Postcomm gives Consignia an extra year to adjust to full competition
29 May 2002
There will be a fully competitive market in postal services in the UK from April 2007 – one year later than originally proposed - Postcomm, the postal services regulator announced today. Competition will be introduced gradually, beginning on 1 January 2003.
In a decision document, which takes account of almost 2000 responses to its 31 January consultation on competition, Postcomm says that competition will be introduced in three phases, as follows:
- Phase 1, from 1 January 2003 – 31 March 2005: bulk mail above 4000 items (from a single site in a similar format), around 30% of the UK letter
market by value, together with consolidation services and niche services. - Phase 2, from 1 April 2005 – 31 March 2007: the bulk mail threshold will be adjusted to open up a total of 60% of the market by value.
- Phase 3, from 1 April 2007: all restrictions on market entry abolished.
Graham Corbett, chairman of Postcomm said:
“Today’s decision is good news for customers. Competition in the postal market will provide more reliable and more innovative customer services.
“At the same time we have been listening carefully to the debate on our proposals. While keeping the essential framework intact we have made a number of detailed changes which collectively add up to a material shift in the balance of risk in Consignia’s favour.
“We want to see a robust and competitive Consignia at the core of a robust and competitive postal market. That can only strengthen the universal postal service.
“During the transition period to full market opening in 2007 we will actively monitor the market. And if we do need to intervene to preserve the universal
service, we have the tools to do so.”
Today’s decision maintains the main elements of Postcomm’s approach to competition published for consultation on 31 January this year. But after considering all the responses, the end date for competition has been put back by one year and phase one lengthened so that Consignia will face only a modest level of competition while it implements its three-year renewal plan.
Postcomm has also dropped plans in its original proposals to look at speeding up the introduction of full competition. The new fixed end date of 2007 will provide clarity and certainty for the industry. This end date will be incorporated into operators’ licences so that if, in the unlikely event it were necessary to postpone the end-date to preserve the universal service, this would call into play detailed mechanisms designed to protect licensees’ interests, including reference to the Competition Commission.
Postcomm has also defined bulk mail more clearly to ensure that the phase one opening is restricted to 30% of the letters market as originally announced.
Notes for editors
The decision document sets out Postcomm’s policy for achieving effective competition within the postal market for items weighing less than 350g and
costing less than £1. Until March last year the Royal Mail had a monopoly of all UK mail in this area. It is now licensed by Postcomm to provide these services and delivers around 80 million items a day throughout the UK.
Today’s decision follows two years of extensive research and investigation into the postal service market.
Postcomm’s original competition proposals suggested a tighter timetable for the introduction of competition, with an end-date of March 2006.
The European Postal Services Directive. Postcomm’s three-phase decision builds on the approach to liberalisation adopted by the European Union. The European approach is to open up the market by progressively reducing the weight/price threshold of services “reserved” to the national postal operator. The Postal Services Directive reduces the reserved limit to100g on 1 January 2003 and to 50g on 1 January 2006, but does not commit to an end date for the abolition of all restrictions.
Postcomm does not consider the price/threshold approach on its own will achieve an orderly transition to full market opening in the UK. Most letters weigh less than 100g, and would-be competitors would have to split their mail, passing items below 100g to Consignia to deliver. For that reason Postcomm has decided to supplement the European requirements with the measures set out above.
The universal postal service requires one delivery and one collection of post throughout the UK on each working day at a geographically uniform tariff.
Bulk mail is used by large organisations to deliver bills, bank statements, cheques, advertising mail, government information and other pieces of
correspondence. The top 500 bulk mailers – banks, government departments, credit card companies, mail order companies and advertisers – between them send out 40 million postal items a day, which accounts for around half of all mail. At present Royal Mail handles virtually all bulk mail traffic. The market for bulk mail above 4000 items per mailing is estimated to be worth around £1.4 billion a year.
Consolidation allows operators to collect mail from a number of sources – for example from companies on an industrial estate – pre-sort it so that it qualifies for bulk mail discounts, and send it to Consignia to deliver.
Niche services are expected to be small- scale specialist business services, such as providing mailroom facilities for companies that do not have one.
Licence applications can be made from June this year, but the new licences will only come into operation from 1 January 2003. Holders of interim 12-month licences will be able to apply for long-term licences. Up to now Postcomm has issued nine interim 12-month licences for pilot schemes. Details of all current licences can be found in the licensing section of the Postcomm website.
All long-term licences issued by Postcomm will be for an indefinite period subject to a three-year notice period, which can only be exercised in or after the fourth year.
Post offices. Competition is expected to have little effect on the network of post offices, which are part of Post Office Limited, a separate business owned by Consignia and not subject to regulation by Postcomm. There are three reasons for this. First, post offices handle only a small proportion of the mail that is posted each day. Second, mail represents only a small proportion of the business transacted by most post offices. Third, that business is typically packets and specialist mail from individuals and small firms, which will not be subject to competition until 2007.
