Ailing postal operator Consignia may escape insolvency thanks to a last-ditch restructuring plan, but consumers could lose out unless full postal market deregulation proceeds smoothly.

Consignia, dogged by labour disputes, slow to adapt to the era of electronic communication, and hit by a partial liberalisation of the postal services market, has been haemorrhaging cash for two years.

The former Post Office said on Thursday that its losses for the year to March had climbed to £1.1bn, and set out a plan aimed at shoring up its finances before the next phase of postal deregulation begins in 2003.

Fighting back

Consignia plans to axe a further 17,000 jobs over the next three years - bringing the total to 32,000 - and to scrap the second daily delivery of letters.

It is lobbying the postal regulator Postcomm to let it raise the price of a first class stamp by 1p, arguing that it cannot deliver mail profitably at the current price of 27p.

Consignia is also widely expected to close about a third of its 9,000-strong network of urban sub-post offices, and may also shut some unprofitable offices in remote rural areas.

Faced with what looks set to become a patchier and more expensive service, the main postal consumer lobby Postwatch is pushing for full market deregulation to go ahead.

Backing deregulation

Postwatch chairman Peter Carr on Thursday gave Consignia's restructuring plan a guarded welcome, but urged the company to consult carefully before deciding on the timing for the new single daily delivery of post.

He added that he hoped the poor results unveiled by Consignia on Thursday marked "the bottom of the trough."

"Today's bad news should not be attributed to the future introduction of competition. Consignia's financial mess resulted from its own actions - in a growing market - where it was the only player," Mr Carr said.

Under revised plans put forward by Postcomm, the UK market for postal services will be entirely deregulated in three steps between 2003 and 2007.

The deregulation plan, originally pencilled in for 2002-06, was put back by 12 months after Consignia warned that it was in danger of going under.