Business the winner as postal services open to competition

Businesses are tipped to be the main beneficiaries of the opening up of the postal service to full competition on 1 January.

Royal Mail will lose the right to monopolise the £6.5bn market when Britain goes back to work on Tuesday after the festive break, ending 350 years of postal history.

Its 14 competitors - which include TNT Mail, the UK arm of the Dutch postal group TPG; Business Post's UK Mail; and DHL Global Mail, part of Deutsche Post - are expected to target businesses with a host of new services to try to lure them away from Royal Mail.

Nigel Stapleton, the chairman of the postal regulator Postcomm, said: "With full competition from January 2006, all of us will begin to see new choices across the full range of postal services, and licensed operators will be free to offer mail users the services they demand."

Business mail, which accounts for 80 per cent of the market, was partly liberalised two years ago when Royal Mail lost its monopoly on mailings of 4,000 and more. But although this opened up almost one-third of the market to competition, Royal Mail's dominant position meant that it has ceded just 3 per cent of its market share.

Rival companies could choose to set up their own local delivery services or work in partnership with Royal Mail to use its delivery network. They will target the top 10 mail users, such as the major financial institutions, which account for one in five of all letters sent.

Postcomm, which believes liberalisation will take five years to have its full impact, believes the new regime has already forced Royal Mail to sharpen up its act. "Limited competition has already delivered significant benefits, with Royal Mail's quality of service at an all-time high and business customers enjoying more innovative products and later mail collection times," Mr Stapleton said.

Adam Crozier, Royal Mail's chief executive, said there was a downside from competition because the postal group would no longer be able to use the profits it makes from business mail to cross-subsidise the price of stamps for the general public. He warned that stamp prices, which are set to increase by 2p to 32p in April, would have to rise to compensate.

A spokesman for Royal Mail added that it would "fight hard for every letter". He said Royal Mail was "determined to compete successfully in the open market" but would need a fair regulatory regime to do so and the ability to invest £2bn in modernising the business.

Britain is only the third country in the world to open up its postal market to competition, following New Zealand and Sweden. Royal Mail will doubtless glean comfort from the fact that in both those countries the original postal service still supplies at least 90 per cent of mail sent. It will also continue to enjoy certain advantages, such as its exemption from sales tax.