Why's Royal Mail so scared?

Anyone would think Greene was acting out of sympathy for Vince Cable. Labour’s Chuka Umunna declared that the results showed that “taxpayers have been left short changed by hundreds of millions of pounds”, but for once the row over the Government’s sale price was silenced.

Ostensibly Greene’s concerns over competition look like a severe over-reaction. Royal Mail is used to competition. Under the old Postcomm regime, rivals were allowed to help themselves to any part of the delivery market they liked and then leave Royal Mail to deliver it - at rates that cost the company £120m a year. Greene put a stop to that, ensuring that Royal Mail can now charge proper rates for all “access mail”.

In comparison, Greene’s complaint about rivals setting up “direct delivery” operations seems lightweight. The source of the alarm is TNT which has set up centres in London, Manchester and Liverpool in order to do “final mile” deliveries itself. But so far TNT has captured around 2pc of UK letters - hardly a bulky sack.

When pressed, Royal Mail admits there isn’t really a problem, right now. But Greene is desperate for Ofcom to act immediately because she fears irreparable damage if there’s a delay. It’s happened before. During the decade it took for regulators to accept the access market regime was unfair, Royal Mail lost almost all its business letters contracts to rivals. Regulation has now changed but the contracts have never returned: 80pc of business deliveries - increasingly the only reliable letters trade - is still collected and sorted by rivals, more than half by TNT.

The rivals now have an established network into which direct deliveries could be easily and rapidly switched. Royal Mail collects around 20p for every “final mile” delivery for access clients. TNT reckons it will be delivery 1bn items a year by 2017 - hence Royal Mail’s warning about £200m revenues at risk.

Letter volumes maybe declining but they still generate half Royal Mail’s revenues. Little wonder that Greene risked yesterday’s shareprice drop and sullied her maiden results. She’s been right about protecting the USO all along, now Ofcom must heed her latest warning: “Don’t wait. Once you see the economic damage that’s being done, it’s too late.”

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