Watchdog to break mail monopoly

UNDER-PERFORMING Royal Mail today paid the price for failing to deliver on time as the industry regulator moved to tear up its 360-year-old monopoly. Postcomm is proposing a radical shake-up of deliveries that would allow rivals to deliver bulk mail from April and compete to deliver all mail from April 2006.

Postcomm chairman Graham Corbett said the proposals, even more far-reaching than expected, reflected the fact that the monopoly is 'clearly not providing customers with the service they want'.

Residential customers in London, where up to one in four first-class letters are late in some areas, would have to wait at least four years to see mail delivered by local operators such as milkmen or supermarkets.

The scale and speed of the proposals produced a furious response from both the company and unions. Royal Mail's parent company Consignia is in severe financial difficulties and making up to 30,000 job cuts as part of a £1.2bn cost-cutting package.

They warn they would cripple Consignia financially and spell the end of the universal service - the principle under which mail can be delivered anywhere in the country for the same price. Consignia chairman Allan Leighton said: 'Competitors can now cherry-pick the profitable parts of our business, which substantially pay for the 'one price anywhere in the country' promise of universal service. For Consignia the regulator's approach represents death by a thousand cuts.'

Billy Hayes, general secretary of the Communication Workers Union, said the regulator was 'blatantly ignoring' the Government's instructions to protect the universal service. The company is losing £1m a day and, as revealed by the Evening Standard, has to spend 1p more to deliver each letter than it is paid.

The company is also facing a national strike ballot over a pay dispute. There is a distinct chance that some of Postcomm's proposals could provoke further threats of industrial action, one CWU source said.

From April the regulator plans to allow rival companies to sort and process mail - and then hand it on to Royal Mail staff to deliver. A CWU source said: 'Union members will not take kindly to handling mail from another company, however much money they are paying to do so.'

Postcomm has proposed a three-stage plan that would see business mail contracts open to competition this year and full competition by 2006, much quicker than had been expected. Phase one, from 1 April this year to March 2004, would see the market opened up to bulk mail above 4,000 deliveries, which would include information and bills from banks, building societies and utilities as well as government departments. This would open up around 30% of Consignia's market.

Phase two, from April 2004 to March 2006, would open up a further 30% of the market by including bulk mail between 500 and 1,000 items, which would take in medium-sized businesses, schools and health authorities. Phase three, no later than 31 March, would abolish all restrictions.

Consignia and all affected parties have six weeks to respond to the proposals. To date, Postcomm has issued six short-term licences lasting 12 months and allowed three new entrants into the market.

The National Audit Office found last week that the nationwide delivery of letters and packages at a uniform price was in jeopardy unless Postcomm handled the issue effectively. The NAO warned that Postcomm, set up last year, had to balance the need for real competition with the risk to the country's long-held tradition of a universal service.

Peter Carr, chairman of consumer body Postwatch, praised the 'balanced set of proposals' saying they would dispel the myth that a universal postal service is incompatible with competition. The regulator believes the proposed changes will act as a spur for Consignia.

High-risk strategy of kill or cure