Postcomm opens £5bn Royal Mail market to rivals

Nearly a third of the Royal Mail's £5bn postal monopoly will be open to rivals this April, with the entire market opened to competition from 2006, under proposals published by the industry regulator today.

Consumer groups welcomed the move by Postcomm to liberalise postal services. But Consignia, the Royal Mail's parent company, warned it meant "death by a thousand cuts" and postal unions said it could spell the end of the universal service which guarantees deliveries to every address in the country for the same price.

Unveiling the long-awaited proposals, Postcomm's chairman, Graham Corbett, rejected the fears expressed by Consignia and the unions and said that the Royal Mail should be able to withstand the introduction of competition without services being jeopardised.

"The current postal monopoly is clearly not providing its customers with the service they want and is failing to contain its costs," Mr Corbett said. "We believe the most effective way to change this is for the company to face real competition."

Under the proposals, 30 per cent of the market, worth about £1.5bn a year, will be opened to competition in April. This consists of large business users mailing out 4,000 items or more at a time. The top 10 bulk mail users – including banks, government departments and mail order companies – send out 2.5 billion to 5 billion items of mail a year. In the second phase of competition a further 30 per cent of the market will be freed up from April 2004 when rival operators will be allowed to handle bulk mailings of between 500 and 1,000 items.

Restrictions on market entry will be abolished altogether in March 2006, theoretically enabling domestic customers to send and receive letters using firms other than the Royal Mail.

Mr Corbett said that complete liberalisation could be brought forward by one or even two years depending on how successful the first stages proved. Initially, licences will last for seven years but after that they will be indefinite.

Allan Leighton, Consignia's new chairman, said the Postcomm proposals threatened the universal service: "Competitors can now cherry pick the profitable parts of our business, which substantially pay for the 'one price anywhere in the country' promise. For Consignia, the regulator's approach represents death by a thousand cuts."

Peter Skyte, national secretary of the Communications Managers Association, which represents 15,000 Consignia managers, said the plans posed a real risk to the universal service, adding that competition should be "gradual, measured and controlled".

But the consumer group Postwatch applauded the plan. "The regulator has produced a balanced set of proposals. These recognise that competition is the best way to protect customer interests."