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Competition is gradually taking shape within the UK postal market, so mailers should have more choice. But, asks David Murphy, what gains is postal deregulation really offering?
It's more than a year since the market for UK postal services was opened up to competitors, but so far liberalisation has had a negligible effect on Royal Mail's market share. This is largely due to protracted negotiations over the price for 'downstream access' for the alternative providers to the Royal Mail's delivery network.
But with agreements now in place between Royal Mail and several alternative providers, UK direct mailers at last have some choice in who collects and delivers their mailing campaigns.
Yet there remains one hurdle to true competition - the VAT anomaly. As things stand, the alternative providers must add VAT at 17.5 per cent to their charges, whereas the Royal Mail service is VAT-exempt. This is no problem for those direct mailers who can reclaim VAT, but for those who cannot, such as financial services companies and charities, it risks making the alternative providers' offerings look distinctly uncompetitive. And these two sectors alone probably represent about half of the Mailsort 2 marketplace, Mailsort being the system used by Royal Mail to offer discounts to mailers if a certain level (1, 2 or 3) of sorting has taken place.
"The VAT issue is a barrier that has to be resolved quickly," says David Robottom, director of postal affairs and industry development at the DMA. Postcomm, the regulator, is well aware of the problem and has proposed a lower rate of VAT, at five per cent, for all postal services.
Meanwhile, most of the new licence holders say they are still preparing their networks for launch, although UK Mail and Express Dairies have both opened for business. UK Mail has already handled more than two million items and won plaudits for the quality of its service, while Express Dairies has been distributing books, CDs, contact...