APPENDIX 7
Memorandum by the Direct Marketing Association
(DMA) UK
1. DMA
1.1 The Direct Marketing Association (DMA)
UK Ltd is the largest trade association in the communications
sector, representing both users and suppliers of direct marketing.
Our membership now exceeds 900. We represent the majority of the
major users of postal services, such as financial services, home
shopping and charities. Our client membership base represents
the largest Royal Mail customer group. We represent all aspects
of the supply side of postal services from mailing houses to consolidators
and from agencies to data bureau. We have an excellent ongoing
dialogue with Postcomm and contribute to all major consultations.
We have contributed to and given evidence to previous select committee
inquiries and welcome the opportunity to contribute to this inquiry.
2. IMPACT OF
LIBERALISATION OF
THE POSTAL
SERVICE MARKET
ON THE
QUALITY OF
POSTAL SERVICES
2.1 The UK postal services market has been
open to competition for the last four years by virtue of the fact
that Postcomm has licensed competitors to Royal Mail, within the
reserved area. Although this competition has been tightly controlled
with restrictions on the type of services provided (bulk mail,
consolidation, niche services). Opening up the market fully in
2006 will have a profound effect on quality of service. New competitors
have focused on quality of service as a key feature they need
to deliver to customers. As the majority of existing competitive
mail goes through downstream access, this has had a beneficial
effect on Royal Mail, as they try to improve their quality of
service. The overall competitive pressure on Royal Mail has led
to a refocus on improving their quality of service. This is a
key necessity for customers. It is noteworthy the improvement
in Royal Mail's quality of service, over the last 12 months. Opening
up the market will lead to a continued improvement of quality
of service as Royal Mail and its competitors react to customer
demand. We must be cognisant of the possibility of a potential
price war, leading to deterioration in quality of service.
3. POSTCOMM'S
DECISION TO
OPEN UP
THE UK MARKET
BEFORE THE
REST OF
EUROPE AND
THE ABILITY
OF ROYAL
MAIL TO
COMPETE IN
THE OPEN
MARKET
3.1 On current timetable EU will have a
liberalised postal services market by at the earliest 2009. There
is a very strong likelihood that this date will be a great deal
later, probably 2012. In addition Netherlands and Germany have
set their market opening dates conditional on UK opening its market.
If Postcomm had decided to wait for EU liberalisation, users would
suffer. The continued lack of choice, price pressure and innovation
would lead many users to switch monies to other media. Also competition
can thrive only in an open market with all the market and its
associated volumes open. Therefore opening up the market early
ensures the postal services market thrives, competition can thrive,
and users can be given real choice, quality and downward pressure
on prices and Royal Mail benefit from a strong market and competitive
pressures.
3.2 Royal Mail currently has 95% of the
UK postal services market, approximately 22 billion items. Competition
so far has primarily been restricted to downstream access with
Royal Mail providing the final mile delivery. With the opening
up of the market, the majority of competitive volumes will still
remain downstream through Royal Mail. Obviously Royal Mail will
lose some volume but the likelihood of huge volume loss is remote.
In fact most volume will stay with Royal Mail, at least within
the delivery network. An alternative network to Royal Mail will
take between three and five years to set up. Although some operators
have flagged that they intend to launch alternative networks albeit
not comprehensive, based on weekly deliveries. Based on Royal
Mail's existing volumes, any likely loss and the retention of
the majority through downstream, Royal Mail will have no problem
competing effectively. Competition, price control (as a surrogate
for competition) and quality of service targets have led to efficiency
gains within Royal Mail. Increased competitive pressure can lead
only to greater efficiency gains.
3.3 Royal Mail has already shown its ability
to compete with the introduction of new services such as zonal
access and far-reaching product review, which will lead to a complete
range of new products, introduced on a phased basis, from 2006.
4. POSTCOMM'S
PROPOSALS FOR
THE FUTURE
OF POSTAGE
PRICES IN
THE UK, INCLUDING
THE PROPOSED
METHODOLOGIES FOR
SETTING POSTAGE
PRICES
4.1 Postcomm has proposed a price control,
which is based on what revenue Royal Mail need to run the business,
meet costs invest and make a profit. The price control, RPI-x,
where x is set at 2.5%, will force Royal Mail to improve efficiencies
and reduce costs. Due to the level of x and the current RPI levels
and predictions, this will lead to a possible reduction in real
terms in postage prices. It is essential in any price control
mechanism that the operation is simplistic and easy to comprehend.
Within the proposals for the 2006 price control, Postcomm have
proposed that pension deficit costs should be met from the control.
We strongly object to this. In essence users will be paying for
the pension deficit. As the chief stakeholder, the government,
who took many pension holidays and benefited from excellent dividend,
should meet the pension deficit cost. In addition pension deficit
cost has been used at least three times over the last 10 years,
as one of the reasons for Royal Mail price increases.
4.2 Postcomm uses a RPI-x price control,
which effectively caps prices, over a period of time and offers
incentives for Royal Mail to reduce its costs and maximise efficiency.
Such cost efficiencies will result in greater revenues through
the price control. RPI-x is generally regarded as one of the most
effective price controls for large utilities, such as gas, telecoms,
post and electricity. As a surrogate for competition it cannot
mirror competitive pressure but it can bring pressure to force
efficiencies and behaviour changes.
5. THE CONTINUANCE
OF ROYAL
MAIL'S
UNIVERSAL POSTAGE
SERVICE OBLIGATIONS
5.1 The direct marketing industry needs
a successful, efficient Royal Mail offering cost effective services
with good, reliable and predictable quality of service. This also
includes the universal service. Our industry needs the universal
service, for the industry mailing activity and for customers responding.
So in many respects Royal Mail have a competitive advantage in
offering the universal service rather than a cost burden. In order
for Royal Mail to finance the universal service, it is essential
that the universal service reduce as competition develops, so
reducing any burden to Royal Mail. Also as competition develops
and offers similar services, the universal service obligation
could be shared across operators. The universal service is at
the fulcrum of UK postal services but it must evolve. It cannot
be fixed in time, it must reflect the developing market and change
accordingly.
26 September 2005
|
