Royal Mail looks set to remain the sole nationwide final-mile postal delivery network in Britain for the foreseeable future after PostNL’s aim to set up a rival network through a joint venture deal for its UK subsidiary Whistl (formerly TNT Post UK) fell apart today.
Whistl was supposed to gain financing for a full end-to-end (E2E) national network under an agreement between the Dutch postal group and a Lloyds Bank subsidiary LDC that was announced in December 2013. LDC was due to buy a 60% stake in Whistl, which delivers to homes in parts of London, Manchester and Liverpool at present.
But PostNL announced today that LDC has decided that “due to ongoing changes in postal market dynamics and the complexity of the regulatory landscape, it will not proceed with the discussion on the proposed investment in Whistl UK to fund the further rollout of its current end to end (E2E) activities”.
A PostNL spokesman explained to CEP-Research: “Since we signed that agreement, now almost 1.5 years ago, postal market dynamics have changed. This has affected the original business case of the joint venture. This, combined with the time that has passed, has made it impossible for LDC to meet its investment hurdles. This resulted in the decision of LDC to stop the discussions about the joint venture.”
In particular, Royal Mail has lobbied vigorously against Whistl, which it claims is already “cherry-picking” the best business opportunities. The British postal operator repeatedly warned that the competitor could undermine the UK universal service if it was allowed to expand its network further. UK regulator Ofcom concluded in December 2014, however, that Whistl’s proposed E2E network would not threaten the USO.
The PostNL spokesman commented: “We have been confronted with changes in tariffs and conditions of Royal Mail that weren’t helpful for a competitive level playing field. We reported this with the local regulator Ofcom. In the resulting consultation document Ofcom has clearly gone a long way in its attempt to create fair conditions for competition in the UK mail delivery market. However, this process created uncertainty about the ultimate regulatory framework, and as a result uncertainty with some of our clients and E2E prospects. This has affected the original business case of the joint venture.”
It remains unclear whether any other investor would be ready to step in and contribute the estimated €50 – 80 million required to set up an alternative home delivery network across the UK, including taking on a large number of delivery workers.
Asked whether PostNL is actively seeking alternative investors to finance the planned E2E final-mile delivery network, the spokesman said: “Now that LDC has decided not to invest, PostNL will investigate all options.”
PostNL stated: “Now that these discussions have concluded, we will assess alternative scenarios for Whistl’s E2E operations and remain committed to further developing Whistl’s successful activities in the UK. In the meantime, the roll-out of E2E continues to be on hold.”
In 2014, Whistl increased its revenues by 3.2% to €753 million but its profitability was impacted by start-up losses related to the end-to-end services. The company claims to process over 26% of mail volumes in the UK, handling nearly four billion items of addressed mail, packets and parcels per year.
The bulk of these volumes are delivered by Royal Mail through a downstream access agreement. Whistl’s own final-mile delivery network in London, Manchester and Liverpool covers just 7.4% of all households in the UK.
Royal Mail’s share price rose more than 5% today as investors reacted positively to the news.
