Thank you, Chairman, for the opportunity to address this committee, particularly on the issue of the postal service. It is a subject which the commission, or formerly the ODTR, has not discussed with an Oireachtas committee so we are very pleased to do so. I am very pleased in particular to be here with my two colleagues on the new commission, John Doherty, who worked previously in the ODTR, and Isolde Goggin, who came to us from the Competition Authority.
Commission for Communications Regulation: Presentation.
Ms Etain Doyle
Before you commence your presentation, I draw your attention to the fact that members of this committee have absolute privilege but this privilege does not apply to witnesses appearing before the committee. Members are reminded of the longstanding parliamentary practice of not commenting on, criticising or making charges against a person outside the Houses in such a way as to make him or her indentifiable. You may continue with your presentation, Ms Doyle.
Ms Doyle
If I may just take a moment to introduce two officials from the Commission on Communications Regulation, Mr. Donal Leavy, head of the finance department, and Mr. John Hearn, our chief expert in charge of the postal area within the office.
Regarding the whole postal area you asked us to talk about, I would like to start by setting out in broad terms the role of the Commission for Communications Regulation and then to address some much discussed current issues. I would like to take as our starting point the Government's key objective for the postal sector, which is set out in the statement on strategy of the Department of Communications, Marine and Natural Resources and was also mentioned in the Minister's draft direction to the Committee on Communications Regulation. It is very simple, namely, to ensure industry and domestic consumers enjoy competitively priced, high quality postal services on a par with the highest quality standards elsewhere in the EU. The overall framework for postal services changed substantially in 2000 in Ireland with the adoption of the new EU directives on the postal sector in Irish law. Broadly speaking, the regulation had two main goals. The first was to introduce competition to the postal sector on a phased basis through the gradual liberalisation of the sector. The second was to ensure the continuing provision of a universal postal service, which means there would be daily postal deliveries throughout the country at affordable prices. There was great concern at European level, which is mentioned in the directive, that when companies are granted special or exclusive rights there is a possibility that quality will not be maintained. Improving the quality of service was explicitly mentioned in the directives.
The process, as members will know, is that the directives are transposed into Irish law by the relevant Minister and in the context of doing so the Minister designated An Post as the universal service provider, placing specific obligations on it in that context. We in the ODTR, and now ComReg, were officially designated as the national regulatory authority for the postal sector with the key function of ensuring compliance by providers of postal services with the obligations I have set out.
I will describe how the market has opened for liberalisation. We found ourselves dealing with a partly liberalised market and our main focus is on securing the universal service and on the impact market opening has on that service. The timetable for market opening is quite complex and with the permission of the Chair I will circulate a slide that sets out clearly what is otherwise a quite complicated arrangement.
If members start off on the left, with the unregulated area, then anything over 20 kg is a completely unregulated service which anyone can provide. Moving on, one can see a sector known as the reserved area until 31 December 2002, so anything over 350g is now liberalised, as is any item over five times the price. The area will get smaller between now and 31 December 2005 and smaller again with full liberalisation on 31 December 2008.
The slide is not to scale in the interests of making it clear but at present approximately 80% of the domestic market is still reserved to An Post and the very last item, which is quite small in our slide, represents about 75% of the market in turnover terms.
That is just to give the committee an idea of how this area works. There are quite a few companies and the committee will know the names of many of them, such as Hayes DX, which are already well established here and which will be seeking a share of the opportunities that are opening up.
Cross-border mail is more significant for Ireland than for other countries. When I examined the statistics the other day we had a much larger import of mail, particularly from the UK, than would be the case with our European neighbours. Our export of mail is much higher than other countries, though it is a much lower figure overall. This reflects our globalisation, which one sees quoted frequently.
There has always been de facto competition in this market from companies and members will know their names: TNT, FedEx, DHL and UPS. Currently 17% of An Post's outgoing business by volume and 50% of revenue is exposed to competition; from next January anyone will be able to offer outbound services. Inbound cross-border services will continue to be reserved to the same extent as the domestic service but already competition has developed and some parcels posted at post offices in America and Britain are no longer delivered by An Post but by a company called GLS, a subsidiary of Britain's Royal Mail. Considerable dissatisfaction with GLS's service has come to our attention but the basic point is that alternatives are becoming more available and this will happen to a greater degree and to the extent that either An Post services or prices are not right.
I also draw the committee's attention to another long-term factor. Between 1989 and the present there has been substantial growth in the number of items delivered by An Post. There was also growth in what are known as delivery points, which we would know as businesses or households, as the population grew. One can see that in the last year or two there has been a levelling off of the number of items per delivery point and that the curve is becoming less steep. This means that while there are still increases in the total volume of mail handled by An Post, it is not increasing at the same rate. As a result, with costs rising more quickly with inflation and higher pay settlements than were the case in the 1990s one can see the difficulties they have had and profit margins have become narrower. That was one thing we looked at in the context of the price increases we gave last year.
I also draw the committee's attention to the third slide in the pack, which is a quick outline of the overall financial position in the context of the regulatory framework. An Post, like other regulated bodies and utilities, must prepare separated accounts. If one looks at the table it is divided into domestic, international outbound and international inbound. Taking all the letter post together one sees a 3% profit on domestic mail, a 7.5% profit on international outbound but a 35% loss on the international inbound. We and An Post are concerned that this great loss is a subsidisation of incoming mail into Ireland and it is something that needs to be dealt with. While it is not a matter the office deals with, the post offices division outcome is shown towards the end of the table, where the turnover is €107 million and losses were €13 million. I know that is a matter of interest but the post offices division is obviously not subject to regulation.
Can you give some clarification on the volume of items per delivery point? Can you explain again the dotted line which shows the volumes being delivered point to point? When you say delivered do you mean house to house?
Ms Doyle
A delivery point would be either a house or business premises.
What does the other graph show?
Ms Doyle
One of them shows the total deliveries, which have now risen to 822 million.
Yes, but where is the other volume being delivered to?
Ms Doyle
Sorry, one of them is per house, which means it is approximately 500 items per annum per delivery point. The other states that when one adds up all the houses in the country one gets to the figure of 822 million. I appreciate this is not the clearest subject.
Before continuing I thank you for the documents you gave the committee on broadband. We may have some questions on that for you.
Ms Doyle
I was given to understand you might so I thought we would be prepared.
Thank you.
Ms Doyle
Turning to what ComReg actually has to do with the post, one could say our functions could be summarised under four headings, namely, the universal service obligation, An Post quality of service, An Post prices and the rules for competitors.
I know the universal service obligation is of particular interest to members and it is obviously the case that the focus of postal services should be on the users of such services and not just concentrated on the providers of the service. The key provisions for the universal service obligation are set out in national and EU legislation but the regulators - which means us - are also given responsibility to define these in more detail and to ensure An Post complies with them.
Before discussing our current work with the USO I will discuss our general approach to major issues. ComReg, and the ODTR previously, has a policy of developing papers analysing the issues, preparing international benchmarks and publishing those papers for comment. The comments are reviewed before any decisions are made and at the end of the process we publish a response to the consultation outlining what views have been expressed and our reasons for the decisions. This means everyone can see what we are considering and the reasons for our decisions. Now we are in the middle of this process regarding the universal service obligation for An Post and we have some copies of the consultation paper, which have already been circulated. It covers quite a lot of issues of importance to those using the postal services, though two matters have received a lot of attention, namely, roadside letterboxes and postcodes.
We are all aware that An Post recently sought expressions of interest in relation to 500,000 roadside letterboxes and much public debate centres on this. We do not have details as to what An Post's plans may be but no doubt they will respond to the consultation paper in detail giving their views. I should make it clear that our consultation is about how ComReg should monitor compliance with the statutory obligation on An Post to guarantee daily deliveries and in particular, what that means to the home or business premises. One of the issues we addressed was the use of post boxes. In relation to roadside letterboxes we asked if An Post should continue its present programme, which is to persuade rural residents to use roadside letterboxes by mutual agreement. If not, what other actions might be taken?
There are plenty of people in the country who have made special arrangements with the postman to either leave their post in a post office to be collected or otherwise. Should the current agreed arrangements fulfil the statutory obligation? In the case of new housing or buildings, should the onus be on An Post to agree the postal delivery arrangements with developers? More and more people live in apartments and those tenants want full security in their apartment blocks. They do not want people wandering in and out and this is an issue for both postmen and people living in such blocks. There should be some ground rules in this area. The consultation period ends on 31 January and after that we will make a decision, having reviewed all the responses.
Regarding postcodes, again we asked for views on this matter. We feel that there is a lot of potential merit in this, namely, faster, easier and more accurate sorting of mail and elimination of problems caused by having more than one household having the same address. We all know how many Newcastles there are in the country, not to mention townlands of the same name. This would also facilitate worksharing between An Post and those who print and envelope mail, providing greater competition for bodies which need to use leafleting and mail shots, which would include many people in this room. Again, we will make a decision after the end of the consultation.
Another key item is a code for handling complaints. It is essential that all organisations have well-developed complaints processes that deal with individual failings when they happen and, more importantly, that feed back into the management systems so that the basic problems that occur do not continue to hinder good service.
Turning to quality of service, it is important that not only is there a universal service but that it is delivered to a high standard. Our first task in this area is to set the standards for domestic mail, a target percentage of domestic items which are to be delivered the next day. Then we monitor compliance with that and where we are satisfied that the performance has failed to meet it, we seek to ensure that An Post takes corrective action. Last year we set the target for delivery of local letters at 94% and 92% nationwide. An Post stated it was on target until the serious blip at the end of the year and we will get full details on that. Should the committee want a report on this we would be happy to give one to members when we can do so. This year there is a single target of 94% and we have asked An Post to give us the special measures it will be taking in order to ensure it can meet the target.
We have also put in place an independent monitoring system for postal quality, in accordance with European standards, which started on 1 January 2003 and the first quarter results will be published around the end of April. This will provide an independent benchmark comparable to other EU countries as to how good or bad the service is. We are aware there were specific problems at Christmas 2002 and I can give a brief indication of the response of An Post, as we asked it for a written report on the problems. It indicated that problems arose because of new staffing arrangements introduced in September 2002, the mail concentration programme being implemented on 22 November, too close to Christmas, and a postal pattern which was different from what they had predicted. It also said that square cards were not a factor and that the advertised last date for post was not a material factor. John Hynes has conceded, of course, that with the benefit of hindsight it might have been better not to have made these arrangements just before Christmas. An Post says there will be no long-term income impact once the changes have bedded down. We will obviously monitor these developments closely.
I have shown the committee the slide indicating how much of the market is open at present. The idea behind having what is known as the reserved area is that profits from this area should subsidise provision of universal service in those areas open to competition. In practice we have found that it is the competitive area which is subsidising the reserved area. This is because postal tariffs have traditionally been based on weight, whereas the costs relate much more to format. Some members will have seen the big machines An Post has for dealing with the sorting of mail, and envelopes within a certain tolerance can go through the machine very quickly. However, objects of unusual shape need special handling, which obviously costs more. Other regulators have told me they have the same problems. We have been looking at this issue in relation to any price increase application to ensure we are also making progress so that costs and prices are better aligned.
Why do we have a role in pricing and costing? In a near-monopoly such as the postal service there is always a danger the customer will pay monopoly prices for the services provided, therefore the regulator has a particular role in this context. ComReg has specific powers in relation to pricing. An Post must seek our agreement before increasing any price in the reserved area I have just talked about and we have powers to investigate whether prices for other universal services comply with the principle of being geared to cost. An Post has submitted several price increase applications to the ODTR and ComReg after a decade of price stability in the 1990s, when volume was growing and provided it with additional revenue. However, it is not growing at the same rate now. We have noted that some services were loss-making and others made substantial profits. In agreeing to any changes we have been careful to progress a rebalancing of charges so as to eliminate, or at least reduce, cost subsidies that have arisen. Eventually we hope to have a situation where no matter what is in a standard envelope or its weight, it will be one price, that larger envelopes up to A4 size would be another price and packets, though there might be some adjustments for higher items, would be a third price. That would be much simpler for everyone to understand and it would be simpler to implement.
I hope I have addressed the main areas of interest to the committee. I would be happy to provide further information on any of these matters and to discuss them further with the committee. I am also happy to discuss broadband briefly if the committee wishes.
Thank you. I also thank the regulator for the consultation paper, which was sent to all Oireachtas Members by e-mail. Some Members should have responded to it; I did so yesterday. You have not reached any conclusions yet on that consultation paper but can you give us a slant on how it is going? Have you analysed any part of it yet?
Ms Doyle
No. We have 100 replies at this point and the consultation period does not close until 31 January. It tends to be the case that key interested parties reply at 5.30 p.m. on the last day. We will not begin our analysis until Monday of next week. I expect to publish the reply to this some time during February.
Will you keep the committee informed?
Ms Doyle
We will.
Has An Post jumped the gun with its proposal for letterboxes? We have changed our programme to allow for this session because of concern expressed by members of the public and Members of the Oireachtas about the proposals. We were meant to spend the first session on telecommunications but have included this session because it is of importance to the Houses of the Oireachtas and to the nation. Has An Post jumped the gun without obtaining your permission to proceed?
Ms Doyle
No doubt An Post will give the committee a description of its precise position in terms of seeking expressions of interest or going to tender or whatever on the post boxes issue. We have engaged in consultation and have asked for people's views. I thank members of the committee and the public for those responses.
An Post is not in a position to implement this programme unless and until a decision is made to allow it happen. The position is clear. It has a programme of persuading people and has about 80,000 boxes in place. The precise details of the universal service obligation will be decided having regard to the comments we receive, and we will obviously take account of comments we hear at this committee.
Will the regulator decide this matter?
Ms Doyle
Yes.
I wish to clarify your view on price increases An Post has sought. Is it your belief that the company must be compensated for legitimate costs?
Ms Doyle
We are looking at the price increase application we received from the company. We have not yet formed a view on that. We received two applications that we granted and are looking closely at this one. We are conscious of the need to ensure we do not over-compensate for the issues. We have not made a decision.
Is it your belief that An Post should be compensated for legitimate costs?
Ms Doyle
If An Post can persuade us that there is a case for it, we will certainly. In other words, our method of operation is to put that to consultation again.
What type of postal service do you envisage for Ireland in the future? Will it be similar to the European model, which is culturally different to the service in Ireland? The person receiving mail in Ireland is used to door-to-door deliveries whereas the system in Europe consists of collection boxes.
Some of my colleagues, especially Senator Finucane, can speak about the United States because, while there on a mission concerned with broadband and Internet roll-out, they were able to discover a great deal about the postal system as well. What is the communications regulator's vision for the postal service of the future?
Ms Doyle
The Minister is shareholder and An Post provides the postal service. When we researched practices in the context of our paper on universal service for An Post, a number of matters arose of which neither I nor, I am sure, my colleagues had been aware. For example, the local postman in rural areas will sell a stamp as he delivers post and will collect post. A number of services are in place that people appreciate and we have marked those in our paper as services done by postmen in rural areas. I would not see that type of personal approach disappearing from this country. I am aware from having spoken to other regulators that the position in rural areas is different to urban areas in terms of the role of the postal service.
In terms of looking towards the future, I am conscious that postal quantities are not rising in the way they were before and that fewer personal letters are being written by many people. On the other hand, businesses are conducting an increasing number of mail shots, leafleting, etc., and that is providing some compensation. As the Internet and e-commerce takes off, more packages and other items will be delivered by post. A person can buy a book over the Internet but it must be delivered by some means. We will see further competition in these services.
I mentioned related services such as the enveloping of leaflets. All members will have experience of this type of activity. Quite a few people can deal with these. Some towns in Ireland may develop a local postal service such as happened in countries such as Sweden. Someone might establish a Limerick postal service. There could be many opportunities and different changes in this area.
I would not want to say I am determining the future in a certain way, but we would see ourselves ensuring on behalf of the user that there is as high quality a service as An Post can be persuaded to provide, and that there is a publicly known universal service so that a person can see clearly his or her entitlements in terms of where letterboxes are to be placed, the latest delivery times and so on across a range of items. I go back to what the Minister and the Department have said about ensuring industry and domestic customers enjoy competitively priced high quality postal services on a par with the highest quality standards elsewhere in the European Union. That puts it succinctly. Does that cover the points the Chairman asked?
It clarifies them a little.
I welcome the regulator and her team.
What is the relationship between the regulator and An Post? While her specific functions are admirable and incorporate high ideals, how do the regulator and her team feel about responsibility for guiding, helping or influencing An Post into a profitable position? I find that, while I do not expect groupings to make huge profits, breaking even should be achieved in each case.
I saw where it was taken for granted years ago in local authorities that large sums of money could be lost and no one was responsible. That day has gone and change must take place. Certainly, while a universal service obligation, a high quality of service, regulation of prices and rules for competitors are fine ideals, I would like to see An Post making a profit or at the very least breaking even.
It is nice to say in a business that one has made massive profits, but unfortunately one also incurs losses. One takes business as it comes and one evaluates it. I cannot see any reason given the standard of education and the quality of people in Ireland, especially in management, why anything cannot be made profitable. I do not see why we should tolerate excuses for major losses.
An Post has been a friendly and acceptable face in society over the years. The quality of staff and management, especially when one meets the people behind the counters in post offices or delivering the post, is very high. I can only speak about rural areas but An Post employees are to be found in every aspect of the community, sporting, cultural and charitable, and have made a huge input into their communities. I have not heard anyone say a bad word about the company's employees. It appears to have a high standard of people working for it. That possibly would have allowed it not to be as successful in business as might have been expected because one can perhaps get away with certain things if one presents a pleasing eye to the public.
I wish the regulator well and hope she does well. I was very impressed by her presentation.
Ms Doyle
My colleagues, Donal Leavy and John Hearn, have contributed greatly in putting together the presentation.
On Deputy Kelly's question, if we go back to the accounts page, I pointed out the parts of the business we were examining in terms of pricing. There was a profit of 3% on domestic letter post, which is little more than breaking even. On international outbound, an area we dealt with in the previous price changes just before Christmas, there was a loss of 14.5% in the reserved area and a profit of 36.7% in the non-reserved area. There is a slight overall increase and we have done a bit of rebalancing to get costs and profits more in line.
The major problem in the parts of the business of An Post with which the commission deals is international inbound where everything is in the red or in brackets. A loss was incurred in the reserved and non-reserved areas. The total loss is €19.3 million or 35.1%. For every three euro by way of turnover, a euro is lost. It is a substantial figure. This relates to the fact that a higher percentage of our mail is inbound from the United Kingdom.
We have a major problem with the international agreement, known as REIMS. We have signalled in the universal service obligation paper that we are conducting a review of this because we do not think it is acceptable that it should continue. An Post, I imagine, would agree that this area must be tackled. We feel that the REIMS agreement is the core problem. We accept that we need an alternative to it, but it can be clearly seen in the figures where the problem lies. I agree with the Deputy that it is necessary to go through them all and devise solutions that deal with each of the problem areas. I hope that deals with his query regarding profits and losses.
I am delighted Ms Doyle is concerned about and will tackle the problem.
Ms Doyle
I will, with An Post.
I agree with the Chairman's sentiments and those of Deputy Kelly in welcoming the communications regulator and especially the style of her frank and open presentation. It was much appreciated. I heard Ms Doyle recently on the local radio station, LMFM, where shewas equally frank and forthcoming. It is refreshing and long may it last - I have no doubt itwill.
I wonder about the extent of her ability to give guidance to An Post. Her presentation sets out clearly that house-to-house delivery, a tradition and service dating back centuries and an excellent service with a social side provided by excellent people in An Post, is the one area that realised a profit of €7.5 million this year. Is it not amazing and even crazy that this is the section An Post is going to tear apart instead of the REIMS international agreement?
The regulator's comments to Deputy Kelly were interesting because she said she is examining the position. Will she be able to oblige or force An Post to deal with this issue because it is one of the major loss-making sectors? Will she be in a position to direct An Post because clearly it needs direction and to change tack?
Inbound international mail is a major loss-maker, as are delivering letters abroad and post office counter services. These three sectors are out of kilter with the rest. If they had broken last year, An Post would have made a profit of €31.2 million. It is wrong.
On the regulator's other brief, namely, other communications, how soon will she be able to effectively prevent mobile phone users in this country being ripped off? I am sure she has seen the figures for other European countries. The tariff per customer here is €542 per year whereas in places like Germany, the average is €312.
Perhaps Deputy Morgan will ask that question when we come to deal with broadband and the Internet.
All right.
Other members are offering and if he has concerns about those matters and the regulator cannot address them today, I am sure she will be only too delighted to come back to them when she returns for our meeting to discuss telecommunications. I am sure she will answer his questions today, but let us deal with and finish the postal issue first.
Ms Doyle
I will be happy to deal with that question at the appropriate time. With regard to An Post and international inbound mail, a number of powers are open to the office. Looking at these figures, we cannot say that international inbound is geared to cost, and we have a legal obligation to put it to An Post that it must have prices geared to cost. That is one of the bases on which we would be seeking to effect change. The other aspect is that we do not want a situation where international post is not delivered to Ireland. We want to ensure that appropriate alternative arrangements are put in place.
Our view is that this situation cannot continue, that it must be changed and we are in a review. We want to issue the universal service obligation paper, but this other issue is top of our agenda at present. We are reviewing how precisely we will put it but it must change. Whether we use the geared to cost principle or engage in discussions with the European Union, the organisation under whose auspices and with whose approval the international agreement is made, we will examine all avenues to ensure that if we meet the committee again in a year's time, the position will have changed. As can be seen, it is a serious problem and that would be recognised.
Can the regulator make that happen? That is the essence of this.
Ms Doyle
We have certain powers that we believe are entirely relevant to the situation.
Like other speakers, I welcome the regulator. I suppose she is flattered by some of the comments made. I am glad she is present because it adds a human dimension to her work. A certain mystique surrounds her functions. It is good to consider her role from that perspective.
I wish to focus on the issue of roadside letter boxes. The announcement concerning the putting in place of 500,000 roadside letter boxes led to a good deal of comment in the media. Much of that media comment focused on the social dimension of the postman's role. I am sure An Post's response to such comment would be that it is not being compensated for that social dimension and that it is being asked to make a profit.
An Post is very much guided by the regulator as to what it can and cannot do. The regulator indicated that she does not have the details of An Post's plans and will not have them until the consultation is closed this Friday. In the context of this announcement, rural Deputies will focus on the role of the postman. Would it not have been better if consultation took place, in the first instance, with the regulator prior to publicity emerging regarding the putting in place of 500,000 roadside letter boxes, which will result in tremendous social change and upheaval, andthen An Post could have made a conscious decision?
The point is correctly made that a programme should be implemented to persuade rural residents to use roadside letter boxes by mutual agreement. In persuading people to change to the use of roadside letter boxes, to what degree does the regulator consider An Post could incentivise such a changeover? The chairman mentioned estates. For example, a small flag in an upright position on the top of a letter box could denote to a postman that they are letters to be collected in the postbox, irrespective of whether the postman was delivering post to that letterbox. The putting in place of such a facility would incentivise the use of the postal service. If a postman did not have a letter for a person who wished to post a letter, that person might have to travel four or five miles to put a letter in a postbox. The putting in place of a facility whereby a postman would collect letters from letter boxes with a flag in an upright position, along his route, would incentivise the use of the postal service. Such a facility would indicate to people that An Post would give them something if they made the change requested.
Roadside letter boxes are already in existence in many locations. Initially, people complained to me about their existence, but at some stage they seem to have accepted them. I do not know if such roadside letter boxes were unilaterally put in place. Rather than raising a furore nationally with the announcement of the putting in place of half a million roadside letter boxes, does the regulator agree that it would have been better if consultation regarding the feasibility of such a change had taken place with her prior to the announcement? Does she also agree that if An Post were to proceed in this direction, there should be an incentive for people to make the change, otherwise it should be An Post's statutory responsibility to collect post from people at least five days a week. The regulator is awaiting details from An Post. She is inviting comments from the public with regard to the changes announced by An Post, the deadline for receiptof which is 31 January. That process seems tohave involved putting the cart before thehorse.
I will take Senator Kenneally's question and the regulator can then reply to his and Senator Finucane's questions.
I welcome Ms Doyle and her colleagues. I intended to ask questions about the relationship between An Post and the commission and about roadside letter boxes, but they have been asked and there is no point in going back over that territory.
I wish to ask a question concerning the introduction of postcodes. It is the view of some people that this country is not big enough to necessitate the introduction of postcodes while others would hold the opposite view. I do not know a great deal about how they operate in other countries. We are the only country, apart from Greece, in the EU which does not use postcodes and they are also used in many countries outside the EU. The use of postcodes in some countries, particularly in parts of the UK, is so sophisticated that one can pinpoint exactly the location of a house.
Is the introduction of postcodes being considered from the point of view of the assistance such a system would be to the emergency services such as ambulance personnel, the fire brigade or the Garda? The introduction of such a system would be useful, particularly in rural areas, given that one could find an address relatively easy in the case of an emergency in an urban area. However, if a call for an ambulance is made for an emergency in a remote area, the ambulance driver could spend half an hour trying to find the house. If there was a postcode, the address could be pinpointed. Has that need been taken into consideration in the debate on the introduction of postcodes?
Ms Doyle
I thank the Senators for their questions. With regard to Senator Finucane's question, the announcement of the tender, or expressions of interest as the case may be, for the 500,000 postboxes took us by surprise. We issued the consultation paper asking for views at the end of November. We were not aware of the intention or proposal that this would happen. At the time we were saying what should happen. We do not have an entitlement to issue a direction to An Post that it will not insert a request for postboxes in the Official Journal. However, we are conscious that the debate on the area of universal service - as the Senator mentioned, other aspects of it are also important - has focused on the putting in place of the 500,000 letter boxes and the compulsion to change over to their use. As far as we are concerned, the consultation is open. The Senator has made an interesting suggestion about the collection of mail. As we investigated the area of universal service, we now understand that many Irish postmen collect letters and take them to the post office.
Only when they are delivering mail.
Ms Doyle
Yes.
I am talking about a situation where they may not be delivering but see a sign——
Ms Doyle
They see a little sign up, as in the United States. As far as we are concerned, we issued the paper . We were not aware of the 500 boxes——
Some 500,000 boxes.
Ms Doyle
Yes, 500,000 boxes. I assure the Senator yet again that no decision will be implemented until the three members of the commission and the key staff dealing with this matter are sitting in front of him. However, until we have come to a conclusion having regard to all the comments we will receive, there will not be a change from the current circumstances. I understand that 80,000 or so roadside letter boxes are in place. My understanding is that they have been put in place only by way of agreement with the people concerned.
On Senator Kenneally's question on the introduction of postcodes, the questions we asked in the paper included: what do you see as the advantages and disadvantages of introducing postcodes into Ireland; what would be the most appropriate organisation to allocate them; and how should they be funded. As we are the postal regulator, we have been examining it in the context of the postal service. However, local authorities and health and emergency services have made the precise point made by the Senator. The ESB has also said that it would be very useful for it to enable its staff to know exactly where they are going. They rarely make a mistake with Blackrock, County Louth, Blackrock, County Dublin and Blackrock, County Cork - there are probably two dozen other places called Blackrock - or Riverstown in County Sligo and Riverstown in County Cork, but that issue is important.
If I can stray into the area of telecommunications, under new EU directives, there is a question of having location based information available from mobile phones for the emergency services. That would mean that if there was an accident and one was not in a position to do more than make a call in that one could not describe exactly where one was, the emergency services would be able to pinpoint exactly where one was from the location of the mobile phone. This kind of pinpoint information is of interest from other points of view, although we have been looking at it mainly from the point of view of the postal services.
I apologise if I have to leave early because I have questions down for the Minister and he is in the House now to answer them, but Ms Doyle can answer my questions in my absence. We should invite the delegation back to discuss the broadband and telecommunications issues separately because they comprise a huge area and are of great importance to this committee. This is only the start of our work and I expect Ms Doyle to be back before the committee.
Ms Doyle
Yes.
The directive from Europe on liberalisation of services has huge consequences which we did not, perhaps, realise at the time. Has Ms Doyle a general opinion on whether there is, in essence, a natural monopoly in something like postal services? I fear that with the deadlines of 2005 and 2008 having been set for opening up the service, loss-making areas such as letter post would be cherry-picked. One could find it extremely difficult to subsidise the social aspect of the service. People might cherry-pick direct marketing areas or other profitable areas and leave the rest. Does Ms Doyle have an opinion on whether it is a natural market and whether we need to apply liberalisation in every case?
My second question relates to the role of the regulator. It is an unusual and powerful position. The Minister and the Department have a lesser role than in the past in terms of regulating this area. An Post management, too, must find itself in a strange position given that it is not really managing its own prices and the quality of its services. Is its position very different from what it was in the past? We have established an amazing and powerful structure and it is not just in the communications regulation area but in a number of different areas. Liberalisation in different areas is bringing the same change. Roughly how many people work in communications regulation and, second, in the postal area? Is the regulator ultimately free from the Minister or does the Minister have the final say? Does the regulator have to report to the Minister and how does that reporting function work? Is the regulator statutorily free to make her own decisions or must she take the Minister's position into account?
I, too, might have to leave early, depending on what is happening in the Seanad. I was late coming to the meeting because of business in the Seanad. I welcome the delegation and thank it for the presentation. With regard to roadside letter boxes and the delivery of post in rural areas, I am glad to hear that no decision will be implemented until the full process is completed and consultations have taken place. The regulator pointed out that one in three house completions at present is a one-off rural house. If the service to those houses is to be comparable with that of the ESB, water, telecommunications and cable TV, the issue of roadside letter boxes would appear to be off the agenda. If people are entitled to a certain level of service, they should have delivery directly to their houses. One would not expect somebody to travel to the end of the road for their water supply or to plug in for cable TV, for example. The companies will supply the service.
Will Ms Doyle elaborate further on her thinking about that? Are we facing what is, in effect, discrimination between people who live in the country and people who live in a town?
What are your views on second class mail? We have received many representations in relation to charitable organisations, the delivery of second class mail and the tariffs that would apply. I understand you have responsibility for a complaints procedure. Will you brief the committee on that?
Ms Doyle
I will deal with Deputy Ryan's question as to whether there is a natural monopoly. I lived in Russia for three years in the early 1990s. Russia was a society that had worked on the basis that everything ought to be a natural monopoly, regardless of whether one was selling sweets in a corner shop or running a restaurant. I would be slow to say that, in any country, there should be only one provider of a service. What happens is that the service is provided well or badly, depending on who the operator is, and there is little or no incentive to develop new services. If no new services are developed, one can happily deliver the usual service because there is no benchmarking with other countries.
I believe one should always seek to provide for competition and for new ways of looking at things, particularly in the world as it is now where change is not just something that happens every five years but is ongoing. It is certainly the case that with the need to provide for Internet deliveries, e-commerce deliveries and so forth, the postal service plays a key role. That is not to say that one ought to have poor service——
Or no service.
Ms Doyle
——simply because one has opted for a different approach. I would not say that I see the postal service as a natural monopoly.
With regard to the role of ComReg vis-à-vis the Minister, we operate under legislation passed by the Oireachtas which sets certain key objectives which we take into account as we make our decisions. We carry out a number of functions with the consent of the Minister. I will not list them at present but we do not exist as an island. On the other hand a regulatory office exists because we have tried to separate these functions and their operation and implementation from a Government Department. There is little point setting up a separate office if all the decisions are made in the Department. We have a relationship that is governed by law. The overall objectives are set by the Minister and we operate within that framework. We have greater independence in some areas and in others we have the consent of the Minister to implement policy.
The question of the distance from the road is a separate issue from whether everybody in rural areas ought to have a letter box at the road. That matter is on page 17 of our consultation paper. The question we put to the public was whether there should be some limit as to the distance from the nearest public road that the postman should be required to travel to access a letter box or, in the case of duplex apartments, which is another aspect of the same issue, the number of steps the postman needs to climb. Unfortunately, neither the Irish nor the European standard referred to in the paper deals with the issue of location in relation to the boundary of the property. In the circumstances, the director will be guided by the views of interested parties, in particular representative bodies, as to what distance is reasonable.
We have asked the question, in relation to new housing and other buildings, whether the onus should be on An Post to agree with developers where the letter box should be and what distance a postman should be required to cross to private property from the public road to access the letter boxes and to give their reasons. It can be the case that the postman, whether in an urban or rural setting, finds it easy to walk up a garden path or that the land may be behind the house. However, in other areas he could be facing traversing up to a mile for eight, ten, 20, 50 or 60 houses, which would mean that the people at the end of that delivery route would be waiting a long time to get their delivery. We are anxious to hear what people think the appropriate answer might be. In light of that, we will set out what the score should be. There should not be discrimination between the rural and urban dweller.
As regards second class mail, there are certain economy services. We have been careful to ensure they remain at the same level or that they change as little as possible when the standard mail service price changes. Last year in our first consultation on prices there was an issue about the postaim service, which is used by many charities. We insisted on additional work being done to come up with a framework which suited people well in terms of that service.
As regards the complaints procedure, a section of the consultation paper deals with the issue of what we should include in a code of conduct. It has been the practice of ComReg to insist that all operators have a code of conduct. We did it with the telecom operators and the broadcasting distribution operators and now the idea is to do it with the postal operators. They must have a code of conduct which states how consumers will be dealt with. It must be available on their websites so that if consumers have a problem, they know to whom they can complain and what to expect by way of service.
Will the complaint be made to An Post instead of the regulator?
Ms Doyle
The complaint will initially be made to An Post, but if satisfaction is not forthcoming, it will come to us. We have a couple of people who are dedicated to providing that service. We produce statistics in our annual report which detail the situation. The manager in this area calls in the companies, NTL, for example, and tells it that it is slow to answer the telephones or tells another company that there are too many billing complaints. We ask them to pay attention to solving the initial problem. It is not just a question of dealing with an individual's complaint, but about improving their quality of service. We ask what type of things should be in the code of conduct.
Is there a procedure in place?
Ms Doyle
We are having consultations in relation to the postal service. If any of the members or their constituents have a problem with the postal services and they have not received satisfaction from An Post, they should come to us.
People can come to you now.
Ms Doyle
Yes, if there are issues and they have not received a response from An Post. I was asked how many staff are employed. There are 120 staff in the office, including the three commissioners. Approximately six of the staff are devoted to postal services. However, as regards full-time equivalents, the number would be higher because many parts of other bodies are also devoted to the postal services.
That has risen significantly since you attended a meeting of the Committee on Public Enterprise and Transport some years ago.
Ms Doyle
That is right, but the responsibilities have also grown significantly. Mr. Leavy did a benchmarking study recently.
Mr. Leavy
We were among the best value in Europe.
Ms Doyle
Low cost and low numbers.
I thank you for your presentation. If we need to talk to you again about An Post or about the postal services, I am sure you will make yourselves available. The committee has formed an information communications technology sub-committee which has yet to meet. It will deal with all matters relating to e-commerce, e-government and the roll-out of the Internet and broadband services.
You will be pleased to know that three members of the committee travelled to the US last week. Some sections of the media will define that as a junket, but other right thinking people will realise it was a fact finding mission. The information we gathered last week is important to this committee. I hope it will be important to your organisation, to the Department and to the Government. We discovered that the flat rate for a 24 hour eight megabyte on-line Internet service is $21 per month. Some companies offer services at $9.99 per month. We met different groups in the states of Washington, California, San Francisco and Silicon Valley and they were mesmerised when they heard that we still do not have a roll-out service and a flat rate charge.
The committee is concerned about two reports which were published recently. One is by the Dublin Chamber of Commerce which states that the capital is ranked fourteenth out of 15 European capitals in terms of the roll-out of broadband technology and Internet access. The other report in the Foreign Affairs magazine studied 62 countries in the world. Ireland was number one in terms of globalisation, economics, politics and personal contact. However, it was ranked seventeenth in terms of technology roll-out. The committee is concerned that we are not rolling out the infrastructure quickly enough, although I know that is not the regulator's problem. We will deal with that issue in future meetings.
We are concerned that our main telecommunications company, Eircom, which has the infrastructure in place, has not rolled out the service as requested by the Minister last October or November. I understand you are currently in discussions with the company and that it is now offering Internet connections at a certain number of cent per minute. It was €80 at the start of the year, but it is now €40 plus VAT. It is also offering a wholesale rate of €30 per month to the other service providers. Unless this service is rolled out at the same rate as the United States, Korea, Singapore, Canada, Australia, Sweden and other countries, we will damage our competitiveness and our ability to attract future inward investment. Perhaps Ms Doyle could outline the position. We have read stories in the newspapers about her battle with newspaper owners and companies which have an interest in different telecom companies. When does she expect a competitive flat rate to be rolled out?
Ms Doyle
I would be interested to hear more about the committee's visit to North America, although I appreciate that now is probably not the time to do that as the committee has other things with which to deal. Our job is to enable the operators to do things. We work on the supply side in terms of providing the enabling capability. It caused us a great deal of hard work. There is a DSL roll-out by Eircom which will cover approximately 50% of the lines in Ireland. However, it is at an expensive rate. We are also concerned about what might be called the failure rate, namely, the number of people who have asked for it and who have been told they cannot have it for different reasons. We have been looking at that in great detail because it is disappointing if one decides to spend that type of money and then finds out that it will not work on the line. We hope to get to the bottom of some of those problems fairly quickly.
As regards the pricing level, I am pleased to note that Eircom intends to reduce its price by approximately half. We are currently working with it on a wholesale rate. As you know from your experience in the United States, the thing which really gets companies to deliver a service is the presence of other people doing the same thing. We have to ensure in law that a competitive offering is available so that the other operators can compete in this market. I should note that Esat/BT did announce before Christmas that they intended reducing their rate and, indeed, have reduced their rate from more or less the same rate as Eircom to just under €50, which is a help in going in the right direction. In relation to the Internet flat rate, the DSL prices are all for this broadband higher capacity product. The flat rate Internet is a dial up service on the ordinary phone. We will have a wholesale rate for that in February and the operators have been told very firmly that the very latest date for roll-out of the retail products is June.
The other thing I should mention in the context of this whole area is that we have been working very hard. Mr. Leavy deals with figures not only for An Post and the accounts of the organisation, but he heads up our team dealing with wholesale prices generally in relation to Eircom. We have interconnection prices - the key prices for linking Eircom and the others - which are the lowest in western Europe and we would like to keep them there.
We really need to see as much competition as possible. As you will remark, Chairman, at the moment the amount of money people appear to have available for capital investment is relatively low, but I think there is a certain amount of money out there and companies can be doing an amount of business. We have been trying to ensure that many types of platform are available. You will be aware that we have licensed three companies for third generation mobile phones and we have been encouraging the cable companies to look again at the question of upgrading so that they can also provide the kind of services that you have seen in the United States for modems on flat rate services.
We have fixed wireless access licences at the moment and are just awaiting the Minister's approval of a regulation to enable a fixed wireless access service to be provided on a base station by base station basis. That would enable smaller companies to provide services, which we think is important. Obviously, there are licensing regimes for satellite and I noted with great interest that there are a couple of these rolling out in rural areas. The economics of fibre optic cable are not very good in urban areas, whereas wireless does a great deal in rural areas.
We have a regime for wireless labs which we are happy to say has been a model and copied by other regimes in western Europe. The Danes have copied us as well as a few other countries.
Is that the licensing regime?
Ms Doyle
It is. In fact, happily, it is an exemption regime where one does not have to have a licence for a wireless lab that one has to operate.
Is it up to a certain bandwidth?
Ms Doyle
Yes. There are technical specialist classifications and if one operates between those——
The same happens in the United States.
Ms Doyle
The same type of thing, yes, but it is over a wider range of bands in the United States.
Am I to understand that you are putting in a licensing system for wireless local loop systems so that new operators can use the frequencies——
Ms Doyle
That is right, yes.
——at a higher frequency?
Ms Doyle
We are putting this——
It will not just be confined to the people who have already got those licences, who are Chorus, Esat and Eircom.
Ms Doyle
That is right. We have sent regulations to the Minister - this is one of the areas where we need the Minister's consent - which would enable us to do that. We are calling it the "first come, first served" scheme because the idea is to make it very simple. If you wanted to run two or three base stations, or just one base station, you could apply to us and if we had the spectrum available, off you go. One key requirement is that you would have to be in operation within one year because we do not want people sitting on spectrum.
Good. I am sure we will be sending you some material on our own visit because we had an expert from the Department of Communications, Marine and Natural Resources, who joined us on the fact-finding mission. When we are producing the first part of our report we will certainly be making a number of recommendations in relation to it. I could speak all day on this matter but I want to ask you one question again. Do you agree that, as regards the telecoms companies in this country, whether they are service providers, telecoms companies or, indeed, the Government which is rolling out the national fibre backbone through the ESB and the metropolitan area networks - of course, that network will have to be managed and operated, and I am sure the service providers will be seeking access to it - €45 per month plus VAT, which is now proposed by one service provider, is far too expensive?
Ms Doyle
I know you have a lot of reports that you have mentioned, Chairman, but I refer you to the broadband report we gave you today which we did last autumn. In the context of that report, we got MRBI to do a survey both of SME businesses and the residential customers, and asked them what they would be willing to pay. The answers, if I remember them correctly, were that business said they would pay €60 and private consumers said €30 or €40. I think we are a bit shy of those numbers when you talk about €45 plus VAT for consumers. It is better than where we were but it is certainly not the answer we would like to see.
Perhaps by the time we finish on those sections in the next few weeks we may be able to persuade those service providers to do better.
Ms Doyle
We would all like to see these things dealt with. I am particularly concerned about Eircom, which is by far the largest operator in the country, and it is something the commission has been talking about in recent times. It is not exactly the most efficient of operators in certain ways and it is important from Ireland's point of view that we have an efficient service. To the extent that a company can make substantial improvements, in the meantime if the consumer has to pay for the company and pay for additional costs, however they are incurred, it does end up in very high prices. So it is one thing that we have been doing as much as we possibly can.
The question was asked about the relationship between the regulator and the regulated body. It is a clear signal that they need to do something about efficiency, but we do not manage the companies and do not make management decisions for them. The difference in how we would do things as a regulator is that we would spend a good deal of effort trying to get to grips with the nuts and bolts. Separated accounts is something that regulators do before trying to tackle particular prices. When you just put those figures out on a sheet of paper you can see much more clearly where the problems are. Otherwise, somebody can just give you a piece of the business and you might not really understand what they are about at all.
We will come back to this matter. If I can predict the future, when you decide to license those people who want to roll out the wireless system you will find there is competition and you will not need a fixed line to get your broadband access because they will access it through the fibre optic network hub in the MAN which will be provided by the Government, the local authorities and the national fibre backbone system. Companies that are now charging high prices compared to other countries will find that they will be looking for business in future.
Ms Doyle
That is what we would all like to see.
I am convinced of that. Thank you for your presentation. If you wish, you can wait for the An Post presentation. I thank Ms Doyle and the staff in her delegation for giving the committee their time.
Sitting suspended at 4 p.m. and resumed at4.05 p.m.
We will now resume in public session. While some members have left to partake in a vote, we will continue. I welcome Mr. John Hynes, chief executive of An Post, and his delegation. I draw your attention to the fact that members of this committee have absolute privilege but this does not apply to witnesses appearing before the committee.
Mr. John Hynes
Thank you, Chairman. On my right is Ken Robinson, managing director of the letter post division of An Post, our biggest business, constituting 62% of turnover with 5,500 people involved in the delivery of the postal service throughout the State every day. Ken is a Belfast man and in his former existence he was the top man in Royal Mail, Northern Ireland, a very successful district of the Royal Mail, UK. It is one of the reasons we tried to secure him. He has been here for several years. On my left is Liam Sheehan, who is from Cork. He is the general manager for marketing and letter posting. He is responsible for customers' interests, pricing and such matters. John Foley is our public affairs and media manager. The committee may have been aware of him when he acted in a previous capacity.
I will bring the committee up to date on the position of our finances - members will have seen the 2001 finances - and we will then deal with some of the issues of the day, as indicated by the secretariat in advance of the meeting. I will then be pleased to answer questions.
May we have a copy of the submission?
Mr. Hynes
I will circulate copies when I have finished speaking. It will not be necessary to take notes. As indicated earlier in the regulated accounts presented by the commissioners, we lost €15 million in 2001 in the area of reserved competition, which is a posh term for monopoly. In the post office network, which is outside the remit of the regulator and today's discussions, we lost another €13 million. We made profits in competitive mail services and our subsidiary companies, including the lottery licence fee, of €21 million, leaving a net loss last year of €7 million.
Although we have not yet done the books to the end of the year - they are done up to the end of November and we can make a good conjecture at December - the forecast for 2002-03 is for an operating loss of €18 million, which is just on budget for 2002. Restructuring, which basically covers the cost of voluntary severance and early retirement, is €21 million, making a total loss of €39 million. The cash outflow in An Post in the year was €75 million, a colossal sum of money. That was largely driven by our capital expenditure programme in building new mail centres. We doubled the size of Dublin and we built a new centre in Athlone, which opened a week or so ago. We have a smashing new centre opening in Cork and we look forward to as many members of the committee as possible visiting it because seeing is believing.
In 2003 we will start the process of turning the corner and we might explore the assumptions on which we turn that corner. Our operating loss will be a shade above break even at plus €1 million. We have budgeted a total of €52 million for a further round of restructuring. The second tranche of that will mean our cash flow will be minus €32 million. These are new figures which were not in the public domain prior to this. Next year's cash outflow is principally due to the restructuring cost of people leaving the company. We are looking at one in six people leaving the postal service next year at the end of our programme of cost reduction. We are a people business in every respect when it comes to service, costs and so forth.
As the committee will have picked up from the regulator, we are operating a limited monopoly. It is reducing by the year - I wish I could lose weight as quickly. It is not a natural monopoly. There is more choice for customers. I am confining myself to the traditional choices for postal customers and I am leaving out what is going on in terms of broadband, wireless and so forth. The domestic postal market is progressively being liberalised while the international outgoing postal market, of which we have a 71% market share currently, will be fully liberalised next year as part of the Government measure decided before Christmas. International parcel traffic in Ireland is consolidating. I will show a slide regarding what is happening in a moment and there are lots of new product offerings, which reflects the effect competition has on a market. Everybody is stimulated, including the incumbents. Our job is to remain viable as a provider of universal postal services in these competitive markets. We will not do it any longer in monopoly conditions but will have to do so in competitive conditions.
I refer to the companies operating in the domestic market. Deutsche Post owns DHL, the best courier company in the world. One can see its airplanes in almost every airport in Europe and increasingly in the US. The company recently bought out Securicor, the second largest parcel operator in Ireland after ourselves and it owns Danzas. It has bought 27 companies of significant size in the past few years. I heard in the commission that the activities of Deutsche Post represent the biggest renationalisation of the postal sector since the Second World War.
The Dutch, through TNT, are in the parcel market while La Poste Group, the French post office, is in Ireland. The company is the third largest cross-border parcel operator in Europe and it owns Interlink in Ireland, which is based in Athlone. Deputies who travel long distances to Leinster House will see their trucks on the road. Our old friend, Royal Mail, famous former employers, own a company called Williams, which had a turnover of approximately €27 million when it was bought. A new business has been launched which is an agglomeration of parcel companies all over Europe called Global Logistics Services.
We find that instead of the Germans sending us parcels to deliver in Ireland, they give them to Securicor, the Dutch to TNT, the French to Interlink and the British to Williams. The US postal service has decided not to fuss itself sending parcels to 44 European countries. They send them all to Frankfurt and GLS deliver them to Ireland through Williams. Deputies will probably have read about that in the newspapers. However, that is business we have lost.
The postal industry is consolidating and once the monopoly is gone in mails, that is what will happen. If Deputies want to know what is around the corner, they should examine what has happened to parcel delivery in terms of who is operating in the domestic market. That is the competition we face when full liberalisation comes - there is no getting away from that reality.
With regard to the market which is open to competition here, the figure was 30% in 2001 and it will be 37% rising to 51% and 56% when the weight cap is reduced to 50 grammes. Then it begins to draw the lifeblood out of our business because once the weight is under 100 grammes, it starts to hurt, but we could live with it. Our mail business is import-export, inbound-outbound, cross-border, and that is liberalising quickly following the drive of these international companies. People who talk about globalisation should think about the companies who operate in this territory right now.
The regulator is asking us what universal service we propose to provide. It is very straightforward. In the universal service, we propose and she disposes. That is the difference between the two of us. We must come up with a universal service that will work in a competitive market and is not like the one we had in a monopoly market.
With regard to the regulatory accounts there is no question of us cheating on our competition by cross-subsidising from monopoly profits into competitive areas. The boot is very much on the other foot in An Post. Part of the reason for that is that the price of a stamp is 41 cent, which is the same price as in 1990. That is not bad going for a company such as ours. When it comes down to it we must run a national delivery service without an option on five daily deliveries and collections everywhere in the State other than on a few islands.
There are adverse demographics in Ireland. Everybody who has been to Europe on behalf of Ireland can say this as easily as they can say the Hail Mary or the Our Father because they know them off by heart, but our population density is one quarter of the United Kingdom's and this means the distance we must travel to reach customers is more important in our costs. Our urbanisation rate, although increasing, is still a little under 60% as against 90% in the UK. Most people compare us with the UK. The rate in Germany is 80% where there are significant population densities.
Do most people compare us with the UK?
Mr. Hynes
They compare public services in the areas of health, post and telecommunications with the UK.
Will Mr. Hynes outline the delivery systems in the UK?
Mr. Hynes
Basically in terms of competition vis-à-vis other postal companies we must generate enough profit on urban postal routes to subsidise rural routes. We have a high proportion of rural routes in the total mix and that is the fundamental economic problem. Everything else is solvable but what marks Ireland out as a different challenge in postal terms is the sheer dominance of rural delivery in the overall cost structure. There is a straight choice between a cross-subsidy of profitable urban routes on the one hand and differential pricing.
It is an article of faith that whether one is in Ballinrobe, Castlebar, Dundalk, Drogheda, Dublin or Cahirciveen, one will pay the same price for postal services and there is no discrimination in pricing. However, in fully liberalised markets, the first casualty usually is uniform pricing and people in remote areas know they must pay more, such as through fixed charges as is the case in New Zealand or on the price of the stamp.
We are endeavouring to provide a uniform postal service within a uniform tariff where in Dublin we will charge much more than our competition because we must be more profitable there than our competitors as we need to shift those profits to pay for the cost of rural delivery. At the bottom of the argument, over and above absolutely everything from roadside boxes to collection boxes, or 5.30 p.m. and 6 p.m. posting, is this fundamental economic problem that must be solved.
We are a strong company in the partnership area, particularly in letter post where partnership is flourishing, and we want to be commercially viable. We need to earn enough to repay our capital. We have not borrowed money and we owe nothing to the banks. We want to stay that way because we never think we will be a profitable company that can borrow money. We think we will be a company that will make enough at the end of the year to modernise and be innovative but that will be the end of it. We do not have plans to give the Minister for Finance a dividend. We must be efficient and the regulator will drive us to that through price control mechanisms.
We must have a commercial pricing strategy because when we are not in a monopoly market, we will have to price to the market. Bulk mailers will want a better price than single item mailers. All those things will have to occur and come under the polite phrase "rebalancing" and it will take several years to do laps of this before we succeed. We are a high quality postal service relative to Europe. The regulator believes in raising that bar every year and she has done it again this year. We have been cogitating with regard to the jump. We have to tell her at the end of February how we are going to jump a little higher in 2003. The problem is that we have been implementing substantial internal changes and have stumbled every now and again with regard to quality. That happened last Christmas. However, we have got ourselves up to 90% on a quality measurement programme which is run independently from Copenhagen. When the regulator's quality measure which is being commissioned at the moment is up to speed, we hope we will be able to adjust our quality measures accordingly to ensure we are not both doing the same thing.
At 41 cent, we are at a 1990 price and in a European context the green bar is Ireland. That may not be a great slide on the far side of the rule, but Spain is a basket case in receipt of subsidy. It is at the bottom. The Netherlands, Ireland and the UK are neck and neck at 39 cent, 41 cent and 41.4 cent. Everybody in Ireland who is thinking of using another postal service will immediately go to those two countries. The success of the last decade has been to stop our public prices - though not yet our discount prices - disincentivising people to mail in Dundalk instead of Newry. The prices have now caught up. That has had an impact on profitability.
Ours is a large organisation which deals with 3 million items each day and everybody expects their item to be delivered. We have 5,500 postal staff not including parcel staff, branch network staff and postmasters and postmistresses in sub-post offices. That is what we are regulated by. We have 175 truck movements, which thankfully take place mostly at night when the roads are wide open. We have 2,700 collection and delivery vehicles which are driven by postmen who travel 40 million miles per year. A typical rural postman will travel between 60 and 80 kms each day. Urban delivery postmen usually travel on foot or by bicycle and occasionally by van in the larger commercial districts. There are 3,500 delivery routes of which the bulk are divided half and half between rural and mixed rural-urban routes. That is the distinguishing characteristic of the organisation. There are 1.6 million delivery address points of which 1.4 million are residential with the balance being commercial. In postal terms, we are the size of the greater Manchester or greater Boston areas. Our import-export ratio is 28% of volume.
Faced with these costs, we asked people how in a commercial market we were to sustain the rural delivery service. An Post is currently considering some changes which will enable it to continue to provide a daily delivery service to rural areas and a competitively priced postal rate for everyone. The two are linked. Our research was conducted through questions which were asked of 1,000 people.
Did you put a letter through everyone's door?
Mr. Hynes
We asked 1,000 people, which is the normal sample when polling.
Was there a rural-urban mix?
Mr. Hynes
No, it was representative.
What is meant by representative?
We will come back to that question.
Mr. Hynes
Roadside letterboxes were deemed acceptable by 64%. As I mentioned earlier, there are already about 80,000 people who use such letterboxes. We assessed those whose delivery was to their doors, 94% of whom were satisfied with the service. We are fairly popular which is largely due to our staff. Satisfaction among households with roadside letterboxes is 95% which means there is no difference between the two. That is 1,000 out of 80,000 in the context of a programme run in 1989 to 1990. It was not a great success but it left 80,000 boxes out there which are going fine. We asked what else we could do and we offered the choice of an external delivery contractor, which is a polite way of describing the privatisation of rural delivery. Such contractors would deliver mail and milk among other things and would not be An Post staff. That option is very unpopular with only three out of ten people being interested. The option of two prices fares worse as the uniform price is deeply embedded in the culture. A three-day delivery time was equally unpopular. Those options would mean commercial suicide for us.
As a very large national operator, we are committed to our staff and we wish to be the people who discharge the mission rather than contract others to do it. Therefore, we come back to the fundamental economic argument over how we can cross-subsidise rural routes. Is there a way to alleviate the cost burden of rural routes whereby reduced profits from urban areas can still pay for it? That question is what brought us to the idea of delivery letterboxes which is fundamental to our financial future. We want to begin phasing them in this year and we will do it district by district if we get the necessary permissions, consents and supports. We will be able to return the business to profitability going forward. The year 2009 is not that far away in the context of major and fundamental changes and we cannot be caught out and exposed. The alternative, if this proves impossible to implement, is to return to the commissioners and the regulators to ask them to permit a price increase of 4 or 5 cent. That would cause us to lose business which is why we do not want to do it. We would be pushed out of our place in terms of the UK and the Netherlands which is where we must stay. In a fully liberalised market, those are the two postal services which have a crack at us in Dublin. If they crack us in Dublin we will find ourselves in serious financial difficulties.
The process is that An Post goes to the regulator and explains what it is thinking of doing. The regulator may decide to begin a process of consultation. In the case of a price increase it would initiate consultation by putting out the idea in a neutral way. We would hear what everybody had to say on the matter. An Post's view would be taken equally with those of business and farming organisations, unions and others with an interest. The regulator would then make a decision. We learned from our last effort, which was an unglamorous looking plastic box, and have produced a much better box this time. It costs €95. A spend of that size had to be competitively tendered which is a process that takes four to five months. We looked at the timetable and realised that if we waited for the consultation to finish before moving to the tender process, it would be too late. There is no commitment to buy anything involved in tendering and we wanted to get value for money. We told our shareholder about what we were doing.
We thought about asking people to pay for the boxes which is the requirement in other countries. The USPS in Seattle does not pay for your roadside letterbox, but because of the change customers are being asked to make, An Post will put its own money on the table in the interest of its service. Of the 1.4 million delivery points, roughly one third would be switched to the new system. Some people argue that Ken and Liam are not going far enough given the serious rural delivery problems. However, we have tried to strike a balance between what is realistic and achievable and what we are facing. This idea will get us a long way down the road in terms of savings.
Ours is not a pretty financial picture though pricing is fine and the quality is sound. We spent money we saved from other businesses on this project. We are examining the reality of running a universal postal service without subsidies in conditions of full competition and our customers have opted for the proposed boxes at a rate of two to one. Customers who have them are as satisfied with the service as those who do not.
Given that An Post is in the communications industry, would it not have been wiser to issue a leaflet with every postal item? This could, for example, outline which people will not need one of the proposed letter boxes and the services you plan to provide to people with disabilities. Would that not be a better approach than the one you adopted? You stated you advised the shareholder, that is, the Government which acts on behalf of the people. What was its response?
Mr. Hynes
On the question of the letter boxes and all other matters related to our business strategy, many of which have been raised this afternoon, we submitted a corporate plan to the Government and produced an end of year report on it. Many other issues affect our future prosperity, including European Union decisions on welfare payment services. The Government is, therefore, fully in the picture on the position of the——
Did you meet the shareholder, namely, the Minister, on the question of the letter boxes?
Mr. Hynes
Yes, we met him as part of a general briefing, not specifically on the letter boxes. We went over all the issues on the horizon for An Post. As I understand it, the position of the Minister, who I understand is speaking elsewhere in the Houses this afternoon, is that the matter is currently one for the company and the regulator, which brings us to the nub of your question, namely, the reason we went about this in the manner we did.
We are in a phased programme, with our regulator, of establishing standards regarding a range of matters related to the universal postal service. Last year we addressed issues related to quality and levies. An interim price increase was approved last April and an international price increase was approved for implementation in January. We have now arrived at the next milestone in the start-up programme of regulation, which is the universal postal service post codes complaints procedures. We are working to a formal agenda announced by our regulator which I fully support.
The questions of what comprises a roadside post box, the conditions under which they would be introduced, whether they would be voluntary or mandatory, who would be excluded from the system and so forth are ultimately matters which must go before the regulator. The procedure is that one discusses one's ideas with the regulator and if she decides that they are material to her brief - in this case she decided it was - she establishes a process through which one proceeds.
I wish to clarify a matter on behalf of the other members. I presume the company has a plan which has been in place for some time. Have you, for example, reached agreement with the relevant unions? Do you foresee job losses arising from the introduction of this project? Is the roll-out compulsory or voluntary? Has provision been made for people with disabilities who may not be able to access the letter boxes? Are savings contingent on a complete roll-out? What will happen, for example, if the roll-out is just 30% or 50% of the total number? Is a pilot scheme envisaged which would be operated in a trial area to establish if the proposal would be successful?
Mr. Hynes
Apropos who knows what, I stated that a strong partnership process is in place in the letter post division with the Communications Workers Union, which represents the employees directly involved in the measure. They have worked hard on this. As an Irish person in the postal world, one becomes aware while abroad that one is the only person in a room who works in a system which does not have roadside letter boxes. We find ourselves explaining the reason we do not have them, rather than having the reason for them explained to us. Other postal administrations are familiar with how these systems work. We are working with our staff on an approach by which the savings generated by the measure would be shared 50:50 with staff.
We have already concluded similar deals in the post office division, with the rural sub-postmasters, in the Dublin mail centre and in our parcel sorting centre. We have a general programme of cost savings in the company. In addition, by progressing these measures, staff earn shares in the company ESOP which, I understand, will come before the Legislature during this session. This will entitle them to earn the 14.9% share which has been agreed. Members of the committee will not hear or read public statements by our staff on this issue, which should be sufficient explanation of their position.
The shareholder is privileged to know our business plans. The position is straightforward. The regulator was established to make these decisions. It is my understanding that the commissioners have, by law, the powers of a High Court judge within their remit, which illustrates how powerful they are. The regulator hears the views of all the interested parties and takes the ultimate decision, subject to law.
The reason we are in the current position is that all our competitors are in a similar position. We want this type of regulation to enable us to compete. The whole thrust of this issue is driven from Brussels because we are working under the second postal directive, which states——
Your company is set to lose €18 million this year, while the postal service will probably lose even more. You took a sample consisting of 1,000 or 1,200 people. Have you established a master plan for the roll-out of these letter boxes throughout the country or will you begin with a pilot scheme confined to a specific area to establish what cost savings you will make and whether people will voluntarily accept the introduction of the new system? Has this plan been costed? Has agreement been reached with the unions?
Mr. Hynes
On the last question, the matter will be subject to a union ballot in due course and preparatory discussions on the issue are being held with the union. With regard to the master plan, the answer is unequivocally "Yes". We have a master plan, which states that we need 500,000 roadside letter boxes if we are to continue financing the rural delivery service in conditions of full competition. We are very flexible in how we go about implementing the plan. We do not, for example, want to snag a series of hard cases within it and have them excluded from the measure from the outset. We want to apply it to normal, able bodied people who drive in and out of their front gate every day. As a result of the arrangements made during the outbreak of foot and mouth disease, we did not go onto farms. The public are willing to pull wheelie bins down long lanes, yet the postman must go up to their door five days a week.
Is it envisaged to have, for example, one post box or 50 post boxes at the end of a street with 50 houses? Will you explain your plan?
Mr. Hynes
The basic idea is that if one's house is more than ten metres from the entrance to the property, a letter box will be placed at the entrance. We also have refinements to the measure. In cases where people have very long private lanes, for instance, we want them to come down to where the property joins the public road as it is very expensive to deliver to such properties.
The committee should bear in mind that, as a commercial company, more than 80% of our revenue derives from businesses, most of which are in Dublin, Cork, Limerick and Galway. We earn very little from collected mail in rural areas. Given that the business sector here is not willing to pay any price for postal services, it will not show loyalty to An Post if there is a cheaper price available. Businesses will use the cheaper operator. Everybody we have spoken to from other countries, such as New Zealand and Sweden, pointed out that as soon as a competitor offers a cheaper price, customers leave without a second thought. While An Post may remain close to the hearts of citizens, the people from whom revenue is generated rapidly change their allegiances.
The challenge set is to remain the dominant, urban postal delivery company, making sufficient profits to cross-subsidise rural routes and charge the same price across the board. We, our staff and our unions believe we can do this. It is my job, including the job of Ken, Liam and all the others, to persuade people this is achievable. When we looked at this issue ten years ago this was a very different country from what it is today. It is a much wealthier country and there are many communications choices, including text messaging, mobile phones and the Internet. It is a tough world for people in the communications business. We want to keep our routes in daily delivery rounds because without these routes we would not exist. I am not trying to over-dramatise or forecast gloom but that is where we are.
I want to hand over to Deputy Brady and others who might make more sense of this. I am confused. An Post is providing a service with which I am very happy - the staff in Cork are superb - but it is now proposed to change the service. Will that change be compulsory or voluntary and how will you deal with people with disabilities? You stated that you surveyed 1,200 people but you did not consult your customers. Would you agree that prior consultation with customers before any changes are made would be the normal way to do things?
Mr. Hynes
Yes. I agree unequivocally with that and this must be done through the regulator. That is how it has been ordained we should do this.
Mr. Hynes told the committee that he has a master plan for the roll-out of these boxes and that he will introduce them, provided he gets permission. Is it correct that he did not consult anyone other than carrying out a market survey?
Mr. Hynes
That is true. I have not held a plebiscite of every mail receiver in Ireland.
It could be done quite simply by handing in a leaflet with every mail delivery because you are going to post boxes almost two or three times a week.
Mr. Hynes
Had I done that, it might be seen as fairly cheeky in terms of the consultation process vis-à-vis the regulator, which is why we did not do it. On whether it is voluntary or mandatory, first, we believe if it is voluntary people who have a big twisty driveway to their house will say they will not walk down to the gate because they pay enough taxes and the postman can drive up to them. The people who have a short driveway will volunteer because it will help Michael or Peadar on their route. The people who will opt to do it are those who will save the least money and we will not catch those where the real savings are, therefore, we will end up investing in a programme which will not work. Second, our staff need to know where they stand. It will be a district by district roll-out. We will not put them in everywhere on day one. We have been speaking to the unions about the first areas to tackle. We will start with one district and work our way through, and it will be stopped pretty soon if it does not work. However, this change cannot begin unless the regulator allows it, because the universal public service obligation, be it door to door or whatever changes we make to that, will be a cost to An Post. An Post has the job of keeping the cost down and then finding the revenue to counter balance it. That is why we went about the change in this way. While there were 1,001 ways of doing it, given that the system was now under an independent regulator - this was specifically an approval matter for the regulator - we opted for that approach because we think the next hurdle for the measure, which is part of the strategic plan, is the regulator’s decision.
Let us be clear on this before we move to the next phase. Will a person who is elderly or disabled, living up a driveway, have to come down to the gate to get their post?
Mr. Hynes
No. I said at the outset that people like that are excluded from the measure.
How will An Post survey them?
Mr. Hynes
Because we deliver to them every day.
What will you do? Will you put a leaflet in their door asking them what they want?
Mr. Hynes
No. We have collected every address point in Ireland. We have written out a correct postal address. We have put a grid reference on the postal address and we have put that into a public database called "zero directory" so that we know everywhere we deliver. We also pay 80% of pensions. You can take it we know where pensioners and people with disabilities are in rural areas. No one knows them better than we do. I said at the outset, and I keep on saying it, that these people are totally excluded from the measure. We are open to any sensible exclusion as long as it is non-discriminatory and applies across the board. These people are outside of the measure. I am talking about the 72% of people in rural areas who have access to cars and so on.
However, you do not agree with voluntary participation.
Mr. Hynes
If you leave out the accepted groups, which can be a fairly long list, you will come back to people who are not disabled, old, widowed, lone parents and so on. There must be one rule which is fair across the board, we cannot pick and choose.
I am sorry. When other members have spoken I will come back to you on the financial state of the company.
I welcome Mr. Hynes and his delegation and thank them for their presentation. My first question relates to postal boxes about which there has been much debate, particularly from politicians. The Chairman referred, and rightly so, to people who are disabled and he was told they would get an exemption. The only contact many people in rural areas have is with people who give them home help on a daily basis. There is also some concern about the security of these boxes which could be vandalised and mail robbed. What provision has been made for the delivery of packets, parcels or registered post? What will be the total saving to An Post if this change goes ahead?
The Chairman referred to an overall plan. Does An Post have any plan to re-organise delivery offices or rural post offices? Could I get some indication of the number of customers who utilise small rural post offices, the number of weekly customers or whatever? I appreciate that one might have to cover 300 kilometres in a rural area to get to 40 or 50 houses and, in a competitive situation, taking on such a route would not be attractive. Reference was made to further liberalisation in 2004. Many postal operators, particularly the larger ones, have made a lot of international acquisitions and the smaller operators have already entered into international partnerships. Where does An Post stand in terms of an international alliance and how would it rate itself, for example, against other postal operators? What percentage of the approximately 5,000 staff are part-time? Reference was made to the large number of staff who have already availed of the voluntary severance schemes. Is there ongoing discussions with the unions in relation to the overall plan and schemes?
Reference was made to other services, including EMS and SDS, which are very successful. Perhaps Mr. Hynes could give us some indication of the increase in business in the past five years and how it is at present.
I welcome Mr. John Hynes, the chief executive of An Post, and his colleagues. Over the years the management and staff of An Post have projected a very good image. As I met my postman this morning - a very cheerful, happy, efficient and helpful person - I said to myself that it would be wonderful if every business could project such an image to the public. He projected the image of a guy who works for a great company.
Deputy Kelly is getting plenty of votes now.
If I could get a job as a part-time postman before the next election it would be very helpful, especially if the boxes have not been installed.
Coming from a rural background, I have been asked by colleagues, particularly Councillor Brian Lynch in Granard, to request that the present situation remain. Where is the cost saving in installing boxes rather than having the postman call to the house? The relationship between the postman and the householder is a useful one. I do not know of any company which has such a daily, regular relationship with its customers and whose representatives are given full access to customers' homes. Years ago we used to say that apart from An Post the owner of the travelling shop was the most knowledgeable person in rural Ireland. He was a banker, confessor and many more things. From a business point of view it will be a pity to lose the fantastic relationship that has been built up over the years between An Post and its customers.
I realise that the company cannot be a loss maker and I support its efforts in that regard. The management of the company recognise its responsibility to make a profit and is not prepared to shun that responsibility. It is prepared to face whatever decisions are necessary to make the company profitable. Nevertheless, it is hard to see how such a great relationship will be lost so easily, particularly while every business is trying to build up a relationship with its customers, gain access to their houses and get the customers on its side. It is a pity another way could not be found. Perhaps extra services could be sold to the customer. There are various ways of selling a product but the successful salesperson puts in that extra effort and goes out and knocks on all doors.
The annual report for 2001 showed that, excluding subsidiaries, staffing numbers in 2000 increased from 9,185 to 9,377. It is rumoured that An Post will be seeking more than 1,000 redundancies in the future. Have these redundancies been agreed with the trade unions? How would the figures break down across the various divisions of the company? How does the company envisage paying for such a massive redundancy package?
I welcome the presentation and I am delighted to see representatives of An Post here. The company has had few hiccups, as we all have had from time to time, but overall the image An Post projects to the Irish public is a favourable one.
Mr. Hynes
Regarding the security of post boxes, we have chosen a very expensive box which retails at €95, before installation costs. It is made of metal, not plastic and is resistant to vandalism. I have one built into the wall outside my house and when I am at home during the summer I can see the postman as he goes by.
Does it have a flag?
Mr. Hynes
No, but I have a letter box at the corner so I have only to walk across to that.
There will be no change in the delivery of packets and parcels and of registered post. Items which do not fit into the roadside letter box will be taken up the drive, in the gate, up the stairs or whatever is necessary, and there will be no change there. Estimated annual savings in operating costs, on the basis of the delivery figures I have mentioned, will be €20 million.
This measure does not affect Dublin delivery offices. We will be seeking to make Dublin delivery routes more efficient. We have done some pilot studies in partnership with CWU to see what the potential savings are there. We are reasonably satisfied that with automation in the Dublin mail centre we can take some of the sorting done in the district offices back to the DMC in the early morning and raise productivity in the DOs in that way. That is the plan for the city.
We have 600 rural sub-post offices from which we deliver mail every day, with as few as one or as many as half a dozen postmen. To raise the working conditions of these postal workers to what prevails in company installations we must reduce the number of rural sub-post offices from which we deliver mail. We want to provide good working conditions, proper sorting facilities and access to welfare facilities such as toilets and the means of making a cup of tea. We are hoping to reduce the number of rural post offices on a voluntary basis. Recently, during a period of industrial action by sub-post masters, a number of postmen who used to deliver from rural sub-post offices delivered from home and it worked well. If we can get agreement from all the parties concerned, including the postmasters union, we will avail of that cost saving opportunity.
We have had a team of senior executives working on the question of an alliance for a number of years. There are two interested parties who would like to do an alliance. The management has committed to the board and through the board to the Minister to put a proposal on the table early this year. The proposal cannot be tabled until the postal Bill enabling the employee share ownership plan and the alliance is passed in the Oireachtas because otherwise there would be no legal basis for the proposal. Therefore, in this rapidly liberalising and heavily consolidating market, it is urgent that we seek the shelter of one alliance partner so that we are not fighting that partner and we have the help of that partner to fight the others. It will be a competitive fight.
Will Deputy Brady put the question on comparison with others again, please? I have lost that question.
How does Mr. Hynes see An Post rating against other companies?
Mr. Hynes
In Europe, we are on a par with the Netherlands and the United Kingdom on price. We are fifth best on international inbound quality and fifth best on domestic postal quality, by our own measures. We are very respectable and we are regarded as a solid little post office which is particularly good at IT.
Regarding the number of staff, of our 5,500 staff, approximately 1,000 are part-timers. The reason for the growth in our total numbers is that the proportion of part-timers is steadily increasing inside the workforce. This is driving up the head count but not the labour hours. In 2002 Ken Robinson's business handled 5% more volume but only 1% more labour hours went in, so productivity is increasing. It is interesting to note from Ms Etain Doyle's chart that much of our growth is dragging up delivery points with it. That, of course, brings up cost and that is the issue in the chart for the economists.
Ongoing discussions with the unions are intensive and detailed. The unions are insisting, before they agree to anything, that it be comprehensively piloted on the ground. Discussions are taking place in four areas at present. To facilitate foreseen redundancies we have an arrangement with the union that there are specific purpose contracts in place for those people who know they will be leaving when the redundancy comes along. SDS has been growing but its growth tapered off last year and it is facing very tough competitive circumstances. We are talking to the staff and we respond to that.
In answer to Deputy Kelly's questions, an urban postman will typically cover anything between 600 and 1,100 houses on his route; a rural postman will only cover 300 to 330 houses but roadside letterboxes would enable 400 houses to be covered. The same hours - mileage does not really count - can then cover 400 houses. An extra 100 houses per route is a saving of one route in three. That is a bit of an exaggeration because there will not be a one in three saving but that is the gist of it. If the postman does not have to go up a lane, turn around and come back again, he will be well down the road to the next house in that time and more houses can be covered for the same effort. The savings that will result will be shared with staff, including savings achieved under the roadside box measure.
We announced 1,200 redundancies early in 2002, 800 in letter post and about 300 in the post office branch network. Later last year we concluded an agreement with the CWU that 50 of the 96 company post offices would convert to sub-post offices on a phased basis over three or four years. That programme is up and running. We have also agreed measures with the Irish Postmasters' Union. In the interests of time I will not go into details.
We will pay for the redundancies by a combination of three measures. I mentioned €52 million which will be to pay for half the number of people who leave. The other half will be given early pensions. The €52 million will go to pay for the people under 50 years of age who go on severance who are not entitled to an early pension under Revenue rules. Our pension fund is fully funded and is in good shape and there is no problem whatsoever with it. Due to its valuation it is able to absorb these measures. The €52 million in cash in two tranches of €21 million and €30 million is sitting in the bank earning interest and so we do not have to borrow that money for the redundancies.
We can just about pull this off if we get some room on roadside boxes. We can pull the whole thing together with staff by the end of 2003. If we do not succeed, we will be into much more accelerated and quicker measures in 2004 because we will have run out of cash. We are trading on our cash cushion. I am conscious that we are a commercial company but it is done in the context of the cultural and social expectations of our customers. This is a company which in 2001 and 2002 financed the guts of €30 million in losses in the post office network, never mind the mail business. We were told to do that, to work our way out of it. We are not a profit-driven company, we are a service-driven company and cash is king for us, not profits. When we run out of cash, we are at the mercy of the people who give it to us and we never want to put our customers in that predicament.
It is very financiable provided we can do this. It is a very integrated measure, along with mails automation, which we will not dwell on now. We had some glitches over Christmas with that but they are being ironed out now. I will confine myself if I can to one-line answers to see if I can answer as many questions as is possible.
You cannot.
Mr. Hynes
I have said that I will hand the floor back to anyone who wants to ask questions.
Just to clarify a number of things, you said that you have entered into an agreement with two overseas partners.
Mr. Hynes
No. What I said was that two partners have expressed an interest in entering into an arrangement with us.
But you have nothing conclusive.
Mr. Hynes
No, nothing conclusive. My instructions from the board are at the time I table that to the board and in due course to the Minister and to everybody else, that we have a stand-alone strategy in which we do not enter into any alliance. Both sides of the coin must be examined because it will not be the case that one side is a big winner and the other is the obvious loser; there will be mixed benefits and mixed risks. In the European postal market, An Post is 0.5% the size of the German market, 2% the size of the UK market and 20% in business terms the size of the Netherlands market. We are a mouse on a dance floor with a lot of elephants around and we must be fairly nimble.
All I can say to you is that if you do not get a partner soon, you will be in trouble in a few years time.
Mr. Hynes
We need the Act for that.
From listening to the contribution before An Post's contribution, I think that is the partner it needs because the regulator spoke a lot of sense. I was excited for a moment when I heard a comment about the situation at Christmas when over one million items went missing. I am sure the committee would welcome a comment about that.
I agree with you that any business needs efficiencies. I know from talking to postmasters in several rural post offices that it used to be that if I posted an invitation or congratulations card to a neighbour, the postmaster would check it before sending it away for sorting and would throw it into tomorrow's despatch box so that it arrived. They have been instructed by An Post that they are no longer allowed to do that and it must be sent off to the central sorting office and go through the system. I wonder how that can be called efficient because that seems to be as big a fiasco as Saipan in another context last year. Is this daftness clogging up the system?
I am surprised to hear that so many redundancies are required. Drogheda is now the biggest town in Ireland and the post office there has been closed several times in recent months due to lack of staff. I look forward to your comments on Drogheda and I wonder what is the issue there.
I will not dwell on the matter of the post codes but I would like to know why An Post is resisting their introduction. In the last three years, £150 million has been spent on sorting technology and you are continuing to invest in that type of automation but it is not working and is still causing considerable problems. It occurs to me that I would not move on to the next phase of a project if something is giving such trouble, particularly given the level of investment required. An Post's biggest source of losses comes from foreign postal operators. Why should Irish customers and businesses continue to subsidise foreign postal agencies, in particular Royal Mail? According to information I have received, they are imposing the biggest loss on your system. In my question earlier to the regulator I mentioned REIMS. We learned that there will perhaps be a renegotiation or at least I am hoping it will be renegotiated. Will you take on the renegotiation of the contract with other operators, particularly European but also international, before the regulator advises or instructs you to do so? Will you confirm that the three loss-making features of the system are the small letters posted internationally, the delivery of letters from abroad and the post office counter service?
That is what I have been told. I wish to commend you for the deal done with AIB. Last week I heard an AIB spokesperson praising An Post's service. It is unusual for a big financial institution to commend an organisation such as An Post, and I congratulate you. That arrangement has given you an extra three million counter transactions annually so there must be extra revenue potential and efficiencies. There are an extra 3.5 million ESB transactions. All the additional business must offer room for efficiencies and expansion in the company.
Like other speakers I wish to acknowledge and commend the work of the people in the postal service. Irrespective of weather the deliveries are made. The social dimension to their work is incalculable and is not often acknowledged.
Is negotiation of a new compensation agreement with Royal Mail a key issue? Perhaps the suspension of investment in the sortation equipment until such time as the present equipment is working should be considered. Will you clarify the resistance to the introduction of postal codes? Does it not make sense to suspend the introduction of kerb-side boxes until such time as a real debate on their use takes place? How long will it take the company to recoup the €40 million or whatever amount is to be spent on that programme? I am pleased that the company will continue to deliver post to the houses of older people. I am not that old but in another five years time how do I redesignate myself as an old person?
I wish to compliment Mr. Hynes, for the comprehensive response which shows a very good understanding of the system. We all respect what An Post has been doing and it took us all by surprise when we read in the newspapers about the 1,000 post boxes.
The Government will insist that you operate under a commercial mandate and you will not be given subventions as such. You are trying to do that and the post box proposition is one of the factors. In your presentation you spoke of full liberalisation in 2009. The regulator will impose certain constraints on you. If other companies are already in the market and are capturing in particular the parcel post business, then by 2009 other people will look enviously at the Irish market and perhaps cherry-pick the services in urban areas or the 80% business composition. Do the other competitors from abroad operate under any constraints? Will An Post be left with the chaff rather than the wheat after 2009, thus creating further economic problems for the company?
When you talk about elderly persons I presume you are talking about pensioners. You are using the incentive of a free post box worth €95. If the postman is delivering mail to a post box, why could he not also collect mail from the box? This would give an extra incentive to customers to accept the change.
I am a politician from a rural area in west Limerick and I know the time involved in going a mile down a lane to chase a handful of votes as opposed to canvassing in an urban area.
Will you take some more questions or answer those which have been asked? I am aware that there might be a vote in the House. If we let you go tonight, you may have to come back again.
Mr. Hynes
I would be delighted to come back. I will answer quickly. Some 10% of mail in Dundalk is local mail, so 90% of the mail delivered there every day comes from outside Dundalk. We have changed the latest time of posting in Dundalk to 6 p.m. from 6.30 p.m. We transfer the mail down to Dublin in a dedicated truck. It departs Dundalk at 6.15 p.m. and is in the Dublin mail centre on the Naas Road interchange at 8 p.m. It is sorted and despatched back to Dundalk at 10 p.m. It spends two hours in the Dublin mail centre. All mail out of the DMC , the east coast catchment area, will be in Dundalk at 12.15 a.m. The mail from the rest of the country arrives in Dundalk later in the night as it comes from Cork, Limerick and such places. The efficiency is achieved in not having people doing 10% of the mail in Dundalk as it is all sent to a big, automated plant where the other 90% which is due as a next day delivery in Dundalk is all sorted together at once. Because the truck must travel up and down with 90% of the mail, the other 10% might as well go also. That is called mails concentration in An Post, a different word from "focus". The same system applies to Drogheda. The truck stops in Drogheda and works its way down the M1 to the mail centre and makes the return journey.
The entire Dublin mail centre catchment area of Louth, Meath, Dublin and Wicklow is all sorted in the DMC. One third of the mail is concentrated in Port Laoise and one third in Athlone. Nothing is concentrated in Cork but we will have Cork all concentrated, in other words, we will not be sorting out mail in 81 places at night any longer but we will be using four places and the postmarks will go. It is too late to suspend that investment because the money has been spent. The machines are in Cork, the building has been built and the facility in Athlone is open - it is all done and dusted.
We have only started out on REIMS. We were in the UPU which is an intergovernmental treaty organisation. We were paid 41 cent to deliver mail arriving in Ireland and we used to get 53% of our 41 cent. Under REIMS we have managed to get that 53% raised to 73%. The consensus in REIMS means that we keep going to higher figures. The target figure was 80%. This has disintegrated. REIMS is a 17 country multinational agreement subject to clearance with DG IV now DG Com. It is highly complex and we are small fry within that. It has served us well. If 28% of your mail is import-export, you would like Royal Mail and others to give your mail prompt delivery. They are fined under REIMS if they do not do so. The result has been that quality on REIMS has rocketed up. Independently measured figures supplied to the Commission show the cross-border mail service has improved dramatically by more than a third during the six years of REIMS. It has been a quality success and a small cross-border company with 28% of its business based on import and export can wag its finger at Royal Mail and tell it to pull its socks up in future, as it was not good enough. A system like that is necessary.
It will not get us to anything like our true cost of inward mail. Realising that, under the latest statutory instrument which transposed into Irish law the second postal directive, the Minister gave ComReg the power to approve what is paid for delivering inward mail. An Post now has the opportunity to make a proposal to ComReg to charge Royal Mail, which as it represents 63% of our business is the main problem. We can live with the others. There are swings and roundabouts with inward and outward mail, but with Royal Mail we are being creased financially. We advised Royal Mail we would have to pay more and we put a proposal to the Irish regulator who has commented on it. We then asked what is to happen next.
I have a legal obligation to deliver that mail irrespective of what we are paid for it. I am legally bound under Irish law, EU law and Government agreements to deliver that mail. That shows the lack of commercial freedom and the reality under which we operate. We are now apprising ourselves of the opportunities. I understand it is possible that when the regulator decides to exercise these powers there will be a consultation period, during which we can return to the topic in some more detail. It is fairly complex as are all price negotiations.
Roadside letter boxes would save us €20 million per year. We would get a payback in 18 months from the capital investment of around €30 million. In economic terms it would be said to be a no-brainer.
You say you have a cost plan.
Mr. Hynes
Yes. With 3,500 routes it is necessary to consider every route and the 1.4 million houses to make an estimate whether particular houses should get roadside letterboxes. We have done that. We have been working hard at this for a few years.
I thank members for their complimentary remarks on AIB and ESB. Together the two of them represent a 6.5% volume increase in transactions in the post office network, which is welcome. On the other hand, we took a 45% price cut with Eircom two years ago and we are only recovering from the effect of that. We also had a welcome price increase for our social welfare business from the Department of Social and Family Affairs, which was the first since 1996. However, that business remains under threat because the European Commission has taken article 226 proceedings against Ireland. I will not go into that in the interests of time.
By 2009, An Post will be a heavily regulated public service provider and the competition will have no regulation and will not even need to pay a licence fee. It will be open season. Under current Irish legislation, the only regulated party is An Post. In the latest statutory instrument, there is provision for nominal licensing, which we regard as weak as famine soup, but we can leave that to one side. By and large we will remain in quite tightly regulated free markets on all sorts of issues to do with complaints, access, collection times, delivery times, etc. We do not mind that because if there is to be competition and there is a huge operator in that competitive space, the job of the regulator is to create competition, without undermining the public service. With her colleagues, the regulator is in the business of doing that. She is not in the business of keeping us in a monopoly and that is the law.
Will an equivalent regulator exist in those countries?
Mr. Hynes
Regulation varies considerably in Europe. There are some that I would bluntly regard as captive and still inside government departments, notably in France. I am amazed how the system in France works. I admire it at times but it has queer ways of going about things. In the UK there is a regulator and they are losing £2.5 million per day. They will decide on roadside letterboxes fairly quickly to resolve that problem. There are some very difficult situations. We are in the Anglo-Saxon box. While the Irish tend to follow EU law, the Germans get the rules they want, the French do not believe the rules apply to them and everybody else follows the rules. It is not that different in the postal case.
It is the same as the fishing industry.
Mr. Hynes
The postal codes serve a number of purposes. They were introduced originally because when using sorting equipment, it was necessary to key into a keyboard. It was possible to key in a number like BT15-1AB and that would identify the address to the nearest five houses, which was good enough. That could be keyed in fairly quickly while the letter was chugging around the equipment, which was grand. We came so late to using mail-sorting equipment that we faced two main problems. By then, the computers could read the entire address and for considerably more than half they could work out where it was to go without any code. An Post has now raised that level of performance even higher.
In rural Ireland there are no road names. We suggested to the Department of the Environment and Local Government that it give a road name to every road in Ireland, but we got a frosty reception, bearing in mind translations, etc. Some 40% of rural addresses and even 20% of urban addresses are not really addresses. We came up with the idea that we would create a correct postal address that our equipment could read for everywhere that we deliver mail. We have done that for 1.4 million places. With the Ordnance Survey, to give a spatial dimension and define where it is, we give it a grid reference. We have paid for all of that and put a considerable amount of money into it. It is known as geo-directory - everything has to have a nice name these days. "Geo" comes from it being geographic and "directory" because it represents postal addresses. From a postal address it is possible to determine a grid reference. The emergency services are also using this.
We have no technical requirements for a post code. It is fine for people to say they are in Foxrock and not Dublin 18. People can say they are in Dublin 6 and not in Dublin 6W or vice versa and the computer can work that out. If coding were necessary we would be proposing it. If I can persuade the committee to agree to roadside letter boxes, I will not want to persuade it to go with post codes. I do not believe the Irish want to be put in a straitjacket and given a number. This can affect credit ratings whereby some companies define loan rates on the basis of post codes. The same is true of insurance costs. We want to have nothing to do with that. That is grief and trouble as far as we are concerned.
When answering the questions of Senators MacSharry and O'Meara, you should think again about what Senator Finucane said about the letter box, the flag, the collection and delivery and the master key for the box. As you know it is different in the United States where there is an open box.
Mr. Hynes
We thought of that and decided not to do it. In the United States, people are obliged to have the box on the public thoroughfare. The postman can drive and deliver without getting out of the vehicle. By doing that the postman passes it every day regardless. Under our more limited proposal, if we have no mail, we would not go past that box.
That is right.
Mr. Hynes
If we went further and used the Australia, New Zealand and United States model of delivery, we would drive by on a moped or special vehicle, the hand would go out and there would be no social contact. Ours is a compromise between the two.
I can see what An Post is trying to achieve.
Mr. Hynes
We are trying to strike a balance between the old and the new.
It is a different culture.
As time is getting short, we can take my respects, commendation and praise for An Post as said. A price increase of three cent for a standard letter was sanctioned last April. Is there any plan for an additional rise in the future and if so, will it affect domestic post, international or both? I am conscious of trying to save An Post's staff work so I will localise some issues and ask questions specific to Sligo, from where I come. Since Christmas, the postal service there has been nothing short of a disaster. Both as Senator and in another capacity, I have experience of letters posted in Sligo going to Sligo addresses being routed through Athlone. A letter posted on 9 January has still not been delivered to a Sligo address and that is not unique.
I am chief executive officer of Sligo Chamber of Commerce and my office has been inundated with complaints. Mr. Hynes highlighted the example of Dundalk, where the latest time for posting has now been set at 5 o'clock. The chamber of commerce has been informed of that and it is not acceptable. In my opinion, it defies logic that a letter originating in Sligo, for delivery to an address in Sligo, has to be sent via Athlone for sorting. I cannot see any cost saving in that operation. Would it be possible to provide postboxes SDS depots, many of which are located in industrial areas? I have in mind in particular the industrial estate in Sligo, where there are approximately 100 companies but no local facility for posting letters. Finally, what is the current status of the Ballymote post office, County Sligo?
I join in the comments of appreciation to Mr. Hynes and An Post for their presentation. In general, An Post provides an excellent service. The debate about rural postboxes is taking place against a background in which, over many years, people have become accustomed to direct delivery and a personal relationship with their local postperson. Clearly, we are looking towards a very different situation in future and not necessarily a welcome change. The experience of postal deliveries during the last Christmas period is very worrying and disappointing, particularly in light of today's presentation. I had the experience of receiving a wedding invitation on the day after the wedding had taken place.
Was there a postal problem with the wedding present?
No, fortunately I had delivered it in person. I hope my experience of the postal service is not a sign of things to come and I would welcome an assurance from An Post in that regard. Although Mr. Hynes has referred to mail automation problems, I also heard a report of staffing issues, in that fewer people were taken on to deal with the extra deliveries during the Christmas period. Perhaps Mr. Hynes would clarify the position in that regard. Was that an erroneous report or did the tighter margins to which An Post is now operating lead to an enforced situation of fewer staff dealing with Christmas deliveries?
In general terms, the argument with regard to roadside boxes has been made and perhaps there is a certain inevitability about it. It is noteworthy that one in three house completions involves one-off rural houses. The population of rural areas is not declining - in fact it is probably increasing. As has been said, a more dispersed population gives rise to various infrastructural issues, as local authority members will be aware, and that is something with which people have to live. However, is it only An Post which has to live with that? In the context of competition and since An Post is a service-driven company, is it open season for other postal service providers to cherry-pick the urban areas which, as An Post has pointed out, account for 80% of profits? If I were in that line of business, I would also concentrate on the high-profit urban areas. Are future changes inevitable in the rural context and are roadside boxes literally "the end of the road" in this regard? I suspect that is not the case. For example, in the telecoms area, privatisation of the former State company has been followed by massive changes which were not necessarily good for the consumer. In answer to an earlier question, the regulator said the role of competition was to produce a better and more comprehensive service to the consumer. In my opinion, that is not happening. That is not the fault of An Post, which is now forced to compete in a tightly regulated and more competitive market. Is the object of competition to prevent the State operator from competing?
Deputy O'Donovan has a further question before Mr. Hynes replies.
I apologise for my late arrival due an overlap of committee meetings. I join in complimenting An Post on its excellent service over the years. As a representative of a very rural constituency, the proposed change in postal delivery arrangements appears to me and my constituents as yet another downgrading of social services in rural areas. While I appreciate there are economic considerations, I am concerned for residents of the peninsulas of west Cork - Béara, Sheepshead and Mizen - and the six inhabited islands. Many people look forward to the human social contact provided by the postman's visit, which will be lost in the new situation. As Mr. Hynes said, competition will operate in Dublin, Cork, Limerick and other urban areas whereas nobody other than An Post will provide a service in rural areas. I am not at all happy with the arrangement for rural postboxes, notwithstanding the economic reasons for it. The social aspects are also important.
Has An Post considered the possible revenue benefit of involvement in the motor taxation system? For example, people from Allihies have to travel 100 miles to Cork City to tax their cars and, if there is some error or omission in the documentation, they may have to travel home and back again. I have already suggested, at local authority level, that there should be a facility for people to tax their cars at local post offices such as Castletownbere, Schull or Goleen. Has An Post explored the possibilities in that regard, in conjunction with local authorities, for the provision of a more user-friendly, efficient and perhaps cost-effective service? I intended to raise other questions, but they have already been asked. Accordingly, I have confined my questions to the social implications of changes and the proposal with regard to motor taxation.
In his reply, I also ask Mr. Hynes to inform the committee on the investment of €137 million from the sale of IOL and the performance of the overseas companies in which it was invested.
Mr. Hynes
Yes, Chairman. Before I respond to the questions, I wish to deal with a matter I omitted to mention earlier, namely income from international mail. A strategic concern of An Post was that at a certain price point it would be worthwhile for Royal Mail, which controls 63% of our inward mail, to set up its own Dublin delivery operation, leaving An Post to deliver its provincial mail only. We are not dealing with a scatter of post offices without the capacity to set up a local operation. Royal Mail set up an operation in Sweden which thankfully went bust with a loss of £35 million sterling. Based on that experience, a proposal to "take on the Irish" is unlikely to be well received at Royal Mail boardroom level. However, that worry has always been in the background. As well as having competitive pricing to prevent trafficking over the Border, we also had a regulatory shield for as long as we had an inward monopoly.
To revert to the questions which have been asked, the sum to which the Chairman referred was actually greater than €137 million because we made a profit on shares we had to take in part-exchange in selling the two companies. All of it was spent on our investment programme. We spent €24 million on subsidiaries. The air business in the UK is profitable, as are post transaction services in the UK and Spain. At the end of 2003, our subsidiary companies will have a turnover of just under €90 million, will employ 500 people and will make profits of €8 million between them, including a few start-ups that are losing money, which has helped us. The lottery management fee is included in that.
On the 3 cent price increase, An Post has submitted a formal price application to the regulator for a domestic price increase. We hope to have it approved in time for implementation this April and that underpins the budget figure for this year. As I understand it, the regulator will consult on that shortly, and the sooner the better from our point of view. However, one must take a place in the consultation queue and we respect that.
Sligo mail is being handled in the Athlone mail centre. If I am shown covers or envelopes from Sligo, I can tell what went wrong with them but this is the first complaint I have heard. However, I take it seriously and will investigate it for the committee. In the case of Dundalk, instead of posting at 6.30 p.m. one must now post by 6 p.m. It is not being treated any different from Sligo as it has been adjusted also.
The further away a place is, the tighter those times get. A truck starts in Sligo and works its way to Athlone, the driver rests there for two or three hours while the mail is being processed and then goes back to Sligo. In the meantime, mail comes from Cork to Athlone and from Dublin to Athlone; it all gets sorted and exchanged and that is a big operation.
One would have to post by 2 p.m. if that is the case.
Mr. Hynes
If one was in Clifden, which is 52 miles from Galway City, one would have to post by 4 p.m. If one is posting at SDS depots, we have put meter boxes in industrial estates and, if a request is made, local management can make sure it is implemented. Perhaps I could deal with Ballymote post office directly with the Senator after the meeting to see if I can meet his concerns.
Certainly.
Mr. Hynes
We got it wrong at Christmas. We changed shift rosters, attendance times, truck movements and, this Christmas, people posted a bit later than we expected them to. We had planned staff rosters well ahead and decided that we would have no overtime in the mail centre because there had just been a deal done with the union not to have overtime. We got caught out and could not deliver 2% of Dublin mail. We were late and are sorry - it will not happen next year.
Urban cherry-picking will definitely occur. The big danger for An Post is not private operators but other post offices. As long as there is high price post, the biggest danger to An Post is Royal Mail. It bought Global Logistics Services and is turning over £500 million sterling, although it is losing £34 million and is rumoured to be up for sale. However, for a period in the late 1990s it was a very aggressive acquirer and it was inevitable that, if we pushed hard on pricing without protections, An Post would come off worst. An Post gets much of its mail from Royal Mail; one in five letters received every day are from abroad and two thirds of those come from Royal Mail. That goes straight to its company; its parcels go straight to Williams's and An Post does not get them anymore.
It was a delicate balancing act and Royal Mail was a powerful, aggressive competitor. Thankfully for An Post, Royal Mail's foreign expeditions have been a disaster; it is losing £2.5 million per day, the regulator and customers are on its back, and we do not see it as the same threat to us as previously. Therefore, it is time to do something about the problem we have.
On density, I recall being on a plane to the Aran Islands with Proinsias Mac Aonghusa I had a photograph of the airport there which showed six houses close by which were at the corners of different fields and on different lanes. I said to Mr. Mac Aonghusa that, if we were in France, those six houses would be on one lane with one water supply and one telephone. He told me I was missing the whole point of living in rural Ireland which was that people did not want to be looking into their neighbour's back yard. However, there is a price to be paid in infrastructure terms if one does not want to look in a neighbour's back yard, as any local authority knows.
An Post experiences densities that put a huge burden on the rural delivery service. Unfortunately, there is strip development on outside arterial roads and our service cannot continue like this. The roadside letter box is the last cost-cutting proposal I can think of to improve the postal service. If it does not work, the game is up.
On motor tax, the union representing local government officials will not allow that work to come to An Post. Because councillors depend on local government officials and they have a good working relationship, such officials are in a powerful position. We could throw a switch on our computer system in the morning and do this work if we wanted. However, there is some light at the end of the tunnel because some local authorities are talking about a Passport Express type approach where, instead of going into a post office, customers would mail in their tax documents and An Post would handle it. It is nothing like a counter service but the nub of the matter is an industrial relations problem in local government. They will not give up the work.
We have said to local authorities that they can hold onto the cash. An Post will not alter the situation where local government bodies are dealing with the cash relating to motor tax. I was at a municipal conference some years ago where somebody said to me that, "Over our f-ing dead bodies" - the word was quoted in full to me - "will you ever do motor tax." That was said to me in public and is the reality of the situation.
Who said that to you?
Mr. Hynes
I think he was a treasurer in Cork, if memory serves me right, from the corporation or county council.
He was from Blackpool.
Mr. Hynes
The Senator knows the man I am talking about.
I asked about the sale of IOL and I mentioned the figure of €137 million. Mr. Hynes mentioned that An Post bought the mobile top-up business e.CommerCell and Air Business UK.
Mr. Hynes
Yes, we bought into the international mail business and it gives us the opportunity to send international mail at more competitive prices.
An Post is making substantial losses from the international business. Mr. Hynes mentioned €8 million, but in the international business of inbound post it lost €19 million in 2001. How does An Post propose to arrest the losses and return the company to profitability? How does the company propose to deal with losses on the international side? For example, Mr. Hynes told the committee that the company had about €50 million, or possibly €52 million, in reserve and that this was to be used for redundancy payments. The company has now used all of the €137 million plus the share values that were got after——
Mr. Hynes
The figure is €50 million.
I assume that you have earmarked that for redundancies and, therefore, the company has no more cash. It has lost €18 million this year, as you have said, and has not yet published its company accounts, so that figure may be more or less.
Mr. Hynes
The figure will be about €18 million unless the auditors discover something different.
The €50 million is to be used up on redundancies and the company is staking everything on the roll out of the letter boxes, the redundancy package and the return to profitability and sustainability. There will be no cash left if the deal is done and the company is still worried about its markets. A strategic partner is not lined up, so the future for the company may not be as bright as Mr. Hynes thinks. Senior people are leaving the company, Mr. Hynes included, and we wish him the best of luck. Is the chairman gone at this stage?
Mr. Hynes
The chairman has retired since 17 January.
I know that you could not attend one of our meetings because there was a function for the chairman on the same day.
Mr. Hynes
That was his last day.
Does the Government, as the principle shareholder, micro-manage or macro-manage the organisation? Have I asked too many questions?
Mr. Hynes
No, I am delighted to answer them all. With regard to cash - which it all boils down to in the end - on the basis of the plans outlined here today and other plans that have not been discussed in detail, the company should be making comfortable profits of between €10 million and €20 million in 2004, and will be generating significant cash again without having to borrow.
Is that for 2004?
Mr. Hynes
Yes.
Will the company lose money in 2003?
Mr. Hynes
In 2003, the company will spend a further €30 million of cash reserves on severance payments. However, at the end of the year, there will still be about €15 million left. From 2004 on, that €15 million——
Will the company be borrowing if permission is obtained from the regulator to put up roadside boxes, either in a voluntary or compulsory capacity?
Mr. Hynes
No.
You will fund that.
Mr. Hynes
Yes.
The company has only €50 million.
Mr. Hynes
€50 million is the amount that is earmarked for severance. The Chairman should bear in mind that, in trading in 2003, our depreciation charges were around €18 million. If I generate €18 million in depreciation I will have an operating profit of €1 million, given that I will——
You will have €68 million available.
Mr. Hynes
——receive €19 million from trading next year. Roadside letter boxes will cost €30 million and I will also have to pay the severance——
You will have €9 million left.
Mr. Hynes
We will have between €9 million and €15 million. I can give the actual figures if the committee wishes.
No, I am interested in the general amounts at the moment.
Mr. Hynes
It is possible that the plan can be achieved, but the numbers will be as close as those between Munster and Gloucester.
Yes. You have outlined your plans for returning the company to profitability. You expect the company to return to profitability by 2004.
Mr. Hynes
Yes.
Is there a management structure for when you have gone?
Mr. Hynes
There is a management team.
Will somebody bear responsibility for charting the waters in 2003 and 2004?
Mr. Hynes
My vacancy was advertised in the newspapers in the first week of January. I was immensely flattered in the description of my successor - I probably would not get the job if I applied as a newcomer. There is plenty of time to fill my vacancy and the appointment of a chairman is imminent. It is possible to return to profitability within the timetable I have outlined. We have reorganised the company so that it no longer revolves around me. Mr. Ken Robinson is managing director of the letter post division, Mr. Eamonn Ryan runs the post office business and Mr. Peter Sweeney is in charge of SDS business. We have strong leadership in our subsidiaries. I am called the group chief executive because I am no longer the captain on the bridge. I am back at base and I plot where the ships are going in the future. I deal with strategy, regulation, which remains a group function, acquisitions, mergers and alliances.
We have a very mixed management team - our chief financial director came from Hoffman La Roche and our human resources director was in BT Northern Ireland and the ESB before that. I have been in my position for 13 years, but I worked in the bus and gas sectors before that. Mr. Ken Robinson worked for the Royal Mail and both Mr. Eamonn Ryan and Mr. Peter Sweeney have been in An Post for all their working careers. We have a good blend of inside and outside influences and we think that while we are not a sexy company - if the committee will pardon the phrase - we are a solid company. An Post is quite complex and deals with big issues and will face a great deal of risk in its future. We will have to see if we can forge alliances and whether we can solve other problems, such as welfare payments. It has looked risky every year since 1990 but the company is still around, it does not owe any money and it has workable solutions. We have a lot of work to do to persuade people to go along with our solutions but we believe it is possible.
How do you get along withAn Post's shareholders? Are there many meetings with departmental officials? Have they expressed any concern about the impact of your departure?
Mr. Hynes
Different arrangements were in place prior to the appointment of the current Minister, Deputy Dermot Ahern. We processed many difficult issues between July 2001 and July 2002, particularly in relation to sub-post offices. An Post enjoyed a particularly close relationship with the Department at that time, especially in the forum on the future of the post offices. I have always operated with civil servants on a close personal basis. I do not believe in surprises, bouncing ideas around in the media or playing games behind the scenes. Coming from a private sector background, I understand that shareholders own the company and therefore call the tune at the end of the year. They decide what will be done and who will do it. The fact that the State is the shareholder is irrelevant to me. Officials from An Post meet the assistant secretary of the Department every month.
Has the Department expressed any concerns about the losses in An Post? Does it know about the €18 million?
Mr. Hynes
It knows everything. It was very concerned about losses in November, as the company operated to budget last year. We received a tough letter and we replied to it at the end of the year. We were informed that the reply was satisfactory and that the plan for 2003 was acceptable. The Department has acknowledged that An Post faces a tough task and that it will be a close-run thing, as there are challenges in relation to pricing, alliances, inward mail and roadside boxes, but it has been given the go-ahead to proceed with its plan. We have had ups and downs; we do not see things the same way all the time. The Chairman is probably aware that this is normal in a State company.
I am asking because I know that the committee intends to invite the Minister and officials from his Department to speak about these matters at some stage. I was keen to place on the record your view of your relationship with the Department. When are you leaving, Mr. Hynes?
Mr. Hynes
My contract expires on 13 July next.
I do not doubt that the committee will be interested in meeting officials from An Post in September or October to examine whether the company is proceeding with the plan you have laid out as chief executive. Do you regret selling IOL, which is a successful Internet server?
Mr. Hynes
We thought we would get a partner at the time we sold it. Our jaws dropped when we saw the money that was put on the table and the deal was concluded quickly. IOL was sold for a price seven times greater than its revenues. It was incredible. The day after we sold it to Esat, its total consideration was £124 million. Esat's share price increased to £134 million, so its stock exchange value had increased by £10 million a a result of buying the company, which had a turnover of £15 million at the time. It was a tough business in which to make a profit and we were delighted to sell it.
We decided to buy the best mail sorting kit we could find and to make it work, which is what we did. I look forward to seeing members of the committee prior to my departure in Little Island, if those who are interested can make it to County Cork. If anyone wants to come to Athlone or to follow mail from Drogheda to Dublin one evening, I will willingly sit in the van and we can see the entire process and meet the staff. Some 750 people are employed in the Dublin mail centre, 200 people are employed in Athlone and 200 in Cork. It is quite a success story. Our subsidiaries have generated 500 jobs that An Post was not providing ten years ago. We are pleased about that, regardless of the cash and profit matters involved.
When does An Post publish its annual report?
Mr. Hynes
We generally aim to publish it in the fourth week of April. It has to be approved by the Cabinet in the normal way. We expect to hold our press conference and AGM in late April, although it may depend on Easter. We can attend a meeting of this committee any time in May.
The committee will examine carefully the decision of the regulator in relation to the roll-out of the boxes. There is a compelling case for such a measure in certain parts of the country, but not in other areas. The regulator will consider the views expressed today and the views of the people who are making representations to the commissioner.
I thank Mr. Hynes and his officials for attending this meeting. I am aware that Mr. Hynes has been speaking for a long time and I deeply appreciate his informative contribution, which has given the joint committee a concise overview of the issues faced by the Irish postal services. As Mr. Hynes said, it is a matter for the committee to decide whether to discuss this matter further with the Department. The committee will examine the transcript of this meeting and may decide to ask Mr. Hynes to come before it again before he retires. If not, we wish him well in his retirement. I wish An Post well and hope that it finds the strategic partner it needs to survive. I also hope it finds the efficiencies and cost reductions it needs. I note that although turnover increased by 9%, costs increased by 12% in 2001, which is worrying. I understand that An Post is determined to reduce such costs, as An Post will not exist into the future if this is not done. I thank all those present for their contributions.
I remind members that it is planned to invite Eircom and other Internet service providers, including the ESB, which is rolling out the national fibre backbone, to appear before the committee to discuss broadband. I ask the committee to allow the clerk to invite the different groups to set out the programme and to choose which ones should attend the first session. I hope members will agree to hold the meeting at 2.30 p.m. on Wednesday, 12 February.
How do matters stand with regard to local radio in light of the court judgment?
The decision by the High Court to allow a judicial review means that we are prohibited from inviting the radio body to attend the joint committee.
The joint committee went into private session and adjourned at 6.05 p.m. sine die.