Consignia challenged in post-modern world

The race is set. UK companies and privatised European postal services are jostling to get a foot in the door of the soon-to-be deregulated UK postal market.

The new market regulator, PostComm, will fire the starting gun at the end of the month when it issues proposals on how to increase competition.

The new market is in handling letters, or post valued at under £1, in which Consignia, the renamed Post Office, currently has a monopoly. Many parcel delivery and courier services already have some infrastructure which could help them compete, while overseas postal companies want a slice of the new action.

While the regulator ponders how it will introduce long-term competition, it is also offering interim licences, for one year, so that companies can test their ideas in the marketplace.

Hays, the support services company that issued a profits warning last week, has said it has already applied to the regulator for three of these licences, although its exact plan is unclear. It may be to legitimise its business mail service or propose new services.

The UK arm of TNT, the privatised Dutch post office, has also applied for licences, but only for services it already carries out. It delivers newspapers hot off the press to large wholesalers such as WH Smith, as well as delivering larger parcels as a courier service. TNT also has a mail delivery service, but this focuses on internal mail for large corporations and is therefore not well placed to deliver mail to homes.

However, TNT spokesman Bob Downing says that the company is very interested in the liberalisation of direct marketing mail. Last month it bought CD Marketing Services, which delivers unaddressed junk mail to 80 per cent of the population, which it is allowed to do without a licence. Mr Downing says the purchase was to prepare the company for a time when it can deliver addressed junk mail.

Business Post Group, another UK company that offers parcel delivery for corporates and also has a home delivery service, is researching potential delivery services.

La Poste, the state-owned French postal service, has taken a more co-operative line; it wants to work with Consignia to deliver post in the UK.

And finally Deutsche Post, the privatised German post office, with its joint venture with Securicor, called Securicor Omega Express, is soon to apply for an interim licence to manage corporate mail rooms and inter-company mail for large multi-site companies.

The venture's chief executive, John Hogan, says: "We are concentrating on the business-to-business sector at the moment but we are very keen to look at other areas."

But door-to-door delivery is the most complicated part of the market. There are four stages to mail delivery: collection from the red postboxes; sorting the post according to destination; delivery to local centres; and delivering the mail through the letter box.

Currently, Consignia has a monopoly over all these stages for post worth under £1, and the aim is to open up as much of this business as possible to competing companies. But there are umpteen problems associated with liberalising the market. The regulator must ensure there is "universal service" ­ the same standard throughout the UK.

Matthew Lloyd, head of business services research at HSBC, says: "The problem you face when trying to deregulate the post is that there are only bits of the country that people are interested in." He adds that private companies are interested in running the sorting centres and getting the post to local delivery centres, and are happy to deliver and collect post in densely populated areas such as London. "The problem is collection and delivery, especially, in places like John o'Groat's and Land's End."

Consignia would be very unhappy if it had to compete in all the lucrative areas while still obliged to deliver in unprofitable ones. Mr Lloyd predicts that companies will agree to pay a fee to Consignia for the final stages of delivery.

Businesses and the Government are desperate to open up the market. But there is another factor. Workers at Consignia are unlikely to be so keen and the public is likely to face many unofficial strikes as their secure jobs become threatened by the new entrants.