Post competition 'of no significant benefit' to consumers or small firms

Post competition 'of no significant benefit' to consumers or small firms

Opening up the postal market to private sector competition has provided no significant benefit for consumers or smaller businesses but represents a "substantial threat" to the future of the Royal Mail, an independent report commissioned by the government warned today.

A major shake-up is needed in the way the industry is regulated if Britain is to benefit from a strong, competitive and cost-effective postal services, according to the interim review produced for business secretary John Hutton.

Large companies have benefited from the full liberalisation of the postal market since 2006 with more choice, lower prices and better quality products, but "there have been no significant benefits for smaller businesses and domestic consumers," said the report. It found these customers were largely happy with the value for money now provided to them by the state-owned Royal Mail but said the current situation endangered the future of the universal service which could guarantee one price and next day delivery throughout the country.

"There is now a substantial threat to Royal Mail's financial stability and, therefore, the universal service. We have come to the conclusion, based on evidence submitted so far, that the status quo is not tenable. It will not deliver our shared vision for the postal sector," it concluded.

The panel which carried out the review, led by former Ofcom deputy chairman Richard Hooper, said in its initial findings that there was.....continued below

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now a "strong case" for taking action to make sure the Royal Mail has a sustainable future.

"As we see rapid changes in the way people communicate, the way in which the postal sector is regulated will also need to change, and we need to establish how best to create the incentives for Royal Mail to modernise its operation, providing a stable, financial future."

The report said the postal market was changing and faced an "uncertain future", especially as firms looked to cut costs in the face of challenging economic conditions.

In the past two years, competition in the collection, sorting and transportation of bulk mail from businesses has expanded rapidly and much more quickly than was anticipated, the report found.

But there was virtually no competition to the Royal Mail in the delivery of letters despite a belief that some rival firms could invest in deliveries, perhaps twice a week, in urban centres.

"Others point out significant barriers to entry. We will need to consider this further, along with the risk that more extensive competition could make the universal service unsustainable."

Abolishing Sunday collections and the move to a single daily delivery were more visible to consumers and small firms than to large companies, and were seen as a reduction in services.

The Royal Mail faced "many challenges", but modernising its services will be more difficult as volumes fall, warned the report, which also flagged up its £3.4bn pension deficit and the possibility of industrial action.

A Royal Mail spokesman said: "We welcome this report and Royal Mail absolutely agrees with the report's conclusion that the one-price-goes-anywhere universal service to the UK's 28m addresses is at the heart of a successful postal service.