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

2. D&S Consultants Ltd Purpose Perspective of Royal Mail’s largest customers My credentials Involved in postal affairs for over 20 years Involved in postal affairs for over 20 years Last ten years as Director of Postal Affairs, Direct Marketing Association (DMA) UK Last ten years as Director of Postal Affairs, Direct Marketing Association (DMA) UK Chair of FEDMA Postal Affairs Committee Chair of FEDMA Postal Affairs Committee Chair of ICC Postal Affairs Committee Chair of ICC Postal Affairs Committee Chair of PUG 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

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

4. D&S Consultants Ltd 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

5. D&S Consultants Ltd 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

6. D&S Consultants Ltd Competition Downstream Access E2E network development ConsolidationB2B Supply chain impact Impact on Royal Mail

7. D&S Consultants Ltd 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

8. D&S Consultants Ltd 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

9. D&S Consultants Ltd 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

10. D&S Consultants Ltd 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

11. D&S Consultants Ltd 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

12. D&S Consultants Ltd 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

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

14. D&S Consultants Ltd 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

15. D&S Consultants Ltd Customer Choice ReliabilityPredictabilityMeasurability Price reductions Media performance Recognition

16. D&S Consultants Ltd 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

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

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

19. D&S Consultants Ltd 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

20. D&S Consultants Ltd 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

21. D&S Consultants Ltd 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

22. D&S Consultants Ltd 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

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