LONDON – The Royal Mail can trace its history back 500 years to the time of Henry VIII and its bright red pillarboxes grace streets across the UK – from the Scilly Isles to Scotland.
But change is coming as the British icon seeks to adapt to the decline in traditional snail mail and compete with the likes of Federal Express and UPS.
The UKs coalition government laid out plans Wednesday to privatize the Royal Mail.
Analysts have speculated that the company could be worth $4.5 billion.
The government plans to sell a majority stake but it has yet to decide on the exact amount – itll leave that to market conditions.
This is logical, Business Secretary Vince Cable told the House of Commons. It is a commercial decision designed to put Royal Mails future onto a long-term, sustainable basis.
Tens of thousands of Royal Mail workers will be able to buy shares in the company and the government plans to retain a stake, opening the possibility it will sell more shares in the future.
Although the red pillarboxes are protected by law, there are concerns that other parts of the Royal Mail – such as a six-days-a-week delivery service – may be under threat once it has to make its way profitably in the private sector.
The Communications Workers Union, which represents Royal Mail workers, opposes the sale because of fears of potential job losses. There are also concerns that investors may be reluctant to buy knowing that the new company would operate under a constant threat of industrial action.
Cable tried to assuage fears Wednesday, claiming that privatized delivery services in Austria, Germany and Belgium all produce profit margins far higher than the Royal Mail but have continued to provide high-quality and expanding services.
Nonetheless, there are also worries the Royal Mails quest for profit may mean remote – and therefore higher-cost – communities in the UK will not get the same service as cities and towns.
The principle that has secured the universal service is one where the high density areas, like the big cities, subsidize the rural areas, said Dave Ward, the CWUs deputy general secretary. The countryside will be completely cut off.
But Britains government is determined to move forward, describing the privatization as critical to the future of Royal Mail, which has seen its revenues shift more toward packages and away from the mail of the past.
The Royal Mail needs to invest in new technology to survive.
Operating profit, excluding modernization costs, rose to 211 million pounds last year. Parcels accounted for almost half of the groups $14.3 billion of revenue in the last year.
In the U.S., the financially beleaguered U.S. Postal Service has no such plans to privatize.
It is considerably larger than the Royal Mail, processing 160 billion pieces of mail last year.
The Postal Service is an independent agency – it gets no tax dollars for its day-to-day operations but is still subject to congressional control.
In the UK, the cash-strapped government desperately needs the Royal Mail privatization to work as the country struggles to recover from the economic crisis.