Chairman's statement - source: annual report 2004-05

The past year has arguably seen more change in the postal industry than at any time in its 350-year history. There are two main drivers for these largely beneficial changes. Firstly, Royal Mail completed implementation of its far-reaching renewal programme that was started in 2002. Secondly, three years of careful work by Postcomm in constructing the policy framework, through which to open the market to competition and to regulate the Royal Mail monopoly in the interests of customers, has started to deliver some favourable outcomes.

We can now see the three key themes of Postcomm’s vision for the industry starting to become a reality – the universal service provided by a more efficient Royal Mail, greater product innovation and the emergence of effective competition. However, these are only the ‘green shoots’ and it will require a clear focus and further development of Postcomm’s regulatory and competition policies to make sure that this initial progress is built upon. The barriers to entry for new competitors remain high but customer reaction to the new products that they are bringing to the market has been very positive.

Provision of the universal service by a more efficient Royal Mail

Royal Mail has turned its financial performance around, albeit at some significant short-term cost in terms of a deteriorating quality of service before and during implementation of its renewal programme.

The company recognises that many further initiatives need to be taken to secure its vision to be demonstrably the best and most trusted mail company in the world.

Postcomm wants to be supportive of Royal Mail in achieving these objectives, which we recognise will require a much higher level of new investment in the business than has been made in recent years. However, we find it impossible to meet Royal Mail’s aspirations for massive near-term deregulation of its business, when the competitive playing field is pitched so heavily in the company’s favour and it still enjoys the power that goes with a 99% market share.

... greater product innovation

Many people may regard the mail market as mature and moribund, destined only for long-term decline. However, UK mail volumes have grown modestly, but consistently, over the past five years.

We are already seeing that the introduction of competition can stimulate product innovation and this ought to underpin the growth and secure the dynamism of the mail market in the years ahead. Direct mail has been the major driver of recent growth but e-procurement is also a positive contributor.

There has been innovation in both end-to-end mail delivery – through such concepts as ‘mail with the milkman’, niche services for items that require high security in transit and by operators who use Royal Mail’s network for delivery over the ‘final mile’.

... and the emergence of more effective competition

Some mail users are beginning to be offered a choice of service and no longer have to use Royal Mail. There are two major triggers to this emergence of competition. First, there are Postcomm’s liberalisation initiatives, starting in April 2003 and accelerated by the decision in February 2005 to remove Royal Mail’s statutory letters monopoly entirely from 1 January 2006. Secondly, since May 2004 competitors have had access to Royal Mail’s downstream delivery network and they have won business by handling the mail for household names such as Vodafone, Sky and Tesco Clubcard.

Postcomm’s first obligation, however, is to secure the universal service. We are monitoring carefully the impact of competition to ensure that the coverage and quality of the universal service is maintained for the benefit of all mail users. Although most new market entrants are targeting larger business customers, most mail users are benefiting from the emergence of competition.  This is because Royal Mail has reacted by becoming more customer-focused and efficient and offering a better quality of service.

... furthered by the commitment of Postcomm's commissioners and staff

Martin Stanley – Postcomm’s first chief executive and a commissioner – left in October 2004 to join the Competition Commission. He has been succeeded by Sarah Chambers, who joined us from the DTI. We are delighted that Martin’s significant contribution has been rewarded by this promotion and we wish him well. Another founder commissioner, Julia Kaufmann, reached the end of her term in May 2005. She has been succeeded by Wanda Goldwag, who brings to the Commission significant experience of direct marketing and small business.  We welcome Sarah and Wanda and thank both Martin and Julia for their major contributions to our work.

Lastly a special word of thanks to my fellow commissioners and all the staff at Postcomm who have delivered very successfully on a significantly increased workload over the past year.

Nigel Stapleton