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Royal Mail’s PPS Needs Oversight

Last May, I discussed in DM News International the proposed involvement of the UK’s Royal Mail in a new lifestyle database operation, the Postal Preference Service.

At that point the service was going through feasibility studies. Now, PPS has launched “in association with Royal Mail,” which is funding the operation along with the Dutch Post Office. The move has left the UK DM industry in an uproar. Complaints have been made to the Office of Fair Trading, the body that enforces UK competition policy and ensures a level playing field for businesses.

The OFT has just announced that it will hold a formal investigation into Royal Mail’s involvement in the plan. This follows a failed attempt by several lifestyle database companies to halt the launch through a High Court injunction.

So what is the significance for the UK industry and for those who might wish to enter the UK? Anyone interested in lifestyle information on the majority of UK households – the service’s business plan has a target of 60 percent coverage in the first two years – will be interested. And since it is believed that PPS ultimately plans to expand into Europe and the United States, it’s a big deal.

Why the fuss? PPS is not just another lifestyle database operation. The use of the Royal Mail brand, possibly the strongest in the UK, gives it a pulling power no rival could match, as trials reportedly proved.

It also offers consumers the chance to not just receive more of the mailings they want by filling out a detailed lifestyle questionnaire, but to opt out of mailings from sectors in which they have no interest. From a business and a consumer perspective, the UK industry is worried. The Post Office, of which Royal Mail is an integral part, last year was given greater commercial freedom, albeit under the eye of an independent regulator, Postcomm. This was crucial to ensure fair competition as Royal Mail, having a monopoly on postal services, could abuse its privileged position and act uncompetitively.

For example, without safeguards there would be nothing to stop Royal Mail from funding a direct marketing agency and giving it privileged postal rates, something no one else would enjoy.

The industry also is concerned that the service actually misleads consumers and thus could undermine the credibility of the lifestyle database sector and the industry per se. If a consumer, for example, wants to opt out of receiving credit card mailings, he will expect, at some point, to stop receiving these mailings.

Yet the success of the service depends on the number of advertisers who sign up for it. So if only one credit card company takes part, that consumer will continue to receive significant amounts of mailings from a sector he has declared no interest in. This is likely to lead to considerable consumer disenchantment.

On the regulatory front, the industry, not surprisingly, expected Royal Mail’s involvement in PPS to be scrutinized before launch. Sadly, Postcomm sidestepped the issue, saying it has yet to get full powers and is therefore unable to act. The government’s Department of Trade and Industry is not interested.

Before the OFT’s intervention, this left the UK DM industry concerned because Royal Mail is known to be looking for new revenue streams by moving outside its core mail delivery operation into related areas. This would bring it into direct competition with existing direct marketing services providers. So the PPS venture is likely to be the first of many, leading to the need for a strong, independent regulator.

The OFT may sort out the issue but, from an industry standpoint, it is essential that Royal Mail ventures are scrutinized before they launch, rather than after. The next industry step is to ensure that the regulator, Postcomm, accepts its responsibility and uses its full powers when it gets them, which is likely to be in March. Hence a concerted lobbying effort, targeted at Postcomm, is about to be launched in a bid to stop a recurrence of the PPS situation.

The story might have a happy ending. The OFT may act. Postcomm may prove a strong and effective regulator. If not, the UK DM industry may find itself involved in a series of legal battles to ensure Royal Mail does not act anti-competitively. And that, ultimately, will be in no one’s interests.

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