1. Future of the UK mail market: regulatory perspective CWU Forum 9 February 2006 RICHARD MORIARTY POSTCOMM

2. 1 1:Why do we have a regulator? Postal Services Act 2000 established: –Royal Mail as a public limited company with greater commercial freedom (100% owned by the Government) –Postcomm as the industry regulator –Postwatch as the consumer complaints watchdog Background of a European Directive

3. 2 2: Postcomm’s role: define the rules Protect the universal service –Set service specifications for the universal service –Ensure Royal Mail has enough money to fund it (through prices) –Monitor the universal service and undertake customer research Introduce competition –Set the market opening timetable –Licence operators –Protect mail integrity –Respond to Royal Mail’s requests to prepare it for competition (prices and costs) –Prevent anti-competitive behaviour

4. 3 3:What do we want to achieve? We focus on customers interests (short and long term). We can only achieve it if there is a healthy and confident Royal Mail at the centre of the market. Once we achieve this vision, little need for economic regulation. “A range of reliable, innovate and efficient postal services, including the universal postal service: valued by customers; and delivered through a competitive market”.

5. 4 4:The framework is in place 2001: Royal Mail’s licence granted 2003: Partial liberalisation –Bulk Mail fully opened to competition. 40% of the regulated market 2004: Development of Access –Commercial agreement between Royal Mail and operators 2005: Getting the market ready –Decision on Royal Mail’s cost-reflective pricing proposals (PiP) –Royal Mail’s price control (investment, pensions) –Multi-operator Codes of Common Procedures agreed 2006: Full market opening 2006-10?

6. 5 5:Customers? They determine the future! Who is the customer? –Social: daily delivery and collection and one price goes anywhere stamp. Move from communications to fulfilment (“the E-bay generation”). –Business: want choice, innovation and service. Increasingly post competes with other media. Market is predicted to grow over next 5 years –Key long-term risk is unresponsive Royal Mail Royal Mail’s brand a key strength

7. 6 6:Competition? Competition will take time, but it will give customers choice and encourage Royal Mail to raise its game In terms of volume Access is likely to be the main route to market rather than alternative delivery networks –Royal Mail’s key competitive advantage is local delivery –Distortions such as VAT benefit Royal Mail Alternative delivery networks will tend to focus on niches and innovative services Royal Mail will retain lion’s share of the market

8. 7 7:Royal Mail? Will need to develop better products to meet customers’ demands. Will need to listen and engage and make Royal Mail easy to do business with. Modernisation of it operations Bring prices into line with costs Should become more confident –Prepare for a positive future not focus on challenges

9. 8 8:Regulation? Moving to a different phase: –“Setting the rules” to “Making it a success” Responding to Royal Mail’s requests to refresh products and bring prices into line with costs Making sure social customers get a quality service Ensuring fair play (no anti-competitive behaviour) Removing regulation