Royal Mail CEO Moya Green warns of competition threat to letter delivery
Royal Mail chief executive Moya Greene has warned parliament that cherry-picking of more profitable urban delivery contracts seriously threatens the company's ability to provide countrywide letter delivery under its 'universal service obligation'.
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The opening up of the market before Royal Mail's flotation last year has seen new competitors UK Mail and TNT Post's Whistl offer letter delivery in more densely populated and therefore profitable urban areas.
"If you allow cherry-picking in the urban areas you undermine the economics," Greene said at the Business Select Committee's investigation into competition in the sector on Wednesday, "and we're already dealing with a structural decline in letters of about 4-6% a year.
"So what happens is that it siphons off very quickly a lot of revenue - more revenue than can be offset by even very vigorous efficiency measures on Royal Mail's part and it makes the universal service unfinanceable and uneconomic."
Sitting next to Greene, Whistl chief Nick Wells maintained that as a "start-up business" Whistl's focused on dense urban areas of London and Manchester was the "only way" the company could build an effective end-to-end competition to the incumbent provider.
"As a start-up business we cannot cover every household in the UK," he said, arguing that the rates Whistl paid Royal Mail to deliver mail to other parts of the country was enough to offset the urban competition.
Under the universal service obligation agreement, Royal Mail has to provide a least one delivery and collection of letters every Monday to Saturday at an "affordable, uniform tariff" across the UK until at least 2021.
But the difficulty in doing this during the last decade, Greene said, had seen Royal Mail has lost 50,000 staff and was shedding 2-3,000 jobs a year.
Regulator Ofcom said it was monitoring developments around the universal service and would act quickly to protect postal users if it felt there was a threat to provision.