TNT Post calls for fair competition in UK postal market

TNT Post UK is calling on Britain’s newly-designated postal regulator, Ofcom, to bring down barriers to fair competition in the British postal market. In particular, the Dutch-owned postal operator wants to see an end to Royal Mail’s exemption on VAT for business mail services.

It says concerns about the danger of more competition on Royal Mail’s universal service obligation are unfounded – even with the growing threat of electronic substitution.

The company has released new research, commissioned from German postal consultancy WIK-Consult, reviewing fully liberalised postal markets in Germany, the Netherlands, Spain and Sweden.

The report found that those countries have seen much higher levels of competition than the UK, but there has been a postive impact on the incumbent postal service provider’s ability to deliver to all households in their territory in the last decade, because it has prompted modernisation and efficiency of postal services.

Generally, it said quality of services have improved with better routing times and longer opening hours, although it noted that in some cases regulators had to step in to prevent service disruptions. Such situations require “close regulatory surveillance”, particularly on the post office and public postal tariffs, it suggested.

Alex Dieke, head of WIK-Consult’s postal unit, said: “In the four countries studied in our report, we believe end-to-end competition has helped to achieve a sustainable universal service and, indeed, improve universal service quality, by putting pressure on incumbent operators to modernise.”

TNT Post UK said that zonal pricing for business mail – where prices are higher for Royal Mail to deliver to rural areas – will also help to ensure the survival of the universal service obligation.

Nick Wells, CEO of TNT Post UK, said of the research: “The report findings will help allay fears that competition will have a detrimental impact on the ability of Royal Mail to meet its obligation to deliver to every household in the UK.”

Competition

Although it has been open to postal competition since 2006, the UK has seen “hardly any” companies entering the postal market providing end-to-delivery services – less than a 1% market share – with Royal Mail still providing the last mile for “almost all” letters, the report noted.

But while some may think true end-to-end competition may endanger Royal Mail’s universal service, the researchers point to Germany, Sweden, the Netherlands and Spain as proof that competition can actually improve universal postal service.

Aside from Correos in Spain since the 2009 downturn, the postal operators have been profitable despite declining mail volumes, and have provided universal service products on “very successful” commercial terms, said the report.

But, partly because of the presence of competition in the end-to-end market, those postal operators have transformed to modernise and improve operational efficiency.

In Germany, where TNT Post is the biggest competitor to Deutsche Post, Deutsche Post restructured in the mid-1990s and has seen its employment in its mail segment remaining “relatively stable” in the past 10 years, despite a 5% drop in volumes, with competitors holding a 10% share of end-to-end delivery.

In the Netherlands, PostNL has lost 27% of mail volume since 2001, and since liberalisation in 2009, competitors now have a 17% market share, mostly in direct mail.

In Spain, competition existed in intra-city mail services long before the rest of the market was liberalised at the start of this year, with competitors holding a 12% market share.

In Sweden, where liberalisation took place as far back as 1993, Sweden Post’s competitors hold a 12% market share – which has remained “largely stable” in the last decade, the report said.

Legal powers to set up industry-contributed funds to support provision of universal services are in place in all of the studied countries, but aside from Spain, the report said none of the countries’ regulators have so far deemed it necessary to implement such arrangements because universal services are sufficient.

In Spain, expectations are that a fund could be established in the second half of 2011 to support universal services, with competitors providing up to 0.5% of their net revenues to fund it, while Correos also receives EUR 60m in state aid each year to support its heavy dependence on letter services.

Level playing field

In the UK, communications industry regulator Ofcom formally takes over responsibility to regulate the postal industry from October 1 – taking on the mantle from Postcomm in accordance with this summer’s Postal Services Act.

TNT Post, which describes itself as the largest private-sector postal operator in the UK, said it has long-held ambitions to launch a full end-to-end service to compete with Royal Mail.

But, the company said Royal Mail’s VAT exemption on business mail makes it “uncompetitive” for rivals to provide such a service, since major customers like financial and charity sectors cannot recover their VAT using private sector services.

TNT Post UK, which has its head office in Marlow, Buckinghamshire, called on Ofcom to ensure mailers in the UK have a “real choice” in the market.

Wells said: “We want a strong Royal Mail but it has to modernise to meet the needs of the market today and in the future and also be open to competitive forces that will ensure its future efficiency and prosperity.

“With Ofcom taking over regulation of the postal industry, we call upon on it to back our fight to get a level competitive playing field in the UK which will enable us to make the business case to invest millions in an end to end service as well as thousands of new jobs,” added the TNT Post UK chief executive.