Now that Royal Mail has largely been transferred into private hands, Alexander Bonner evaluates the realities of the Great British letter industry.
It is important to refer to Vince Cable’s justification behind the choice to sell the shares at £3.30 each. Cable, who argues that the ‘threat of industrial action by Royal Mail’s staff had influenced the price-setting process’; meaning the decision to sell was perhaps warranted in these troubled conditions. If such a risk of striking was in the equation, the decision to sell at £3.30 per share would not seem as foolish as initially envisaged, as a strike would have had adverse effects on the share prices. However, industry experts, particularly those involved in the investment banking industry, valued the shares of the Royal Mail as 50 per cent higher than at which they were sold, clearly indicating that the timing of the sale could have come as a surprise to some.
Selling 62 per cent of the company’s shares provided a perfect opportunity for investors to take a risk on the company’s share prices. A rise of £1.70 per share suggests that such a risk was warranted, and would have resulted in a tidy return for those willing to take the risk. As a wannabe investor myself, I studied the rising share prices with interest.
The decision to sell such a large proportion of the Royal Mail could have greater symbolism than foreseen, as the sale could represent a much wider decline in the industry. The technological age has been around for a number of years and has subsequently replaced the older forms of communication, mainly the form of letter communication. Sites such as Facebook, Hotmail and Twitter now provide a form of instant communication without the need to take time to gather the required resources to compose a hand – written letter. Using social media is also free, so there are also cost based factors that could explain the decline in letter – writing. I myself have not sent a letter in a considerable period of time, as the likes of Facebook and Twitter are now all too accessible and convenient. I would wager that you are of a similar vein.
The rapid decline in the postal industry means that the government’s decision to sell that 62 per cent share of the Royal Mail should have come to no surprise to industry experts. For example, in 2011, global domestic mail volumes contracted by 3.7 per cent, a 1.2 per cent decrease from 2010. Such a trend is apparent within the British postal industry, providing a justification for the government’s choice of action. It came as no surprise to me, as the letter industry in particular had been facing a sharp decline since the early 2000s. What surprised me in this saga, however, was the timing of the decision, especially as forecasts had predicted shares to rise substantially from the base price of £3.30.
What now lies ahead for the future of the Royal Mail and its customers? Following the sale, the boss of Royal Mail appeared to pave the way for increases to the price of first-class stamps as the newly-privatised company’s soaring shares valued it at nearly £5 billion. Such a decision is a controversial one as consumers, already burdened with rising costs in other industries, will now be even less inclined to purchase stamps. Such a decision is likely to adversely affect the letter industry, as people, when one considers the accessibility of social media, will probably be much less willing to send letters as a result of a price increase.
Privatisation is not a new phenomenon and has been subject to substantial debate in recent years. The Royal Mail, now with such a clear majority not owned and controlled by the government, may go down a similar route to previously privatised companies. No one would argue that the privatisation of British Rail in the 1990s was a bad move, as such a decision led to an improvement in railway efficiency and railway standards. It is not yet known whether the government’s decision to sell of a majority of the Royal Mail will lead to such an improvement, although what I can tell you is that efficiency within the Royal Mail needs addressing.
There will always be critics over government policy and decisions, that’s what makes a modern day democracy tick over. Such criticism is no different with this case, despite some criticism being unfounded. It should come as no surprise that the government chose to sell a majority share hold in the company; the industry has been declining for many years and the company needed to improve its efficiency. Critics will tell you that the rise in share prices meant the government sold their shares too early on, and I will have to concur with this assessment. Such a decision means the future of the letter industry remains in the balance. If efficiency is improved, its future could be restored. However, actions to improve the Royal Mail’s efficiency could be seen as counterintuitive. The decision to raise stamp prices illustrates this point, meaning a resurgence in the art of letter writing is unlikely to come about.
Alexander Bonner
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