Regulator backs down over threat to Royal Mail

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The Independent Online

The postal regulator is set to back down in its dispute with Consignia over the opening up of the postal market by slowing down the introduction of competition to the Royal Mail.

The move, due to be announced next month by Postcomm, follows a warning last week from Consignia that first and second-class stamp prices may have to rise by 3p a year if its monopoly is broken up too quickly.

Postcomm is also expected to approve a 1p rise in the cost of first-class and second-class stamps which Consignia called for last week.

The regulator had been planning to throw open 30 per cent of the Royal Mail's market to competition as early as next month by allowing rival operators to handle bulk mail on behalf of business customers. It proposed to open up a further 30 per cent in two years' time and then liberalise the market entirely from 2006.

However, Postcomm is now expected to back down in the face of nervousness among ministers about the pace of change and dire warnings from Consignia that it could spell the death of the universal service which guarantees deliveries to any address in the country for the same price.

The consultation period on Postcomm's proposals closed last Friday with more than 1,300 replies received from consumer groups, unions, private postal operators and Consignia itself which submitted a 78-page critique of the regulator's plans. Postcomm is expected to announce its decision on how quickly the market is to be opened up next month. One source said: "We will have to sit down and look at Consignia's concerns seriously. Maybe four years is too quick a timeframe – we don't want to kill the patient. But they don't need 10 years."

Postcomm is also likely to agree reluctantly that the Royal Mail should be allowed to raise prices this year to help fund what it calls its "renewal plan". Consignia is losing £1.5m a day and is seeking to cut costs by £1.2bn but it argues the 1p postage increase is essential to fund badly needed investment.

The regulator is expected to agree to phase competition in more gradually, perhaps over a six or seven-year period to give Consignia more time to adjust to the dismantling of its monopoly. However, it is unlikely to back down on the method by which competition is introduced.

Postcomm plans to license rival operators to compete directly with the Royal Mail at any price and weight level. Consignia wants its monopoly market to be lowered gradually, in line with the liberalisation of the postal system taking place elsewhere in Europe.

Under Consignia's proposals, the monopoly limit would be cut to letters weighing less than 100 grams – about 41p in first-class postage – from January of next year. From 2006, the limit would be lowered to 50g, which is about 20p or less than the current cost of a first-class stamp.

But sources said Postcomm's chairman, Graham Corbett, would stand firm. "Everyone, and especially Consignia, knows that there will be no real competition until rival operators can handle light letters as well as heavier items," one said.

"What Consignia is proposing would keep nearly all of its monopoly intact for another four years."