POSTCOMM: OPENING THE POST
29 Postcomm's proposals for competition form part
of a wider framework for the regulation of the postal services
market, and of Consignia as the dominant operator within that
market. The way competition develops in future will depend on
decisions that Postcomm will make on related issues.
30 Postcomm consider that a form of competition involving
access to Consignia's delivery facilities, rather than duplication
of the entire mail operation, is the most likely and attractive
form of competition to new entrants. Consignia said that the success
of this access-based form of competition depends on the price
and terms set for access. If the price is set too high, then competition
will be deterred, but if the price is set too low, Consignia's
financial viability may suffer. Consignia told us that if the
access price were not set at the appropriate level it would find
that it would lose the revenue from the mailing customer, and
that also it might have to offer a price to its competitors in
line with its delivery costs without any kind of margin. Access
terms would be negotiated between Consignia and the postal operator
seeking access to its facilities, and Consignia told us that they
had already received an approach for this purpose from Deutsche
Post World Net. But, under Consignia's licence, Postcomm would
have to determine access terms and prices in the event of a dispute.
Postcomm told us that it would be wrong to assume that they would
exercise their judgement in a way which was unfair to Consignia,
since they recognised that a successful and growing postal industry
required a successful and growing Consignia at its centre.
31 Consignia expected to face significant price competition
for some of their business mail as competitors might be able to
offer business mailers better terms than Consignia. Consignia
said that within the uniform pricing structure imposed by its
licence, if it offered a lower price to one customer in response
to competition, it would have to offer an identical price to all
comparable customers. It would therefore be unable to match competitors'
lower prices for some customers by reducing its own prices accordingly.
Consignia said that, even if it could do so, it would need to
re-balance its prices because, if one element of revenue reduced
in response to competition there would need to be an equivalent
increase in revenue elsewhere to maintain its financial viability.
In our view, without a clear guide from Postcomm as to how much
rebalancing they would allow, there might be uncertainty for both
Consignia and for potential competitors.
32 At present, Consignia's overall price levels are
subject to a price control under the licence issued by Postcomm.
This price control consists of a price freeze until March 2003
for mail costing less than £1 or weighing less than 350 grams,
and a limit on price rises to the prevailing rate of inflation
within the rest of the universal service area (up to 20 kilograms).
Consignia can apply for a rise in these price limits before March
2003, and did so in April 2001, but subsequently withdrew the
application after discussions with Postcomm.
This combination of price freeze and inflation-only rises continues
the recent pattern of falling real prices for postage, with only
one price rise in the last five years for 1st Class
mail, and a 1 pence reduction in the price of basic 2nd
33 Companies cannot automatically assume that they
can increase prices without some loss of customers, although as
the Comptroller and Auditor General's Report showed, most of Consignia's
customers were fairly indifferent to price. Consignia told us
that it would initially expect a small amount of posting to be
deterred - that is, for customers to find alternative media for
their communications - but, after this small dip, volumes would
pick up again. The company qualified these observations by saying
they were based on past experience, and that the most recent price
increase in 1st Class stamps had been five years ago.
Its best estimate was that the impact of a 1 pence increase in
the price of a 1st Class stamp, after taking deterrence
into account, would be an increase in revenue of around £170
46 Qs 124, 186, 101 Back
Qs 250-259, 562 Back
C&AG's Report, para 3.6 Back
C&AG's Report, Appendices 3 and 4; Q579 Back