1 Introduction
1. Royal Mail has held a monopoly over the majority
of mail services for the last 350 years and continues to dominate
the UK postal services market. Annually, over 20 billion postal
items are mailed by users, which generates revenues for Royal
Mail Group of approximately £6 billion a year.[1]
The UK postal services market and the Royal Mail are currently
undergoing a period of transformation, given full market liberalisation,
the Royal Mail's price and service quality review (price control)
and questions over the future ownership of Royal Mail.
2. During the current 'price control' period, Royal
Mail Group has undergone some major organisational restructuring.
Amongst other things it has:
— Made
the move to single daily delivery, changing the working practices
throughout 1,400 delivery offices and changing the jobs of nearly
all its front-line employees;
— Improved mail centre productivity through
its Mail Centre Efficiency Initiative, saving £33 million
per annum (after staff bonuses);
— Improved industrial relations: 866 days
were lost to industrial action between January and March 2005,
compared with a quarterly average of 21,000 days in 2003.
3. These achievements have made Royal Mail a more
efficient organisation. The Group generated just under £550
million in profits from operations in 2004/05, a turnaround of
£850 million from a 2001/02 loss of just over £300 million.[2]
4. The UK is currently bound by EU law on postal
matters. The 1997 Postal Services Directive,[3]
as amended in 2002,[4]
is aimed at opening up Member States' postal services markets
to competition by 2009, while requiring a 'universal service'
to be maintained. However, before finally confirming an EU-wide
commitment to full market opening, a comprehensive review is required
in 2006.[5] In the UK,
the Postal Services Act 2000 gives effect to the obligations
of the Directive, including the requirement to maintain a universal
service and to promote effective competition.[6]
The universal service obligation in the Act follows those in the
Directive and makes use of discretionary powers to require geographical
uniformity of price (one price goes anywhere). The 2000 Act also
established the Postal Services Commission (Postcomm) as the national
regulatory authority for the UK.[7]
5. Postcomm began to introduce competition to the
UK postal services market in 2003.[8]
New licensed operators were able to provide 'end-to-end' services
to large customers mailing over 4,000 items in an individual mailing.
Licences were also available to operators offering consolidation
services at a price agreed with Royal Mail. Following consultation,
Postcomm is now to open the rest of the market up to competition
from 1 January 2006 (ending Royal Mail's monopoly), three years
earlier than required by the EU Directive.[9]
6. The specific issues we were interested in finding
out about were: the impact of liberalisation of the postal service
market on the quality of postal services; the thinking behind
Postcomm's decision to open up the UK market before the rest of
Europe; how Postcomm's proposals for the future of postage prices
in the UK would impact on the ability of Royal Mail to compete
in the open market; and the continuance of Royal Mail's universal
service obligation.
7. In the course of our inquiry we took oral evidence
from representatives of the Royal Mail, Postwatch, the Postal
Services Commission (Postcomm), the Mail Competition Forum (MCF),
the Communication Workers Union (CWU), as well as from Barry Gardiner
MP, Parliamentary Under Secretary of State for Competitiveness
at the Department of Trade and Industry (DTI). We express our
gratitude to them and to all who contributed written evidence.
1 Appendix 15, para 3 Back
2
Royal Mail, Response to Postcomm's initial proposals for the 2006
price and service quality review, paras 2.4-2.6, Postcomm website
(13 December 2005): www.postcomm.gov.uk/policy-and-consultations/consultations Back
3
European Directive 97/67/EC Back
4
European Directive 2002/39/EC Back
5
Appendix 4, para 16 Back
6
HC Library, Royal Mail liberalisation and competition,
Standard Note SNEP-01644, 11 February 2004 Back
7
Appendix 15, paras 6-9 Back
8
A chronology of full implementation can be found in Appendix 15,
Annex A Back
9
Where mail from a number of large and/or small customers is collected
and passed on to Royal Mail for delivery over the final mile. Back
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