Regulator set to open third of postal market

The UK's postal regulator is set to throw open nearly a third of the Royal Mail's market to competition in a move which will put £1.25bn of business at risk.

PostComm is expected to unveil a radical shake-up of the postal system at the end of the month which will result in rival operators being granted long-term contracts to compete with Consignia for 30 per cent of its monopoly business.

The move comes as Consignia, formerly known as the Post Office, is preparing to cut 30,000 jobs as part of a £1.2bn cost-saving plan. The company is also facing a national strike ballot over a pay dispute.

So far Postcomm has issued six short-term licences lasting 12 months and allowed three new entrants into the market. But a report published yesterday by ABN Amro said the regulator would set out proposals in the next 10 days to allow private operators to compete for 30 per cent of the Royal Mail's business on a long-term, basis.

David Ireland, ABN Amro's support services analyst and the author of the report, said: "We expect Postcomm to pursue a line of least resistance, targeting segments of the UK market which involve Consignia's most important business customers, offer most encouragement to new entrants and allow Consignia the best opportunity to fight back."

The contracts are likely to be for up to 15 years – the same length as Consignia's postal licence – and will bring competition to Consignia from the likes of TNT, FedEx and Hays.

Mr Ireland said in other European countries that had introduced competition the incumbent had hung onto 80 to 90 per cent of the market but this was unlikely in the UK.