Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 240-243)

MR BILLY HAYS, MR ROGER DARLINGTON, MR PETER SKYTE AND MR JOHN LOVELADY

TUESDAY 16 APRIL 2002

  240. I am sorry, could you give us those figures again please?
  (Mr Skyte) On the 4,000 items for a single mailing threshold, which is the threshold proposed for the first phase from this year, as currently envisaged anyway, Postcomm saw that as opening up 30 per cent of the inland letter market by revenue, but our figures calculated that at about 40 per cent of revenue. By volume, Postcomm's calculation is that it would open up 40 per cent by volume, our calculation is that it will open up slightly over 50 per cent and the reason is that because they have based it on certain bulk mailing models. People use other methods as well and other systems rather more. The other factor to competition is the key to the universal service, is the final mile or miles. The universal service is an expression on paper, the reality is the fact that remember it has to go down every track, every household, every lighthouse, every island with rowing boats in some cases, there is one place where they have to cross it by the beach at low tide or high tide, it depends whether they walk or swim I suppose. That is what the universal service means and it is the most costly part. The Committee was struggling with figures from Postcomm as we were. The four per cent and three per cent they quoted for deep rural, that may be the revenue, the cost must be higher, it must be higher. That is the pressure that will come. Nobody wants to do it because that is the most expensive part of the operation. That is what the universal service means, at one end, the delivery end, the collection end.
  (Mr Hays) Can I just touch on this interesting theory. I am not a mathematician but the idea that the universal service is a benefit in terms of the postal operating costs, and there was a discussion about deep rural, I was a postman for 18 years and the question Mr Berry was asking I struggled with because I just cannot get my head round. I remember the figures when we were talking about difficulty with structures. This is one of the reasons why they need to restructure deliveries. The cost for an item of mail on the first delivery was 3.4 pence per item, on the second delivery it was 17.5 pence per item. They are ball park figures. The reason for that, as I said earlier on, is you get 98 per cent of the mail on the first delivery and you get two per cent on the second delivery so it is an overhead versus cost. Now if you take that a stage further, and this is the bit where we struggled on this idea of rural and deep rural, if you think of this area around here which is served by Howard Place, you will see a postman or post woman going round with bulk mail. If you go to the Isle of Skye the cost of taking that one letter to that place, just work it out in terms of the postal worker's wage. We struggled with this idea that it was not a burden. In order to fund the universal service there do need to be the economies of scale, as it were.

Mrs Lawrence

  241. Can I just ask a preliminary question following on, it is very short, in terms of the impact on the employees, your members, you quoted Sweden, Germany and New Zealand 40 per cent losses. Yours is obviously a labour intensive industry, that is the nature of it, but in your discussions with your continental counterparts, the job losses have they been basically as a result of loss of business to the respective organisations or has the introduction of competition meant more investment that has meant that it is a less labour intensive role that your members or postal workers play?
  (Mr Hays) I will ask Roger to deal with part of that and then I will come in.
  (Mr Darlington) I have to be honest and say that the loss of jobs in the countries I quoted is not the result of the loss of business. There has been relatively little loss of business, three or four per cent, because the major competitors are not going there. It is in response to the threat of competition and it is as a result of modernisation of the networks. We recognise that we are going to have to deal with some job losses. What we want to do is ensure that we deal with them in a very fair and rationale way, for people to have decent severance terms, and that is a subject of discussion now. In that respect Government can play a role because I think Marisa Cassoni mentioned this morning that the Post Office has been forced to invest in gilts to the tune of over £2 billion, it is getting over £ten0 million interest on that but that will go when the Post Office's accounts are restructured. Maybe some of that 2 billion could be used to ease the staffing reductions, which to some extent will inevitably have to take place.

  242. The other question I wanted to ask you was, given the experience of liberalisation elsewhere, we are told that the incumbent operator inevitably retains the lion's share of business, so are Postcomm's proposals actually going to seriously dent Consignia's monopoly?
  (Mr Darlington) The answer is, we do not know, because we do not believe that the experience of Finland, New Zealand and Sweden is in any sense indicative of what is going to happen here, because those are very, very small markets compared to the UK and they are very peripheral geographically, and the big players have simply not gone there, they are not interested. If I can make another comparison, a third of our membership is in telecommunications, we have a lot of experience of competition in telecommunications. The way in which competition was introduced in telecommunications in Britain, with a duopoly with Mercury, meant that the loss of market share was actually quite gradual. The way it was introduced in Germany was much more rapid and they lost as much market share in ten months as we lost in ten years. So how competition is introduced is very, very important in terms of the extent to which the incumbent loses market share. As well as market share, of course, it is profits which matter. If you are losing non-profitable market share, that is sad for the workforce but it is not going to make a big impact on the profit. We have explained to you the parts of the market which are going to be most open to competition—and they are going to face competition which is much more challenging than in those other countries we have quoted—and they are the ones which are most profitable and the most rapidly growing, and that is why we do not believe the very, very limited international experience that Postcomm is drawing upon is in any sense indicative of what might happen here. If we are wrong, if Postcomm is so confident its proposals will have minimal impact on the Post Office, why is it not prepared to agree to the sort of open-ended review which is in the European Commission's proposals?

Chairman

  243. Thank you very much, gentlemen, for your evidence tonight. There were some questions, Mr Hays, which you felt should be asked. I am not sure what the outcome of this inquiry will be in terms of whether or not we will end up with a unanimous report, but I think there will be a number of questions which are still to be answered, and the Government, the silent shareholder, will be asked to respond. We will await with interest, as I am sure you will, the nature of these responses and they will be published as soon as we get them. Thank you very much.

  (Mr Hays) Thank you.





 
previous page contents

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 12 August 2002