Examination of Witnesses (Questions 140
WEDNESDAY 13 FEBRUARY 2002
140. If even some of them were, how do you ensure
that each person carrying the post has to carry less?
(Mr Stanley) I cannot think of a way
and that is why I think it is highly unlikely.
(Mr Corbett) This comes back to the examination of
different methods of handling the delivery process which we were
talking about earlier. To the extent that a 9.30 delivery, for
example, is important to users, maybe that is a cost that one
has to bear. To the extent that there are a number of users for
whom a 9.30 delivery is clearly unimportant, you could use your
resources much more effectively to deliver a lot of that mail
later on in the day and spread the load.
141. Who are the people to whom it is unimportant?
(Mr Corbett) Me, for example. I am never
there at 9.30. There are a very large number of people who are
simply not there when their mail arrives.
142. Do you know how many?
(Mr Corbett) I do not know.
143. You do not know what percentage of people
it does not matter to?
(Mr Corbett) This is part of the work
which Postwatch is doing to find out what users need. We come
back to these pilot projects that are being run by Consignia to
find out whether there are better ways of their being able to
use their resources to deliver customer service. That is absolutely
to be commended.
144. Can I ask about the economic modelling because,
as I understand it, there are a couple of different approaches.
If I were to say that Consignia has found its economists and come
up with its approach and you have found your economists and come
up with your approach and the European Commission also, would
I be grossly misrepresenting the position?
(Mr Stanley) It would be an over simplification.
(Mr Corbett) It really would. The two models that
you are referring to, the net avoided cost which is a static model,
and the entry price model which is a more dynamic one, are measuring
very different things. What we have sought to do in the model
that Andersens have developed for us is to give ourselves the
opportunity of measuring sensitivities in a way which neither
the entry price model nor the net avoided cost does. The net avoided
cost information is extraordinarily important and it informs a
lot of the decisions one needs to make, but that is not to say
that one does not need the benefits of the dynamic model which
looks at the `what ifs'. What we have and what we presented with
our report, with the Andersen model, is a far more sensitive way
of being able to measure these what if effects. We have had that
model extensively checked out by Consignia who have agreed that
they can replicate all their findings by using that model.
145. Consignia, in their response to your discussion
document, said, "Decisions relating to the future state of
the postal market cannot be made on the basis of the current market
situation but require a forward looking assessment. An analysis
using net avoided cost cannot inform our understanding of the
cost of continuing to meet the universal service obligation under
liberalisation." You are saying you more or less agree with
(Mr Corbett) Absolutely, but that does
not mean that the net avoided cost information is not very important.
146. In the NAO report on page nine, it says,
"There is a risk that the Department of Trade and Industry,
as the principal shareholder, may not apply sufficient pressure
on Consignia to improve its performance and respond constructively
to competition. The Department of Trade and Industry are seeking
to behave in a similar way to private sector shareholders ...",
which may evoke the response from many people God help us, because
it is not evident that government departments know how to act
as shareholders. When it says that there are few precedents, when
I first read that, I thought there are loads of precedents. This
is in line five of paragraph 25. We had the whole history of the
last 30 years of government departments trying to do this and
that is why we have the situation we have in relation to government's
attitude to industry. That is why this present government takes
a similar attitude to the Conservative Government of the eighties
and nineties. Does not this rather worry you?
(Mr Corbett) It is a matter that we have
to take note of. We would agree almost entirely with the NAO's
analysis of the situation but it is not one that we are entitled
to do anything about. It is out of our hands. Since we have been
appointed as regulators, what we have to do is to regulate in
the situation as we find it.
147. In the situation in which you find it, the
NAO says that Consignia may not respond positively to regulation
(Mr Corbett) Absolutely.
148. You are between a rock and a hard place.
(Mr Corbett) We would largely go along
with that in so far as one is talking about regulatory tools.
We do not believe that that stricture would apply to the impact
of competition and that is why we have put so much emphasis on
opening up this market to competition, because we, like you, have
reservations as to how far the regulatory tools are really going
to bring about the improvements that are needed.
149. The other aspect of being a shareholder
is the ability to demand a dividend which Consignia has regularly
paid to the government. The NAO report goes on, at page ten, to
say, "As principal owner, the Department are potentially
in a stronger position to do this than private shareholders whose
holdings are small and diversified." What can you as Postcomm
do about that?
(Mr Stanley) I think it is way off our
territory. Our job is to preserve the universal service and, subject
to that, look after the customer and introduce competition. How
the government reacts to shareholders and what dividends it takes
is way outside our remit.
150. At least British Telecom, which was created
with a regulator, also had a proper private capital market ownership
structure. The ability for Consignia to strive and invest is directly
affected by the attitude of the shareholders, is it not? Is that
(Mr Stanley) Yes. All we can do is set
the best framework we can to encourage investment, to encourage
good management and to encourage excellent service for the customer.
If, for whatever reason, the shareholder does not support the
company in doing that we can do no more.
151. Forgive me, I do not know the answer to
this question about the current position but I know that in previous
years governments of both political persuasions have taken out
hundreds of millions of pounds in dividends. Consignia is making
a small lossindeed a large loss last yearwhat is
the current position? Is there going to be a break in the dividend
payment or not?
(Mr Stanley) Perhaps Treasury can answer
(Mr Glicksman) The government has set a target for
Consignia for the payment of dividends and Consignia has asked
the government to waive the dividend payment for the last two
years, and the government is considering that.
152. In the last two years have dividends been
(Mr Bush) They are asking for us to waive
153. Have you waived them?
(Mr Bush) No decision has been made about
154. You said "two years ago", does
a dividend not get paid each year?
(Mr Bush) This is paid to the DTI rather
155. Paid to the government?
(Mr Bush) I believe we are looking at
waiving the two years' payments.
156. When you say, "the two years' payments"
we are now in February 2002, when you say, "the two years'
payment" are you talking for 2000 and 2001? Do you mean during
the whole of 2001 and to date there has been no decision about
a dividend to be paid by Consignia to the government for the year
(Mr Bush) I believe that is the case.
157. What do you mean you believe that is the
case, either it or it is not?
(Mr Bush) We can provide you with a note
on this, it is a matter the DTI have been looking at.
158. Is it not normal for a company to pay a
(Mr Bush) We have been in a transitional
arrangement in moving to this new plc status, which has only recently
come in. We are trying to find our feet in terms of how to manage
the corporate relationship with Consignia.
159. Dividend payment is a fairly fundamental
aspect of finding one's feet.
(Mr Bush) Which is why we want to try
and get it right.
1 Ev, Appendix 1, p 18-19. Back