Blow to Royal Mail as BT and British Gas defect

Royal Mail suffered a twin blow yesterday after BT and British Gas switched postal contracts worth around £150m to its rival operator, TNT.

BT is the largest bulk mailer in the country, and the contract won yesterday by TNT, part of the Dutch post office, is the biggest since deregulation of the UK postal market in 2004. The BT contract is worth £90m over three years, and will involve TNT handling 170 million items a year - mainly bills and statements. No announcement has been made of the British Gas deal, but the contract is thought to worth £60m. TNT declined to comment.

The loss of the two huge utilities is a further setback for Royal Mail following the decision by the Department for Work and Pensions to switch a £12m contract to another of its privately owned rivals, Business Post, two weeks ago.

The BT contract involves a so-called access agreement, whereby TNT collects the post and trunks it to Royal Mail sorting offices for final delivery. However, TNT is planning to launch its own end-to-end postal service, and is in the final stages of selecting a number of UK cities to conduct trials. It has already signed up a host of blue-chip clients including Virgin Mobile, Sky, Next, Sainsbury's. HBOS, Lloyds TSB, npower and Thames Water.

Nick Wells, chief executive of TNT Post UK, said he aimed to win more business from BT.

Business Post's letters division, UK Mail, has also picked up contracts from Royal Bank of Scotland, Vodafone and Powergen while DHL, owned by Deustche Post, counts Tesco, John Lewis and Debenhams among its customers.

As an incentive to the Royal Mail workforce to fight back against the competition, its chairman Allan Leighton wants the Government to hand 20 per cent of the business to its employees. Ministers are thought to have offered instead to set up "phantom shares" whereby Royal Mail workers could get up to £5,000 of free shares, but no ownership rights.