Media briefing: Facts about the competitive mail market

April 2008

Full market opening on January 1st 2006 was not a "big bang"

  • Most of the 21 licensed operators in the UK already had their licences and were conducting a mail business before full market opening. 
  • Nearly all of these entered the mail market on the back of their existing mail or parcels/express business in the UK.
  • The bulk mail market, where practically all the competitive activity has been focused, has been open to competition since January 2003.
  • The European Union's approach has been to open up postal markets gradually to competition. On 18 October 2006, the European Commission published its proposals for the next Postal Directive.  Negotiations on the draft Directive were concluded and the Directive was adopted at the end of January 2008.  Member States have until 31 December 2010 to transpose the Directive in national legislation.  (See the European Postal debate factsheet for further information).
  • More on the introduction of competition to the mail market.

What has competition meant for Royal Mail?

  • This table shows that Royal Mail’s price controlled revenues fell during the year ending 25 March 2007. The revenue increases permitted under Postcomm's price control are more than offset by volume declines, due partly to those price increases, substitution to other media and 'intelligent purchasing' by customers switching to cheaper Royal Mail products, eg, using Second Class rather than First Class services. It also shows that factors other than competition have contributed most to the weakening revenue trend that has affected Royal Mail's financial results.
Change in Royal Mail's revenue for its price controlled products between 2005-06 and 2006-07
 Price Control area Revenue (£m) Percentage of total revenue
Total revenue - regulatory accounts 2005/06 5,987 100.0%
Increase in revenue due to:    
Price increases 299 5.0%
Decrease in revenue due to:    
Volume effects, ie, e-substitution and other demand changes -108 -1.8%
End-to-end competition 0 0.0%
Access competition -71 -1.2%
Intelligent purchasing -148 -2.5%
Total revenue - regulatory accounts 2006/07 5,959 99.5%

Notes

  • Data above drawn from Royal Mail's published Regulatory Financial Statements 2006-07, Part 2: Unaudited financial information, page 6.
  • Full end-to-end competition has made no noticeable impact on Royal Mail’s revenues.
  • The loss of revenues to ‘access’ competition was less than a quarter of that which Royal Mail lost through volume declines and intelligent purchasing (sometimes described as ‘downtrading’, eg, the use of Second Class instead of First Class services).
  • More on Postcomm's regulation of Royal Mail's standards and prices.

Royal Mail still dominates the UK postal market and its degree of dominance is greater than that of the national operators in Germany and the Netherlands

  • Royal Mail still delivers more than 99% of all mail in the UK. 
  • Competitors now handle around 20% of letters at some point during their journey, but actually deliver less than one per cent - ten in every thousand.
  • End-to-end competition is developing much more slowly than predicted by Royal Mail.
  • In the Netherlands, Spain, Sweden and Germany, national operators have lost 8-12% of end-to-end volume to competition.

There is competition through ‘access’ agreements but very little end-to-end competition

  • ‘Access’ arrangements are when rival postal operators, or mail customers, pay Royal Mail to deliver letters on their behalf, having themselves collected and sorted the letters and carried them across the country using their own transport networks.
  • So, business is not entirely ‘lost’ by Royal Mail; it is shared between the new operators and Royal Mail, with Royal Mail still getting the lion's share of the revenue from it. 
  • Royal Mail is still paid around 13p of the price of an average access letter, while competitors typically receive only around 2–3p for the work they do in collecting mail, sorting it and getting it to Royal Mail for final delivery.
  • More on 'access' agreements.

Impact on the universal postal service in the UK

  • in 2006-07, Royal Mail achieved 11 out of 12 of its standards, compared to 10 out of 16 in 2005-06. For example, Royal Mail delivered 94% of First Class mail the next day, against a standard of 93%.  
  • Last year, Royal Mail delivered 99.66% of items correctly, against a target of 99.51%.
  • More on the universal service and on Royal Mail's quality of service standards.

Postcomm – the independent regulator for postal services

  • Postcomm is the independent regulator for postal services in the UK. 
  • Its primary job is to protect the universal service and make sure that postal operators, including Royal Mail, meet the needs of their customers throughout the UK.
  • More information about Postcomm.