Future of UK Postal Sector- Large User Perspective

1. Future of UK Postal Sector- Large User Perspective David Robottom D&S Consultants Ltd CWU Special Forum 9th February 2006 Newcastle

2. Purpose • Perspective of Royal Mail’s largest customers • My credentials • Involved in postal affairs for over 20 years • Last ten years as Director of Postal Affairs, Direct Marketing Association (DMA) UK • Chair of FEDMA Postal Affairs Committee • Chair of ICC Postal Affairs Committee • Chair of PUG Postal Affairs Committee • Top 100 mailers account for over 30% of Royal Mail’s volume • Therefore their views are important D&S Consultants Ltd

3. Agenda • Current position • Market opening • Competition • Customer choice • Customer requirements • Future D&S Consultants Ltd

4. Current Position • UK Postal market experiencing volume slowdown • Slight decline fuelled by slowdown in financial services activity and economic slowdown • Direct Mail volume decline for the first time in 10 years D&S Consultants Ltd

5. Market Opening“Big Bang or Whimper” • Full market liberalisation is welcomed • Expectations in reduced price and greater choice • Act as an incentive on Royal Mail • Many new operators entering market, primarily niche, local services D&S Consultants Ltd

6. Competition • Downstream Access • E2E network development • Consolidation • B2B • Supply chain impact • Impact on Royal Mail D&S Consultants Ltd

7. Competition-Downstream Access • Downstream access developed as a means of providing choice, quickly • Provides customers with choice, at lower prices and improved quality of service • Operators provide access service as a route to market, permanent or pro temp • Large users with own access agreement D&S Consultants Ltd

8. Competition-Downstream Access • Of the 13 licensed operators, there are 8 access providers handling somewhere between 1.5 and 2 billion items for FY0506 • Margin protection from the regulator • VAT issues cloud the development • Unfair or slightly tipped playing fields • DSA acted as a brake on the development of E2E services D&S Consultants Ltd

9. Competition-E2E • E2E slow to develop • Piecemeal approach • Driven by margin achievement • Full E2E networks to rival universal service will not happen • E2E via major city/urban • Substantial E2E networks by 2008 D&S Consultants Ltd

10. Competition-Consolidation • Consolidation key to the development of the sector • Greater consolidation will lead to a greater number of businesses accessing discounts • This will fuel sector growth through volume growth of new users and small users D&S Consultants Ltd

11. Competition-B2B • 9 licensed operators providing B2B services, all with own network • Higher margin and greater choice and price savings for users • Potential volume growth driven through customer choice D&S Consultants Ltd

12. Competition-Supply Chain • Estimate there are 18 supply chain models, within the postal market, driven by competition • The multitude of options will drive choice and volume growth D&S Consultants Ltd

13. Clients Mailing Houses Competitors Royal Mail Line haulers Software Procurement B2C networks B2B networks City and Urban Regional Supply Chain Models D&S Consultants Ltd

14. Competition- Impact on Royal Mail • Volume loss through downstream access, where Royal Mail controls gateway • E2E impact negligible for the next 3-5 years • VAT creates market share cushion for Royal Mail • HMG guardian of universal service • Similar gradual market share erosion to BT D&S Consultants Ltd

15. Customer Choice • Reliability • Predictability • Measurability • Price reductions • Media performance • Recognition D&S Consultants Ltd

16. Customer Choice • If Royal Mail perform leaving minimal advantage for the clients in leaving, then they will stay with Royal Mail • Only 25% would switch without price incentives • Users want an efficient Royal Mail delivering excellent quality of service • Royal Mail must listen and take recognition of customers needs and importance D&S Consultants Ltd

17. Customer Choice • In order to achieve customer switching, new operators must provide: • Improved quality of service • Price savings • Innovation • New and more efficient ways of managing totality of the clients mail D&S Consultants Ltd

18. Customer requirements • Development of delivery • Nominated day • Nominated time slot • Scanning at P.O.D • Pricing reflecting their postal streams and subsequent mail stream (Multiplier Effect) • Economy product • Spot pricing • Premium products D&S Consultants Ltd

19. Customer requirements • Products interacting with other media • Advertising mail and direct mail specific products • Transactional mail products • Trusted third parties to manage whole mail process D&S Consultants Ltd

20. Universal Service • Users want and need an effective universal service • Key is the scope of the service • One hand, products removed as they are in the competitive arena • But issues on business mail products removal from universal service • A balance needs to be struck D&S Consultants Ltd

21. Future • Market predictions point to volume growth over the next 5 years, above GDP • Fuelled by market opening, new E2E networks both B2C and B2B • Sector growth from Direct Mail and Advertising Mail • Most large users expect to see growth in mail volumes over the next 5 years D&S Consultants Ltd

22. Future • Increasing number of new operators entering market (possibly 20 in 2006) • Fragmentation and some confusion • Some customer Inertia • Volume growth driven by choice • A competitive medium D&S Consultants Ltd

23. THANK YOU • David Robottom • D&S Consultants Ltd • davidrobottom@aol.com • 07768 511108 D&S Consultants Ltd