Wednesday, 28 July 2010

Postcard from Guernsey

It is good sometimes to look at another small Island, not too dissimilar from our own, and see what problems they have, and how they are tackling those, and even what part Jersey plays in that saga. We are not the only Island to have resignations, but the recent one in Guernsey came from outside the civil service. It was the culmination of growing frustration over the relaxation of postal services to third parties which the regulator had been pressing for, and which the Chief Executive of Guernsey Post had been strongly resisting.

Guernsey Post chief executive Gordon Steele yesterday dramatically resigned with immediate effect - and without explanation. The company said the resignation was a mutual decision which was taken 'due to a difference of opinion regarding the future direction of the company'.(1)

Guernsey Post clearly has been facing difficult times, and not all of their own making. Both in Jersey and Guernsey, there has been a move by the regulatory authorities to open up the market, and even if Guernsey stays as it is, opening up the market in Jersey could nevertheless have a knock on side-effect, something that has not been mentioned at all in the Jersey debates about postal services.

Allowing competition into Jersey's bulk mailing market could force Guernsey Post to look at cutting household deliveries, according to the company's chief executive. The Jersey Competition Regulatory Authority will decide in October whether to open up the bulk mailing market to competition and Gordon Steele said some local companies might choose to send their mail through Jersey because it would be cheaper. New entrants to the market would be able to undercut them, he said, because they did not have to provide any other postal services. 'As a competitor comes in they do not have to pay anything for the universal service. It costs us £3m. a year to empty boxes, deliver mail and run post offices.'(2)

There has been a heated dispute with the regulator over whether there should be a change in the way the service is conducted, and as with Jersey, there is an indication that while Guernsey Post has a universal service provider obligation, this may well have to be reduced in scale and cut back:

QUESTIONS need to be asked about whether Guernsey Post's delivery and collection services are still suitable when islanders are increasingly using technology to communicate, according to the Office of Utility Regulation. Guernsey Post is obliged to empty mail boxes, run post offices and make deliveries six days a week under the universal service obligation. But OUR director of regulation Michael Byrne said it was time to look at how well those services fit with modern needs. 'Given changes in technology, there is a case to look at whether the existing service is as appropriate as it needs to be.' (3)

The leader column in the Guernsey Press thinks that more needs to be done to ensure any change is made across both Islands, so that the postal services have time to adapt. There is clearly a plea here for Jersey to show that it can be a "good neighbour". And that is something we should be thinking about in Jersey - with a joint regulator now in place, there surely needs to be convergent strategies, otherwise Guernsey will not want to seek any future in "working together" unless it leads to practical results. This is a message coming across quite strongly in their paper, and I've not seen it reported at all in the JEP.

While there might be a dispute locally about how much competition there should be and how quickly it ought be introduced, Guernsey and the regulator at least had some control over the consequences. Jersey jumping first, however, would sweep that away and Guernsey Post could be faced with a catastrophic fall in revenues since the fulfilment sector here contributes massively to its volumes and revenue - in Jersey it is more than half of JP's business. Guernsey Post Ltd is trying to transform its business model and strip out cost but that cannot be done overnight and it would be unfortunate if it was trying to meet an unrealistic deadline effectively set by its neighbour.(4)

The background of frustration that led to Gordon Steele's sudden resignation is due to the dispute with the Office of Utility Regulation. Letters have exchanged in the columns of the Guernsey Evening Press, and have been quite acrimonious, with the OUR making their case with facts and figures, and Gordon Steele, on behalf of Guernsey Post, giving facts and figures to dispute that, and accusing the OUR of distorting the true position.

Here are four of the main points that John Curran set out in a letter about Guernsey Post, and how it was viewed from the regulator's point of view:

1. Guernsey Post will still have a monopoly on almost 70% of its postal volumes with a reserved area at 65p.
2. Fewer than 10 Guernsey Post staff out of a total of 271 work on bulk mail. Talk of mass redundancy threats if it loses some bulk-mail business is simply scaremongering.
3. Claims of threats to the Universal Service Obligation are entirely baseless and is Guernsey Post 'spin' designed to detract from the efficiency savings it needs to make. Jersey Post, operating in a very similar
environment, has never had a reserved area but still provides the USO.
4. The OUR has allowed Guernsey Post to recover all its costs from Royal Mail's increased charges, despite claims from Guernsey Post to the contrary.

Gordon Steele, the Chief Executive of Guernsey Post wrote back, disputing these claims in his letter to the Guernsey Press:

I feel I must respond to the Director General's letter of 16 November to refute a number of the statements he makes.
1. His statement that 70% of Guernsey Post volume would remain with a reduction in the reserved area to 65p is extremely misleading. What he does not mention is that, based on his own calculations, Guernsey Post's revenue would fall by 65%, meaning only 35% of GPL revenue would remain in the reserved area. Our own calculations indicate that the fall in revenue could be worse than that. Contrary to the regulator's argument, his proposal means that even a first-stage reduction in the reserved area would have a very significant financial impact on Guernsey Post.
2. We are concerned about possible redundancies as a result of the abolition of the reserved area. We would hope that these can be avoided. However, the potential loss of 65% of our revenue might make this difficult to achieve if we are to remain profitable. I should also point out that the regulator's office has said to us that we must reduce our administrative headcount by 16 people - this would not be possible without redundancies.
3. The Jersey Post environment is quite different to that proposed for Guernsey, so no parallels should be drawn. Under Jersey law, new operators must apply for a licence and demonstrate that their activities will not damage the Universal Service Obligation in Jersey. This would not be the case under the regulator's proposals for Guernsey, which would mean that foreign competitors could enter the market without a licence and with no concern about the Universal Service Obligation.
4. We dispute the implication that the regulator has allowed Guernsey Post to recover all the £8m. cost increase from Royal Mail and therefore everything we wanted has been granted. The reality is that what he has given with one hand has been taken away with the other. Some £2m. (£1.2m. in the first year) of that £8m. has been disallowed without any detailed review. This, combined with a reduction in the reserved area and the regulator's proposed tariff, means that we face a huge shortfall in revenue of up to £4m.

This has led to legal costs between the Guernsey Post and the Regulator, as the battle had become more than merely a war of words.

Chief executive Gordon Steele said: "In the last year, we have had to address some very significant issues including a year-on-year 16% decline in traditional mail volumes, large Royal Mail price increases, the frustration of our efforts to diversify into financial services and the ongoing and costly dispute with the Office of Utility Regulation." ..In December the OUR put forward proposals to open the market to more competition by reducing Guernsey Post's monopoly on letters, from those costing under £1.35, to those costing £1 or less and completely removing restrictions on parcels. The company will continue to face significant legal costs in the current year in appealing against the proposal and it predicts another difficult year ahead.(5)

The Regulator, as well, has come in for some criticism in the Guernsey Press, including criticism of the salaries paid to its staff compared to those of Guernsey Post. As Laurie Queripel noted:

I find it a bit rich that the OUR has highlighted the fact that some Guernsey Post staff earn between £25,000 and £35,000 per annum and yet according to the October Billet d'Etat, the OUR's staff expenditure and salaries for 2008 amounted to more than £417,000. This averages out to approximately £59,000 per staff member.(6)

One of the calls by the leader articles in the Guernsey Press called for closer coordination and co-operation between the Islands. Jersey has now appointed John Curran to the Jersey Competition Regularity Authority, and he will work for both Islands as a regular, allowing savings to be made both in Guernsey and Jersey:

Guernsey's Commerce and Employment Department and Jersey's Economic Development Department are welcoming the intention by the Board of the Jersey Competition Regulatory Authority to appoint John Curran as the Executive Director of the JCRA. Mr Curran is currently the Director General of the Office of Utility Regulation in Guernsey and he will perform both roles. (7)

Senator Alan Maclean has seen this as sharing of resources, and saving money, although it would be nice to have a little more detail on actually how much this will save both Jersey and Guernsey. There are no less than three mentions of the phrase "save costs and increase efficiency" (or its variants) but Senator Maclean is remarkably coy about the figures involved.

In the current environment where innovative solutions must be delivered and tough decisions made, I am confident that Mr. Curran's appointment will deliver significant efficiencies and cost savings that, amongst other advantages, allow the JCRA to operate within a reduced cost base in 2011 and beyond. (8)

But it does give a chance for the situation of Guernsey Post and Jersey Post to be address in tandem, and the editor of the Guernsey Press sees this opportunity. Let's hope it is not thrown away, and can be the start of more ventures between the Islands.

The crisis closure of sub-post offices and cutting of household deliveries isn't in anyone's best interests and this appears to be a clear case of when the islands need to be working in concert, especially since they now have a joint regulator.(9)

What next? Perhaps other quangos could follow suit. Do we really need two Financial Services Commissions, for example, when the regulations involved must, of necessity be similar because of international standards?

It is clear is that Guernsey will certainly be watching Jersey very closely over this first venture together to see that there are advantages, and it is not taken for granted as a poorer relation by its neighbour, and whatever the outcome of any opening up of postal markets both in Guernsey and in Jersey, due consideration is given to the how changes in one Island can impact on another.

(6) Laurie Queripel, Letter to Guernsey Press

1 comment:

Nick Palmer said...

So Curran is going to have a finger in the Jersey postal pie eh? Run for the hills!

I don't like to defend senior postal management too much but in this case I would judge that the balance of probabilities is that Curran's is the greatest spin on show here.

Here's an example which shows that either he is being deliberately deceptive or he simply doesn't understand how the postal service works (that he is supposed to be regulating!).

From his letter:

"2. Fewer than 10 Guernsey Post staff out of a total of 271 work on bulk mail. Talk of mass redundancy threats if it loses some bulk-mail business is simply scaremongering.

Diabolical spin or ignorance - you decide.

Bulk mail in this instance means mail that comes in sacks of bundles like the mailouts that a bank would do. Most of these letters would be destined for the UK or international destinations. The local postal service gets the postage for handling them. Bulk mail is a profit generator.

Because bulk mail letters tend to be uniform and well addressed, with post codes, they tend to be machineable or rapidly sortable and so cost per item is a lot lower than general mail which needs much greater handling, separation, sorting and processing - it simply costs more to handle.

The 10 Guernsey staff will be the processing department whereas the 261 will be those who sort and deliver incoming and local mail - the largest part of what a postal service has to do but it is not a profit generator - it is a business cost.

To imply that losing a significant part of the revenue generating part of the postal service (by losing or reducing the "fewer than ten staff") will have no impact on the viability of the whole, and thus the employment of the other 261 is disingenuous for certain, and possibly mendacious to boot.

People simply do not not realise - because they have not been told - what they will lose if this eviscerating of the postal service continues because of the mindless ideology of competition-at-all-costs advocated by Ozouf and Maclean chanting their simplistic, dangerous and highly dubious "efficiency and cuts" mantras