31/03/02 - Scotland on Sunday

Hidden danger with moving the post goals

Consignia must not receive an unfair advantage

Marco Scognamiglio is managing director of WWAV Rapp Collins Scotland.

WHAT has gone wrong at Consignia, the company formerly known as the Post Office? Many people are baffled that a company which has fundamentally got a monopoly on domestic mail delivery can be losing money to the extent that it needs to cut 30,000 jobs in order to save £500m.

Matters have been made worse by the ongoing threat of industrial action over wage demands and the announcement by the postal regulator, Postcomm, that it intends gradually to open up the postal market to competition.

Much scaremongering has ensued as Consignia has argued that the speed and scale of the Postcomm proposals pose a threat to its commercial viability. Consignia management say the proposals threaten the so-called "universal service". Legally the Royal Mail must provide at least one delivery and collection of post throughout the UK each weekday at a geographically uniform tariff. Consignia fears new competitors will simply "cherry pick" the profitable parts of its business, the bits which substantially pay for the "one price anywhere in the country" promise of universal service.

So will our once great Post Office grind to a halt? Will the price of a stamp rocket and will our uniform tariff disappear, with deliveries to far-flung rural areas costing much more than the norm?

The reality is that Postcomm has come to the conclusion many of us reached a long time ago - only competition will drive Consignia to improve efficiency and meet evolving customer requirements in a commercial and profitable way.

Historically, the injection of competition into what have been monopoly markets has ultimately benefited the customer. Postcomm points out that in other countries where competition has been introduced, incumbent postal operators have typically retained at least 90% of the market and services have improved.

Postcomm also points out that nine out of 10 letters are posted by businesses "who are demanding more customer responsive and innovative services". As the managing director of a company which creates and sends out mail on behalf of a range of blue chip companies such as Scottish Widows, the Scottish SPCA and Guinness UDV, I wholeheartedly echo those sentiments.

Bulk mail, or direct mail as it is more commonly known, is the Consignia "cash cow" with volumes consistently up year on year. Yet our pleas for greater innovation and closer relationships have largely fallen on deaf ears at Consignia. It is clear that only a major overhaul can turn Consignia into an efficient, customer responsive business and Postcomm's proposals may just be the spur that is needed to ensure such a radical overhaul comes sooner rather than later.

Yet while much attention has been focused on the plight of Consignia, few people outside the business arena realise the threat the organisation is currently posing to companies like my own. For, under pressure in its core postal services market, Consignia is now stealthily expanding into related areas as it seeks new revenue streams.

While we have no problem with competition, we must all be operating on a level playing field, that Consignia must not be allowed to abuse its dominant position and act anti-competitively, threatening the very existence of companies currently operating in the markets it enters.

The Royal Mail has already taken several steps into the direct marketing services arena, financially supporting a lifestyle database company and taking a stake in a major mailing house operation. Despite the fact that part of Postcomm's remit is to ensure fair competition, we know there has been no scrutiny of either venture. Given Royal Mail's position, it could easily offer discriminatory terms to both operations, putting them at an unfair competitive advantage.

My parent company, the WWAV Rapp Collins Group, made significant input several years ago into the government review of the future shape of what was then the Post Office. The subsequent White Paper included a blueprint which, if followed, would have put in place a system of checks and balances to ensure no anti-competitive behaviour was possible. Sadly, this blueprint has not become reality and Postcomm has not been given the powers it needs, and does not have the resources or focus required to safeguard companies like ourselves.

There appears to be no process in place to gauge the appropriateness of an acquisition or merger by Consignia. It is clear that only detailed scrutiny of the financial records of Consignia and rigorous examination of the interaction between different areas of its business are likely to identify anti-competitive behaviour. Such scrutiny needs to be proactive and continuous in order to avoid the possibility of abuse. Our recent discussions with Postcomm suggest that such detailed scrutiny is not yet in place.

Our conclusion is that Consignia is being given an open invitation to abuse its dominant position and act anti-competitively. Having met with Postcomm we are now seeking meetings with both the OFT and DTI in a bid to ensure action is taken to guarantee that the level playing field we were promised is delivered.

Intriguingly, a similar scenario has been unfolding in France and the European Commission recently found the French government guilty of breaking the Treaty of Rome by not doing enough to prevent the French Post Office abusing its dominant position. The British government and Consignia ignore this precedent at their peril.

Communication with customers through mail is fundamentally important to business. Recent research shows that UK consumers purchase over £23bn worth of goods through direct mail alone each year. Consignia must not be allowed to endanger the very existence of sections of this flourishing sector. As such, concerns over the plight of Consignia need to be balanced by acknowledgement of the potential danger this organisation currently presents in its desperate quest for new revenue streams.