An Post will labour to justify stamp price hike

Business Opinion: An Post, if we are to believe what we are told, is on something of a knife-edge.

The State postal monopoly cannot afford to pay its workers the increases due under the national wage agreement and just managed to avoid going into the red last year by flogging a couple of properties.

The primary reason for this state of affairs, according to the management team that took the helm two years ago, is the reluctance of the workforce to agree to a number of necessary reforms, including redundancies.

Such is the scale of its problems that in the next few weeks An Post will formally ask the Commission for Communications Regulation (ComReg) for an increase in the price of stamps in order to ensure its long-term viability.

We wish them the best of luck, because all the signs are that the regulator thinks An Post is attempting some sort of snow job. It has already knocked back a couple of tentative approaches and is not exactly encouraging the formal application due shortly. The reason is that ComReg has a somewhat different take on what is wrong with An Post and how to fix it. The real issue, ComReg believes, is not the price that An Post charges for mail, but the volume of mail it delivers.

There are already signs that An Post has reached the point of diminishing returns when it comes to price. Last year was the first year that An Post had the full benefit of the 16 per cent increase in prices approved in August 2003, but turnover in its mails business increased by only 3 per cent.

Further price increases might only serve to drive down volumes further and instead of looking for another increase, An Post should concentrate on driving up volumes, argues ComReg. The way to do this is to encourage junk mail or, to be more accurate, targeted direct marketing, it believes

Hard though it may be to believe given all the stuff that comes through letter boxes, the Republic is a relatively junk mail free zone. Of the 187 letters delivered per capita each year by An Post, only something in the region of 12 are targeted direct mail. In other European countries the number is much higher, getting on for 100, and this goes a long way towards explaining why average mail volumes per capita in these countries are much higher and thus their postal companies are not in the same trouble as An Post.

According to the direct mail industry the reason why we have so little junk mail here is that we don't have post codes. Without post codes it becomes much harder to organise the sort of sophisticated direct mail campaigns that drive postal volumes in other markets. And why don't we have post codes? Because An Post apparently does not consider them necessary since it has invested heavily in automated sorting machines that can read traditional five-line addresses. It also claims that it can provide direct marketers with the sort of information they need - at a cost presumably - but that does not seem to be borne out by volume figures.

If this really is An Post's position, then it is very hard to understand, given the company's current woes. One explanation is that the introduction of post codes would make embarrassing white elephants of the expensive machines that read five-line addresses, around which An Post has built its automated sorting system.

Another explanation - and one that would appeal to conspiracy theorists - is that the absence of post codes discourages the entry of new players into the increasingly deregulated postal market. As and from the start of next year An Post's competitors will be allowed deliver any piece of mail that weighs more than 50 grams, which is roughly the weight of an Eircom bill. At present An Post's competitors can only deliver mail weighing over 100 grams.

Anyone hoping to compete with An Post in mail delivery will have be more efficient that them in collection and sorting of mail. Not hard, you may scoff, but in the absence of post codes it is much harder that it should be

Proponents of this theory would argue that given the intractability of its industrial relations problems and other issues - which make serious reform almost impossible - An Post has little choice but to dig in for a long fight against deregulation. The precedents for this include the ESB, from where the bulk of An Post's top management came two years ago. Eircom, the former Telecom Éireann, has made something of an art form of this type of behaviour.

The only flaw in this argument is that An Post does not appear to enjoy the sort of profitable monopoly or near monopoly enjoyed by the likes of ESB, and hence does not have the same incentives to act anticompetitively and defensively.

Here again, there appears to be a divergence between the company's view of things and reality. The most recent annual report shows An Post has no borrowings and something like €63 million in the bank, not including the €85 million due from the sale of its PostTS business. A more detailed analysis shows that when the impact of restructuring costs and property sales are stripped out the underlying mails business made an operating profit of €22 million in 2004.

That is not the sort of figure you want to shout about when you are trying to get rid of 1,500 workers and secure a 25 per cent price rise. But it sure sounds like a business worth protecting from competition.

jmcmanus@irish-times.ie