17 January 2007 | Antony Barton
BT has ended its postal contract with Royal Mail, claiming it can increase its savings and obtain better service from the private sector.
Britain's largest telecommunications business has instead signed a £90 million, three-year deal with delivery group TNT Post in a bid to save up to £3 million a year. It is reported to be the largest postal contract since deregulation of the service in 2004.
The news follows last week's decision by the Department for Work and Pensions to end a contract with Royal Mail in an attempt to cut £5 million a year from its £69 million annual postal bill. It has agreed a £12 million deal with private company UK Mail to take its place.
BT awarded the contract to TNT Post after a competitive process. It said it was impressed by the company's flexible pick-up times, use of tracking systems to improve mail management and its two-day delivery service.
Gary Parker, spokesman for BT's procurement and supply chain, said TNT Post's offer provided significant benefits for BT and its customers. He added: "We have also been impressed by the plans that TNT Post have in place for development and expansion of their services in the UK."
A spokesman for Royal Mail told supplymanagement.com the intensifying competition in the postal market meant rival firms would be handling one in eight letters by the end of this financial year. He insisted Royal Mail would continue to "fight for every letter" but was hindered by the terms of its licence, which prevent it from offering discounts to bulk-mailing customers.
The spokesman added that Royal Mail needed to modernise, improving its technology and increasing efficiency, so it could compete successfully for the business mail that comprises some 90 per cent of all mail in the market.