Policy & Research
Background briefings
Competition and licensing
In 1997 the EU introduced Directive 97/67/EC which set up a framework to regulate the provision of postal services in Europe. This opened up the postal services market to competition. Before this Directive, which became legislation in the UK through the Postal Services Act 2000, Royal Mail – the UK’s ‘universal service provider’ – had a monopoly in the provision of postal services within the UK. The Directive established Postcomm as the sector regulator.
Directive 2002/39/EC that amended the 1997 Directive reduced the maximum ‘reserved area’ – the part of the market reserved for the universal service provider – from items weighting less than 350g to items weighting less than 100g from 1 January 2003, and to 50g from 1 January 2006. Directive 2008/06/EC proposed full opening of the EU postal markets to competition by 31 December 2010.
Following a public consultation in 2004 Postcomm decided to fully open the market to competition on 1 January 2006. This means that licensed companies are able to collect, sort and deliver mail to customers. The regulator’s decision document can be found on Postcomm’s website. Market opening in the UK has therefore proceeded faster than required by Directive 2008/06/EC.
What’s the difference for customers?
Large businesses are seeing the difference first. Services provided by competitors to Royal Mail are at the moment mainly aimed at businesses who post large amounts of mail and this is likely to continue to be case – after all, businesses send over 80 per cent of all mail.
Social customers will see little practical difference in the mail services they use.
Some customers are already receiving mail delivered by other mail companies but most mail companies will use Royal Mail for final delivery.
For the foreseeable future social customers are unlikely to be able to post mail into pillar boxes provided by another mail company. Experiences in other countries where the market has been fully liberalised, such as New Zealand and Sweden, illustrate this. Where alternative pillar box networks have been set up these tend to be within a limited area, eg a city, and for the posting of local mail only.
How do other companies compete with Royal Mail?
The UK took a different approach to implementing the 1997 Directive than other EU member states. Postcomm decided to open the market by volume rather than weight, liberalising bulk mailings of more than 4000 items with effect from January 2003. Additionally, rather than establish a reserved area, the Postal Services Act 2000 created a ‘licensed area’. The licensed area corresponds to items weighing up to 350g, or items costing £1 or less. The regulator (Postcomm) licenses companies who wish to deliver mail weighing under 350g or costing less than £1. Go to the licensing section of Postcomm’s website for more information and a full list of licensed companies. Full market opening means that competitors of Royal Mail are free to provide services for customers in all parts of the market but still need a licence to operate within the licensed area.
Postcomm has issued a licence to Royal Mail to provide the universal service. Royal Mail’s licence sets out the access to the postal network that customers can expect, the quality of service targets to be met and requires the company to have complaint handling procedures and a compensation scheme. EU Directive 97/67/EC does not specify actual prices for services in individual member states. However, as Royal Mail is a monopoly provider, Postcomm controls Royal Mail’s prices to ensure these are affordable, geared to costs, transparent and non-discriminatory (as required by Article 12 of the Directive). Royal Mail is also required to publish accounts for its postal operations each year.
Postcomm issues a standard licence to competitors which is different to Royal Mail’s because competitors are not universal service providers. Competitors’ licences last for at least seven years and Postcomm does not control the prices offered by competitors or prescribe the quality of service levels to be provided. This allows customers to choose which services to buy based on an evaluation of the prices and quality levels offered by competitors. Customers are free to switch provider if they are not satisfied.
