Delivering A First Class Service?

Ten years ago, a First Class stamp cost 27 pence. From next week, it will cost 60p. In just the past two years, the price will have increased by 50%. Royal Mail desperately needs to increase its revenue to preserve its universal service – but such price hikes also represent a gamble on the future of communications in Britain.

Charging the same price to deliver mail anywhere in the UK, from London to Lerwick, is a founding and fundamental principle of the Royal Mail, but this has brought it under threat from more modern forms of communication. It is just so much quicker, easier and cheaper to send an email or a text message, and doing so is no longer the preserve of the young and affluent.

Postal services have benefited in some ways, though, from changes in society’s behaviour in the 21^st century. The growth of internet shopping has been a boon for parcel delivery services – and although this sector is more competitive, Royal Mail’s universality gives it a crucial edge, particularly at the lower end of the market.

And the company is looking to exploit this advantage in its new pricing model, which sets a flat rate of £2.70 for all packages weighing less than 750g; this means a 35p cut at the high end of this bracket, but a 70% increase in the cost of posting a large but lightweight item.

The focus of media attention regarding these price changes has inevitably been on the headline figures for first- and second-class stamp prices (the latter is rising to 50p, five pence short of an inflation-linked regulatory cap designed to protect those on the lowest incomes).

But the biggest impact will obviously be on small businesses, which will still have little option but to rely on Royal Mail to serve their UK customers. Many will see spiralling costs that will have to be passed on to their customers, who will themselves be feeling the same squeeze.

And this is the risk that the Royal Mail is taking. As prices rise, demand falls – the challenge is to find the optimal price level to maximise revenue. That the regulator has given the company the freedom to pursue this goal is a good thing, but such freedom must not be abused.

Research suggests that 75p for First Class is the tipping point beyond which only a (shrinking) core of customers would continue to buy stamps – and only because they have no alternative. But the acceleration of prices over the last few years could be equally damaging.

There is also another, implicit flaw in the universality model, which becomes more threatening to its survival, the higher its prices rise. It is that by charging a delivery from one end of the country to the other at the same rate as one being made across town, the former offers better value for money than the latter.

Thus, short-distance customers are effectively subsidising long-distance ones. As the stakes get higher, so do the gains that can be made from finding alternative methods of communication where they are most readily available – in urban areas – which in turn is where Royal Mail’s biggest customers are and where its potential profits are easiest to come by.

And profits are a sore point for this company. In the last six years, while postal volumes have declined by 25%, Royal Mail has lost around £1 billion. These are losses on a scale that price rises alone are not enough to reverse – the company needs major reform to improve efficiency.

But all the while it must maintain its unique selling point, highly valued by its customers and effectively responsible for its continuing survival in the 21st century. The longer we want to continue using it, the more we will have to pay for it.

More Than Just A Race

To proceed with it would legitimise a brutal regime, say some. To halt it would empower extremists, say others. The sport of Formula 1 has never seen anything like this before.

Alas, this weekend’s Bahrain Grand Prix is set to go ahead as scheduled. Fears about safety and security that led to the postponement and eventual cancellation of last year’s race have (but for one unfortunate incident yesterday) largely diminished – but moreover, such practical worries have taken a back seat to issues of principle.

There is no doubt that playing host to the F1 circus is a boon for Bahrain, its economy and its rulers. Interested tourists and dedicated sports fans alike will flock to the island. However, the media circus that goes with it has re-focused the eyes of the world on a troubled Middle Eastern state that has otherwise been forgotten in the wake of events elsewhere, not least in Syria.

For years, resentment has simmered among Bahrain’s Shia majority at the (Sunni) royal family’s grip on power. They have long believed they are neglected, politically and economically. Last year’s Arab Spring seemingly inspired this movement to push for change, but it was the police’s appalling crackdowns on peaceful demonstrators early last year that stoked the conflict.

The government has not handled the situation well. An internal independent inquiry into alleged abuse of civilians by the police has gone largely unheeded, with human rights groups still restricted or barred. Meanwhile, the protests have got larger, more frequent and more bitter.

Marches in Bahrain used to be about economic and social improvement; seeking greater equality and political participation. Now the aim is an end to repression, the release of political prisoners and even the overthrow of the regime. Demonstrations are still largely peaceful – until the first sign of trouble arises, sparking a brutal police response, at which point conflict escalates rapidly.

The government insists that it is plotting a route out of the current crisis towards accountability and democracy. It hopes the staging of the race will demonstrate this as well as boosting the nation’s economy, to the benefit of the whole 1.2m-strong population. Given that Bahrain has been on the F1 calendar since 2004, and was humiliated by last year’s no-go, this is questionable.

The government also fears a possible end result if the Islamists are allowed to have their way – Bahrain is desperate to avoid becoming a theocracy like Iran, its neighbours across the Gulf. Even the rise of the Muslim Brotherhood in Egypt represents a warning to the ruling regime.

The challenge for the world’s media will be to stick around long enough to see whether either of these outcomes emerges. The likelihood is, though, that as the shiny racing cars roll out of town, so will the TV cameras – a country in violent transition just doesn’t sell the same as a country (Syria) in all-out civil war does.

There is also a fear that the international glitz and glamour of the ‘show’ will distract from the difficult reality faced by most ordinary, native Bahrainis – especially in a country where more than half of the population are wealthy, Western (probably race-going) expatriates.

Sport and politics have never mixed well. Formula 1, however – for all its internal wrangles and occasional scandals – has historically managed to avoid being seen as more than just a motor race. Its handling of the issue last year was not ideal, but the right decision was made in the end.

This year, the sport has taken a gamble that it is desperate to win. No wonder Mr Ecclestone insisted today that people’s complaints “are nothing to do with F1”. If only it were that simple.