Thursday, 1 April 2010

Jersey Post and Unfair Competition

JERSEY Post could go from making millions in profit to a loss next year as a result of a decision by the Island's competition regulator. The utility business is set to lose the monopoly it enjoys on delivering packages and large letters for the fulfilment industry. The decision to recommend granting licences to two companies - Citipost DSA and Hub Europe - to compete has been described as 'partial liberalisation' of postal business by the executive director of the Jersey Competition Regulatory Authority, Chuck Webb. Both the companies expressed delight at the decision, which has taken the JCRA over a year to make, but Jersey Post is likely to fight it.(1)

Jersey Post still has a statutory obligation to deliver normal mail to households - the "universal service" requirement, a disadvantage which the two newcomers do not have. How can this be made fairer? One suggestion might be to take the total cost of delivery of normal mail per household, and substitute a levy for a third of this upon the newcomers, as a support tax.

This would ensure that they would be paying their way in supporting the statutory obligation of traditional postal business, and any losses which then ensued at Jersey Post would not be down to their having to compete on uneven terms.

Contributions schemes like this have been proposed elsewhere, in India, for example where the postal bill takes account of this:

The Bill sets up a Universal Service Obligation Fund (USO Fund), to which private service providers with at least Rs 25 lakh annual turnover would contribute 10 per cent of their turnover. The government would use the USO Fund to fulfil its obligation of providing affordable postal service to every citizen. (2)

In 2009, China, while looking to open up its postal markets, considered very much the same. As the Wall Street Journal notes:

There's even a clause about "a universal postal service fund" that could give the government room to levy a tax on private couriers in order to help pay for the universal service run by China Post.(3)

The report on "Structural and regulatory changes and globalization in postal and telecommunications services" notes how new players "cream off" the best part of the market:

"When new participants are authorized to operate in certain markets previously located within the perimeter of the monopoly, they choose to focus on a specific niche, i.e. on market segments which generate lower production costs than the average costs of the traditional operators. It is then that greater financial difficulties may arise for national postal services along with complex questions concerning the financing of the universal postal service."(4)
Where this happens, and no structure is in place to give a levy, there are cutbacks in Universal Service provision. This can be seen in the case of Kenya. In 2004, a report noted worrying signs:

The Postal Corporation of Kenya (PCK) is mandated to offer universal postal services across the country. Since the liberalisation of the postal sub-sector in 1999, the number of post office outlets has steadily fallen from 1,036 to 872 in 2004, representing an average decline of about 2.7% (CCK, Annual Report 2003/2004). The closure of some units is partly attributed to the rising competition from courier companies and other technologies like e-mail and cellular technology and to the need to have these services at locations that are economically viable. This development threatens to reduce revenues and mail volumes for PCK, which in turn potentially puts PCK's ability to sustain the cross-subsidies necessary to support its universal service obligation (USO) at risk.(5)

But the latest information, in 2009, shows that PCK is doing better, and the reason is because it "derives a significant chunk of its revenue from processing utility bill payments for public and private suppliers, since the stream of "social letters" is weak." Unlike India, where private companies must pay a levy unto a Universal fund, the Kenyan government tries to maintain PCK by enforcing charging rules on letter mail (but not parcels):

Posta Kenya effectively maintains a monopoly on the delivery of letter mail. Kenyan law requires that private operators handling letters of up to 350 grams charge at least five times Posta's basic letter rates.(6)
Nevertheless, this strategy does not seem as good as that of India. PCK is still losing trade, as payment mechanisms move online, or via phone and credit card. 70 percent of its revenue comes from bills, but that is already falling.

How well that will work remains to be seen, but the experience of the U.K. where the postal service is under immense competition and closes post offices and reduces universal services suggests that an unregulated "free for all" is not the best strategy for Jersey. Some kind of other system, such as that provided for in India or China, would be the best strategy.

It is important for the States to provide some kind of mechanism, because otherwise if Jersey Post was not able to meet its obligations, the Island might find itself in the unenviable position having no provider for  consistent supply of basic quality postal services at affordable prices at all points in the Island.


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