It was called the Post Office, then it changed its name to Consignia, and now it is to be called the Royal Mail Group.

Whatever you call it Britain's postal service is in some trouble. It lost �1.1bn over the past year.

While we think of the postal service as something that just happens, like running a tap or making phone calls, things have changed in recent years, as with the utility companies who supply our water and power.

Formerly a nationalised industry, the post office is now a publicly-owned company, and has to make a profit to stay in business.

It employs 250,000 people and delivers 80 million letters and packages a day, nearly double the level of 10 years ago.

Competition

Since Parliament passed the Postal Services Act in 2000, it has had greater commercial freedom.

But the Act also introduced plans to start bringing competition into the postal sector.

A new regulator, Postcomm, wants to open up one-third of the mail market.

That's bulk deliveries from big companies such as banks and mail order firms.

The post office is not happy about this.

It is worried that other companies will cherry-pick the most lucrative parts of the postal service, leaving it with the bits that don't make any money.

Plenty to think about

It is legally obliged to provide what's called a universal delivery service - newcomers won't be interested in getting letters to remote destinations.

The mail service already has plenty to think about.

It is losing about �1.5m a day, and is having to restructure the business to make it more profitable.

This will involve closing many post offices, shutting down Parcelforce depots, scrapping the second daily delivery, cutting its fleet of vehicles and carrying more mail by rail but on fewer trains.

Consignia Chairman Allan Leighton on Working Lunch

The task facing the post office is huge; it wants to cut its annual costs by 15% - that's �1.2 billion.

But this reorganisation will mean many people losing their jobs. The unions say it could be as many as 30,000.

The post office has said it plans to shed 17,000 jobs over the next three years. This is on top of the 15,000 job cuts unveiled earlier in the year.

And the competition will increase.

Postcomm intends to open up a further 30% of the market by April 2004 by letting more firms deliver bulk mail.

By April 2006, the postal market will be totally open.

We are spending too much money

Allan Leighton, chairman

Chairman Allan Leighton knows it's a mountain to climb.

"Our problem is we are spending too much money doing what we are doing," he told Working Lunch last week.

"We are just too complicated.

"We have got loads of people involved in things they don't need to be involved in.

"We need to get back to what we are supposed to do - collect mail and deliver mail.

The cultural change that is going to have to take place is significant."

So what has caused the post offices' problems?

There are a number of factors.

When it was making big profits in the 1990s, it paid the government a special dividend - money which would have been better invested in new technology.

Also money was poured into the Parcelforce business, which was operating in a highly competitive sector.

The price of stamps has not risen much, reducing income, and people are sending fewer letters, using more e-mail and text messages.

The UK Post Office had to change because of the opening up of the market. But it was late into the competition game.

Huge players

Services in Europe were already turning into huge players.

Germany's Deutsche Post snapped up dozens of companies, including a big stake in parcel service DHL.

The Dutch post office bought the TNT parcel business.

Eager to join in, the UK Post Office bought German Parcel and delivery companies in France, New York, Denmark, Austria and Ireland.

Even if it wasn't in a position to poach foreign business, it had to be able to defend its home territory when European Union deregulation opened up the postal market in 2003.

But now it finds itself struggling to maintain its business in its own country.

Companies such as Hays and Business Post are already handling some limited postal services and are gearing up for a bigger slice of the cake.

The now partly-privatised Deutsche Post is also waiting in the wings.

Stemming big losses at Parcelforce will be a help in getting the post office back on an even keel.

All we are asking is for an extra penny

Allan Leighton

The company has also asked Postcomm for first class stamps to go up by 1p, which would bring in another �170m a year.

"There is no better value in anything anybody buys in this country than a first class stamp and all we are asking is for an extra penny on it," says Allan Leighton.

"The economics don't add up. It costs us 28p to deliver a 27p stamp."

But the company has warned that if competitors are allowed to take the most lucrative parts of the business, stamp prices will have to jump much more to enable the post office to guarantee the universal delivery service.

MPs have recently expressed their concern that Postcomm's changes could threaten the mail service in the UK.

The post office's chairman Allan Leighton admits the business is fighting for survival.

But some fear that even the major surgery he is planning might not be enough to save it.

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Student Guide

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It just can't go on!

The post office, which is a business, just like any other, is losing �1.5 million a day!

To make things worse, it's under even more threat.

Parts of its business, which are protected from competition at the moment, are going to be open to all.

It must deliver letters and parcels to every home and business in the country, a very expensive process.

We want our post first thing in the morning.

If it's late we get upset. This means the post office must employ enough people, own enough vans and have a system to do this.

In towns, its not too difficult but the cost of getting the post to isolated places is very high.

Just think...

Why is it expensive to deliver post to isolated places?

If you ran a delivery service to compete with the post office, where would you deliver? Why?

If you could set your own prices for delivery, what would you do?

Many businesses depend on the post.

If the post office can't provide the service they want, what will they do?

The source of the problem?

Email!

How many of us use email, the web and text messages to communicate with our friends and businesses?

We send birthday cards via email.

We send birthday cards via email

We pay our credit cards on the web

This is a trend that won't go away.

The post office has lost masses of business because it's quick, easy and the shop doesn't have to be open.

There has also been a lack of investment.

Hi-tech systems might have cut costs and helped the post office to compete with couriers, which have stolen a big slice of parcel delivery.

Just think...

What are the effects of these changes, or lack of change, on the cost of running the business?

Explain why.

Cutting costs?

No business can survive for long if it's losing �1.5 million a day.

What should the post office do? It has to cut its costs. But cutting costs will affect the services it provides.

Fewer staff

Fewer vans

Fewer deliveries

Fewer Post Offices

Just think...

What products and services does the post office provide? Which ones are available from other people too?

If post offices close down, how are people affected? Who is affected most?

Can it succeed?

The post office wants the price of a stamp to rise by 1p.

It may not be enough.

At the moment, there are parts of the business which are protected from competition.

The postal service is a monopoly.

It's just like the board game, where one business is in control and ends up with no competitors.

Because the government felt the post was important, it decided years ago that the it should be protected in this way.

No other businesses were allowed to offer postal services.

It's hard to be a monopoly and still be efficient because competition keeps people on their toes.

The monopoly has been broken down as parts of the business have been opened to competition.

But, if the post office is only left with the parts of the business which are expensive to run - and no one else wants to do - it's hard to make a profit.

Just think...

Which of the services that the post office provides are unlikely to be provided by other businesses?

How do you think such changes will affect the community?