Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 120-125)



  120. I do not mean to interrupt but it actually might be reasonable for there to be a 20p charge for network access under certain circumstances. If there is for the Royal Mail, as a whole, in practice a substantial cross-subsidy between some areas, namely the urban areas and rural areas in terms of delivery costs, then in order to have access to the network, in order to deliver for that part of bulk mail which is to be delivered in the lighter density of rural areas, it might be perfectly reasonable for that cost of the access also to reflect what is part of the cost structure of the Royal Mail's uniform price?
  (Mr McGregor) Yes, and indeed I can see that. Obviously as you recognise yourself there are a lot of big ifs in there. Until we have actually got the real costs from data that we can rely upon from Consignia I think the jury has to be out on that.

  121. How confident do you feel—my personal view would be reach competition at the earliest possible moment but reaching competition in the absence of good information is a very difficult thing to do—about supporting Postcomm in the early introduction of competition in the way they propose given the lack of information we have got?
  (Mr McGregor) That is why we place such importance on the safeguards that are built into the system. You have a staged approach with the ability to have three reviews so that you can both keep under constant review the quality of the data that is being driven, you can keep under review whether there are any adverse effects on the universal service. Clearly as a consumer organisation we want to make sure that all consumers benefit from the introduction of competition. The alternative, which I think will give Consignia a perverse incentive, would be to say to them "Get your information systems right first and then introduce competition" but that way you could guarantee that their information systems would remain chaotic for the next decade.

Mr Hammond

  122. Just one further question on access charges. Given what you have just said, is a universal access charge for the last mile really a sensible proposition? If 20 pence is the average cost to Consignia of providing that last mile service, taking rural development, is not a single universal access charge to competitors simply going to invite competitors to use Consignia in the rural areas and provide their own services in the urban areas? Is that not an unsustainable solution in anything but the very short term?
  (Mr McGregor) Yes, you are quite right, that might well be the result. That would not be a sensible result. What we would want to see is carefully differentiated access charging, particularly for the last mile part of the service. Again, it is down to the sophistication of the data that would underpin that degree of differentiation.

  123. Can I just ask you about one other area. We obviously all recognise that Consignia needs to reduce its costs but looking at the areas where Consignia has already identified cuts or cost savings, what assessment have you made of those cuts on individual residential customers and business customers? How serious do you think they are likely to be?
  (Mr Carr) Actually we have not had the details of the cuts.

  124. We have heard this morning—
  (Mr Carr) We have heard the headline figures and what we heard this morning we were hearing for the first time. The impact of the redundancies has not been quantified within the divisions or at the operational levels, so we are not in a position to make any assessment at this stage of what impact that would have on individual consumers.

  125. So from what you have had so far you have not been able to make any assessment of the relative burden of what is being proposed between business customers and residential customers?
  (Mr McGregor) No, we have not. As was noted by Consignia in their evidence this morning, a major contribution to the £1.2 billion cuts will be the proposed abolition of the second delivery. We do have a very careful programme agreed with Consignia to monitor consumers' reactions both before, during and after the pilots that are about to start. Again, we have carefully constructed the assessment that is to be made to include large businesses and small businesses as well as social users of the post, so we hope to have a very good cross-section of all customers. Until those pilots are under way we will not have the data to do the assessment.
  (Mr Carr) The delivery structure is expected to produce £500 million of the £1.2 billion savings.

  Chairman: On that note, gentlemen, can we thank you as ever for your evidence today and also the very helpful checklist of useful Consignia facts that you sent us. If there any other points we will come back to you. For anyone who is interested, the Committee will be reconvening at 3.30 when we will have Hays DX, then at four o'clock Postcomm and at five o'clock the unions. We still have some more business to do but thank you for your contribution this morning.

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