Royal Mail monopoly to end early after service failures

The postal regulator Postcomm is to speed up the introduction of competition to Royal Mail following the monopoly operator's continued failure to hit performance targets.

The postal regulator Postcomm is to speed up the introduction of competition to Royal Mail following the monopoly operator's continued failure to hit performance targets.

Postcomm's chairman Nigel Stapleton is expected to announce today that the £20bn postal market will be opened to full competition in 2006 - a year earlier than planned.

The move is likely to anger Royal Mail but will be justified by the regulator on the grounds that the company has been dragging its feet in agreeing deals to allow competitors into the market. At the moment, only bulk mail customers such as banks and utility customers sending letters in batches of 4,000 or more can use rival operators. But full liberalisation will mean that anyone can use a competing service to send any letter.

The first phase of liberalisation began in January 2003 and Postcomm had planned to open up the market in stages, culminating in full competition from April 2007. So far 30 per cent of the letters market has been opened up.

However, Postcomm is disappointed that hardly any inroads have been made into Royal Mail's monopoly, with the result that its market share remains more than 99 per cent.

The regulator believes this is because Royal Mail has been slow in allowing rival operators access to its delivery network - the so-called "last mile" which gets mail from local sorting offices to the letter box.

Mr Stapleton indicated his unhappiness with Royal Mail when Postcomm published its annual report last week. In his chairman's statement, he noted that the rival operator UK Mail had to endure two years of "fruitless negotiation" before Royal Mail signed a deal giving the company access to its network, just prior to the regulator imposing a settlement of its own.

"Thus, it has only been since May 2004 that competitors have enjoyed any access to the Royal Mail network. This lengthy delay is most frustrating and, in our view, entirely inappropriate," Mr Stapleton said. He added that the move to full liberalisation would be not later than April 2007 and possibly earlier, "given Royal Mail's improving financial condition and the very limited impact that competition has achieved thus far".

Royal Mail made a £220m profit in the last financial year. However, its standards of service remain very poor. In the first quarter of this financial year, it failed to meet all 15 of its performance targets, with only 88 per cent of first class letters arriving the next day, compared with a requirement of 92.5 per cent. Royal Mail is facing fines running into tens of millions of pounds.

A spokeswoman for Royal Mail said last night that it had not yet seen the regulator's proposals and would respond after it had read them. She added that the company welcomed competition and had been gearing up for it with the overhaul of working practices which it is now implementing. The reorganisation will result in more than 30,000 job losses but produce cost savings of £1.4bn a year.