Postcomm proposes three-step plan to full market mail opening
31 January 2002
A staged plan that would see business mail contracts open to competition this year, and full competition in postal services by 2006, was unveiled today by Postcomm, the postal services regulator.
The first step, timed for April this year, would allow operators to apply for licences to handle batches of mail from large users containing more than 4,000 items. Operators would be able to deliver this mail themselves or pass it to Royal Mail for them to deliver. This step would open up around 30% of Consignia’s market.
Step one would also allow operators wishing to provide consolidation services – the collection and sorting of mail that is then passed to the Royal Mail for final delivery – to apply for licences from April. This would enable operators to combine mail from smaller firms so that they can benefit from Consignia’s ‘Workshare’ discounts.
In addition, Postcomm will consider further licences for certain defined or niche activities, such as for small-scale local deliveries or specialised business mail services which will provide customers with increased choice.
The proposals, contained in a consultation document published today, are for the market to open in three phases as follows:
- Phase one, from April 2002 – 31 March 2004: Bulk mail above 4000 items, consolidation services, certain niche services – around 30% of Consignia’s market by value
- Phase two, from 1 April 2004 – 31 March 2006: Opening up approximately a further 30% of the market by lowering the bulk mail threshold as appropriate – this is expected to be to between 500 and 1000 items per mailing. Plus a review of restrictions on consolidation licences with a view to enabling operators to pass mail for delivery to operators other than Royal Mail.
- Phase three, no later than 31 March 2006: All restrictions on market entry abolished.
Graham Corbett, Chairman of Postcomm said:
“The current postal monopoly is clearly not providing its customers with the service they want and is failing to contain its costs. We believe the most effective way to change this is for the company to face real competition. Competition will help produce the changes in Consignia that will secure both its own future, and the universal service.
“The National Audit Office report last week identified a number of risks and opportunities to the introduction of postal competition. Our report analyses these and other risks and explains how we have responded to each of them. It also examines a range of safeguards to protect the universal service. Postcomm believes the greatest risk is to do nothing and to preside over a worsening monopoly postal service.
“Our aim is to allow time for Consignia and the industry to make a smooth transition from a monopoly- dominated market to a fully competitive environment in which we would expect an efficient Consignia to remain the largest provider of postal services. To this end we have chosen to introduce competition in stages, beginning with business customers, and with a clear end date of 31 March 2006 for the introduction of full competition.”
Postcomm has commissioned a detailed study of Consignia’s finances and has concluded that under a wide range of reasonable assumptions for efficiency improvements and market share loss, Consignia should be able to withstand the introduction of competition. In overseas countries where competition has been introduced completely or partially, incumbent postal operators have typically retained at least 90% of the market, and service standards have improved.
The document says it expects the emergence of competition to benefit all postal users by making Consignia more efficient, and to lead to improvements in the quality and reliability of the universal postal service – which offers Consignia a considerable marketing advantage.
Responses are requested by 15 March. After considering responses, Postcomm expects to finalise its proposals in April.
Notes for Editors
Until March last year Consignia had a monopoly of all UK mail weighing up to 350 grams and costing less than £1. Currently it delivers 80 million items a day throughout the UK. International mail is already liberalised
The universal postal service requires one delivery and one collection of post throughout the UK each weekday at a geographically uniform tariff.
Bulk mail is used by many organisations to deliver bills, bank statements, cheques, advertising mail and other pieces of correspondence. The top 10 bulk mail users – banks, government departments and a major mail order company – each send out between 250 million and 500 million items of mail a year.
The market for bulk mail above 4000 items per mailing is estimated to be worth around £1.5 billion a year. At present Consignia handles all bulk mail traffic. In the first stage of Postcomm’s proposals, companies would be able to apply for a licence to collect and deliver bulk mailings of 4000 items or more themselves. This is designed to expose about 30% of Consignia’s inland letter revenues to competition.
In stage 2, the threshold would be lowered to a level where it would expose to competition a further 30% of Consignia’s mail business. This means that during the second stage, about 60% of Consignia’s revenues would be exposed to competition. All licences granted under the proposals would be for an indefinite period subject to a three-year notice period which can only be exercised in or after the fourth year.
Up to now Postcomm has issued six interim 12-month licences for pilot schemes. These have been granted to Hays Commercial Services Ltd, UK Mail Ltd, Deya Ltd. TNT (UK) Ltd (2) and G3 Worldwide (UK) Ltd.
After 31 March 2006, when all restrictions on market entry are expected to be removed, Postcomm will aim to abolish licences unless a strong case for keeping them is apparent. This already applies to companies providing courier and express mail delivery services outside Consignia’s licensed area.
