JOINT COMMITTEE ON COMMUNICATIONS, ENERGY AND NATURAL RESOURCES debate -
Wednesday, 25 Feb 2009

Retail Changes Strategy: Discussion with An Post.

Chairman

I welcome the delegation from An Post: Mr. Donal Connell, CEO; Mr. John Daly, retail operations director; and Mr. Liam O'Sullivan, director of collection and delivery change programmes and operations. The committee has invited An Post to discuss its retail strategy: building a retail business for the future; and the drive to improve mails quality and efficiency.

Before we begin, I draw everyone's attention to the fact that members of the committee have absolute privilege, but that same privilege does not apply to witnesses. The committee cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

Mr. Donal Connell

I thank the Chairman and members of the committee for the opportunity to address them this morning on two subjects, our post office retail strategy and our drive to improve mails quality and efficiency. I have some slides that deal with the issues. I will be happy to accept questions or comments as we go through them or afterwards.

Chairman

We will have questions afterwards.

Mr. Donal Connell

With me is Mr. John Daly, retail operations director, and Mr. Liam O'Sullivan, director of mails operations.

The first slide is our transformation programme road map. This is a programme we established two years ago for the company. It is a five-year strategy to improve our operations to get the company fit for the future. In each time period we have identified some major projects on which we are working. In 2007 and 2008 we identified some key projects. One is improvement in next day domestic mails delivery quality. We estimate we will get it to 80% plus in that period. The second is to roll out our collection and delivery change programme. That is a major programme to improve work practices in that area. The third is an improved industrial relations climate which is key to our business. The fourth is using technology to improve our quality and efficiency on the mail side in particular, for example, collections scanning which I will talk about later. The fifth is a major initiative, Postbank, which is a joint venture with Fortis which completed its first full year of operation in 2008 and was rolled out last year to more than 1,000 post office branches. It is a key part of our retail strategy which is investing in new products and new services through the retail channel.

In 2009-2010, a period when we get fit to compete, we see the main activities as completing the rollout of the collection and delivery work practice change programme, which will be a big step forward in efficiency and quality on the mail side. We estimate that in this period we will be able to get domestic next day delivery quality to 90%. We will roll out our new retail strategy, which I will talk about later.

In terms of staff capability and engagement, we have brought our staff along with us on this journey. They fully accept the importance of the strategy and mission the company has set itself, namely, to get fit to compete from 2011 onwards. With regard to Postbank, we will roll out more products, particularly credit products, in the course of 2009. All of this will position the company to compete effectively and well in a more open market environment, particularly on postal side, from 2011 onwards.

Our financial results for 2008 are still being audited and so will not be available for publication for a few weeks. We had another quite successful year in 2008 and will see profitability improve from the 2007 numbers and, while in the past few months we saw the impact of a slowing economy, particularly with regard to mail volumes, we were able to counteract this with cost improvements. On the outlook for 2009, we are very much tied on the mail side to the fortunes of the Irish economy. As GNP declines — some forecasts have it declining by up to 6% — this certainly poses challenges for us on the mail volume side.

There are five business absolutes, as we refer to them, which have governed what we have done in the past couple of years and will be key to enabling us to be successful, and also very important terms of dealing with the economic downturn. These are as follows: mails quality of service and improving quality is a huge project for us, and I will provide some data later in this regard; change programme implementation; costs and efficiency improvement, which will drive cost effectiveness throughout our organisation, as well as improving quality; and we are working on optimising mails and retail revenue opportunity. We invest a lot in our brand. It is a very difficult economic situation but there are still areas of growth out there on the mail side, particularly in regard to Internet purchasing, for example, delivery of items purchased over the Internet, and on the retail banking side. Underpinning all this is the fifth business absolute, namely, staff capability and engagement. Our staff are fully committed to this programme.

The next slide deals with the economic situation, including house completions, which are an important driver of the mail volume. Every house has an address, receives utility bills and generates a certain amount of mail order. We have seen growth in the mail business in recent years, although not last year, but the significant cutback in housing completions has a major adverse impact on our mail volumes. That, with GNP decline this year, is one of the issues which make it very important for us to continue to focus on cost competitiveness and efficiency.

The next slides deal with the position with regard to our major quality improvement programme. One of the slides deals with international outbound mail quality, namely, mail posted in Ireland for delivery abroad. Approximately 25% of the mail market in Ireland is international traffic, both inbound and outbound. As can be seen, our quality improvement project has had some significant impacts in this regard — this is data measured by the International Post Corporation. In 2006, that performance was 69% against a target of 80%; in 2007, it hit 84%, which was above the target; and in 2008, the outturn was 87% against an increased target of 85%.

Deputy Simon Coveney

What is the actual target? Is it next-day delivery?

Mr. Donal Connell

Yes. Inbound mail is measured from when post is received in the country, which happens at Dublin Airport, to delivery. If something is posted in Greece, it is up to Greece to get it as far as Dublin Airport.

Deputy Simon Coveney

It is next-day delivery from Dublin Airport.

Mr. Donal Connell

That is correct. Similarly, on the outbound side, if it is posted somewhere in Ireland, it gets to the office of exchange in the receiving country the next day. That target increased to 85% in 2008 and, as can be seen, we hit 87.7% on the outbound side.

With regard to international inbound, the target was and is 93%. Some 84% was the actual achieved in 2006 and 93% in 2007.

Deputy Liz McManus

I am unclear as to what the 93% relates to. Will Mr. Connell explain what is meant by "inbound"?

Mr. Donal Connell

This is inbound international mail which is measured from receipt of the international mail at Dublin Airport to delivery to the address in Ireland.

Deputy Liz McManus

What of the other figure?

Mr. Donal Connell

The other figure is outbound, which is——

Deputy Liz McManus

That is fine.

Deputy Simon Coveney

It is the time it takes from when people post it to when it gets to the sorting office in the country where it is going. Is that correct?

Mr. Donal Connell

Yes. It is what is referred to as the office of exchange, which is the international receiving point for each country. The office of exchange for Ireland is in Dublin Airport.

Deputy Simon Coveney

That is okay.

Mr. Donal Connell

The next slide shows next-day delivery quality on the domestic side, as measured by ComReg. It charts where we want to get to and where we are. In 2006, we were at 72% and in 2007, at 77%. The final figures are not available for 2008 but they should be available at the end of March or thereabouts. We estimate that approximately 80% is the achievement level and we anticipate against that figure. What we have charted on the slide for 2009 to 2011 is our road map to hit the 94% target we have agreed with ComReg.

This is a very comprehensive transformation project which is ongoing in the company. There is a whole range of different initiatives that we are driving and that have already given us this improvement and which will deliver the next level of improvement beyond that.

The next slide deals with what those projects actually are. First, there is a comprehensive capital investment of €150 million extending over five years which began in 2007 and which will help us improve quality and efficiency. That money is being spent on upgrading buildings, new sorting equipment, delivery units, mail processing centres, training of management and staff, IT systems and new technology such as collection scanning and upgrading track and trace. This is a very comprehensive programme which touches all of our network throughout the country.

To emphasise the scale of what we are doing, we deliver about 3 million pieces of mail per day. We have approximately 6,000 postbox induction points and several thousand customer collection points, all of which we manage and target at the 94% next-day delivery. We are very committed to this project because we believe by far the best strategy for An Post is to be in what we refer to as a high quality, low-cost environment. We must offer very high quality service to our customers and continue to give value for money.

An Post is very much a key part of the economy and the national infrastructure, and mails are still very relevant to that. We have a significant role to play, particularly in the current economic circumstances, by continuing to focus on this strategy. We have rolled out performance management by unit, so every delivery unit and processing centre understands what its performance is on a daily basis and is rated accordingly. We have full employee engagement in this task. Our staff and unions are very much behind this effort and understand and support its importance. We have made a major investment in management training and development. We are perhaps halfway through this and we will complete it in 2009.

An example of the type of applications we have rolled out is collection scanning. By the end of this year, all of our collection points throughout the country will be on an automated barcoding collection system, so we will be able to assure customers that collections are made on time and to monitor progress and ensure collections are performed in the most cost-effective way. This is how we are approaching the quality project. On the international side in particular, we have more than exceeded targets and substantial progress is under way on domestic next-day delivery. We anticipate hitting the targets I have indicated in approximately two years.

On the cost and efficiency side, we have undergone a major nationwide operational redesign programme to institute modern work practices. An example is in our collection and delivery unit, namely, the people responsible for collection and delivery of mail, who are mainly postpersons. They operate out of approximately 120 major delivery service units throughout the country and from about 450 smaller postmaster-run units. We are in the process of a major re-design of all these routes which will improve costs and efficiency in that area and we are happy with progress. We are introducing modern work standards and measurement as part of that process using software to design the optimised postman's walk in certain areas, for efficiency and quality. All this has an impact on improving productivity substantially and will be an important gain for us.

We have improved attendance levels in the company by 2% thereby reducing absenteeism, which is a significant step forward. Increasingly, we operate in a situation in which our staff accept that change is normal and ongoing, and part of responding to a competitive and open market. This is our drive and our intention.

I move now to the retail strategy. An Post has by far the biggest retail network in the country, with over 1,200 outlets. We are very much committed to this network and regard it as a significant strategic asset. Our overall strategy for the network is to offer a new range of products and services to our customers. In that way we can grow business through the network, sustain the maximum possible number of outlets and reward our postmasters and others with increased income.

I offer some examples of what we are doing in this regard. Postbank is a major initiative by An Post which began almost two years ago and represents an initial €56 million investment. Postbank is in partnership with Fortis, a major European bank. The bank completed its first full year of operation in 2008 and we are quite happy with progress. Obviously, this is a difficult environment for banking but nonetheless Postbank has made good progress in attracting new customers and accounts.

We now sell insurance products throughout the network. This year we will launch a foreign exchange service and a mobile phone product, the latter in partnership with Vodafone, on the basis of a mobile virtual network operator, MVNO, set up. We are very excited about this product and have high hopes for it.

All this investment will facilitate significant business development for our postmasters. We will invest in training them and will support them from a retail management perspective. The key to our strategy is to improve on our relationship with our customers. An Post is a very trusted and very well recognised brand throughout the country and has huge strength. We have been investing in that from a sales and marketing viewpoint and are leveraging it throughout our post office retail strategy. We believe these types of products, and others on the way, represent a great opportunity for us to grow our business.

An initiative we will try out in about 12 months is the roll-out of two or three new post office outlets targeted at particular segments. We believe there is a market opportunity to be explored in optimising the business and SME sector, for example. We will target some outlets specifically at this sector, offering a range of products, such as design services, direct mail management capability, etc., which will help us grow that business. We expect to have a couple of these outlets in operation in the next 12 months or so.

We are trying out vending machines at a range of sites. These are machines which enable people to post parcels or letters using credit cards to make payment. Six are in operation at present, one at Dublin Airport and a couple in Tesco outlets. They have been running for the past three months and are proving very successful for us. We will roll out about 20 or 30 others in the course of the year. The Google campus in Dublin will be the location of one machine. We are working in all these areas to develop and grow our business in the future.

In summary, our retail strategy involves a significant investment in new and existing outlets, with business management support for retailers to help them grow their business. There is a very significant extension in the range of products we offer. Members have already seen that with Postbank and the insurance roll out, and they will see mobile phones and foreign exchange later this year.

During the year we will announce other new ventures of this kind that expand our business offering. We are also working on a multi-channel approach. We will continue to invest in our physical post office network and in new locations we will use the vending machines I described in an effort to exploit new parts of the market. Increasingly, we will use the Internet channel. Members may have noted that about six months ago we launched an Internet site for people to pay TV licence bills and that is going very successfully for us. It won two e-government awards last week and has already achieved penetration of approximately 18% of the market. This means that, after six months, 18% of people pay for their TV licences over the Internet. We are investing in areas where we can improve our service offering for customers and can come up with products and developments that are useful to people.

In conclusion, we are almost two years into the transformation road map that I shared with members. Its basis is an absolute focus on our customers. We have a great relationship with our customer base and are interested in coming up with ways to expand our service offering to them. We are improving quality and we still offer good value for money. Our focus is high quality, low cost service on the mail side. We will optimise revenue opportunities and some of these are on the mail side. Part of the mail business may be in decline but there are still many growth opportunities.

Underpinning everything are staff capability and engagement. Our staff are very much signed up to this view of the company and are very supportive of its strategy. This means we will focus on agile implementation of change and on competitiveness. We are moving towards an open mails market in 2011. About 60% of our revenue on the mail side is fully open to competition and has been for some years. In 2011 we will have a fully open market situation and our strategy to deal with that is simple — high quality, low cost. We will work to improve our service offering and to stay competitive. I shared the accompanying slide with those members of the committee who were at the Dublin mail centre, DMC, a little over a year ago. If we execute all this successfully we believe we will be in a position to offer world-class postal distribution and financial services to the country. This will ensure our success in a more open environment.

I thank the Chairman and the members of the committee for this opportunity to take them through our position and I am very happy to take any questions or points.

Chairman

I thank Mr. Connell for his comprehensive presentation. I invite members to put questions and Mr. Connell can answer them together when we are finished, bringing in his colleagues as he wishes.

Mr. Connell spoke about An Post's roadmap for domestic next-day delivery which has a target of 94%, and said he hopes that when results emerge in March, An Post will have achieved 80% in 2008. What target is sought in 2009?

During the turmoil in the financial sector in recent months there was much comment about the movement of savings from the commercial banks to An Post which the public saw as a safer haven for their savings. Can Mr. Connell give any indication how this impacted on the organisation and what has happened those significant deposits?

Mr. Connell mentioned entering the mobile phone market and stated that An Post is in partnership with Vodafone. I do not understand how it is possible to get into partnership with a company already in the business. Is An Post not a competitor?

Deputy Simon Coveney

I welcome the delegation. I thank An Post for its openness in its responses when we write asking for updates on various matters. I have many questions but I will try to be concise.

On the question of opening up the letter post market, I am aware the parcel post and large letter market has been open for some time. How is An Post competing in the open sectors? Has it decided to move away from some of those areas to develop niches in the market such as Postbank and increased use of the Internet and entry into the mobile phone market? I refer to some of the issues that would have been raised by An Post's potential competitors who want to enter the letter distribution market from 2011 onwards. What is An Post's view on the VAT exemption it currently enjoys and which its competitors do not? Would its removal have a big impact on An Post's plans? Bord Gáis has introduced a very aggressive new pricing plan for domestic electricity supply. Does An Post envisage a similar situation in the postal market? It is clear that An Post's competitors would not be in a position to put an infrastructure in place to compete with that of An Post. Will An Post provide a wholesale distribution and delivery service? It would have a regulated pricing model to ensure An Post could make profit out of offering a wholesale service while at the same time ensuring that competitors could provide a service to customers in rural Ireland as well as cherry-picking urban Ireland.

Is An Post concerned about new entrants targeting profitable areas without an obligation on them to provide a broader, universal service? An Post's universal service obligation is a requirement to provide next day delivery or close to it, from Dublin to Connemara as well as D4 to D2, for the same stamp cost. Will this obligation handcuff the organisation when it faces competition from people who are cherry-picking urban parts of Ireland? These are questions to do with what An Post anticipates will be the regulatory model when the postal market opens up.

As for setting targets on quality of service and pricing, is An Post open to the idea of putting in place a customer charter which would include a commitment by An Post to meeting certain targets and an acceptance of consequences if these are not met? I refer to the complaints procedures for those who may have difficulties dealing with An Post because of the supposed next day delivery when this is not delivered. I am not clear if there are consequences if An Post does not meet its side of the bargain. The most obvious example I know of is a Cork builder who tendered for a job in Dublin and the tender documents were sent on guarantee of next day delivery but they did not arrive for three days and the deadline was missed. This had potentially significant consequences for a business but An Post said there was nothing it could do about it. This may be an unusual circumstance but it happens and the structures need to be put in place to deal with such problems.

Since Mr. Connell took over there has been significant progress in An Post in the area of industrial relations. The company seems to me to be in a very healthy condition.

I wish to raise the political issue of rural post offices. Some would regard vending machines with concern and worry that they will be the answer to providing a cheap rural post office network. An automated vending machine would take over from a post mistress offering a personal service. I ask for some reassurance on this issue.

It is clear there is no future for any post office that is not automated. If a post office is to exist we must drum up new ways of bringing in business, whether that is banking or mobile phones or increased television licence fee activity. All these activities need an automated system. I ask the delegation to explain how An Post plans to deal with the difficult issue of keeping a huge infrastructure in place across the country, particularly in rural areas and its plans to roll out an automated post office network.

Deputy Liz McManus

I thank the delegation for the presentation which was presented with a certain amount of chutzpah which is encouraging, although what really made an impression on me was the information about the impact of the downturn in house completions. The impression I got when we visited An Post’s centre was that house completions were a factor influencing the growth in business and so long as house completions kept going, An Post was fairly confident but now there has been a complete turnaround. I ask the delegation to comment further on this situation.

The increase in population and in house completions has probably to an extent disguised the fact that we do not have a large volume of mail and our volume is about the sixth lowest in the EU. I have concerns about how the liberalisation of the market will work out in practice. We must now question how far the benefits of liberalisation can be garnered for the customer. We have a large rural population with a thin spread across the country and it will require a great deal of investment to provide the five-day service. There is a real danger that cherry-picking will occur when the market is fully opened up. I do not think this danger is being faced up to. I am sure An Post is concerned but my question is what is it doing about it and what can we do about it? On one hand An Post has a universal service obligation which is very clear and solid and we all subscribe to it while on the other hand, we are going down the route of opening up the market but we do not seem to put in safeguards or there is no indication of safeguards to protect the universal service obligation. The logical outcome of that is a Government subsidy, which in the current climate will not happen, nor should it happen. The infrastructure, the network and other matters have improved considerably both in terms of performance and industrial peace. Take out the ideology, it is time to have a good hard look at the impact of liberalisation in terms of making the system work into the future. There is a very strong argument that "if it is not broken, do not fix it". We are where we are and I would like to know what An Post can do so that the situation that has emerged in Britain — where the Royal Mail is in jeopardy and the benefits have in no significant way accrued to the consumers — does not happen here.

The other questions I have relate to ComReg targets, where An Post is still some way from achieving its targets for next-day and three-day deliveries. I note that the situation has been improving, so I presume An Post is confident the targets will be met by the date set, in spite of the fact that circumstances have changed somewhat. Will liberalisation mean that we will see jobs being lost or gained? If so, where is that likely to happen?

I welcome the idea of vending machines, where they can back up the normal customer services. One of the problems in terms of expanding business is that queuing is still a feature in many post offices. It is not an attraction to go into a post office and find that one must join a queue. I know it happens in banks and it always irritates me that the only places that we are forced to queue is in dole queues and banks. That is a negative in terms of expanding business and making it attractive for people to use the business.

I also wish to raise the question of security. I had a problem with my local post office in Bray, where there were seven robberies before effective action was taken to protect the staff and the customers. That seemed to be a salutary lesson because enormous stress was caused and people were at the end of their tether by the time action was taken and the matter was resolved. At the same time there are post offices where there is no access for the disabled. Sometimes these two issues are in conflict but both issues must be addressed.

Our crime levels are not dropping in the way they should and security and protecting people is an issue, particularly as business expands. Everybody is very supportive of An Post and the improvements are very welcome. It is a vital part of the communications network in this country that we must ensure is in good and proper working order.

In terms of liberalisation, we need to ensure that is the case into the future and we do not end up subsidising a system unnecessarily because of an EU directive that leads to an ideological shift that has not been properly prepared for and safeguarded in legislation.

Deputy Noel J. Coonan

I welcome the delegates from An Post and thank them for the briefing and wish them continued success. Postbank was mentioned and at least we will have one bank, assuming that there are no skeletons in the cupboard.

I do not wish to repeat what has been said. My colleague, Senator O'Toole, asked me to apologise as he had to leave early. On the 80% next-day delivery, does that figure include deliveries made at 4 p.m. on the evening of the next day? That is the same as the second-day delivery because the contents cannot be addressed by the customer. In my area many of our deliveries occur at 3.30 p.m. to 4 p.m., which is considered a next-day delivery. How would that affect the percentage? I would consider it a second-day delivery and I would invite the delegation to do a breakdown on that.

There is an issue around the consistency of deliveries. For example, if I post a letter in Leinster House, I would expect to get it in my office in Templemore the next morning. Sometimes I do, but more often I do not and it goes on to the second day. I cannot understand why if I post a letter, one day it arrives the next morning and the next day it does not.

Could a facility not be devised whereby if a letter is posted in a local post office for local delivery, it does not have to go to the central location in Portlaoise and not be delivered for two days? Could there be a system whereby if an item for local delivery is left into the local post office, it could be delivered the next morning? An issue I raised before but to which I never received a satisfactory answer, is that if my post does not arrive until 3.30 p.m. to 4 p.m. and I go to the post office in the morning to collect it, I am either an unwelcome guest or I must pay for the privilege. Is it the policy of An Post to charge people for collecting their post?

The provisions of additional services are welcome but has the possibility of a one-stop-shop been examined, where the service could be broadened to include the payment of motor tax, driver's licences and so on?

The policy of moving post offices from town centres to supermarkets, petrol stations or convenience stores at the edge of town creates a difficulty for people in locating them as they are not in the traditional area. Mention was made of substantial investment in the service, but no investment has been made in many rural post offices. The situation is one of closure by stealth because they are not automated and it is impossible for somebody to run them without making a loss. Unless they are automated, the service is very limited. What is the policy on rural post offices?

Reference was made to mortgage lending. Is An Post lending to retailers or does it plan to lend to retailers? Will that be a source of cash for small and medium-sized businesses who are now finding it difficult to get credit? Does An Post intend to target that market? Will the delegates expanded on the nature of the insurance market and the type of insurance An Post is considering? Will An Post be competing with FBD?

Does all airmail post come through Dublin Airport? Are the airports at Cork and Shannon not allowed to accept post?

Deputy Michael D’Arcy

I also wish to raise the issue about the number of TDs sending letters from their constituency offices to be delivered in the same town. I have gone into the post office with a big box of post for local delivery and it seems ludicrous that it should first go to Portlaoise before coming back.

An issue not touched upon is the Friday morning social welfare payments at post offices. My office is practically beside the post office in Gorey. I do not suppose that post office is any different from one anywhere else in the country. The queues at post offices on Friday mornings are no longer acceptable. I know attempts have been made to improve. However, An Post will need to focus strongly. One would imagine that the current market is more favourable towards An Post renting or purchasing offices more suitable than some of its existing ones. It is not acceptable that people getting these payments need to queue way down the street. Mr. Connell has spoken about putting An Post's customers first. While they may not be its customers, they are using its facilities, which are not up to an acceptable standard. An Post urgently needs to do something about that. What stage has An Post reached in improving its facilities? The current market would lend itself to An Post getting more favourable deals than it might have got in recent years. Premises are available throughout the country. I am sure the developers of those premises would be very glad to get an organisation like An Post to move in.

Mr. Donal Connell

I thank the members for the comprehensive list of questions. I will attempt to answer them as best I can. I will first deal with a few points raised by the Chairman. There were many questions in the broad area of postal market liberalisation, which I will try to deal with together. There were other questions on rural post offices which I will also attempt to deal with.

The Chairman asked about financial turmoil and the impact on An Post last year. In the September and October period An Post saw a substantial inflow of funds into the products we sell on behalf of the NTMA. These are the bonds and so on. That money flows through An Post, but An Post does not manage it. An Post benefits because we get a certain fee per transaction, but it does not result in a big increase in funds on the An Post balance sheet. That money goes to NTMA and is managed by NTMA on behalf of the customers and taxpayers.

The Chairman's second point related to the mobile phone MVNO deal we have with Vodafone. The general direction in terms of encouraging competition in the mobile phone market is to encourage access to the market by companies like ours, for example, which may not have the capability or do not wish to invest in the full technical infrastructure of a separate mobile phone network. This method, MVNO, enables us to utilise the great strength of our brand and our retail presence throughout the country. It is attractive for our partner, Vodafone, in that it will get extra business by accessing our channel and our customer base that it could not do otherwise. I assume it is an attractive business deal for Vodafone or it would not do it. The advantage for us is that it enables us to get extra revenue and extra services without investing the very substantial sums that would be needed in the technical infrastructure associated with a mobile phone company.

Chairman

Is An Post using its infrastructure?

Mr. Donal Connell

Yes, we are using its technical capability and infrastructure. We are a sales and distribution channel for it as part of this deal. The attraction to it is more business albeit that there is a pricing differential, if one likes.

I will move on to the issues regarding the opening of the postal market and the USO and so on. Our general strategy is to improve our business performance primarily. By focusing on improving our quality, implementing work practice change programmes and so on, An Post is working very hard to get itself fit to compete in this situation. How the market opens is a very important issue as is the regulatory regime surrounding that. Some very important decisions need to be taken in the next year or so. I understand there will be a process involving further consultation by the Department and the Minister in that regard. We are very committed to the provision of the USO.

As was pointed out there are approximately 2 million addresses in Ireland. It is a five-day a week, next-day delivery service. We believe it is still important for the economy. Some people write off mail, but I believe it is still a very important service. I also believe it is quite a good business. However, there is a certain reality about it. There are significant cost differences in different segments of the business. If we post a letter here for delivery to O'Connell Street, it takes a 55 cent stamp but has a much different cost structure compared with posting a letter in Letterkenny for delivery to Valentia. Those cost differences are quite obvious. We would seek a regulatory regime and a market opening mechanism that would allow us in An Post to compete fairly with whoever comes into the market so that the customer really has a better choice and better service. This is how we will maintain a universal service provision to which we are very committed. However, some very important national policy decisions need to be taken regarding how the market opens and the regulatory regime in that regard.

Deputy Coveney referred to VAT. There is currently a VAT exemption on postal charges in Ireland in common with most European countries. While there are pluses and minuses with this, it has a net benefit to An Post of approximately €15 million to €20 million per year. There would be an issue to be dealt with in that regard. Our strategy in terms of dealing with opening the postal market is that we definitely do not want a Government subsidy. As the Deputy said, it is not desirable and I totally agree. We can continue to run a very successful business in this environment if we get the regulatory regime and if we are free to compete.

Deputy Simon Coveney

Does Mr. Connell envisage An Post providing a regulated wholesale service? I am trying to get a sense of how the market will be structured in respect of cherry picking and so on when new entrants arrive.

Mr. Donal Connell

There is a range of different issues that need to be considered together. In principle we have no difficulty with access to our system. There is already methodology by which customers and competitors can access our network. The bottom line is that it must make commercial sense for us. If there is a reasonable return we will consider provisions in that regard. We expect considerable debate on the matter in the next year or so. The key for us is that it needs to make business sense. An Post should not be left to deal with all the potentially loss-making parts of the network, loss-making routes and so on. That would be very difficult.

Deputy McManus asked about the impact on jobs in terms of the overall market. It is difficult to predict. An Post is improving efficiency already in our work methodology. We certainly do not see employment levels in An Post increasing. It is hard to project what will happen with the changes as a result of the market opening. It seems reasonable to assume there would be a trend of some market share loss to An Post because that has been the trend in other markets. My assumption is that will be taken up by other operators and that net-net that will be the jobs position.

Deputy Liz McManus

Am I right in thinking we need to have a new postal Act in the new arrangement? There are many issues relating to regulation and the future of the postal service but we have not had a major postal Act since before independence.

Mr. Donal Connell

There certainly has not been one in my time.

Deputy Simon Coveney

Was there not an issue around consolidation?

Mr. Donal Connell

Some legislation will be required but I am not au fait with the exact situation.

Deputy Liz McManus

Does Mr. Connell feel a new Act would be helpful? It seems an obvious requirement to me.

Mr. Donal Connell

All of these issues have to be decided at policy level. If they require legislation so be it. They are important issues for the country and not just for An Post. The consultation process has begun and it is important for the future of the postal market and for our customer base.

There was a question regarding our customer charter, which we established less than a year ago and sent out to all households in the country. We have a complaints procedure to deal with issues as they arise.

Deputy Simon Coveney

If the targets in the customer charter are not met what are the consequences? It is a voluntary charter but nobody independently measures the attainment of the targets.

Mr. Donal Connell

We specify the payments that we will make but the charter does not deal with consequential damages and no postal delivery service would do so. We are committed to improving our customer service and every customer in the country received a customer charter less than a year ago giving clear details of the complaints procedure.

Questions were asked about the timing of delivery. According to the next-day delivery charter, if an item is delivered at 2 p.m. or 3 p.m. it counts as next-day delivery. We try to deliver earlier to businesses but some deliveries will be made later in the day and we try to confine them to domestic orders. They are the terms of the service agreement we have, which seem to work satisfactorily for most people.

Deputy Noel J. Coonan

A delivery at 4 p.m. is not satisfactory.

Mr. Donal Connell

The vast majority of people receive the delivery before that time. The Deputy also asked about paying for collection. A cost is associated with providing a collection service for customers and we have always made a small cost for an early pick-up.

We were asked about how we go forward in respect of post offices. One result of the economic situation in the past six or nine months has been an unfortunate and substantial increase in people queuing for social welfare payments. For reasons of security and identification and for anti-fraud purposes, in the first six months of a claim people must claim in cash from the post office network. This has led to an unexpected increase in queues but these people are our customers. There have been excessive queues in some locations, such as in Gorey where we are looking at alternative sites. We may move the mail activity, which is at the back of the retail operation in Gorey, to another location and expand the retail section into the mail section. We are very committed to this aspect of our service and will invest in the improvement of facilities.

Deputy Michael D’Arcy

The excessive queues normally occur on one morning of the week. If the service was provided on two mornings the queues would be halved.

Mr. Donal Connell

That is correct.

Deputy Michael D’Arcy

I know that sounds rather simplistic.

Mr. Donal Connell

It is a very good point but it is not under our control as the flow of payments is determined by the Department of Social and Family Affairs. We are in discussions with the Department on the matter, however, as there are a couple of very busy days and one solution would be to even out the flow throughout the week.

We are committed to maintaining the maximum number of rural post offices. New channels such as the Internet and vending machines will not mean a postal ATM will replace a post office. Vending machines are in locations where we do not currently have a point of service but they represent new market opportunities for us. We have installed six vending machines in the past three months, two in Tesco stores in Dublin, one in the airport near the Ryanair desk, one on the Google campus and others in big office campuses around the city. We do not currently have post offices in those locations but there is a significant demand for our services and it is an opportunity for us to exploit. It is not an attempt to remove part of the post office network by automation but a complementary challenge similar to that offered by the Internet. We must remain close to our customers and provide services both in physical locations and via media such as the Internet which reflect how people live and work nowadays.

We are committed to maintaining as big a retail network as we can and are conscious of its importance. The best way to do so is by launching new products and services and attracting new business. I do not say we will be able to maintain every single rural post office in the country but we intend to maintain the maximum number of viable units possible. We have invested to a significant degree and the contribution of An Post to the joint venture with Postbank amounts to €56 million, with more to come to generate extra business in the network. Members will see the branding associated with the investment and, in the bigger branches, dedicated staff to sell those products.

Deputy Noel J. Coonan

What is the number of viable rural post offices?

Mr. Donal Connell

We do not have a specific number in mind.

Deputy Noel J. Coonan

Is there a number for those offices which An Post intends to close?

Mr. Donal Connell

No.

Deputy Noel J. Coonan

Are there any guidelines? Mr. Connell said An Post was considering closures.

Mr. Donal Connell

We do not compulsorily close any rural post offices.

Deputy Noel J. Coonan

No investment is going into them but their payment is per unit of service.

Mr. Donal Connell

Their payment is per unit of service but transaction levels drop if there is demographic change and a change in the way people buy products and services. In that context, it does not make sense for us to provide a full-capability post office with all the bells and whistles in every location because the cost is prohibitive. We are committed to maximising business opportunities and that is the best way forward for the network.

Deputy Simon Coveney

Is it not the case that An Post has just concluded an assessment of its rural post office network with a view to rationalising, to use a politically correct term? The idea behind this is to set criteria and targets for rural post offices, in terms of activity. If these targets were not met there would be consequences.

Mr. Donal Connell

We have completed a business review of the post office retail network but that does not establish targets for closure, it establishes areas for us to invest in and grow the business. I have tried to outline this today.

Deputy Simon Coveney

I shall be blunt. Does this mean that the work that has been completed will not result in the closure of post offices? Surely that is not what Mr. Connell is saying.

Mr. Donal Connell

That is not what I am saying. A small number of post offices are closed every year and we anticipate that this trend will continue but there is no master plan to do anything dramatic.

Deputy Simon Coveney

Will the results of the study into the entire network be published so people know where they stand?

Mr. Donal Connell

No, it is an internal business planning document that addresses ways for An Post to grow its business in this sector. It would not be appropriate to publish it.

Deputy Simon Coveney

Will rural post offices be closed in Ireland this year? The answer to that should be "Yes" or "No".

Mr. Donal Connell

The answer is "Yes", there will be some closures, but the number will be small, as in previous years.

Deputy Noel J. Coonan

What is a small number?

Mr. Donal Connell

At this point I do not have a specific number.

Deputy Noel J. Coonan

Does An Post know how many post offices it will not invest in?

Mr. Donal Connell

We plan to invest as much as possible and as much as makes sense in the entire network. This will be done in a way appropriate to the size of the business.

Deputy Noel J. Coonan

I understand, but I am referring specifically to rural post offices.

Mr. Donal Connell

All rural post offices will see some level of investment. As part of the overall business review, we hope to invest in automation in many post offices, where appropriate. We do not have a specific figure at this point.

Deputy Simon Coveney

I am not trying to be difficult; I am merely trying to establish the facts because these are the questions we are asked every week. How many post offices in Ireland are currently not automated?

Mr. Donal Connell

The precise number is 268 out of approximately 1,250.

Deputy Simon Coveney

How many of those 268 post offices will An Post automate? Presumably it will not continue with post offices that are not automated.

Mr. Donal Connell

Our intention is to have a fully automated network.

Deputy Simon Coveney

I agree with that goal.

Mr. Donal Connell

I do not think we will achieve that this year but we feel that not having the network fully automated is inconsistent with the direction of the company and the services it offers customers.

Deputy Simon Coveney

I agree with Mr. Connell on that but I am trying to establish how many of the 268 post offices that are not automated will be automated by An Post. Is the automation of those post offices part of An Post's plan, in terms of its target figure?

Mr. Donal Connell

I shall ask Mr. John Daly, our retail director, to comment on that.

Mr. John Daly

As my colleague outlined, the strategy for us involves a fully automated network. We will engage with the postmasters and the postmasters' union in March on that issue. We intend to automate all offices, subject to them being capable of and suitable for automation; some offices could not accommodate a computer.

Deputy Michael D’Arcy

That sounds like a coded way of saying that some post offices will not make it. I am sure some will not, but what criteria have been set for the 268 post offices that have not been automated? This is the question people ask us on this issue and we rely on An Post for the information.

Mr. John Daly

The main criterion is simply that the post office is capable of computerisation. This will be discussed with the postmasters from March and we will work with them to reach the standard. We intend to have a fully automated network and have no compulsory closure programme in mind. Part of our strategy is to invest in the network rather than close parts of it.

Deputy Michael D’Arcy

To what extent will An Post provide funding to raise premises to the computerisation standard? Will it invest in premises?

Mr. John Daly

One of the provisions for contractors is to provide a premises and staff. We provide the business lines and automation but it is up to the contractor to get a property up to standard.

Deputy Michael D’Arcy

Will the contractor be responsible for computerisation?

Mr. John Daly

No, contractors provide the building and we provide computerisation.

Deputy Noel J. Coonan

Is the availability of broadband an issue?

Mr. John Daly

No, we have automated offices in many areas where broadband is not available.

Deputy Noel J. Coonan

What about the non-automated offices?

Mr. John Daly

There is currently an automated network of just under 1,000 offices, including offices with and without broadband. Broadband is not an issue.

Deputy Simon Coveney

Broadband is not required to automate services.

Mr. John Daly

No, it is not.

Deputy Liz McManus

I am sure An Post would like to have broadband in all offices.

Deputy Noel J. Coonan

Is there a serious question mark hanging over the 268 non-automated offices?

Mr. Donal Connell

No.

Deputy Noel J. Coonan

Will half of them be lost?

Mr. Donal Connell

No, if I may——

Deputy Michael Moynihan

How much will it cost to automate each post office?

Mr. John Daly

The initial cost will be in the region of €2,000 to €3,000 per office but, once automated, offices face ongoing costs relating to maintenance, telephone costs and training — every time a new product is introduced there are training costs.

Chairman

When An Post assesses the viability of an office does it take its turnover into account? Is there a level at which An Post will absorb a loss before it decides to close an office? Regarding the 268 non-automated offices, is there a threshold, the crossing of which renders an office unworthy of further investment?

Mr. John Daly

No, we have decided to have a fully automated network. The only condition we have is that a post office must be suitable for automation. We will not look at business volume in an office as a condition of automation.

Chairman

Is the only criterion that the office be capable of automation?

Mr. John Daly

Yes.

Deputy Michael D’Arcy

The word "suitable" is open to many interpretations. What does "suitable" mean for An Post? Can we have a list of the 268 non-automated offices in the firing line? Is it correct that if they do not reach the standard set by An Post, the criteria for which we are trying to explore, they face closure?

Mr. John Daly

The intent is to have a fully automated network. As Mr. Connell outlined, this will not be achieved this year as it will take some time. We do not intend to close offices that do not meet the mark; we will work with the postmasters and the postmasters' union to ensure the network is fully automated.

Chairman

We must move on because——

Mr. John Daly

We can provide more information.

Deputy Simon Coveney

It is important to welcome what has been said because there are real concerns about rural post offices. Every time An Post comes before this committee the discussion returns to this matter, despite the fact that there are other very important issues that must be addressed with the same level of scrutiny. What An Post has said today is very welcome. I understand An Post is saying that the determination in regard to automating post offices currently not automated will not be based on the volume of business but on the basis of An Post working with the postmaster or postmistress of the local office to determine the capacity of the physical infrastructure in the building to take automation. That is a welcome development because communities campaigning to keep their post office know they do not have a chance of doing so if they do not get automation. They were concerned about trying to drum up business. However, An Post is saying that is not the key issue in terms of the decision to roll out the automation programme to the 268 offices. Is that the case?

Mr. Donal Connell

Yes, the Deputy's summary is correct, although I would still encourage them to drum up business.

Deputy Simon Coveney

Yes, and they are doing that.

Deputy Noel J. Coonan

Who will pay the cost of automation?

Mr. Donal Connell

An Post.

Deputy Noel J. Coonan

It will not cost the postmaster anything.

Mr. Donal Connell

The computer equipment and the link-up and training and so on will be paid for by An Post.

Deputy Michael D’Arcy

What constitutes a suitable office?

Mr. Donal Connell

We have a range of offices in various locations. It is our intention to automate the full network. There are some offices that——

Deputy Michael D’Arcy

That are not suitable?

Mr. Donal Connell

Yes, in terms of the physical situation, whether equipment can be accommodated. It does not affect a large number of offices, so it is not a big issue.

Chairman

Would Mr. Connell please supply the committee with a list of the 268 offices?

Mr. Donal Connell

Yes, I will supply it.

Chairman

Having got that off our collective chests, we will move on.

Mr. Donal Connell

There were some questions on lending and insurance. Part of the Postbank business plan is to roll out lending products in the course of this year. Some would argue that it is fortunate An Post was not involved in lending a year ago. However, it was always part of the business plan to start with investment and savings products and current accounts, which we did last year.

Deputy Noel J. Coonan

What lending products will be rolled out?

Mr. Donal Connell

The lending products will comprise credit loan and term loan products and mortgage products in the course of this year. It would include lending to small businesses. If we get this rolling successfully, it will be of help to the economy in the current situation, apart from benefiting our business.

Deputy Noel J. Coonan

That would be welcome. What about insurance products?

Mr. John Daly

Insurance products will include motor insurance, home insurance and life insurance. One Direct, a subsidiary of An Post which became part of Postbank, was always in those businesses. This is rolling out those products to the post office network.

Deputy Simon Coveney

My final question is on postal codes. Ireland is the only country in Europe and arguably in the Western world that does not have a postal code system that people understand. Within An Post there is a scanning system which is essentially a postal code functioning system which seems to work very well in the sorting offices. I have seen it working in the centre in Cork. However, in the context of competition entering the market, potential competitors of An Post have no idea how that system works. What is An Post's view regarding the call for a transparent, open, easy to understand postal code system in Ireland, given that certain products cannot be purchased over the Internet because Ireland does not have a postal code system? There would be strong advantages to introducing a postal code system. Is An Post resistant to the idea or does it feel we can survive perfectly well with the current system?

Deputy Liz McManus

I asked about disabled access earlier.

Mr. John Daly

There are currently nine company owned premises in respect of which there is a disabled access issue. Five of them are in the process of being addressed and will be addressed this year. There are planning issues in regard to the other five. Some are in protected buildings and we are working with the local councils to find a way around that. In regard to Bray, which is one of the offices in question, we have a planning application for a ramp at the front door because we could not have one at the side door. We are planning a large job in Arklow this year which will take the issue of disabled access on board.

Deputy Liz McManus

Does An Post require the contractor type of post office to provide disabled access?

Mr. John Daly

No. It is a condition of all new contracts and has been for years now. We are working with the older postmasters, who have been there for quite a long time, to encourage them to provide disabled access where necessary.

Mr. Donal Connell

I will deal with the issue of postal codes. Postal codes are a national policy issue. An Post is ready to play its part in the roll-out of postal codes. That issue is currently with the Department with a view to moving it forward. An Post is ready and happy to play its part as one of the players in that roll-out. It supports the move in that direction. There is already a type of internal postal code system in that An Post runs automated sorting of mail in four major centres, one of which is Cork. Each address in the country has a coding system that enables the mechanism to work. I understand the national policy issue regarding postal codes so An Post will play its part in the roll-out of that when the programme is announced.

Chairman

I thank Mr. Connell and his colleagues for their attendance and for being so open with the members of the committee.

The joint committee adjourned at 11.20 a.m. until 9.45 a.m. on Wednesday, 4 March 2009.