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Speech to the Future of UK Postal Services conference

Lord Young of Norwood Green,  Minister for Postal Affairs and Employment Relations
Le Meridien, Piccadilly, London,  30 June 2009

Introduction

Good morning.

Now I’ve just taken over as the Postal Services Minister and, although I’ve only been in this role for a few weeks, it is not unfamiliar territory to me having been in the Communication Workers Union.

So I understand many of the challenges and concerns that we’ll be looking at today.

But it’s good to be here today, good to be discussing the future of postal services with a roomful of industry experts.

With your collective wisdom, brain power and experience I feel sure the industry will be in safe hands in the coming years.

And the other thing that gives me cause for real optimism is the sheer size of the opportunity in this sector. Quite rightly we have spent a lot of time looking at the nuts and bolts of plans for Royal Mail but, in a sense, today is about taking a wider look at the possibilities for mail in the 21st century.

We should not play down those opportunities because ultimately that’s where the future of the postal sector lies and why our reforms are needed.

New age, new opportunities

We are on the verge of seeing the greatest revolution in postal services since Rowland Hill introduced the one price goes anywhere postage stamp.

When I was young – a few years ago – communication used to be a simple business. If you wanted someone to get a message you spoke to them, you rang them up, or you simply posted them a letter. And that was it.

But the internet has turned everything on its head. Twitter, Facebook, Myspace, google, instant messenger. There are a myriad of ways to communicate with people you know, people you want to know, people you don’t want to know and people who you didn't even know existed. And every other transaction that you can think of – whether it’s how you pay your bills or how businesses contact you – has been transformed.

The global scale of the digital communications sector is aptly illustrated by the ranking of the sector among global brands: six of the top 10 global brands by value this year are in the digital sector, one Chinese, one British and four American.

Now like anything else aspects of the internet are subject to the vagaries of fashion. But the liberating principle behind the internet is here to stay. The internet has given people to taste a freedom they’re not about to give up. Freedom to access services in their own time, at their own convenience, 24 hours a day. That’s the challenge.

Today, the typical British consumer spends nearly half of their waking life engaged in one form or another with the products and services of the communications sector. According to Richard Hooper e-commerce is set to double to around £78bn by 2010.

And on current definitions the Digital Britain sectors account for nearly £1 in every £10 that the whole economy produces each year. So every single business, every single industry, every single sector is affected by this digital whirlwind.

Effect of digital on postal services

And postal services are no exception. Indeed, the Hooper Review also showed that the online world is already having a marked effect on the industry.

Overall mail volumes have fallen by 5.5 per cent over the last year. Royal Mail expects the volume of mail to fall by 10 per cent in the coming year, 3 per cent more than predicted in the Hooper Review, because of increased competition with other technologies. In fact, Royal Mail lost £500 million to digital media in 2007/8.

And Royal Mail isn’t alone. The Post Office network has, for several years, been caught in the headlights of the digital juggernaut. For example, some one million users a month are renewing their car tax online – with more than half doing so outside Post Office opening hours. And that has reduced the numbers coming through the doors of their local branch.

The digital revolution is changing the way we behave and we have to adapt our products, our services and our marketing strategies or we face a continual decline.

But change doesn't need to be a bad thing. In his Digital Britain report Stephen Carter said we’ve reached a tipping point in relation to the online world. "We’re moving from conferring advantage on those who are in it to conferring active disadvantage to those who are without."

And what this means is that the future for the postal service can’t be about pressing the rewind button. If anything, the sector has to fast forward and grasp the business opportunities of the digital age.

And these opportunities are real. There isn’t any alternative.

Mail might be down but posting of packets and parcels is up – a direct result of the e-bay effect and the rise of internet retailers.

UK customers spent £42bn online in 2007 and that has generated 860 million parcels.

Liberalisation too offers new possibilities for the postal sector.

Now I know there are those who believe liberalisation is threatening the universal service. But I don’t agree that it’s threatening it. It presents a challenge. The competitive postal market is still in the early stages of development. But a Postcomm report as far back as 2007 found that real benefits were spreading to smaller businesses.

And Hooper is quite explicit in saying that “we would expect both smaller businesses and residential customers to benefit from choice, a more efficient service and new products”.

People taking advantage of digital opportunities

So there is an opportunity here for postal services but is also considerable cause for optimism. And the postal sector doesn’t have to look far to find examples of companies and individuals who are taking advantage of the broadband boom and putting the customer at the heart of what they do.

Recently, the Prime Minister met some of the country’s most innovative entrepreneurs. They included Karen Hanton who runs Top Table – a pioneering online booking system for restaurants. Karen now has more than three million customers and is poised to go global.

Stephen Collins also has had similar success. A man with cerebral palsy, he has used technology to set up as an online retailer offering specifically selected products and services for disabled people of all ages.

These individuals understand the internet’s ability to allow people to do familiar things differently, more quickly, more cheaply, at all hours of night and day. A 24-hour service.

Meanwhile, other communities are using the internet as a way of reconnecting our rural areas with a wider world. Alston in Cumbria was once known as one of the country's most remote spots. Thanks to broadband it now claims to be "Broadband Capital of Britain" with 330 homes and small businesses connected to the Cybermoor wireless broadband service, out of a possible 1000.

Postal sector starting to seize the opportunities

So there are opportunities out there for postal services. But how can you take advantage? What should you be doing?

For me it’s about using innovation to help the sender generate more revenue and help the recipient get more satisfaction. In other words, it’s about putting the customer at the very heart of what we do.

Already you can see things are happening. Take packets and parcels for example. In April, Post Office Limited signed a deal with DX Group, enabling DX’s customers to collect items from Post Office branches that couldn’t be delivered. This is the first time that a private mails company has offered access to its services via the Post Office network.

Elsewhere integrated marketing products are being developed that bring together post and digital communications.

Postal operators are introducing more track and trace services. That means you can trace your package from the moment it leaves your hand to the moment it’s handed to the recipient.

And, incidentally, what’s interesting about this innovation is that it’s an example of how the postal sector is cottoning on to the need for people to update their skills.

Royal Mail’s track and trace services depend on the skills of more than 37,000 postmen in operating hand held Portable Digital Assistants – creating one of the UK’s biggest corporate WiFi networks.

Royal Mail is also adapting to our 24 hour, real time world in other ways. Before Christmas, it delivered thousands of packets and parcels in the evening just so people would be able to receive them on the day itself.

And postal operators are also seeking to adapt to the demand for more sustainable services. For example, Royal Mail’s new Sustainable Mail service for business customers guarantees that all paper products contain recycled materials and that envelopes are clearly printed with instructions to recipients on how to stop getting unwanted mail.

These are just a few examples of developments in the mail market that show a willingness to use new technology to tailor services specifically for businesses and consumers. And it’s an excellent start.

Government taking an active role – the right conditions

But the truth is we’re going to have to go much further, much faster if we’re to keep pace with the speed and scale of this digital revolution. And that means Government must take a more hands-on, active role.

Of course, we recognise the inherent dangers of that. We have to be careful that active involvement does not become interference. We can’t micro-manage Royal Mail and Post Offices. But I am also clear that our role should also be about creating the right environment for postal services to flourish in a new communications era.

And where the right conditions aren’t in place we have to change them. For example, I believe that, in this new world, postal regulation must be seen in the context of the whole of the communications sector – which is why we are proposing to move regulation of the postal sector to Ofcom. I see that as an important move.

Government too has a responsibility to make sure the universal service survives whatever the change to the communications environment. After all, the universal service lies at the very heart of the Government’s approach to the postal sector.

People depend on it for their communication and business needs. And, at a time of deep recession, the one-price goes anywhere concept is a lifesaver to many struggling to pay bills and make ends meet.

Now Hooper was very clear that the universal service is “under threat” and “the status quo untenable”. So Government cannot stand by and do nothing.

But Royal Mail is the only postal operator capable of delivering the universal service.

And – despite its recent profit – it clearly isn’t in a position to generate the money it needs to modernise and invest in its future.

The company also has a very large pension deficit – £5.9 billion at the last count – which is expected to increase substantially when the next valuation is announced.

So our proposals are designed to help Royal Mail transform itself so that the universal service meet all customers needs in this digital age.

Our Royal Mail plans

Now my focus today has not been Royal Mail per se’ but the wider postal market.

But, of course, this is an area of central importance not just to the people here today but to the public at large.

You will have already seen Lord Mandelson’s comments in the media in recent days so I won’t go over old ground.

But I will reiterate this. We are committed to implementing the Hooper Review in its entirety. His recommendations stand together and need to be implemented as a whole.

And this Government clearly intends to press ahead with our Postal Services Bill.

Our reforms are essential to securing Royal Mail’s future.

A healthy Royal Mail is good for everyone. Good for customers. Good for employees. And I’d like to stress at that point that we are concerned that we create a future for Royal Mail where there is a shared vision, where we can see it as an expanded service, and that change isn’t just seen as job cuts because that’s not the way to get employee engagement.

It’s important that there is modernisation with a purpose, that’s about expanding its operation and offering a whole new range of services

And that’s good for the postal services sector as a whole.

Conclusion

So despite falling volumes of mail, despite huge competition from new previously undreamt of forms of communication, I believe there are huge possibilities for the postal sector in this new digital, technological age.

I want to see postal services doing more to provide innovative products and offer a real choice to its customers. I want to see a vibrant postal market offering its customers – large and small – the services that they need to go about their every day life or business.

Our challenge in Government is to prepare the groundwork. To create the right conditions for you to continue to grow your businesses. But we can only open the envelope. It's up to you, the experts in this room, to deliver success.

Thank you. 

Ends