Nigel Stapleton, Postcomm's chairman, does not mince his words: "The clock cannot be wound back on the competitive developments facing Royal Mail which are bringing significant benefits to customers. It is perfectly possible, however, for an organisation of the scale and reach of Royal Mail to transform its business and customer services rather than to remain locked in the past. We have been waiting far too long for this to happen and decline will be irreversible if these nettles are not grasped quickly."

What about the new entrants in the downstream access market? As of December 2007, access volumes amounted to nearly 3 billion items - about 20 per cent of letters. But Royal Mail still delivers more than 99 per cent of all mail in the UK over the 'final mile'. And it's important to realise that nearly half these access volumes relate to contracts that Royal Mail has direct with clients, under Customer Direct Access agreements. In these circumstances, the DSA operator is only handling the turnover relating to upstream distribution - typically between 1.5p and 2p, or between 10 and 12 per cent of the full delivery cost.

Margins on DSA are very low anyway, due to the small amount of headroom between access prices and Royal Mail retail prices. Add in fierce price competition between TNT, UK Mail (and to a lesser extent DHL) - all three continually accuse the other two of 'buying work' - and it's clear that DSA is not delivering significant profit streams. This is not unexpected in a market at such a nascent stage of development. But it helps explain the reluctance of either TNT or DHL to make any serious commitment to developing an alternative end-to-end network. It remains to be seen whether TNT's recently announced limited delivery trials in Liverpool are yet another cry of 'wolf'…

Royal Mail's recent introduction of multi carrier agreements is a clever counter attack - evidence for Postcomm's claim that Royal Mail's main focus is on preventing any serious end-to-end competition developing. Multi-carrier agreements allow clients who have their own CDA agreements to work with two or more upstream distributors. The strategic intent of this move is to ensure that the major users of direct mail continue to maintain direct relationships with Royal Mail - and that TNT and UK Mail are confined to a minor role as upstream carriers to these clients.

The introduction of zonal pricing for access mail by Royal Mail is also a deterrent to the development of alternative end-to-end networks. Indeed, there is a strong feeling within the industry that no competitor will make a serious commitment to developing its own delivery network unless Postcomm outlaws zonal pricing for downstream access. Postcomm is in a double bind - it doesn't believe Royal Mail will change its behaviour until it sees postmen in a different coloured uniform putting mail through letterboxes. But at the same time it can't really argue against Royal Mail's point that zonal pricing merely reflects the different costs of delivering to rural and urban areas…and no-one has been arguing more strongly than Postcomm that true 'cost reflectivity' is the most important pre-requisite for sustainable competition.

The 'VAT problem' remains a significant barrier to competition for new entrants wanting to handle mail from financial services and charity clients - but there is no sign of this being removed in the near future. Again, Royal Mail's introduction of 'agency' access agreements, where it retains a billing relationship with these clients, works against new operators gaining full control of postal relationships.

So looking at the major players, it's clear that Royal Mail is in a parlous state but implementing some fairly potent defensive measures, while its two major competitors, TNT and UK Mail, are making slower progress than they hoped, and operating at breakeven or low profitability. What of the future? It is possible to pick out some factors that will influence the market over the next few years - and much of the growth and innovation in downstream access is likely to come from intermediaries and niche operators.

It is likely that other companies will imitate Brightsource's innovative formula of integrating print and postal management, and its highly successful Fastrack DSA service. Not only does this approach give the flexibility required to cope with fast-moving marketing mail, and enable DSA to be competitive with Mailsort 3 price levels, it also offers a solution to the 'VAT problem' through single sourcing supply rules.

One (possibly unintended) consequence of multi carrier agreements is that these will also strengthen the hand of intermediaries. Many clients will want to take advantage of the different pricing structures offered by different carriers, and benefit from optimisation across different access products and carriers.

Few commentators have noticed the breakthrough in digital printing and how this might affect the postal market. New technology means that fully variable marketing mail can now - for the first time - be produced in high volumes at prices comparable with conventional printing and personalisation techniques. This will act as a fillip to direct mail as a marketing channel, but also means that greater segmentation no longer increases postal costs (through loss of volume related discounts). But it will be mailing houses and print management companies, who are closer to the new technology, who will use their knowledge to win more control of postal budgets, at the expense of the courier companies such as TNT or UK Mail.