Australia Post must confront its red-letter day

Losses from Australia Post's letter services will grow as consumers increasingly make use of email and text messaging. Reviewing performance standards could stem losses and shift customers towards cheaper delivery platforms.

Whether or not Australia Post is eventually privatised, there is a strong argument for a review of the performance standards required of it in its regulated services.

While there has been no indication from the Abbott government that privatisation of Australia Post is on its agenda, a debate about the potential for a sale has emerged. Discussion will inevitably be aired within the forum provided by the government’s independent Commission of Audit. The Business Council of Australia is the latest to weigh in on the issue, advocating privatisation.

It is an argument with some merit, given that all Australia Post’s profits are generated within its non-regulated businesses – those that operate in competitive markets. Australia Post’s non-regulated businesses generated profits of $648 million last year, while its regulated services lost $218 million.

Losses from those services, essentially its letter services, can only grow as the use of email and text services continues to explode. The rollout of the national broadband network will further accelerate the decline in traditional mail volumes. Australia Post delivers a billion less letters today than it did five years ago.

Regardless of whether it is privatised, there is a strong case to be made that Australia Post’s community service obligations and the detailed performance standards that flesh them out should be brought into the 21st century, just as there is a case for reviewing Telstra’s obligations to provide print telephone directories.

Under its Act, Australia Post is required to provide a letter service for both domestic and international letter traffic. The standard letter service has to be available at a single uniform rate within Australia; it has to be "reasonably accessible" to all Australians; and the performance standards for the service have to meet the social, industrial and commercial needs of the community.

Those performance standards require it to maintain at least 10,000 street post boxes, operate a ‘next business day’ delivery service in same-state metropolitan areas, a ‘third business day’ service between metro and country areas and a ‘fourth business day’ service between country areas. There is an extra day’s tolerance for interstate mail.

It also has to maintain mail lodgement points at 4000 retail outlets, including 2500 in rural and remote areas. Ninety-eight per cent of delivery points have to receive mail five days a week, with 99.7 per cent to receive it at least twice a week.

There may be an argument that, in rural and remote areas, Australia Post should continue to adhere to the existing standards, at least until the NBN is available in those regions. In metro areas, however, there is ubiquitous access to fixed broadband. With smartphone penetration of more than 65 per cent – one of the highest levels in the world – there is plenty of access to wireless broadband.

It makes sense to reflect the dramatic changes that have occurred within the communications landscape in an updated set of performance standards.

For standard mail, there is no valid reason why next-day delivery should be mandated in metro areas.

In the UK, the Royal Mail group has two classes of letter delivery, with a pricing premium for next-day deliveries. If there is a need or desire for urgency, the customer could pay a premium. Businesses already use couriers or express post services for time-sensitive correspondence.

If the current five-day service were reduced to two or three deliveries a week with a surcharge for more timely delivery, Australia Post would be able to reduce its losses from regulated services, or at least slow their rate of increase.

It would also make some sense to reconsider the price of standard letter deliveries. Not only would this help reduce the losses, but it would provide an incentive for customers to shift onto more efficient and less costly delivery platforms.

It makes no sense to have taxpayers effectively subsidising the dwindling number of users of regulated services at a cost of hundreds of millions of dollars a year and growing when there are far less costly alternatives.

Whether or not Australia Post is eventually privatised, reducing the losses within the regulated services would add value to a sale or enable the group to pay far larger dividends to the government. Either would be of material benefit to taxpayers.