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April 12, 2004

Royal Mail: answering the call of new markets

The Post Office is thought to be in talks with telecoms company Cable & Wireless [CW.L] and logistics company Servista with a view to penetrating the residential phone market. These developments form part of a series of initiatives launched by Royal Mail to improve profitability by diversifying into new markets, as the liberalization of the UK mail market gathers momentum.

By CBR Staff Writer

The UK Post Office is looking for a partner to enter the phone market.

‘The Independent’ newspaper reported on Monday that the Post Office is planning the launch of a home-phone offering at the end of this year in a bid to get a slice of the UK’s GBP20 billion residential phone market. The plan would apparently include an agreement with Cable & Wireless to provide a phone package service using the telecoms company’s telephone network. In addition, the UK postal operator is said to be looking at services from logistics company Servista and call center firm Inkfish to complement the operational and logistics aspects of the operation.

David Mills, the chief executive of the Post Office, appears to be determined to find alternative ways of generating income for the troubled postal operator. The rationale behind the idea of penetrating different markets lays on taking advantage of the group’s huge branch network in the UK, which allows the Post Office to have a wide customer reach, almost unrivalled in the country. So far, the Royal Mail group has introduced a range of financial services, much in line with what other major European postal operators are currently offering.

Even though the restructuring program taking place at the Royal Mail appears to be bearing fruit for the organization, with the group expecting to make an operating profit of GBP200 million for the 2003-2004 financial year, the UK postal operator needs to address the impending liberalization of the mail sector and the subsequent loss of its monopoly. In this sense, events are happening at a much faster pace in the UK than in the rest of the EU.

Although new entrants, such as TNT Mail, will not find it easy to lure business away from Royal Mail, the new operating environment could still see the state-owned utility lose up to 10% of its market share within a year. Perhaps one way of dealing with the impending deregulation is through breaking into new markets.

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