What’s the real price of the post?

By Jayne Warren - 06/03/2007

 It’s not just our rural post offices under threat. The viability of our postal services is also coming under increasing pressure.

 

Recent reports in the press predicted a 6p rise in the price of a stamp. The Mature Times has been investigating what is happening to the future of our valued one-price-goes-anywhere service, and how increasing competition has put an intolerable strain on the Royal Mail.

 

In recent months, there have been quiet but devastating changes happening behind the scenes of the postal world. Falling mail volumes (largely due to email and broadband) and intensified competition have combined to put massive pressures on the Royal Mail’s ability to keep Universal Service for every customer.

 

The emphasis on promoting competition (known as the “access scheme”) in January 2006 has resulted in an explosion of rivals targeting business mail, with competitors now handling 2.5 billion business letters a year - around 25% of bulk business mail. And the level of competition will grow further, making it even harder for Royal Mail to keep delivering the Universal Service, unless there are changes to the regulatory regime.

 

David Simpson from the Royal Mail told the Mature Times: "The reality is that stamped mail is loss-making - we lose about 6p for every 1st and 2nd class letter. Currently we have the absolute lowest prices in Europe, and we want it to stay that way. And the reason we have the lowest prices is because we subsidise it through our business mail, which accounts for 90% of all mail.

 

"Our current problems have arisen since the government threw open the doors for competition - which was absolutely right for all customers involved. But that rapid rise in competition has taken away most of our business customers, like BT and TV Licensing, making our low stamp prices simply unsustainable.

 

“The competition don't want to get involved in private mail, because it makes a loss, and they know it. But they use our networks, our collection points and smaller delivery offices. Originally, the access payment for that (13 pence) kept things viable, but it just isn't anymore.

 

"All we are asking for is a proper debate between us and the regulator Postcomm, to give us the freedom to compete freely and fairly for business customers, while ensuring everyone can continue to post to the UK’s 27 million addresses at uniform, affordable prices."

 

Preserving a universal service

 

Without such a debate and a return to cross-subsidy, dearer stamps may well be inevitable. At the moment the average UK household spends less than 50p a week on postal products with social mail such as birthday cards and personal letters accounting for only 7% of all mail.

 

The Royal Mail’s response to Postcomm’s strategy review on the future of the UK postal industry proposes four steps to create a fairer market:

 

• The one-price-goes-anywhere Universal Service should be re-focused specifically on stamped mail rather than including business products.

 

• Cross-subsidies should be removed to create transparency for business customers and to ensure that competition is sustainable.

 

• Business mail services should be fully deregulated because competition has now replaced the need for regulatory constraints.

 

• Operational integration of the postal network should continue as separation would create confusion, introduce complex and costly interfaces, endanger quality of service and jeopardise Royal Mail’s modernisation programme.

 

Adam Crozier, Royal Mail’s Chief Executive, said: "The message the price control is sending to rivals is that it’s better to enter the market as a cream-skimmer than as an innovator. Royal Mail is, in effect, subsidising its biggest rivals."

 

So do YOU think our post is good value? Would you be willing to pay more? Or would you welcome more competition in the marketplace? Let us have YOUR views. Email editorial@maturetimes.co.uk.