Cost-cutting is necessary, but regulatory change is also needed to save Royal Mail

Russell Parsons

If one thing is clear from the doom and gloom presented by Royal Mail earlier this week, then it is this: the firm, as inefficient a business as it has been in the past will never prosper unless freed of regulatory shackles.

The numbers, on this occasion, do not mask a brighter reality. Operating profit down to £34m, a staggering slump from the £180m registered a year earlier.

This is no accounting anomaly, it results from the mail operators’ core business – sorting and delivering mail – being in inexorable decline. Mail volumes fell 4% in 2010/11 and are expected to slump by a further 5% in the next financial year as consumers, personal and business, turn to electronic and social media communication.

Cost-cutting, through the planned closure of mail sorting offices and many thousands of planned redundancies, will not alone guarantee the 350-year-old organisation’s future, fundamental change – instigated by Government as well as management is needed to give it a fighting chance to prosper.

As bloated and inefficient a business as Royal Mail has been in the past, it can do nothing to completely offset a regulatory regime that means it loses money on every piece of business mail, DM included, it delivers on behalf of rivals such as TNT Post. The current setup, overseen by Postcomm, also restricts what it can charge for services and where and when it offers them.

It needs to be set free to operate as a flexible operator of commercial services for business, be it delivery of items bought online, or DM. The latter, as under pressure from digital channels as it is, offers Royal Mail, through ad solution services or delivery, the chance to increase revenue. For all its critics, recent reports show there is life in mail yet.

Royal Mail will be hoping that Ofcom, soon to replace Postcomm as the mail regulator, will allow exactly this. The firm, led by chief executive Moya Greene, is accelerating cost-cutting, the Postal Services Bill will relieve much of its pension burden, but until the regulatory regime is changed, potential suitors will be put off and Royal Mail will be unable to live, or die, on its own merits.

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