I move: "That the Bill be now read a Second Time."
The Communications Regulation (Postal Services) Bill has been discussed at some length in the Seanad where we had a useful debate and introduced several amendments that took into account some of the issues raised by the Senators. I look forward to having a similar process here where we can consider the issue of how we develop our postal service for the interest of our people and the interest of those working, particularly in An Post and the other operators in the industry.
The legislation before us comes on the back of the third European postal directive and follows a long process of reviewing the market for postal services in the European Union which started in approximately 1988. It led to the publication of a Green Paper on postal services by the Commission in 1992, the development of the first postal directive in 1997 and now this third postal directive, which came into effect on 1 January 2011. The European legislation is already in effect and already provides access to the postal market for operators other than An Post down to the smallest letter or postcard. Previously we had opened the market but just for larger parcels and heavier packages going through the postal system. This legislation provides for a more open competitive market across all mail volumes.
While I will go into the detail of the legislation later, I want to outline the broad framework first. The Bill recognises that we need a universal service obligation. Having mail delivered to every house and business every working day is a critical social and economic service. Providing for the licensing of such a universal service for seven years after which it can be reconsidered is an important protection in any changes in the market arrangement. There are social and economic interests in regard to the postal system that go beyond the interests of the companies involved; we have a wider public interest that we look to protect and do so with the provision of a universal service obligation.
The experience of other countries ahead of us in this regard suggests that we can set such universal service obligation without necessarily at the start having a cost accruing to it. There are real benefits in having a universal service capability and having a national distribution system. That economic benefit means that it may not be necessary for us to provide back-up funding for that universal service provision. I do not expect and we are not legislating for the Exchequer to provide such a support or response to the new market mechanisms we are introducing. At the same time we are legislating for this market to be fair. It will not allow someone to come in, cherry-pick the easier, more profitable routes, and see a very high and unfair burden in the cost of providing that universal service in other areas. If it can be shown that there is such unfair competition or unfair use of the universal service obligation, there is a mechanism for the regulatory bodies and parties responsible for managing our postal services to levy an income from the industry to cover that cost. That is an important protection for which we are legislating and it is appropriately market-based, based on evidence of the economic effect as the market evolves and develops.
The Bill provides other protection for consumers, particularly those doing low volumes of business, including businesses that do not have great economic influence because the nature of their postal business is small. We need price caps to ensure they are protected and the legislation is being designed to benefit the consumers. To do that we are using our existing regulatory structures by assigning the powers to ComReg to assess the performance of the operators, the development and delivery of the USO and the necessary regulatory amendments that are needed in that regard. ComReg is very well placed to do that job. It is now a very experienced regulatory office having done considerable work in the postal area. It has also done similar work in the communications area where we have opened the markets to competition and seen real benefits in price reduction and quality of service improvements as a result. Under the 2002 legislation ComReg is accountable to the Dáil through the Oireachtas committee system, which in my experience in opposition and government works well. People underestimate some of the work done in the committee rooms of this House where we have the right to question, investigate and examine the work or our regulators and other bodies. That political oversight exists particularly through the Oireachtas committee system.
There is also political oversight in the Commission for Communications Regulation Act 2002, which provides that the Minister may send strategic directions where necessary to the regulator and in that way the market. That is an appropriate level of ministerial involvement. It is important to have that oversight — that ultimate political control over and interest in how our regulatory system and our markets develop. In my experience as Minister for the past few years it is a provision I have not had to use extensively. It is better used sparingly because it is better to work with the regulator and the market in developing a policy approach on a collaborative consistent and rational basis. If and when necessary, the Minister can set a policy direction that gives the regulatory authorities the necessary steer on a broader policy approach whereby they take on the day-to-day difficult decisions in pricing, competition and regulatory control; this legislation provides for that.
Critically the Bill legislates for the introduction of a post code, which not only implements the recommendations of the national post code review board of some years ago in having a very simple, easy to understand and easy to use alphanumeric postal address system that improves the efficiency of our postal system and helps people develop a range of new Internet businesses, including Internet shopping and so on, but also contains within it the ability for us to develop a location code that will allow a range of applications through the identification down to a single house in the delivery of better services, particularly public services where we can use the information in a range of new applications approved by the Data Protection Commissioner to improve the provision of health and educational services, and local waste, water and other management services to every house in the country. The legislation is critical in allowing for that development, which is now progressing on a very certain path, as we go to the procurement phase to identify an agency or company that will manage the delivery and operation of that postcode system which we expect to see later this year.
Having provided a broad outline I will now go into the details of the legislation section by section. I will set it in the context of what is happening in the postal market in general and some of the strategic developments which we should consider in the context of this legislation and the changing market conditions.
We must recognise that in the postal business the market is contracting quite dramatically, even in the past three or four years, by an estimated 20% reduction in the core volume of mail business. That is due partly to the economic downturn but a significant amount of that reduction is due to systemic changes in the nature of communications. The development of e-mail, instant messaging and a range of new communications systems is replacing a previous communications system, which will not come back because the world is moving to those new Internet and other new telecommunications systems in a way which works competitively.
A UK Government study assessing the five years from 2010 to 2015 expected a 25% to 40% reduction in mail volumes. Taking aside the economic downturn, we are in a market that is going through a fundamental and difficult change for those involved in the industry. We have already seen a change to the extent that the vast majority of mail, approximately 90%, is business orientated. Much of it is in direct marketing or other new services which have kept the volumes up, but the traditional letter post use of the mail system has changed radically. We must plan for continued change in a way that requires a different way of doing business. It requires new strategies, new innovation, new working mechanisms and new market mechanisms to ensure that we have a strong postal service here, and particularly a strong An Post company.
In this context we held a useful consultation exercise in November 2009 where we brought together all of the interested parties. We brought together An Post management, management from other companies with an interest in this market and operating in this market, representatives from the public service policy side such as ComReg, my Department and elsewhere, and workers within the companies and representatives of the workers. The idea was to consider future developments and ask questions such as what happens if the mail volume decreases by up to 40% or 50%, what is our model and how do we see ourselves reinventing this business to ensure it has a strong economic future. That involvement by all parties in this process strengthens this legislation. I hope it gives them a sense that we are not seeking to undermine one sector or one company. We are trying to ensure there is a postal service system in this country so that it can grow, adapt, be economic and provide creative employment.
An Post is a company for which I, as Minister, am responsible. I have seen its operations over the past three and a half years. When I talk to people in the business or meet staff at counter level, in the sorting office or at other office level, my sense is that this is a company with a strong and good working culture, with staff who are proud of their work and who are very good at what they do. It is a company that recognises it must change. We have seen in the past three or four years changes in its work practices which at that time were not working, inefficient and where the company was not making the best use of resources. We have seen improvements in efficiency. An extensive work programme is being put in place between the management and unions to make those changes, and they have been made. I commend both parties for engaging in that process and doing it on a pro-active, positive basis.
There is more work to be done. There are further efficiencies needed when one sees such dramatic falls in volume. We need new strategies and new ways of innovation and operating in the business but we have a chance of doing that, especially in view of the record of management in recent years, where management and workers have co-operated to start doing things differently.
Post offices and rural post offices are a critical part of the social fabric of the streets, towns and villages. In speaking to someone from An Post today, I realised that a typical post office trades in approximately 137 different services. As certain volumes of business are lost in one area, there are other opportunities opening. An Post has been open to that, looking at a range of different markets and applications to see where it can develop business. It has also tried to automate services. Its counter service systems achieve what would seemingly be an insurmountable task to manage 137 different products but one can do it in a clever automated way using modern technology. That is an example of where An Post has been progressive and willing to change and use new technology, which is critical in terms of making the change to a new business model. We must be not afraid of new technology but embrace it. We must embrace the efficiencies and the new market opportunities it provides.
Earlier this morning I met some people from the village of Ballingeary in west Cork. I am sure the Acting Chairman, Deputy Kathleen Lynch, will know the village from her own county. I will use it as an example to make a wider point on how I see a post office service or network developing. As Members will be aware because it is in the newspapers, there is a difficulty in Ballingeary in terms of the existing postmaster coming to the end of his career. The question then arises as what to do next and how to set up a postal outlet in a village like Ballingeary, a community of approximately 700 plus, that is economic, acts as a useful centre of services for the community and provides a livelihood and an economic structure to deliver key postal and other services. I am concerned here with a broad and strategic view which I am not relating to the individual decisions on any post office or area. That is a matter for An Post working with local business persons and the local community. I have assiduously avoided doing that in my three and a half years and I would recommend any future Minister to do the same. One cannot put oneself in the position of making some of the commercial calls — that is a matter for An Post, first and foremost, and the regulator — but one can set the strategic direction.
I use the example of Ballingeary because of my personal knowledge of the area and its businesses to make the wider point. I believe that one of the big economic opportunities for us in the development of the postal service is to adapt to the Internet, and particularly to on-line shopping and the delivery system that will come with it in a range of new parcel and package services. I believe that there is a significant area of growth and opportunity for whoever manages the distribution system and the commercial systems in providing for such a new Internet shopping service. We are starting to see it grow. An Post is already involved in establishing last year its new on-line shopping presence which, I am told, took off despite the difficult period of weather before Christmas. People who perhaps were not able to get to the shops in an efficient manner went on-line in large numbers. They will stay on-line, particularly in rural areas where there might not be the same choice as in central Dublin. This offers considerable opportunities to get to people a range of different services and products that they would not easily get in their local town or village. We need to develop that business as a centre point of the post office, or agency offices within shops that An Post has set up across Ireland, particularly in the towns and villages.
This development provides a two-way opportunity. I know the village of Ballingeary from my own business experience in the past. When one looks down to the village level at the companies engaged in translation services, on-line retailing of books, tourism business, and local food and craft businesses, it seems that almost all now have their marketing done on-line. There is no reason a cheese maker in west Cork should not be able to go to a local postal collection point in order to sell to every part of this country or even Europe. I do not know if he or she would be able to get the cheese as far as America. Those kinds of economic opportunities are now opening up for small businesses in Ireland if the right distribution system is created to enable them to easily transfer a package from wherever they are in Ireland to the market, which would preferably be abroad.
The UK has been good at delivering and developing online shopping business. It is seen as an export opportunity and it is interesting to see the UK study on how the sector is evolving. For every £1 of goods imported over the Internet, £2.80 of goods were exported. We need to enter that space and become good at that practice. We must have a national distribution network that will allow small businesses across Ireland to have a good contact point for an online distribution and shopping system and an export market in particular.
That has implications for what we do with our rural post offices and shops with postal services. Can we develop those shops with access systems for parcels so that people can both collect and deliver? A local business would not have to drive 20 miles to the nearest large town and there would be a flexible and easy system allowing business to be conducted closer to home. Critically, can we develop the number of retail outlets on a scale so that the cost of the universal service obligation mail system, which we must pay for anyway, would be increasingly subsidised or would sit with the new distribution system for goods and parcels that will grow? We must make an economic case for both services and work the two together.
I wanted to set out the process at this point using a local example which happens to be topical currently. That is the better strategy. An Post would have a comparative and competitive advantage with other operators already working in this area if companies can work with and feed products into An Post and there is a distributed and strong local retail presence, along with strong local knowledge and capability to use some of the new delivery and connection mechanisms which Senator Feargal Quinn mentioned in his Second Stage speech in the other Chamber. He is a former chairman of An Post and was nervous about speaking having come from that role. He is worth listening to because people recognise that when it comes to retailing and customer care, he has real experience.
It was interesting to hear his speech cite examples of new mechanisms such as a locker outside a shop. The current system would have a parcel delivered to a house but if the person is not there to receive it, the delivery will go somewhere else in the system and there is an awkward process of tracing and retrieving it. A system could exist where if a person orders a product online, it could be delivered to a locker in a local shop, with a text message or e-mail giving the code to open the locker. A person could pick up the delivery in his or her own time. That is one example mentioned by the Senator but I will not be specific in the services we want to deliver.
Such innovative thinking around customer service and the distribution system, particularly for online parcel and other business, is where the opportunity lies for An Post. It can be delivered in co-operation with other companies. We can see in the US and other markets that a postal company can work with FedEx or other operators to share some of the economics to make the process viable. The distribution system would start to become very extensive, with goods travelling both out of Ireland and around the country from businesses to customers. There would also be deliveries from abroad. Whoever has to manage that complicated and extensive distribution system will have a real economic opportunity and will create employment that may replace the employment we will have to lose in the core business where mail volumes may contract, in our predictions, by approximately 40%.
This is a statement of strategic intent in my mind as to where we should really consider going. We should push flexibility and innovation at the retail point, whether it is a post office or local shop, to deliver many services in conjunction with Internet services. There could also be development of a local contact point for government, using online and communications technology used for process transactions that An Post should be good at. The body will not be good at everything and all 137 of the services may not fly. Where An Post will have a real advantage is in areas where it has experience, scale and practice. That would be in the large volume transactions, including the 3 million postal movements it organises every day. The marginal cost is very small in this regard but on the back of 3 million transactions, there is an economic case to be made.
With all services it is inevitable that we will move to an online and electronic presence; this may involve the provision of social welfare or other services. We should not shy away from the development of new technologies and other mechanisms for fear of changing the current system. Change must come and it will do so more effectively if we proactively shape it in a way that benefits rural Ireland in particular, including small towns and villages. They must get a strong centre that will provide a contact point to government in all its guises and an Internet shopping centre for the community. There will also be a range of other services, financial transactions and other services in development.
I have set this out as a path we should take to answer some of the concerns people rightly have in villages and towns across the country as to what is the future of the local post office and postman or postwoman. It will be bright if we adapt to the new technology, look to new markets and create new commercial arrangements where we would work in co-operation with other companies. Margin, business and volume could be obtained by working with firms on such a basis.
This legislation allows such a process and facilitates An Post and other operators in being flexible. They can negotiate and co-operate as trade works on this basis. The volume of business will increase and although all the value would not be attached to one company, there would be a benefit to having an efficient system and service. That is what the legislation is doing. It is not an ideological argument of private versus public sectors but it is pragmatic with a sound economic sense.
We cannot just do business as usual and those who argue that this will damage or threaten business should know that is untrue; the legislation is required because European legislation has already been set in place which will create this competitive market. There is nothing to stop a company coming in now to cherry-pick business services and what we are doing with the legislation is ensuring the new competitive market, which we need, is fair, well regulated and efficient. It can use new postcodes and other technologies. That is why I hope I will get the support of other parties in the Dáil as we did in the Seanad. The constructive debate and suggestions from the Seanad were useful in that regard and I hope we can have a debate for the benefit of An Post, the other companies in the industry and the people of this country.