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Ready or Not, Competition's Coming

The British Royal Mail doesn't like it. The postal workers union doesn't like it. But for those Brits who are major users of the postal service, it is the dawning of a new era — postal liberalization.

U.S. direct marketers with a British DM presence will be just as interested as we are in the recent proposals from the independent regulator, Postcomm, for full competition in postal services by 2006.

Royal Mail historically has had a monopoly on all UK mail weighing up to 350 grams and costing less than 1 pound. Currently it delivers 80 million items a day throughout the UK.

Now all that is changing. European postal liberalization has been on the European Union agenda for some time but progress has been at a snail's pace. Now the UK is set to march forward with an ambitious three-stage plan that tackles the issue of competition in business mail at stage one.

Under the proposals, licenses may be granted as early as April to operators wishing to provide bulk mail services — defined initially as a mailing with at least 4,000 items. These operators may negotiate terms to pass mail on to Royal Mail for final delivery or establish their own delivery network. This measure effectively will expose to competition 30 percent of Royal Mail's inland letters revenue, or about 40 percent by volume.

In stage two, scheduled for 2004, the large mailing threshold would be lowered with the aim of exposing a further 30 percent of Royal Mail's revenue to competition. On or before March 31, 2006, the aim is to remove all restrictions on market entry.

The UK DM industry has largely welcomed the proposals, which should produce choice, improved quality of service and downward pressure on pricing.

For Royal Mail, the announcement could not have come at a worse time. It has plunged into debt, is set to ax thousands of jobs and has a possible strike to contend with as the postal workers union seeks a 5 percent annual pay increase.

Royal Mail management thinks Postcomm is moving too swiftly, arguing that markets should be opened at a pace and in a way that lets customers have more choice “whilst at the same time giving us a realistic chance to compete effectively and maintain a universal service at a uniform price.”

It is the danger to “universal service” that Royal Mail is using as the core of its argument. Legally, Royal Mail must provide at least one delivery and one collection throughout the UK each weekday at a geographically uniform tariff. Royal Mail management thinks that competitors will cherry pick the profitable parts of its business, the bits that substantially pay for the “one price anywhere in the country” promise of universal service.

But the argument has fallen on deaf ears at Postcomm, which argues that only competition will drive Royal Mail to improve efficiency and “encourage them to meet evolving customer requirements in a commercial and profitable way.” It notes that almost nine of 10 letters are posted by businesses “who are demanding more customer responsive and innovative services.”

It also highlights that in countries where competition has been introduced, either completely or partially, incumbent postal operators typically have retained at least 90 percent of the market and service standards have improved.

For DM companies, preservation of universal service is an issue. As bulk mailers we all need to be able to access every address in the country. It is difficult, however, to argue with Postcomm's assertion that only competition will force Royal Mail to become more efficient and more customer responsive. Though direct mail is the cash cow for the organization, years of pleas for closer relationships and greater innovation have largely fallen on deaf ears.

Even with the prospect of competition looming, the past year or so has seen little or no attempt to build closer relationships with key customers.

Exactly how beneficial this new era of competition will be to DM companies is unclear but history suggests that competition in markets ultimately benefits the customer.

As for Royal Mail, how a company with a domestic monopoly can find itself losing money, especially with direct mail volume continuing to rise, beggars belief. The overhaul required only can be hastened by the prospect of imminent competition and, as such, Postcomm's proposals may prove a blessing in disguise.

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