Press Release - Opening the Post: Postcomm and postal services
- the risks and opportunities
24 January 2002
In a report to Parliament today, Sir John Bourn, the head of the
National Audit Office, said that Postcomm, the new regulator of
postal services, face a challenging remit as they seek to bring
benefits to users of postal services through the introduction of
competition, and pointed to serious risks to Postcomm’s strategy of
improving services through competition and regulation.
The National Audit Office concluded that Postcomm, aided by the
new consumer watchdog Postwatch, have made a good start, setting
out clearly what they are seeking to achieve, undertaking extensive
consultations and issuing six licences in what was previously the
Post Office’s monopoly area. But there are clear tensions between
Postcomm’s objectives which lead to a number of risks.
- There may be insufficient competition to generate an improved
service to most customers. This risk could arise as a result of the
strength of Consignia’s brands, especially Royal Mail, and from
Consignia’s response to competitors. Potential competitors may be
reluctant to enter the market especially were Postcomm to continue
their initial strategy of issuing short term licences to new
entrants as this puts them at a disadvantage to Consignia, which
has a 15 year licence.
- Postcomm may be constrained in promoting competition by its
statutory duty to ensure the continuation of a universal service at
a uniform price. Consignia currently provide a universal postal
service, with collections and deliveries everywhere in the country,
at a price that does not vary with distance. If it were to lose
significant custom to its competitors, Consignia might find it hard
to finance the provision of a universal service at current prices
or service levels. Postcomm have been carrying out intensive
research into this issue.
Postcomm are shortly to publish a consultation document
containing their proposals for opening up the market to competition
and so addressing these two risks. In doing so, they will need to
show that their proposals will indeed encourage competition, whilst
providing sufficient assurance that the universal service will not
be damaged by what they propose.
The National Audit Office note that Consignia provides an
extensive service which is relatively cheap and well regarded. But
Consignia has rarely met its delivery targets in recent years, has
experienced deteriorating profitability and faces serious
industrial relations problems. Until there is effective
competition, Postcomm will need to regulate Consignia’s prices and
quality of service directly through the licence they issued to the
company in March 2001. In carrying out this task, Postcomm run the
following risks:
- Consignia’s efficiency may not improve significantly.
Introducing competition to other formerly monopoly markets, such as
telecommunications, has shown that one of the benefits of
competition is the pressure it places on former monopolists.
Pending the development of effective competition, Postcomm will
need to rely on creating incentives for Consignia to improve its
efficiency, especially through the controls they place on the
prices Consignia can charge. The risk Postcomm face is that these
incentives may not be sufficient to induce Consignia to improve its
efficiency.
- Consignia may fail to meet prescribed standards of service.
Under its licence, Consignia must meet prescribed standards of
service, including delivering 92.5 per cent of first class mail the
next day. It has recently failed to achieve this level of service,
with its national performance only achieving 89 per cent of first
class mail next day in 2000-01. In some postal areas, especially in
London, performance is much worse. Postwatch monitor the
achievement of service standards on Postcomm’s behalf and are
seeking to develop the information they obtain so as to obtain an
informed view on customer needs and whether these are being met.
The National Audit Office’s surveys of domestic and business
customers, undertaken for this report, should help them undertake
this task.
- The Department of Trade and Industry, as the principal
shareholder, may not apply sufficient pressure on Consignia to
improve its performance and respond constructively to competition.
In the case of other formerly monopolistic industries, such as
telecommunications and gas, the private sector shareholders have
played an important role in imposing disciplines on the company,
ensuring that they improve efficiency and respond constructively to
competition. The Department may not be in a position to apply the
same disciplines to Consignia as private sector shareholders would
do.
- The National Audit Office conclude that Postcomm’s success in
handling all these risks will depend in part on the credibility of
their actions. Key factors in establishing credibility include
adherence to the principles of good regulation, being seen to act
in an impartial and independent way, employing staff with
sufficient experience and expertise, and obtaining sufficient
robust and reliable information.
Sir John Bourn said:
"My report concludes that Postcomm have taken some
important steps to introduce competition and further the interests
of users of postal services. But for their strategy to be
successful, and to ensure that postal services improve rather than
decline they need to address the risks I have identified.
Postcomm’s proposals should be scrutinised with a view to ensuring
that Postcomm are managing these risks successfully so that
customers will indeed see improved services."
Notes for Editors
Postal services play a key role in modern economic and social
life, providing communications between individuals, businesses and
government. Some 20 billion a letters a year are posted in the UK.
In recognition of the important role of postal services, most
governments seek to preserve the continued provision of
universal service – that is collections and deliveries to
all parts of the country.
The UK Government’s policy is to guarantee universal service,
defined as daily collections and deliveries across the country of
postal packets up to 20 kilograms (44.1 pounds) at an affordable
and geographically uniform price which does not vary with
distance.
The Postal Services Commission (Postcomm) were established as
the regulator for postal services under the Postal Services Act
2000. The Commission are appointed by the Secretary of State for
Trade and Industry. Their Chairman is Graham Corbett, their Chief
Executive is Martin Stanley and there are five other Commissioners.
Postcomm are shortly to publish a consultation document on their
proposed strategy for opening up the market to competition, taking
account of many of the issues raised by the National Audit Office’s
report.
The Consumer Council for Postal Services, known as Postwatch,
were established by the Postal Services Act 2000. They are
responsible for representing the interests of users of postal
services. Their Chairman, Peter Carr, and the other 12 Members of
the Council were appointed by the Secretary of State for Trade and
Industry. They took over responsibilities from the Post Offices
Users’ National Council.
Consignia plc is the new name for The Post Office. It owns three
main operations in the United Kingdom: Royal Mail; Parcelforce
Worldwide; and Post Office Counters Limited. It is a wholly owned
by Government, with the Treasury holding one share and the
Department of Trade and Industry holding the remaining (49,999)
shares.
Press notices and reports are available from the date of
publication on the NAO website at http://www.nao.org.uk/ Hard copies can
be obtained from The Stationery Office on 0845 702 3474.
The Comptroller and Auditor General, Sir John Bourn, is the head
of the National Audit Office employing some 750 staff. He and the
NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 05/02
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