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Last Updated: Sunday, 1 January 2006, 01:24 GMT
Opening mail provides postal challenge
By Bill Wilson
BBC News business reporter

Royal Mail postman
The Royal Mail postman may soon not have the street to himself

The Royal Mail's 350-year monopoly ended at the turn of the year, allowing other licensed operators to deliver mail to business and residential customers.

Surprisingly, the Royal Mail - which currently controls 99% of the market - agreed to the move, even though under EU rules the deadline for such a move was not until 2009.

Until now, competition in the 4.5bn market has been restricted to 30% of the value of the letters market, and to companies handling bulk mail in batches of 4,000 letters or more.

Full market opening means that licensed operators are now able to collect and deliver any mail, from single letters to bulk mailings.

They can set up collection boxes, provide collections and deliveries between businesses, offer tracked mail services or mail deliveries at a guaranteed time.

A code of practice will ensure mail companies co-operate on issues such as the forwarding of mail and handling mail that is returned to sender, and a separate code will safeguard the integrity of the mail.

'Role model'

The development is welcomed by consumers' group Postwatch, but not by postal union the Communication Workers Union (CWU), which has said the move is "ill-advised".

The CWU says it will place "the country's cherished universal service in jeopardy".

In the UK it appears the effects, possible problems, and universal service obligations have been well thought out
Professor Peter Andersson, Linkoping University

And the influential House of Commons Trade and Industry committee has called the change "untimely", with the Royal Mail already having to cope with changes to stamp prices and a 4bn pensions deficit.

However, according to one Swedish academic the UK may find liberalisation a positive experience.

Professor Peter Andersson, of the Department of Management and Economics at Linkoping University, has closely monitored his nation's postal services since liberalisation in 1993.

"We were the first nation to abandon the postal monopoly, and have now had over 10 years of liberalisation of the market," he told the BBC.

Swedish postman
Sweden Post cut jobs after liberalisation in the 1990s

"To me the UK looks like something of a role model for the liberalisation process.

"In Sweden liberalisation was ill-prepared, and the effects were not thought about much in advance.

"In the UK it appears the effects, possible problems, and universal service obligations have been well thought out."

Prof Andersson says it has been calculated that meeting the universal service obligations will cost Royal Mail little more than 1% of its annual income.

"The UK has set a good path for other nations, by approaching liberalisation without waiting until 2009, the year the EU has given for national monopolies to come to an end," he says.

"It is healthy that they have decided to speed up the process."

Delivery promises

However the CWU claims there is now a "competition at all costs" ethos which will disadvantage the Royal Mail compared to its European rivals, and that the move is premature and out of step with a managed EU approach to the issue.

Others point out that mail delivery prices for the general public actually rose in Sweden, something Sweden Post has blamed on the high cost of delivery to rural areas.

In the UK a postal service to all parts of the country, including isolated, rural and island areas, is guaranteed by the universal service obligations pledge.

We need to compete... on price as well as service if we are to keep the universal service in business
Adam Crozier, Royal Mail chief executive

It means Royal Mail is still required to provide a universal postal service for first and second class mail of one delivery, and one collection each working day at a uniform price throughout the UK.

Meanwhile, most of the new mail companies will choose to ignore "social" mail to concentrate solely upon business or "franked" mail, as this is by far the most lucrative sector of postal deliveries.

Royal Mail points out that it loses money for every stamped or household letter that is posted, a service that is - at present - effectively subsidised by its business deliveries.

It wants to be able to charge higher prices than regulator Postcomm thinks necessary for stamped mail, saying it needs greater flexibility over pricing to compete with rivals in the business mail sector.

'Quality of service'

Royal Mail chief executive Adam Crozier warns it must have the freedom and flexibility to set the right prices for delivery, based on its real costs.

"If that happens, I think the new competitive environment will succeed," he says.

Otherwise, he warns, the universal service could suffer.

Man sorting mail (Royal Mail)
Sorting machines will play a major role after liberalisation

"Competitors are already targeting profitable business mail. We need to compete with them on price as well as service if we are to keep the universal service in business."

He adds: "It is very important we maintain our business post. If we loose the profitable mail and are left with the social mail that will cause us problems going forward.

"Also we want to keep investing to keep quality of service."

Royal Mail is now investing in sorting machines, trying to catch up with potential competitor Deutsche Post, which has been spending heavily on the machines in the UK.

While Deutsche Post and the Dutch post group TPG, both of which now operate in the UK, sort more than 90% of delivery loads by machine, Royal Mail only does 50%.

'Increased productivity'

Prof Andersson says introducing sorting machines after liberalisation in Sweden meant increased efficiency for Sweden Post, but meant losing jobs.

He said liberalisation meant the move to increased sorting machines came "sooner than later", in 1994 and 1995.

Since then, he says, the state service has become more productive and more efficient.

"Productivity has developed at the same rate as other businesses in Sweden," says Prof Andersson.

"The business is very letters-driven - and although employee numbers have gone down more letters are being delivered.

"The market is working better now that it would have otherwise.

"But there was no revolution, change did not come in one overwhelming moment, and that is important to keep in mind."

Postwatch urges tighter controls
21 Dec 05 |  England
First class stamps to go up by 2p
07 Dec 05 |  Business
Parcels boost Royal Mail profits
17 Nov 05 |  Business
Royal Mail delivers record profit
17 May 05 |  Business

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