Outlook: Like that letter, competition will arrive one day

Sky's the limit; Fed decision
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The Independent Online

The post, along with water supply, is one of the few remaining public services where consumers do not have a choice of supplier. Under the proposals announced today by Postcomm for liberalising the market, you still won't have a choice until 2006, unless you happen to be the kind of household that mails out Christmas cards 4,000 at a time.

But even that is too brisk a pace of change for Consignia, which has let out a blood curling warning that competition will sound the death knell for the universal service, This is the Royal Mail's guarantee to deliver to every address in the land for the price of a first-class stamp, sometimes, even, by the following day.

Consignia has grown fat on its monopoly and the lament of the monopolist, as practised by its new chairman Allan Leighton, is a familiar one. Break up our business and introduce competition too quickly, he says, and the result will be worsening services and higher prices. Unfortunately, Consignia needs no help in these two respects. Postal services are deteriorating and postal users have only been saved from paying more by the regulator's refusal to allow Consignia to jack up its prices.

Mr Leighton says that Consignia is losing £1m a day, which is a spectacular achievement for a company with a 100 per cent market share. You would have thought that Mr Leighton's wealth of experience at Asda would have taught him that no business is owed a living. However, in the case of Consignia, his solution is to give the organisation more time to prepare for new entrants, on top of the 350 years it has already had.

Postcomm's solution is to speed up the introduction of competition in the hope that the threat of losing business will light a fire under the management.

In almost all other sectors of the economy where a monopoly has been broken up, it has been accompanied by the privatisation of the dominant incumbent operator. It has worked for gas, electricity and telecoms, where the former monopolies have kept their heads above water in a market which offers wider choice, lower prices and improved service.

Mr Leighton's curse is to be running a business where the motto is competition without privatisation. Whatever he does, the dead hand of government will continue to hover above him. As the head of the National Audit Office, Sir John Bourn, politely pointed out last week, it is a moot point whether any state-owned organisation could rise to the commercial challenge of a competitive market with ministers and civil servants in the driving seat.

The desperate answer of Consignia's political masters to its worsening plight is to allow it to close down 3,000 more urban post offices and relegate its captive domestic customers to the status of second-class, second-post citizens, receiving their mail any time between lunch and 3pm. It sounds like competition cannot arrive a moment too soon.

Sky's the limit

Stephen Byers may not be able to make the trains run on time but, boy, does he keep the legal profession in fees. Railtrack's shareholders are already suing the Transport Secretary over his less than masterly grasp of the wheel-track interface. Now BMI British Midland is preparing to reach for the lawyers over Mr Byers' decision to walk out of open skies talks with the Americans because of their treatment of British Airways.

As it happens, he was almost certainly right to pull out of the talks. Not because the terms on which the Bush administration was prepared to approve the BA-American Airlines deal were too harsh to BA. But because the accompanying open skies deal would have massively favoured a select group of four US airlines, giving them rights at Heathrow and beyond at the expense of virtually the whole British aviation industry, not just BA.

The one carrier which would have benefited from open skies at any price is, of course, BMI. Its chairman Sir Michael Bishop has spent $2bn on a shiny new fleet of Airbus A340s and is now furious that he can only fly them to the US from Manchester and not Heathrow.

Sir Michael's answer is to bend the ear of the European Commission (again) in the hope that it will declare the present UK-US accord illegal and force Mr Byers to allow BMI onto the routes.

Unfortunately, Brussels has bigger fish to fry. Today, the European Court of Justice is expected to signal that individual member states must cede the right to broker bi-lateral open skies deals and henceforth allow the Commission to negotiate with the US on everyone's behalf.

Sir Michael can see the writing on the wall and realises that if authority passes to Brussels it could be 10 or even 20 years before an open skies deal acceptable to all sides is agreed. Mr Byers can see that too. But perhaps he thinks it is just as well to shuffle responsibility on to Brussels since any deal the Government brokers is likely to offend one UK airline or another. Perhaps Mr Byers is becoming risk averse at last, or perhaps he sees all his responsibilities being shuffled elsewhere.

Fed decision

The Federal Reserve's decision to keep US interest rates on hold last night probably became a formality after the surprise figures earlier in the day showing that the American economy has, after all, managed to escape recession.

Nevertheless, it ended an extraordinary three weeks for those whose unenviable task it is to interpret the actions of the world's largest central bank.

The Fed's decision not to cut again but to maintain its bias towards an easing of policy, was the right one. Despite the unexpected news that the US economy managed to grow, albeit marginally, in the three months following 11 September, the outlook is still uncertain. The US corporate sector remains sickly, the number of high-profile business failures shows no sign of letting up and the fourth-quarter output figures could yet be revised downwards into negative territory, confirming that the US is indeed in recession.

Inflation remains benign and with consumption likely to fall back in the current quarter, the upswing in activity may not be as sharp as the market suggests.

What has been fascinating to watch has been the attempts of the Fed chairman, Alan Greenspan, and his colleagues to micro-manage market expectations.

The flurry of mixed messages has been such that, had this been Wim Duisenberg's European Central Bank, the pundits would have written it off as another example of gaffe-prone policy management.

The message, which was confirmed by last night's statement, was that the US may be starting a recovery but it is very fragile.

The Fed is probably keen to ensure that expectations of future rate rises do not create such a tightening in the money markets sufficient to stifle a nascent recovery.

Consumer demand remains strong But a sustained economic revival will need signs that businesses have embarked on a new round of capital investment. The Fed remains on a heightened state of alert.