UK Royal Mail considers delivery price challenge

The Royal Mail was considering tonight whether to mount a legal challenge to plans for it to deliver letters for rival firms for 11.5p.

Chairman Allan Leighton said he was “shocked” at a proposal by the industry’s regulator Postcomm to allow Royal Mail to make a 6% operating profit by 2006 by giving competitors access to its local delivery network.

The proposed price of between 11.5p for letters weighing less than 60 grams – which covers most mail – to a maximum of around #4 for a heavy package will apply to private operator UK Mail, but the figure will also be used by any other company entering the postal market.

Mr Leighton revealed that new financial figures due to be released soon will show that the Royal Mail had “significantly” cut its #1 million a day losses and started to turn the company around.

But he warned: “Just as we have turned a corner, along comes the regulator and throws what could be an almighty spanner in the works.”

Mr Leighton said he was not convinced that the Royal Mail could continue to provide a one-price-goes-anywhere postal service if rival firms could handle mail for as little as 11.5p.

He added: “If Postcomm’s plans amount to a green light for rival firms to cream-skim profitable mail and leave Royal Mail without the means to provide the universal service, then we will not hesitate to fight the regulator’s plans in the High Court and, if necessary, the European Court.”

He warned of a two-tier postal service, with stamp prices dependent on where people lived, if the so-called access arrangement was wrong.

But UK Mail owners Business Post welcomed Postcomm’s proposals and

said the suggested pricing represented a “feasible basis” for its proposed service.

Paul Carvell, Business Post’s chief executive, said: “UK Mail has been asked to pay rather more than we had hoped. However, after 18 months since UK Mail was granted its interim licence, we are keen to get on with the launch of our new service which has stimulated a lot of interest among many large business customers.”

Peter Kane, Business Post’s chairman, added: “Considering that the UK business mail market is growing by 3% per annum and independent operators are likely to have a total market share of under 10% after three years, I hope that the Royal Mail will now recognise that we are all potentially in a triple win situation – with customers, independent operators and the Royal Mail all benefiting.”

UK Mail plans to collect mail from its customers and transport it to its centre at Birmingham, then on to Royal Mail’s 1,400 delivery offices for final delivery by postmen and women.

Postcomm chairman Graham Corbett said: “This is a crucially important step in opening up the postal market in a way which supports the universal service.

“We are aware that Royal Mail is sensitive to loss of volumes but if the price is pitched too high, that would not only deter the development of effective competition but in due course drive competitors to set up alternative delivery networks leading to a much riskier market for Royal Mail and everyone else.”

Peter Carr, chairman of postal watchdog Postwatch, said: “We welcome any moves that will lead to postal companies being able to use Royal Mail’s delivery network. Such access is essential to the development of a fully effective competitive market.”

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