The Big Question: What is the postal strike all about – and how will it affect the mail market?

Why are we asking this now?

Because postal workers are in the midst of their second strike this month as part of the most serious industrial action to hit the mail industry in 20 years. As many as 130,000 members of the Communication Workers' Union (CWU) walked out for a 48-hour strike on Monday after talks with management failed to produce an agreement. Businesses and households face the prospect of further disruption to their post as another 48-hour strike is due to take place next week if an agreement isn't reached between the warring parties. The strike action has already cost Royal Mail around £260m.

What's the problem?

It isn't just a single issue that has provoked industrial action. The dispute is over pay, job cuts and pensions. Last week's walkout was over modernisation plans which the CWU claims will lead to the loss of around 40,000 jobs from the mail service. The union is also opposed to Royal Mail's proposal to alter its pension scheme from a final salary scheme to one based on career average earnings.

This week saw the two sides arguing over working hours, with CWU general secretary Dave Ward saying that the treatment of some Royal Mail employees amounted to "slavery". But according to the Royal Mail's chief executive, Adam Crozier, union employees are only expected to fulfil the hours dictated in their contracts – 37 hours and 20 minutes. According to him, the union is trying to block the abolition of so-called "Spanish practices".

What are these 'Spanish practices'?

Working practices that on the whole died out in the 1970s, which saw workers race through their duties in order to leave earlier. Under the new regime, mail workers finishing early would have to help out their colleagues, rather than head home.

Can the dispute be resolved?

Talks between the union and Royal Mail are making progress, according to the TUC general secretary Brendan Barber, who chaired the negotiations. Yet an agreement does not look imminent. Although Royal Mail has offered its workers a pay increase of 6.9 per cent over two years, this is dependent on their agreeing to greater flexibility over the duties they perform during a working day. The CWU argues that this will mean that some workers will not know what they will be doing from one day to the next. As a result of the impasse, next week's strike looks likely to go ahead.

But even when workers return to their posts, they will have a backlog of hundreds of millions of letters to deal with, meaning that the postal service may not be in perfect working order straightaway. Some predict that it could take three weeks for the service to return to normal.

Are consumers happy with Royal Mail?

Generally, yes. According to a 2006 survey by the consumer body Postwatch, the public were "overwhelmingly satisfied" with the level of service offered by Royal Mail, with nine out of 10 being happy with the service they were given. And it is hard to argue with the market figures. More than 70 per cent of the total mail revenue still flows into Royal Mail's coffers. The fear for Royal Mail must now be that they risk jeopardising that goodwill by the havoc created by the current strike action.

Will the strikes damage Royal Mail?

In the past, the answer would have to be no, as anyone wanting to use mailing services had to deal with Royal Mail. This isn't the case anymore, though. The problem facing Royal Mail is that customers who really need to send information around the country are no longer tied to them. After enjoying a monopoly over the postal market in the UK for some 350 years, the market was finally opened up to competition by the Labour Government at the start of 2006.

Since then, the market has been overseen by a regulator, Postcomm, which can license other operators to provide mail services to businesses and consumers in the UK. So far, 17 companies, including firms like DHL and TNT, have gained a licence.

Has competition worked?

Yes and no. Despite the new potential for competition, Royal Mail still has a stranglehold over the addressed-letter market, delivering 99 per cent of the volume of the UK postal market. But regulator Postcomm says that the threat of competition has led Royal Mail to be much more efficient and offer a better service at lower prices. The company has turned itself around financially over the last few years after making a heavy loss in 2002, although this in part was the result of receiving a big injection of cash by the government.

In fact, some industry watchers lay part of the blame for the industrial action at the door of Postcomm – for trying to keep the costs of posting a letter in the UK well below the amount that our European counterparts pay for the same service. Royal Mail has found itself under huge pressure to cut costs. What is certainly true is that the mailing market has a long way to go before it is truly competitive.

So will the postal market change?

The really lucrative area of the mail market comes from businesses, which send 87 per cent of all letters in the UK. In particular, the junk mail market is a major earner for Royal Mail. If the strikes and disruption continue, the chances of businesses deciding to vote with their feet and work with a different mail operator will increase. It may also encourage competing companies to take the plunge and try and compete with the Royal Mail on a larger scale, something that they have been reluctant to do until now. So far, the very largest customers have benefited from competition, as it is worth their while to shop around. But even this competition is limited, as rival mail companies work with Royal Mail via "access arrangements", which means that they hand over the mail to Royal Mail for final delivery.

Could this disputehasten the endof the letter?

It's certainly a possibility. The addressed letter market is shrinking in the UK as people turn to more instant electronic forms of communication, such as email and text. The number of items sent in the UK shrank by 1.6 per cent last year. As more and more people in business purchase devices that can receive emails on the go, this trend will continue. The current wave of industrial action will only serve to hasten the change as businesses are forced to consider alternatives to Royal Mail.

Will the strikes make Royal Mail more vulnerable to competition?

Yes...

* Businesses need reliable communication channels, so they will not put up with constant striking

* Unrest may push rival companies to invest heavily in trying to compete with Royal Mail

* There are already 17 other companies licensed to offer mailing services in the UK, and these could challenge Royal Mail

No...

* Customers have been generally happy with the service offered by Royal Mail

* It still has a monopoly ion letter delivery, with 99 per cent of the total volume of the UK-addressed letters market

* Royal Mail's real competition in the future will not come from other mail companies, but from electronic forms of communication