TPG Post UK, owner of TNT, Hays Commercial Services, and Deutsche Post. TPG and Hays obtained the first standard licences this month. These will allow them to carry bulk mail and provide consolidation, enhanced document exchange and tracked business-to-business services. Deutsche Post is in the process of applying for one.

Postwatch has complained that "true postal competition will not happen in 2003 . . . in practice it might be some considerable time before major mailers find companies competing for their business".

For effective competition to become established, it will be necessary for new entrants to be able to use – at a price – Royal Mail's delivery network. There are parallels with the opening up of the gas and telecommunications markets, where rivals complained about the cost of access to pipelines and telephone lines.

Deutsche Post has been undertaking trials using Royal Mail's delivery network since November, but says it is not satisfied with the terms and will drop the trials unless these are changed.

Postcomm is still to come to a decision in its arbitration between Business Post and Royal Mail over access pricing. A public consultation on access pricing will take place in January or February, and a definite access code is unlikely to emerge until the latter part of next year.