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24 January 2002

National Audit Office report implies that Consignia needs more competition and privatisation.

Triangle Opinion

Based on the National Audit Office report and its own analysis of the postal industry over many years Triangle believes that Postcomm must urgently address two issues:-

1. Postcomm needs to actively encourage competition in order to force Consignia to improve its efficiency and service standards.

2. Until adequate competition arrives on the market Postcomm has to force Consignia to improve by means of the regulatory powers at its disposal. It also has to force Consignia to produce and give it the detailed costing information it needs to make decisions about the postal market.

Furthermore, Triangle believes that as long as Consignia remains in the public sector it will be unable to bring about the wide ranging changes necessary to provide customers with the services they want. Consignia’s management should be very interested in following the German post office down the path to privatisation and away from government interference. The government should realise that consumer interests will be best served by setting Consignia free as a private operator competing in a regulated market.

Background

The National Audit Office (NAO) has today published a report on the regulation of the UK postal market (Opening the Post – Postcomm and postal services – the risks and opportunities). The report is concerned with Postcomm’s approach to regulation and does not make any direct recommendations about how the postal market should be regulated or structured but several important inferences can be drawn from it.

The report is a well-balanced appraisal of the challenges facing the postal services regulator (Postcomm) as it seeks to ensure the provision of a universal postal service whilst furthering the interests of postal users and promoting effective competition, where this is appropriate.

The NAO says that Postcomm has made a good start in tackling these challenges and that there are signs that Consignia is already responding constructively to the challenge of competition. The report also identifies several risks in regulating the postal market that Postcomm must address.

Insufficient competition

The first of these risks is that there may be insufficient competition to generate an improved service to most customers. The NAO has recognised that Consignia has substantial competitive advantages (size, brand and operational privileges) that could prevent competitors entering the market. It suggests that Postcomm’s interim licensing strategy will also deter new entrants in the short term. The report goes on to describe countries where liberalisation has already happened and where relatively low levels of competition have tended to lead to service improvements. Triangle’s research of these countries suggests that competition needs to be actively encouraged and new entrants protected from the incumbent operator, rather than the other way round.

Breakdown of universal service

Here the NAO correctly identifies Postcomm’s problem that it does not have sufficient information about Consignia’s cost structures to evaluate the effect of competition on the universal service. Postcomm is not alone in this – it is very unlikely that Consignia has this information itself! This is a common difficulty in the postal industry because post offices have not been forced to manage their businesses like commercial organisations. Other countries have been in the same position and, as the NAO says, the universal service (in these countries) is maintained under liberalised conditions.

Consignia’s efficiency and service may not improve significantly

The NAO appears to believe that Consignia will continue to be the dominant force in the UK postal market. Experience elsewhere supports this view. Furthermore, it suggests that as long as Consignia remains a publicly owned organisation it will not come under sufficient pressure to improve performance. It concludes, therefore, that Postcomm needs to incentivise efficiency through its forthcoming price review. It also says that Postcomm must ensure that Consignia meets quality of service targets. It is easy to infer from the report that privatisation would be the most effective incentive for commercialisation and improvements in efficiency and service quality. Other options could be joint ventures, alliances, management contracts and Consignia’s break up.

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For more information on Triangle or about this article please contact Paul Jackson via email  PaulJ@triangle.eu.com or telephone at +44 (0)870 950 7900 .

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