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BRIEFING ON POSTCOMM'S PROPOSALS FOR POSTAL COMPETITION POSTCOMM PROPOSALS IN BRIEF 1) April 2002 Granting of licences for operators wishing to provide large mailing services with a minimum of 4,000 items. 1) April 2004 Granting of licences for operators wishing to provide large mailing services with between 500 and 1,000 items. 1) April 2006 Complete liberalisation of all UK postal services.
POSTCOMM'S PROPOSALS MORE FULLY The Postcomm consultative document - published on 31 January 2002 - is officially entitled "Postcomm's Proposals For Promoting Effective Competition In UK Postal Services". It runs to some 130 pages. In summary, the proposals are as follows. Phase One: From 1 April 2002 to 31 March 2004 a) Postcomm will grant licences for operators wishing to provide large mailing (bulk mail) services, where large mailing is defined as an individual mailing with a minimum of 4,000 items (or an average mailing of 4,000 items if under a multiple mailing contract). These licences will be indefinite in duration (with a notice period of 3 years, which can only be exercised after the fourth year). These licences will contain a restriction that prevent the acceptance of consolidated mail during the transition to full market opening (this will be reviewed for the second phase). a) Postcomm will grant licences for operators wishing to provide services allowing the consolidation of mail from a number of users which will then be passed to Consignia for delivery. These licences will be indefinite in duration (with a notice period of 3 years which can only be exercised after the fourth year). a) Postcomm intends to consider opening up further parts of the market in respect of defined activities such as local delivery services or specialised services. Licences issued under this heading will be indefinite in duration (with a notice period of 3 years which can only be exercised after the fourth year). Postcomm expects to consider the case for this further opening up on its merits against the facts that prevail at the time and in light of the expected impact on the universal service. Phase Two: From 1 April 2004 to 31 March 2006 a) Postcomm will revise the limit for large mailing licences downwards (expected to be between 1,000 and 500 items of mail per mailing). a) Postcomm will review the restriction in large mailing licences preventing them from accepting consolidated mail. a) Postcomm will consider whether the end-date for full market opening should be brought forward. Phase Three: From 31 March 2006 All restrictions on competition will be abolished.
POSTCOMM'S PROPOSALS: RESTRICTIONS ON CONSIGNIA Postcomm is proposing that Consignia's ability to respond on price to competition should be restricted in the initial stages of the development of such competition in order to prevent the risk of what Postcomm calls "market foreclosure through targeted and aggressive pricing responses". These restrictions are already set out in Consignia's licence. However, Postcomm believes that there should be a transition whereby these restrictions are removed, as competition becomes "established and self sustaining". Postcomm appears to recognise that Consignia may well find it difficult to safeguard the universal service while facing such competition and therefore it is suggesting that, if it proves necessary, Consignia would be allowed more
"commercial freedom in the terms on which it provides the universal
service", such as: It would theoretically be possible for Postcomm to set up a compensation fund whereby competitors to Consignia would be required to make a financial contribution to the fund. However, Postcomm's report makes it clear that it does not propose to recommend to the Secretary of State at this stage that it be given powers to set up such a fund, but it argues that it will keep the issue under review. OBJECTIONS TO POSTCOMM'S PROPOSALS In terms of the mechanics of competition, Postcomm's proposals use a mechanism for liberalisation that is totally different from that used so far and to be used in future by the European Commission. The Commission has introduced competition by a lowering of the weight and price threshold, which covers all categories of mail and covers all categories of user, but Postcomm is opening up bulk mailing which conflicts with the Commission's approach and only relates to large business users. In terms of the timing of competition,
Postcomm's proposals represent a liberalisation programme that goes much
further much faster than the UK Government and other EU Governments
have agreed with the European Commission for postal services
throughout the European Union. The agreed programme is as follows: further "decisive step" which might involve full liberalisation. In terms of impact of competition, Postcomm's proposals would involve open up the following markets: * Phase One 30% of Consignia's inland
letters revue or 40% of its volume Since the inland postal market is worth around £5 billion, Phase One will open up around £1.5 billion and Phase Two at least as much again. Postcomm's proposals do not provide - like the European Commission's proposals - for a review with the possibility of postponement of full liberalisation, but they do provide for consideration of whether the end date for full market opening should be brought forward. Postcomm has obviously drawn the wrong conclusions from the experience of Sweden where there is a fully deregulated market. Even though competition has been very limited with few serious competitors and Swedish Post has been charged with using predatory pricing, Swedish Post's prices have risen sharply and, in the last two years, its profits have turned into losses. Postcomm's proposals provide for what
is called downstream access - that is, access to Service Delivery's
network further down the mail chain than the collection point - on
financial terms that would be advantageous to competitors. If such
down stream access is to be allowed - and it will present logistical
difficulties - it should be at a fair price which includes a share of Service
Delivery's overhead costs. This would be the full price minus the cost
of those processes that Consignia would not have to bear because the
competitor/customer was carrying out these processes on their own. This is
in contrast to 'bottom up' pricing models favoured by Postcomm. Postcomm's proposals appear to ignore
the warnings in the report of the National Audit Office entitled
"Opening The Post" (24 January 2002). * If competition is most pronounced for
the most profitable services, "Consignia could be left
with insufficient returns to cover its overhead costs, and hence to
finance remaining services without across the board price increases that
might further erode its competitive position" (para 18) All this is happening at a time when: * After 23 years of consecutive profit, for the past two years Consignia has been operating at a loss. * * Growth in mail volumes is lowing down - - instead of the forecast 6% a * year, it is currently running at 3%. * * Electronic substitution is beginning to have an effect, as e-mail and business to business electronic commerce hit traditional mail. * * Consignia is struggling to achieve a reduction in costs of some 15% or £1.2 billion. * * Industrial relations are fragile, as the business seeks to introduce major changes, such as a revised delivery specification, and major staffing reductions, rumoured as 30,000 jobs. * * Government as shareholder is refusing to agree that it will suspend its requirement for a dividend. CONCLUSION The wreckers of Consignia are not the CWU - which is busy at ACAS seeking a negotiated settlement to the current dispute over Service Delivery pay. The wreckers are Postcomm which is threatening to introduce more competition more quickly than almost any other country in the world at a time when Consignia's finances are more unstable than for a quarter of a century. If they are not very careful, Postcomm - through ideological blindness - could turn this great public service into another Railtrack. Technically Postcomm's proposals are open to consultation and amendment over the next month or so. Therefore the CWU will be submitting detailed views on the proposals and lobbying all interested parties including Government as shareholder. ROGER DARLINGTON Head of Research 31 January 2002 RD02/015/3 NP 22
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