BBC News | BUSINESS | Consignia opposes post office changes

Proposals to reform the Royal Mail's monopoly on letter deliveries has met fierce criticism from Consignia, trade unions and some politicians.

The Royal Mail's monopoly over letter deliveries should be ended within four years, according to plans outlined by the UK post regulator, Postcomm.

The Postal Services Commission, or Postcomm, said the mail monopoly was no longer justified and called for the market to be opened up in three steps, with full liberalisation by 2006.

Phasing out the monopoly
2002-2004: Competition for bulk mail of more than 4,000 letters
2002-2006: Lower bulk mail limit to 500-1,000 letters
March 2006: Full liberalisation
Consignia, the company running Royal Mail, has warned that it would face "death by a thousand cuts" under the plan, and revealed that it is already losing more than one million pounds a day on letter delivery - before losing business to any competition.

While Consignia stresses that it is not opposed to competition, it says the pace of reform is too fast and will do further harm to its finances and intensify the need for job losses.

Politicians and trade unions say the plan could deliver yet another blow to the countryside, with rival postal carriers likely to focus on lucrative metropolitan markets while ignoring rural areas.

Three-stage liberalisation

According to Postcomm, traditional mail markets are changing because of new technologies such as e-mail.

"Postcomm thinks that if Consignia is to thrive, it must embrace these developments and look for ways of providing with more choice and better value for money."

Nearly nine out of 10 letters are sent by companies or government agencies, says Postcomm, and it is this part of the business that it wants to liberalise first.

The commission proposes to open the whole market to competition in three phases, starting with bulk mail.

Phase one from 2002 to 31 March 2004
Bulk mail above 4,000 items and certain niche services - about 30% of Consignia's market by value
Phase two from 1 April 2004 to 31 March 2006
Open a further 30% of the market by lowering the bulk mail threshold to between 500 and 1,000 items per mailing.
Phase three no later than 31 March 2006
All restrictions on market entry abolished.

Graham Corbett, the 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."

He believes that competition will force Consignia to change and will thus "secure both its own future, and the universal [mail] service".

Fearing the cherry-pickers

But in Consignia's eyes, this calculation does not add up.

The company is already losing up to �1.5m a day - about �1m on letter deliveries alone because it spends 28p on delivering a 27p first-class letter.

"We are haemorrhaging cash and that becomes a real issue. We have no option but to change the way we operate, the service we deliver and the way we manage people," Consignia's new chairman Allan Leighton told the BBC's Business Editor Jeff Randall.

He also warned there will be many thousands of job cuts to come.

Mr Leighton said the Postcomm proposal would allow competitors to "cherry-pick the profitable parts of our business, which substantially pay for the 'one price anywhere in the country' promise of universal services".

Despite recent tensions over pay and job cuts, trade unions back Consignia's management on this issue.

Billy Hayes, general secretary of the Communication Workers Union, believes that the proposal amounts to the "irresponsible wrecking of a public service".

"The regulator appears to have no concern for the industry it is supposed to protect and improve", he said.

Blow for the countryside

Rural areas like Wales, Cornwall or the Scottish Highlands could lose out, John Thurso, Scottish affairs spokesman for the Liberal Democrats, has warned.

"The inevitable result of Postcomm's changes would be a combination of increased postal charges and an end to door-to door deliveries in high-cost, mainly rural areas".

But Peter Carr of consumer group Postwatch welcomed the three-stage plan.

He believes it will prod Consignia into action to "get its act together".


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