Comment: Pushing the envelope
NOTHING VENTURED, nothing gained. Consignia is pushing its luck in asking the postal regulator to allow it to raise postage prices immediately and hang on longer to its letter monopoly at the same time. Just to put the icing on the cake, it slipped out an increase in special delivery and parcel prices yesterday.
The Royal Mail needs a price increase, not because the universal service is about to collapse but because of its own rank inefficiency. By its own admission, costs are pounds 1.2bn too high. Its answer is to make the customer pay more. This would be cheeky at the best of times but it is quite breathtaking when the Royal Mail is failing to meet its target for next day delivery of first-class letters.
Postcomm ought really to send the posties away with a flea in their ear. Unfortunately, Allan Leighton, the Asda boss turned Consignia chairman, has done a sufficiently good job putting the wind up ministers with his dire warnings about what would happen to the one-price-goes-anywhere service that the regulator will probably relent.
It can afford to lose this skirmish. The bigger, and more important, battle is to come. This concerns the method by which competition is introduced to break the Royal Mail’s monopoly and the speed with which it happens.
Two months ago Postcomm caused heart failure at Consignia by announcing that it intended to open 30 per cent of its market to new entrants almost immediately, another 30 per cent in two years and the whole lot two years after that.
Postcomm wants to abolish the Royal Mail’s monopoly entirely by licensing rival operators to compete at any price level. Initially, this would be limited to the business market for bulk mailing but eventually it would encompass all deliveries and collections, including those from domestic premises.
Consignia, on the other hand, wants Postcomm to agree to salami slice its monopoly away in stages by lowering the threshold from letters costing less than pounds 1 to letters costing less than 41p and, finally, letters costing less than 20p.
But as Consignia and Postcomm both know, real competition will only arrive when new entrants can compete with the Royal Mail at or below the price of a first-class stamp, which is where most of the market is.
Even then, the scenario painted by Consignia looks apocryphal. Experience suggests that, at most, Consignia will lose about 10 per cent of its big bulk mail users which translates into 3 per cent of its overall business. Consignia says that even though the percentage may be small, the business is highly profitable and helps subsidise deliveries to the Scottish Isles.
Ministers have been watching the argument nervously from the sidelines, keen to subject Consignia to the commercial disciplines of the market but fearful of anything which would undermine domestic services or raise prices. The best bet is that Postcomm will stick by its formula for liberalising the market but cut Consignia a little slack by proceeding at a slower pace.
