Postal reform won t deliver a truly competitive market

John Blundell discusses forthcoming changes in postal regulations

There is a good reason why Germany's Deutsche Post and America's UPS are considering bidding for British logistics group Excel. On New Year's Day, in three months, the ancient, almost venerable, monopoly over our mail will at long last be relaxed. The once mighty Royal Mail will be subject to the impertinent intervention of commercial rivals - as well as foreign companies- who may be so cheeky as to be faster or cheaper or, utterly subversive, both. The state has preserved its constricted, antique hold on our mail for only two reasons.

Creating a statutory letter monopoly allowed the Elizabethan secret service to monitor the treasonable activities of Catholics. There is something splendidly comical in us still carrying the institutional debris of the religious tensions of the Reformation. The other reason for this nationalised body to have suppressed all competition was more banal. It was a lucrative monopoly which has remitted cash to the Treasury every year for 400 years. It was a subtle form of taxation.

Yet the trumpets greeting the newly opened mail industry in January seem to me to be premature. Will there be a free market ? No. All that will occur is "licensed operators" will be permitted. Who are these officially authorised firms ? They are the ones that have reached comfortable accords with the Royal Mail. They will be permitted to use the "pipeline" of the Post Office's distribution system.

The analogy is with the phone companies still obliged to use the local loops of BT at the exchanges. The reforms at the dawn of the new year strike me as far too tentative and timid.

I can think of no single, easily accomplished reform that could be such a blessing to British business. For every company mail costs are oppressive. Even with their bulk discounts every bank and insurance company could ensure huge savings from a truly liberalised mail market.

The Confederation of British Industry, the Institute of Directors and the British Chambers of Commerce are strangely mute on this topic. Yet back in the early1980s they were equally silent about the opening up of the telecoms market, which everybody now agrees was an unmitigated success.

The central failure of the present package of reforms is that it preserves the Royal Mail's primary fig leaf. This is termed the "Universal Service Obligation" and it obliges the postmen to deliver a first and second class delivery to every address and to also make at least one collection. This is nothing but a licence to preserve the monopoly but under a benevolent camouflage.

Our mail services have been protected from day light for so long we simply have no idea what could evolve and the industry would look like in a truly open market. As Friedrich von Hayek, the great economist and Nobel Prize winner, once famously put it: "Competition is a discovery procedure." In the matter of mail delivery and collection we simply have no knowledge of what will emerge.

It is an arresting fact that the direct marketing industry represents a greater advertising spend than either broadcasting or newspaper advertising. Direct marketing achieves an intimacy and effectiveness as they refine their techniques by knowing our preferences and addresses. Is it possible these operators could offer stamps with adverts? Our magazines are a fraction of their costs as the advertisers pay to reach the readers. It is possible the stamp could be far more than a picture of Queen Elizabeth II.

Can we even be sure we want doorstep delivery? It may be we would prefer to pick items up ourselves if they are a fraction of the cost. My guess is we will still want a delivery service but why is it limited to letters? Let delivery experts carry every other sort of item. Tesco and others are already delivering groceries across the country after e-mailed orders. An new cadre of couriers could emerge carrying more than mail.

The Postal Services Commission, Postcomm to its friends, may be subject to the subtle processes termed "regulatory capture" by which most public agencies tend to compromise and end up protecting those they are meant to police. Royal Mail Group has been treated gently by Postcomm. It has been authorised to increase the price of stamps and also to change the cost basis from weight to size of package. No doubt this is sensible but where is the raw meat of competition ? Before any bid for Excel - which may of course yet come to nothing and in any case operates in a separate market - TNT, Business Post, Nederlands Post and others have barely 1% of the Britain's postal traffic.

One paradox of a full liberalisation may be that the Royal Mail could be jolted into greater agility. It has a hugely valuable estate of buildings and depots and sorting offices in every town and city centre. These could be sold off to the highest bidder and operations moved to easier and cheaper out of town sites. The Communications Workers Union has lost much of its allegiance to lethargic and inefficient practices. The Post Offices's monopoly status is a sort of licence to sleep. It is possible to detect signs of life in this curiously Stalinist entity.

It is odd that the Royal Mail survived all the reforming zeal of the Conservative governments. Even the BBC, the other great unreformed monster, has been subjected to the emergence of many new channels and digital delivery. One reason seems to have been the potency of the word royal. It is said that Lady Thatcher regarded it as an adjunct of the royal household and a sort of badge of national unity. That is a pleasing romantic conceit, but has little meaning in the real world.

We rightly have a fully liberalised parcel service. Civilisation did not collapse and folk up remote glens have not gone unserviced. The crucial act of liberalisation needs no primary legislation. The statutory instrument that makes it unlawful to deliver a letter for less than £1 should be cut to, say, 1p. Who knows what might happen? Some suggest charity shops could create instant networks. Certainly they are primed for the annual Christmas card surge.

In its own annual report the Royal Mail Group (Consignia has been consigned to oblivion ) complains "our prices are not aligned to costs". Quite. Why not ? Because the Universal Service Obligation distorts the entire array of postal options.

Robert Burns was prescient when he wrote the only really urgent mail items are love letters and cheques. For speed "snail mail" offers no competition to phone, e-m