An Post price increases see domestic customers subsidising losses

Analysis: The future of the postal delivery service in the Republic as we know it is now in jeopardym, writes Alex Pigot.

An Post has once more increased its tariffs (effective from today) to Irish domestic customers, who will now pay 39 cent or more (up to 48 cent) for the collection, sorting and delivery of a simple 50 gramme letter.

An Post has not increased its rates to foreign postal operators, who pay An Post about 26 cent for the same item. Foreign postal operators can mail to the Republic for 26 cent while domestic customers have to pay 39 cent or more.

There is no sign that this situation will change as An Post has not, as requested by the Commission for Communications Regulation (ComReg) in April 2003, renegotiated its agreements with foreign postal operators.

The difference between the two rates applicable in the State for a 50g post office preferred item during 2002 was 15 cent (i.e. 41 cent for domestic mailers, less 26 cent applicable to foreign postal operators). This difference, as a proportion of the international inbound tariff, is nearly 58 per cent.

If An Post's international inbound income could have been raised by 58 per cent in 2002, the turnover in international inbound would have been €79 million and An Post would have made a trading profit of €12 million instead of a loss of €17 million.

The commercial reality is that An Post is losing money and, by looking for a domestic price rise, is forcing its long-suffering domestic customers to pick up the tab while subsidising An Post's foreign customers and the customers of foreign postal operators.

Irish customers of An Post are fed up with a situation that discriminates against them, forces them to subsidise foreign mail producers, leaves them at a competitive disadvantage and appears to be unchanging. There seems to be no urgency to implement change by ComReg, the Government or the monopoly service provider, An Post.

ComReg's approval of the recent price increase application by An Post provides no incentive for An Post to tackle its problems. Indeed, this approval, perhaps inadvertently, will instead have encouraged the belief in An Post that, so long as its financial situation seems threatened, any price increase it requests will be approved. In doing so, ComReg and the Government continue to ignore a raft of EU legislation and case law that could and should be used to introduce greater choice for those who still want and need to post letters.

On the basis of existing legislation, Government could:

phase out An Post's reserved area ahead of the provisional EU deadline of 2009, say by 2006;

direct An Post to re-evaluate its hugely expensive and unsuccessful (in terms of cost savings) mechanisation programme to sort mail, and to fully support the early development and introduction of a cost-effective Irish post code; and

encourage Departments to explore the full advantage of downstream discounts and access service providers.

For its part, ComReg could:

set a deadline (for example, the beginning of next year) for the development, introduction and operation of an Irish post code;

closely monitor the operation of the new discount schemes with a view to expanding and developing the services offered under these schemes;

commission an in-depth independent report on how to immediately reverse the decline in the volume of mail received per household in the State;

be ready and prepared to take urgent and, if necessary, radical action to tackle any failure by An Post to deliver quality-of-service improvements; and

most importantly and urgently, set a (short) deadline for An Post to conclude a new bilateral agreement with the Royal Mail that ensures Irish postal users no longer cross-subsidise Irish-bound mail being produced in the UK only because it can be "posted" far more cheaply from there.

However, the person who can do the most is An Post's new chief executive, Mr Donal Curtin. He should:

solve the loss-making problems (inbound international, inefficient mechanical sorting);

listen to his customers and provide them with products (downstream access) that suit them at prices they can afford and which do not discriminate against them in favour of his foreign customers;

refuse to bow to pressure to increase An Post's internal cost base; and

realise that, by increasing An Post's tariffs, he is making it much easier for aggressive competition to enter his market and take a large slice of his turnover in the process.

If the Republic wants to have a viable postal service, radical reform is necessary - not price increases.

Alex Pigot is managing director of TICo Group, an Irish bulk mail producer. He is a board member of the Federation of European Direct Marketing Associations and a member of the regulatory affairs committee of the Irish Direct Marketing Association.