Memorandum by Postwatch
The following are Postwatch's comments in response
to the 11 questions set out in the call for evidence released
on 9 January 2003. Postwatch's comments all relate to one regulatorPostcomm.
1. The Postal Services Act 2000 (the Act)
established the Consumer Council for Postal Services (Postwatch),
which came into existence on 1 January 2001. The same Act established
the Postal Services Commission (Postcomm) as the economic regulator
for postal services and sets out its duties and powers.
2. The need for sector specific regulation
of the UK's postal market is closely related to the market power
that can be exercised by the Royal Mail. Postcomm came forward
in April 2002 with its strategy for opening up the letter market
to competition (ie items weighing less than 350 grms or costing
less than £1 in postage). That strategy was for a gradual
opening in three phases; ending on 1 April 2007 with a competitive
market. Whilst the regulator can "open the door" to
competitors and do what it can to remove unfair barriers to entry,
it has no influence on if, when and how companies will compete.
These are commercial decisions for the companies concerned.
3. There is no overt procedure in place
to review the need for a sector specific economic regulator. If
effective competition becomes established Postwatch could recommend
to Parliament that the need for a sector specific regulator has
diminished and that "regulation as usual" should be
undertaken by the Office of Fair Trading. If effective competition
does not develop an economic regulator will be needed to control
Royal Mail's prices for products in non-competitive markets.
4. The regulator's duties are as set out
in the Act. No timescales were set by Parliament and the speed
at which tasks are pursued is therefore a matter for Postcomm.
Primary legislation is needed to change the duties.
5. Postcomm has seven Commissioners all
appointed by the Secretary of State. Nolan principles do apply,
although the Chairman Mr Corbett, was appointed before Postcomm
was formally established and the principles were not applied in
his case. The post of Chairman was not advertised. 
6. In broad terms Postcomm exists to:
ensure the universal postal service
continues to be provided;
license postal operators;
promote effective competition;
promote efficiency amongst postal
companies; and to
ensure licensed postal operators
can finance their licensed activities.
7. It is unrealistic to expect Postcomm
to always propose the best possible solutions in optimum time.
Nevertheless, poor decisions, and dithering are likely to have
adverse effect. The consequences are difficult if not impossible
to measure. For example, there are signs that determining the
price that third parties should pay Royal Mail to access its delivery
"pipeline" is taking much longer to determine than originally
thought. This delay may well lead potential new entrants to believe
that "reasonable access terms" are unlikely to be available
in the short-term and that cash should therefore be invested in
less risky ventures. This in turn may delay the arrival of effective
competition. One new competitor, Deya, is already reported as
having withdrawn from the market because of concerns over Postcomm's
8. Postwatch strongly believes that competition
will provide real benefits for postal customers in terms of innovation
and improved performance. Competition is also likely to spur Royal
Mail into improving its service performance. Consequently, the
absence of competition is likely to leave customers with no choice
and a poor balance between price and levels of service.
9. The primary assessors of Postcomm's effectiveness
are the House of Commons' Trade and Industry and Public Accounts
Committees. Postwatch, Royal Mail and the Communications Workers
Union can also usually be relied upon to give views on all aspects
of Postcomm's work but have no formal assessment role. Likewise,
the media provide a valued commentary on Postcomm's plans.
10. Some of Postcomm's decisions, primarily
those relating to modifying licences, can be rejected by licensees
and then referred to the Competition Commission for its view about
whether the proposed modification is in the public's interest.
Other decisions and the process by which they were reached can
be challenged in court through the judicial review process. In
theory all decisions are challengeable. In practice, only important
decisions, which are flawed, are likely to be challenged. Also,
the "all or nothing" nature of judicial review may not
provide a suitable remedy where complex decisions are involved,
some parts of which may be acceptable, but others not.
11. The fact that references to the Competition
Commission, as the independent appeals body for regulatory decisions,
can only be made by Postcomm or Royal Mail is in our view too
limited. Consumers are vitally affected by these decisions; where
they are flawed there should be the right for Postwatch also to
seek the views of the Competition Commission.
12. Parliament receives an Annual Report
from both Postwatch and Postcomm. The Trade and Industry Committee
of the House of Commons use these reports as the basis for hearings.
In addition, both bodies are likely to be called to give evidence
during the course of any Parliamentary year in relation to whatever
the main areas of concern are (eg plans to introduce competition,
level of price controls, worsening industrial relations). The
National Audit Office also undertakes reviews on a regular basis,
usually concentrating on a particular aspect of Postcomm's work.
The subsequent report of the Comptroller and Auditor General forms
the basis for a hearings and a report by the Public Accounts Committee
of the House of Commons. There is also the likelihood that a Sub-Committee
of the House of Lords will call for evidence on an aspect of Postcomm's
work, undertake hearings and produce a report.
13. The Public Accounts Committee also has
the right to review the annual accounts, although Postcomm has
not yet published any accounts, despite being in existence for
three years. 
14. There is no evidence to suggest that
Postcomm would not accept recommendations from any Committee of
Parliament. However, it is not obliged to do so. As a courtesy
to the Committee concerned it would probably explain why it had
decided to pursue a different course.
15. The role of the DTI in postal regulation
is to say the least, complex. The Department appoints the Commissioners
of Postcomm, the Councillors of Postwatch and the Chairman of
the Royal Mail Group. It acts as the sole shareholder of the Royal
Mail Group plc and sponsor to the UK's postal service industry.
It is responsible for funding Postwatch. The DTI negotiates for
the UK within the European Union on postal liberalisation. It
also sees itself as the "guardian" of the postal regulatory
regime and uses its offices to broker agreements between disagreeing
groups. It is responsible for changes to the Act. The interests
of the Royal Mail Group, the UK postal industry and postal users
are not always (if ever) the same. It is unclear how much weight
DTI gives to each interest group when reaching its decisions;
conflicts of interest inevitably arise.
16. It should also be noted, in this context,
that Mr Stanley, a Postcomm Commissioner is a secondee from the
17. Postcomm is not accountable to postal
users. Postwatch represents all postal users and believes Postcomm
does not give its views or those of other consumers adequate consideration.
Postcomm has developed a close working relationship with Royal
Mail. It regularly negotiates with Royal Mail in private, for
example in setting prices, and then appears reluctant to change
what has been agreed bilaterally during public consultation. Royal
Mail thus enjoys an inside track with Postcomm to the exclusion
of other interested stakeholders. A prime example of this was
the development of the first licence for Consignia, where significant
changes were agreed bilaterally, in private, just a few days before
the licence was issued. Postwatch were presented with a fait
accompli, which unduly benefited Royal Mail and its shareholder.
18. Postcomm's consultation processes are
not soundly based. They veer from the painfully slow to the unreasonably
rushed. For example, Postcomm has yet to consult on a definition
of the universal postal service, which is its primary statutory
duty to protect; and in setting a new price control consumers
were given just six weeks out of a two-year process to comment
on highly complex proposals.
19. Postwatch commissioned economic consultants
NERA to provide estimates of the total costs of delays and other
service quality problems to Royal Mail's business users. Their
estimated that the total cost of delays was in excess of £450
million in 2001-02. The effect on domestic users is very difficult
to measure and cost. The consequences are likely to be across
the range from mildly annoying (bank statement arrives late),
through irksome (birth certificate lost) to emotionally distressing
(loss of irreplaceable photographs or missed hospital appointments).
20. Postcomm publish a number of documents
which explain what they intend doing and how they will go about
their work (eg a forward work plan and their consultation procedure).
Such documents are intended to help third parties gain an insight
into how Postcomm does its job. In addition, Postcomm consults
widely before taking decisions and to a limited extent discusses
in decision documents how representations have affected the decision
making process. However, despite all the efforts made it remains
unclear to Postwatch how some decisions have been arrived at.
There seems to be reluctance on the part of Postcomm to publish
as much as they can to help all stakeholders understand the whole
picture. For example, Postcomm have not published the Financial
Model that helped them develop their current price control proposals.
Grounds of commercial confidentiality are deployed all too often.
21. The Act requires that Postwatch and
Postcomm agree a Memorandum of Understanding
Postcomm are obliged by the Act to seek Postwatch's views on all
important proposals. Even if it was not obliged, it would undoubtedly
do so. However, the two bodies are independent of each other and
do have different priorities. They should not be expected to agree
on issues. Postwatch is concerned that Postcomm does not always
comply with its own published consultation procedures or announced
22. Both Postcomm and Postwatch are relatively
new statutory bodies and neither has much of a public profile.
Nevertheless, the steadily growing number of complaints that Postwatch
receives about the Royal Mail, Post Office Counters Ltd and Parcelforce
helps it determine its position on a number of issues. Such feedback
from customers is extremely important.
23. Postwatch, in accordance with the Act
has a regional organisation (Postcomm does not and is based in
London only), which covers the whole of the UK. Postwatch's regional
committees are networked into their areas and able to give feedback
from individuals as well as groups. Postwatch has also established
good working relations with a number of organisations
that have joined its Counters Advisory Group and with relevant
Trade Associations 
These links enable Postwatch to understand what different types
of customers want from their postal services.
Senior Director, External Relations
28 March 2003
1 Note by the witness, 2 June 2003: In our
written evidence to you of 28 March we said we were not aware
that the post of Chairman of Postcomm had been advertised. DTI
have since let us know that the post was advertised when it was
established in shadow form a year before Postcomm was set up under
the Postal Services Act 2000.
Note by the witness, 15 May 2003: We now understand that
Accounts for 2001-02 were available as from 30 January 2003. These
Accounts (HC 354) were not copied to Postwatch nor were they,
until very recently, placed on Postcomm's web site. The report
of the Comptroller and Auditor General shows there was an excess
The Costs to Business from Postal Delays: September 2002 available
from Postwatch's website www.postwatch.co.uk.
Available on www.postwatch.co.uk.
List of organisations at Annex 1.
List of Trade Associations at Annex 2. Back