Examination of Witnesses (Questions 180-199)|
TUESDAY 16 APRIL 2002
180. On the issue of consolidation, Consignia
fears that if that is relaxed the market could be completely open
to competition two years earlier in 2004 instead of 2006. Have
you any view on that?
(Mr Corbett) Clearly that was one of the factors that
we took into account when we developed our proposals. It is the
reason why certainly initially we would limit consolidators to
being able to feed into Consignia's downstream operations and
not to anyone else's. We were very conscious of the fact that
the decision to relax that, whether it was in 2004 or at the time
of total market opening in 2006, would be a very important one.
We will want to see how the market develops because, yes, we also
are conscious of the fact that a too rapid relaxation of that
consolidation requirement could provide an opportunity for a much
greater degree of market opening than we intended.
181. Perhaps they are right to have fears about
that change of date?
(Mr Corbett) They have the same concerns that we have
to ensure that we do not take that too fast.
182. Could you give us an indication of what
you see as the significance of the weight element? You rejected
that as the route down which you ought to go but the European
timetable still accommodates that. There is a suggestion that
Consignia would be open to a double whammy in the sense that they
would be open to volume driven liberalisation and at the same
time they would have weight brought in as an added complication
and difficulty, so we would be talking about an additional volume.
How do you see this? Can they be protected from that? If they
are going down one route, do they have to embrace the other European
route at the same time?
(Mr Corbett) It was certainly not our intention to
in any way seek to exempt Consignia or UK postal services generally
from the requirements built into the EU Directive. We regard those
as being a platform which every Member State should comply with,
the UK included. We do have a concern frankly that the market
opening proposals within the EU Directive may prove to be fairly
ineffective in encouraging competition. There are two reasons
for that concern. One is that new entrants, if they are going
to be prepared to make the investment in setting up an operation,
need to be able to put together a commercially coherent offer
to customers to carry their mail. If they are faced with the inability
to carry mail below a threshold of 100 grams or subsequently 50
grams, that requires a separate sorting operation which clearly
has to detract significantly from the ability to make a commercially
sensible offer. Combined with that, economies of scale are an
essential element of the dynamics of any postal operation. To
be denied access to the lighter weights which account for 84 per
cent of the volume below 100 grams and still for 70 per cent of
the volume when it drops to 50 grams is, we believe, going to
be a major inhibition to cost effective operation. We do question
whether the price and weight reductions will have anything other
than a quite marginal effect on the amount of business which competitors
183. If your proposals are ignored or not implemented,
we will go ahead with the European model?
(Mr Corbett) Yes.
184. If your proposals are implemented, for
a selected group of business customers, correspondence of all
weights and sizes within the limits that you have chosen will
(Mr Corbett) Yes, that is right.
185. Will the other elements in the equation,
the European elements, still be subject to . . . ?
(Mr Corbett) Yes.
186. This is the point I am making about the
double whammy. You would have Consignia exposed on two fronts:
what you would regard as the somewhat insubstantial European one
and your own one as well. Is there any means whereby they could
for example be protected from the European liberalisation element
because they are going down the British road?
(Mr Corbett) I would have to take advice on that.
187. Have you not considered that?
(Mr Corbett) It would require us to go into breach
of the European Union Directive but more fundamentally we would
not wish to see the United Kingdom trailing behind the European
Directive in any significant respect.
188. Do you not accept that one of the concerns
which has been expressed by a number of people for good reason
or ill is that Consignia is in a sufficiently debilitated state
at the present moment that it could not accommodate the liberalisation
proposals that you are suggesting, but it could probably, without
too much difficulty, take on the weight and price provision? The
idea of them taking on both might be more than is reasonable.
Would you accept that as an argument?
(Mr Corbett) One of the things we will be doing over
the next few weeks is examining all the submissions that have
been made to us in respect of our proposals. We will undoubtedly
find within those representations arguments to the effect that
accumulating our proposals with the EU proposals will prove too
much of a burden for Consignia. Those are arguments which we are
going to have to look at very closely and discuss extensively
with the parties who are making them. We put forward our proposals
in the belief that the accumulation of those two would be supportable
because of the very small extent to which we believe that the
EU proposals would change the dynamics of the market, but we are
open to those arguments.
189. You have not anticipated the possibility
of a policy option being open to you of going to Europe and saying,
"We would like a derogation in respect of the price and weighting
provisions because we would prefer to go down the road of the
volume customer in the first instance"?
(Mr Corbett) No.
190. Do you not think you might have considered
that as a possible option or is that a negotiating position that
you may well take up at a later stage?
(Mr Corbett) Any such derogation would need to be
negotiated not by us but by the government. We cannot see why
the European Commission would be inclined to listen to it. I take
what you say. We will take it away and think about it, but it
has not thus far seemed to us to be a practical, worthwhile or
even a necessary step.
191. I would like to ask you about the possible
rise in the price of stamps. Last year, Consignia withdrew a request
to raise the price of both first and second class stamps by a
penny. There have been surveys, one of which has said that almost
nine out of ten people would support a 2p price rise to save Post
Office jobs. I think it has been your view that you want Consignia
to increase mail centre efficiency and deliver quality rather
than raise the price of stamps because of their financial problems.
Do you have a view at the moment?
(Mr Corbett) I think the right answer to your question
is no, because we do not yet have the formal application which
we know we will be receiving from Consignia and we will look at
it at that stage. I would however like to make a comment about
the survey finding that you refer to. The average household spends
56p a week on postage so the increase by ten per cent which adds
5p or maybe 6p a week to their weekly bill, not surprisingly,
is not going to be a source of great concern to them. We would
however have the greatest possible concern at making a suggestion
which would add about ten per cent, about £1 million a day,
to the cost of business, merely as a way of trying to avoid trouble
on the Consignia front. If there is a justifiable argument for
a cost increase, whether because of the investment case that Mr
Stanley has already mentioned or otherwise, we are absolutely
prepared to listen to them. When it was said that we rejected
an application last year, that is not really true. What happened
was that we pointed out to Consignia that they had been unable
to support it properly and they withdrew it. We have never heard
a price application and we are expecting to. In any event, we
know that we have between now and the beginning of next year to
put in place the first pricing regime which will follow the normal
pattern that is familiar in regulated industries. All these matters
are very much on the agenda.
Sir Robert Smith
192. Obviously the theory behind the competition
is that it brings innovation and efficiencies. Presumably, one
of the concerns about competition is that even the large operator
eventually decides that the area they have to concentrate on is
to protect themselves in the area of competition and they concentrate
their resources there. Hence the universal service obligation
existing to ensure that there is some kind of minimum standard.
One of the concerns is that for a lot of people they are getting
more than the universal service guarantees at the moment. Do you
see any operatorConsignia in particulardropping
its service to the universal standard in those areas where competition
is not driving them to provide anything better?
(Mr Corbett) You are absolutely right in describing
the universal service obligation as being somewhat of a flaw and,
for that reason, the quality service standards that are built
into Consignia's licence go beyond the universal service obligation.
Those are the standards to which Consignia is being held. For
example, the standard for first class, following day delivery
appears nowhere in the universal service obligation. That is derived
entirely from our licence and I believe that it will be a fairly
abject failure of our responsibility to the users of postal services
for us to allow those standards to drop. We will be looking for
a progressive improvement in quality service standards, and one
of the things which we were extremely pleased to see in the Consignia
response was their emphasis on the fact that when they are talking
about price rises, they recognise that as a quid pro quo for the
fact that they are going to have to be able to offer something
on service standards as well.
193. How do you respond to Postwatch's concern
that they have expressed this morning? They have been right behind
you on competition and in many other ways but they are concerned
that you have left the consultation on universal service obligation
until after the opening up of the market.
(Mr Corbett) What we have done is put together a set
of market opening proposals which take as their assumption that
the universal service obligation will remain as defined by Consignia
at the present time. The issue that we drew attention to in our
market opening proposals was the extent to which the label of
universal service was being applied to a number of special services
like mail sorts, for which it is entirely unclear that the universal
service label is making any effective contribution to what it
is that is delivered. We merely want to note that at the present
time it is very difficult to find a clear definition of the universal
service beyond the very general language of the Act which talks
about one delivery and collection a day and so on. We think it
is right that that issue be explored. We think it is possible
that at the end of that exploration and of the deliberations and
consultations that follow it, there may be an argument for redefining
universal service somewhat more narrowly. When we say that, we
do not mean a narrow geographical definition. We mean a narrower
definition of the range of services to which it applies. Consignia
has some enormous number of differentiated services. That is the
exercise that we want to carry out. It will be a lengthy operation
and, rather in the same way as I am not wishing to wait until
the financial information systems are perfect before we introduce
market opening proposals, we saw no reason why it would be necessary
to have completed that exercise, because the only thing it could
do would be to, if anything, relax the definition.
194. The worry hanging over those who are going
to rely on the USO in the long run is that it might be a narrower
range of services than they currently feel they are providing?
(Mr Corbett) If we were to find that there were services
within the universal service that ordinary individuals depended
on, we would be highly unlikely to want to take them out. What
we really want to do is to avoid lumbering the universal service
with matters which are essentially negotiated on contractual terms
between big users and Consignia.
195. Can I seek clarification because you did
not answer this when I asked earlier. In terms of universal service,
the one delivery per day, does that involve putting it through
somebody's letter box or potentially requiring the box, as in
Germany and other places, at the end of their two mile long drive
where they have to go and pick it up? Does it have to literally
be to their premises as part of the universal service?
(Mr Corbett) As defined at the present time, it does,
Sir Robert Smith
196. As long as they are accessible and safe.
(Mr Corbett) Yes. If there was to be a move towards
letter boxes at the ends of drives, that would be a major move
which would probably require a change in the legislation.
197. Which of the postal administrations, governments
or regulators have introduced competition in the form proposed
(Mr Corbett) No one has introduced it in precisely
the form proposed by ourselves. There are some who have liberated
direct mail which is a substantial part of bulk mail but by no
means the whole of it. There are others who have dropped the weight
threshold so no, there is no one to whom we can point and say,
"That is the model that we are using."
198. Maybe they have all got it wrong and you
have got it right; maybe you have got it wrong and they have got
it right. Time will tell. Will Postcomm make public the study
by Andersens on which the competition proposals appear to be based?
(Mr Corbett) It is available with a number of numbers
excised. It is on our website but a number of confidential numbers
have had to be excised.
199. The majority of it is there but sensitive
information is not?
(Mr Corbett) Yes.