Consignia may sue over open market

POST Office owner Consignia is threatening to take legal action unless the regulator, Postcomm, agrees to slow the introduction of competition and allow a 1p increase for first and second-class mail deliveries.

And chairman Allan Leighton warned this weekend that he will demand yearly postal increases of 2p or even 3p if this growing competition hits Consignia profits.

Opening up to competition at the speed required by Postcomm would cost Consignia £750m between now and 2006, he told Financial Mail.

'I am battling to strip £1.2bn costs out of the business. Taking a further £750m out of it would seriously damage us,' he said. 'I would not want to do it, but I suppose we may have to seek a judicial review. It is the job of the regulator to ensure a universal service, and that could become impossible.'

Leighton said Consignia accepts that competition should be introduced in Britain, but only at the slower pace planned for mail services on the Continent.

'We are being asked to open up our business to competition from our rivals overseas when we are not allowed to compete with them in their own markets,' he said.

Faced with the prospect of the business going bust - at the moment it is losing £1.5m a day - he warned that Consignia might be forced to stop delivering letters to remote addresses.

At present, the law insists on the post being delivered anywhere in the UK at a single price. If all else fails, Consignia might be forced to go to the Government, its only shareholder, to ask for a subsidy to guarantee the universal post service.

The company will start losing its mail monopoly this month when competitors will be allowed to compete for bulk mail deliveries - 4,000 or more items in one posting.

These account for about 40% of the letters posted in Britain. The threshold will later be cut to 500 letters, and it will be removed completely by 2006.

Leighton, who has announced plans for 15,000 redundancies and the closure of 3,000 urban post offices, claimed that post prices, at present 27p for first class and 19p for second class, will remain among the lowest in Europe, even if a 1p increase is allowed. The rise would generate an extra £170m a year.

But Leighton's demand for price rises and a slowing of competition received a sharp response from Postwatch, the industry's official watchdog.

Chief executive Gregor McGregor insisted: 'Consignia is in a financial mess of its own making. It has lost control of its costs and customers should not be expected to bail out a failed management.

'It has become isolated and complacent because of its monopoly. Competition, as Consignia itself recognises, will spur it to be innovative, improve its customer services and become efficient.' Postcomm said: 'We will respond to the request when we receive it.'