Independent review of the postal services sector

On 15 May 2008, our second submission to the independent review was released, and examined how to maintain the universal service obligation in the light of trends and market developments.

Postcomm argued that a universal service that is financially viable and safeguarded for the future is most likely to be achieved through a radical transformation of the governance and structure of Royal Mail:

With the mail market now in structural decline, because of the increasing impact of e-mail and the Internet, Royal Mail needs access to private capital and a stronger set of incentives to enable it to restructure and become more profitable;
Partnerships with the private sector, such as we are seeing in some European countries, could serve as a catalyst to more rapid transformation and greater efficiency from the universal service provider;
As competition develops in segments of the market, it can replace regulation as the force which protects customers’ interests. This – and the need for much more transparency about the costs of Royal Mail’s business – will be a major theme of Postcomm’s proposals for the regulatory framework post April 2010; and
The transformation of Royal Mail will ensure a more dynamic mail market that can respond quickly and effectively to changing customer needs as mail increasingly is challenged by electronic media.

Postcomm believes competition and liberalisation should continue to be promoted as they are delivering far better customer focus and strong incentives for all mail operators to innovate and to become more efficient. Competition has already benefited large customers, and choice is now becoming available to smaller businesses. The regulator also urges the removal of artificial barriers to postal market entry – including the removal of new entrants’ VAT disadvantage – which could encourage wider competitor involvement in the collection, sorting and delivery of mail.
Submissions closed on the 19 May 2008. Further information on the independent review is available on the Department for Business, Enterprise and Regulatory Reform's website.

On 6 May 2008, the report: The challenges and opportunities facing UK postal services: an initial response to evidence (external link) was released by the review panel.

On 27 March 2008, in our first submission to the independent review panel, Postcomm argued that fundamental reforms are essential if Royal Mail is to have a long-term sustainable future and the needs of all users of mail are to be met, and we highlighted the positive impact for customers since the addressed letters market was opened fully to competition on 1 January 2006.

Larger customers have enjoyed lower prices and increased innovation;
Residential mail users have experienced record levels of service quality from Royal Mail; and
Smaller businesses and public sector customers are also now beginning to reap the benefits of choice.

During this period, there have also been significant structural changes in the mail market that are directly linked to advances in technology and the increasing use of alternative forms of communication such as email and the internet. These changes pose challenges but they also create new opportunities. Royal Mail’s performance in rising to meet these new challenges has been disappointing.

Royal Mail continues to lag significantly in terms of investment, efficiency and substantial product innovation. Its recent focus has been on forestalling new entrants to the mail market and far less on adapting to these more far-reaching structural changes. This situation is unsustainable and unless addressed will result in accelerating decline.

Postcomm believes the future health of Royal Mail, the universal service and the addressed letters market as a whole are inextricably linked. Decisions about fundamental reform have to be taken swiftly if Royal Mail is to lead a healthier mail market and provide a strong universal service.

On 17 December 2007, the Government announced a review of the postal services sector (external website). Its terms of reference are:

to assess the impacts to date of liberalization of the UK postal services market, including on the Royal Mail, alternative carriers and consumers;
to explore trends in future market development and the likely impact of these on Royal Mail, alternative carriers and consumers; and
to consider how to maintain the universal service obligation in the light of trends and market developments identified.

Independent review of the postal services sector

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