Embargo until 10am Thursday 22nd October 2009
Access Pricing Review Report & Proposal for Industry Consultation October 2009
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Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
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Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
TABLE OF CONTENTS
Page
Letter from the Acting CEO of New Zealand Post …………..……………
4
Executive Summary………………………………..…………………... ……..
6
Detailed Material ………….......……………………..……..………………….. 12
1.
Objectives of this Review
2.
What Is Access & What Does It Look Like Today?
3.
Why the Current Approach to Access Is Now Unsustainable
4.
What Should Access Pricing Look Like?
5.
What Pricing Models Can Manage These Risks?
6.
Summary of Options
7.
Selected Option
8.
Proposal for Industry Consultation
9.
Consultation Process
10.
Appendix A: ECPR Key Assumptions
11.
External Reference Material
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Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
Letter from Sam Knowles, Acting CEO New Zealand Post At New Zealand Post, we care about delivering an affordable, accessible postal service to all New Zealanders. That is why our organisation exists. It is what gets 3000 posties out of bed every day and it is what enables delivery to the doorstep of almost every New Zealand citizen six days a week. It is behind over 900 retail outlets nationwide. It is why, even with falling letter volumes, New Zealanders still overwhelming prefer the postal system for the physical delivery of messages and goods. The system is simple, cheap, dependable and equitable – it doesn’t matter how remotely you live, the price of a stamp remains the same. Most importantly, New Zealand Post is 100 per cent New Zealand-owned. Every New Zealander is a shareholder in the organisation. Our ability to continue to deliver this universal postal service throughout New Zealand sustainably is under real pressure. As a result, all aspects of our postal business have been under review. That includes how much other postal operators pay to access New Zealand Post’s network. That review has been revealing. It found we are providing postage rate discounts to other operators that are up to three times higher than legally required. In addition to under-pricing, our current approach to access is effectively subsidising other operators to build their own delivery networks in the most profitable parts of the country, while leaving New Zealand Post to serve the most expensive parts. Quite simply, our existing access pricing framework is commercially unsustainable. The fact is we have agreed to network access terms that don’t strike the right balance. In effect, we are subsidising the competition and losing millions of dollars. If nothing changes this loss is estimated to range from $22 million to $56 million per annum on a forward looking basis. If New Zealand Post doesn’t make changes to deal with these access framework issues, then the costs will end up being shouldered by ordinary New Zealanders through unprecedented stamp price increases. It was never a goal of competition to make postal delivery cost more, to make services more difficult to access or to discriminate against the average New Zealander. Nor would it be a good outcome to force an unsustainable access structure to be maintained, leading to inadequate returns to the shareholder – the New Zealand Government and ultimately the New Zealand Taxpayer. The new access pricing proposal outlined in this document retains a universal postal service for all New Zealanders, doesn’t put additional pressure on stamp prices and still gives competitors a fair price when they choose to use the New Zealand Post network. Competition will still exist under the proposed changes. Over the coming weeks we will be talking to other postal operators and our key stakeholders about this proposal. We will present the facts of our review and proposal to each access customer individually and ask for their feedback. We will have follow-up individual meetings for those who want them during November.
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The deadline for formal feedback is Monday 30th November. After consultation with industry, any pricing changes will be incrementally phased in over a period of time to assist operators to adjust. We look forward to your comments and a continued focus on a good outcome for all New Zealanders.
Sam Knowles Acting Chief Executive New Zealand Post Group
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Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
Executive Summary New Zealand Post’s current approach to pricing, and providing, competitive access to its postal network is causing major value loss that is commercially unsustainable. In the context of an ongoing structural decline in standard letter volumes, this approach is undermining the viability of a reasonably priced universal postal service for all New Zealanders. New Zealand Post is proposing to increase the price of access in order to ensure ongoing provision of the universal postal service in an affordable, equitable, and commercially sustainable manner i.e. that does not require Government subsidies, different prices for postage depending on destination, or aggressive and frequent stamp price increases. Our proposed changes are consistent with the Commerce Act and the Deed of Understanding between the Government and New Zealand Post. All information relating to this proposal is embargoed from any public disclosure or discussion until 10am, Thursday 22nd October 2009. What Is The Current Approach? 1.
New Zealand Post has provided access to its postal network to other postal operators since 1998. A business that carries addressed mail for no more than 80 cents (Letters) must register as a postal operator. There are currently 28 postal operators registered in New Zealand.
2.
New Zealand Post currently has access agreements with six independent other postal operators. Five of them (Fastway Post, New Zealand Mail, Pete’s Post, Croxley Mail and Spring Global) do not have processing and delivery networks and insert all of their “re-branded” mail into New Zealand Post’s network – Pre-paid Access Customers. The other, DX Mail, operates its own partial network in most urban and large provincial centres and lodges residual volumes for New Zealand Post to deliver – a Lodgement Access Customer. Only New Zealand Post provides a universal delivery service.
3.
More than 20% of the standard letter market is served by New Zealand Post’s access customers. With the recent entry of Croxley Mail (July 09), this will likely increase to more than 30% very quickly.
4.
The terms of this access are guided by the Deed of Understanding between New Zealand Post and the Government and the Commerce Act 1986.
5.
The upper boundary for access pricing under the Commerce Act is the Efficient Component Pricing Rule (ECPR) also known as the Baumol-Willig Rule. This was accepted by the Privy Council in 1994.
6.
ECPR identifies the price at which the network provider is indifferent between supplying its own end customers and supplying competitors. Simplified, ECPR is calculated by deducting from the retail price those costs that are avoided when a piece of mail is sourced from an access customer, as opposed to an end-customer, and adding on any incremental costs of providing that access.
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7.
We have been advised by our lawyers and economists that ECPR remains appropriate for the postal industry. The Commerce Commission’s application of ECPR to the postal industry confirms this advice.
8.
The ECPR identifies an amount to be deducted off the retail price. Currently, access discounts are substantially in excess of the legally required and economically rational level. This is summarised in the table below for the standard letter (DLE). Both of the ECPR discounts set out here are conservative. See paragraphs 59-64 for explanation.
ECPR
Current Discount
Excess Discount
Pre-paid
6.3%
17-19%
10.7-12.7%
Lodgement
6.8%
16%
9.2%
9. In addition to under-pricing access, New Zealand Post has been providing discounted access to its entire processing and delivery network even though the legal requirement extends only to those areas where other operators are unable to economically replicate a postal network. Based on observed network construction in New Zealand, operators are able to replicate a postal network in most urban and provincial centres. This discounted access has substantially enhanced some other postal operators capacity to cherry-pick networks in the most profitable parts of the country, while leaving New Zealand Post to serve the most expensive parts.
What Financial Impact Does This Approach Have On New Zealand Post? 10. The large gap between the current access discounts and ECPR causes substantial commercial problems for New Zealand Post. Other than foregone revenue from access customers, excessive access discounts lead to uneconomic and unsustainable downward pressure on postal unit rates, channel churn that is not based on efficiency, and inequalities between access customers and New Zealand Post’s own customers’ work-share arrangements. The forward looking consequences of these impacts range from $22 to $56 million per annum for New Zealand Post. 11. There is a further cost from lodgement access that relates to New Zealand Post’s network being used as the network of last resort. Under current settings lodgement customers can lodge mail at any mail centre for any reason (e.g. capacity constraints). This potentially leads to major and unpredictable variability in volume, which is costly to manage – New Zealand Post either retains excess processing capacity just in case, or pays overtime and penalty rates to process mail in excess of capacity.
What Has Changed To Make This Unsustainable Now For New Zealand Post? 12. New Zealand Post is responsible for maintaining a universal postal service (USO) for all New Zealanders. The universal postal service has a strong economic and social rationale and is reflected in the Deed of Understanding. 13. New Zealand Post provides a reliable, affordable and efficient postal service to all New Zealanders without the need for government subsidies, which are common internationally. 14. New Zealand Post consistently exceeds its performance requirements under the Deed of Understanding, has managed the standard letter stamp price well under the rate of inflation and ranks strongly on an affordability basis when compared to other countries. New Zealand Post’s postal business is profitable and the cost ratios of the business benchmark well internationally, reflecting processing efficiency and sound overhead cost management. New Zealand Post’s Commercial in Confidence
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health and safety record is excellent and it makes a strong investment in corporate responsibility each year. In other words, it has an excellent reputation for being a good service provider and employer, both here in New Zealand and internationally. 15. However, the letter market is now in structural decline. This decline is being driven by the substitution of digital products (e.g. email substituting letters). Letter volumes reached a peak in 2002 and have been falling since. In the last three years, the average amount of mail delivered per delivery point by New Zealand Post has decreased 20%. The recession has more recently hastened aspects of this decline, but the long-term trend will not alter as the economy returns to growth. 16. At the same time, despite ongoing productivity improvements through the investment in state-ofthe-art sorting technology and six-sigma process improvement, costs are increasing. For example, over the past five years, total network delivery points have increased by 9.4% and the transport costs of delivery over 26%. 17. This is not a sustainable situation for the New Zealand Post postal business. As it stands, its standard letter product line is operating margin negative.
The Future for New Zealand Post’s Postal Business 18. Despite the decline of letter volumes, there are growth opportunities within the postal sector and New Zealand Post believes that there is a sustainable future for the USO and its postal business. 19. The letter will become a smaller proportion of this business and technology will change aspects of the service model, but New Zealand consumers and businesses still have, and will continue to have, a fundamental need to deliver physical messages and goods in a regular, reliable and affordable manner. 20. New Zealand Post will be carefully balancing a number of pricing and service levers to manage its postal business over the medium term. No one lever will be sufficient and New Zealand Post will need to appropriately manage this complexity over the next period. 21. This review relates only to access pricing. It is crucial that the access framework is economically sound to ensure that future challenges are shared and not just imposed on New Zealand consumers.
Why has New Zealand Post Historically Discounted Access to such an Extent? 22. Since deregulation in 1998, New Zealand Post has sought to avoid the litigation / regulation path for network access that was taken in the New Zealand telecommunications sector. Instead it negotiated access agreements direct with other operators, seeking to accommodate their business models and to address issues they raised over time. 23. The aggregate outcome of that approach over the last 11 years has been generous access terms. While New Zealand Post always expected, and openly stated to other postal operators, that these terms were beyond what was legally required, it could live with them at the time. 24. A range of factors (complaints from other postal operators about pricing, questions about ECPR, a Commerce Commission investigation) led New Zealand Post to reconsider its access approach. Having developed a detailed cost model, and taken external economic, the gap between the terms we are offering and what it would be economically rational to offer has been identified i.e. New Zealand Post’s current access discounts are up to three times the required level.
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25. At the same time, the postal world has changed, sharply and suddenly. Standard postal volumes have collapsed, and will not recover after the recession. That has put material pressure on a USO that continues to expand. Quite simply, New Zealand Post’s postal business can no longer maintain a profitable, reasonably priced universal service without addressing the imbalance in the access pricing framework. 26. In hindsight, we probably should have addressed these access framework issues earlier. In any event, doing nothing now is not a viable option. 27. If New Zealand Post does not make changes to deal with the access framework issues, then the costs will have to be borne by New Zealanders through aggressive stamp price increases.
What Should Access Pricing Look Like? 28. The economics of the letters business are defined by the universal service offering, that being: X
Uniform Pricing i.e. same stamp price for a letter to go anywhere;
X
Comprehensive geographical retail presence (post shops & centres); and,
X
Delivery coverage, frequency (5-6 days) and standards.
29. The retail price of a letter averages the costs of the USO resulting in cross-subsidisation i.e. low cost to serve areas (high density populations) subsidise high cost to serve areas (low density populations). 30. Pre-paid access (other postal operators who do not operate a delivery network) can be priced such that the economics of the USO are not undermined. It is only when discounts significantly exceed avoided costs that the economics of the USO cross-subsidy unravel and the network being accessed suffers a material financial loss. 31. Referring back to the legal standard, the ECPR rule is designed to identify where discounts should be set to promote efficient competitive entry. There has been criticism of the application of this rule in the telecommunications industry, but it is well suited to the postal sector where barriers to entry are low, profits are modest and the pricing/performance of the network being accessed is world class. [ECPR is discussed in more detail in paragraph 134] 32. However, pricing for lodgement access is not as straight forward. Lodgement access customers have the capacity to undermine the USO through constructing their own delivery networks to serve low cost areas only (generally known as cherry picking). This form of competition is fundamentally incompatible with the economics of the USO network. [This is discussed in more detail at paragraph 121]. Hence, lodgement access pricing should at least be designed so as to not encourage this approach. There are two options to achieve this, which are outlined below.
What Is The Proposed New Approach? 33. In reaching our conclusions, we have taken economic advice from LECG (formerly the Law & Economic Consulting Group), NERA Economic Consulting and Prof. Jerry Hausman (MIT) in the USA. We have taken legal advice from Chapman Tripp. Our core ECPR modelling has been tested by NERA and PricewaterhouseCoopers. We have also reviewed access pricing throughout the postal industry internationally and considered approaches in the telecommunications and utilities industries. 34. We have considered a broad range of pricing options against four key objectives:
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a)
a comprehensive USO is retained meeting the needs of New Zealanders throughout the economy;
b)
New Zealand Post postal business profitability not being undermined to the extent that its capacity to provide the USO is affected;
c)
efficient competition in the postal industry remains; and,
d)
the access model meets Commerce Act requirements
35. In order to meet the above objectives, any new access pricing approach must: a) support competition that is efficient, as opposed to being subsidised through excessive access discounts. This can be achieved by tightening the current discounts towards legal minimums (ECPR). This change would be phased in over a reasonable period of time; and, b) deter, or at least dampen, cherry picking which undermines the sustainability of the USO. There are two ways to address this issue: i.
an effective way to comprehensively discourage cherry picking involves de-averaging access pricing. We refer to this as Delivery Zone Discriminatory Access Pricing (DAP); or,
ii.
alternatively, in areas where a lodgement customer is operating its own network, and further, areas of similar density & geography, New Zealand Post could withdraw discounted access and only carry the other postal operator’s mail on commercial terms like any other customer (Commercial Zone). In all other areas discounted access would be provided based on ECPR principles (Access Zone). We refer to this as Access Discounts in Non Competitive Areas Only (NCAO)
36. DAP has been proven to almost completely discourage an alternative delivery network. However, its implementation would also involve: a) Government subsidies for uneconomic Post Shops; b) introducing different prices dependent on destination for much if not all of the standard letter market e.g. 40c to a large city, 60c to a large provincial town, and $1.00 everywhere else, including rural and remote areas. This removes a fundamental tenet of the USO and would particularly increase costs for Northland, East Cape, Wairarapa, West Coast residents and for all rural dwellers. New Zealand Post thinks this approach is unfair; and, c) increased costs across the network to deal with the operational complexity of multi-tiered letter pricing. This increased cost would place further upward pressure on pricing than already exists through volume decline. 37. By contrast, the NCAO approach is less extreme. While it removes the capacity to cherry pick within a region (inner city v outer suburb), it still encourages competition to develop in densely populated (economic) areas. It also allows the retention of ubiquitous pricing for all New Zealanders and doesn’t create an increased need to subsidise uneconomic Post Shops. In New Zealand Post’s view this is both fair and less threatening to a product already suffering significant substitution effects. Further, it would be relatively simple to implement and operate. 38. There are international examples of both models being applied in the postal sector, particularly in the UK (DAP) and Sweden (a more aggressive form of the NCAO approach). Based on experience to date, the Swedish outcome seems more sustainable and demonstrably more satisfactory for both the USO provider and entrant. By contrast, the UK experience under DAP has frustrated competitor ambitions and financially hamstrung Royal Mail (despite significant Commercial in Confidence
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Government funding). The UK access regime is problematic enough that the independent Hooper Report in 2008 recommended a complete overhaul. 39. New Zealand Post’s preferred approach to dampen the effects of cherry picking is NCAO. This preference has been presented to our shareholders. 40. Therefore, our proposed new access regime involves, in summary: a)
for pre-paid access customers - access discounts based on avoided cost pricing in excess of, but more closely aligned to, ECPR calculations.
b)
for delivery capable access customers (lodgement): i. access discounts to the Access Zone based on avoided cost pricing in excess of, but more closely aligned to, ECPR calculations; and, ii. commercial arrangements in the Commercial Zone, with New Zealand Post card rates as the starting point.
c)
these access pricing changes would be incrementally phased over an appropriate period. Any operational changes would be designed in close consultation with affected operators.
A more detailed description of the proposed new access regime is provided in paragraph 165.
Consultation Process 41. New Zealand Post are presenting the facts of this review and proposal to each access customer individually over a period of several days. This allows New Zealand Post to listen to immediate feedback in commercial confidence. 42. In order for this process to be completed, all information relating to this proposal is embargoed from any public disclosure or discussion until 10am Thursday 22nd October 2009. 43. New Zealand Post will seek further feedback through offering to meet with each access customer in follow-up meetings during the week of 9th-13th of November 2009. 44. Final formal feedback is required to be submitted in writing by Monday 30th November 2009. (See paragraph 183 for details).
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Detailed Material Objectives of this Review 45. A reliable, affordable and secure mechanism for all New Zealanders to send and receive goods and physical messages is essential. Today, that mechanism is provided by the universal postal service. The universal postal service is delivered by New Zealand Post (New Zealand Post). 46. The purpose of this review has been to ensure that New Zealand Post prices competitive access to its network going forward in an economically rational manner such that the sustainability of the universal postal service (USO) is not undermined. 47. This purpose can be broken down into four clear objectives: a) a comprehensive USO is retained meeting the needs of New Zealanders throughout the economy; b) New Zealand Post postal business profitability not being undermined such that its capacity to provide the USO is affected; c) effective competition in the postal industry remains; and d) that the access model meets the requirements of the Commerce Act. 48. By meeting these objectives New Zealand Post will meet the relevant obligations in both the Deed of Understanding and under the State Owned Enterprises Act.
What is Access & What does it look like Today? What is Access? 49. Access involves New Zealand Post providing another postal operator with access to its postal delivery services. Provision of access is contingent on the postal operator meeting some requirements.
Why does New Zealand Post Provide Access? 50. The Deed of Understanding is the Government’s current method for ensuring that New Zealand Post provides a universal postal service, but it is also the mechanism that stipulates that New Zealand Post must provide access to its network to other postal operators. Article 17 of the Deed sets out this obligation – New Zealand Post shall provide access to its postal network to other postal operators on terms and conditions that are no less favourable than those offered to customers in the same circumstances, where the postal operator concerned is able to meet the requirements of the particular service offer. This clause does not preclude New Zealand Post from negotiating particular arrangements with individual customers or postal operators. The terms of access will also be subject to any relevant provisions contained in the Commerce Act or any other legislation. 51. New Zealand Post has met its access obligations under the Deed by:
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X
offering access pricing that is more favourable than its general customer pricing;
X
establishing and enforcing strict operational processes to ensure that access mail is treated equally to New Zealand Post branded mail;
X
establishing a separate Access Management Framework including: access customer management, an access code, and an access decision making committee made up of senior New Zealand Post Group executives;
X
supporting the establishment of a Postal Operators Forum, chaired by an independent person, which meets several times a year to discuss access and industry issues; and,
X
acting in good faith on Access matters, seeking to avoid disputes or legal proceedings.
Why does the Deed of Understanding require Access? 52. The Commerce Act 1986 regulates competition in New Zealand, and is enforced by the Commerce Commission. Amongst other things, it provides that where a party has substantial market power, it must not take advantage of that market power to damage/eliminate its competitors. The Deed’s access obligation reflects New Zealand Post’s monopoly position prior to 1998 and a shared desire on the part of government and the company to avoid the kinds of disputes seen in the telecommunications sector during the 1990s. 53. We believe that various factors, including the advent and penetration of substituting technologies and the roll out of a competitive postal delivery network across most major towns and cities in New Zealand, mean that any substantial market power NZP may have had prior to deregulation has now disappeared, or at worst exists at extremities of the network. Although we have taken legal and economic advice, we do not necessarily expect that it will be a point agreed by all relevant parties. Accordingly, we have sought to take a pragmatic approach in this access review.
What are the Rules for Pricing Access to New Zealand Post’s Network? 54. To the extent that New Zealand Post is obliged under the Commerce Act to provide access, the Efficient Component Pricing Rule (ECPR) provides a legal safe harbour for access pricing (refer Privy Council decision Telecom v Clear 1994). 55. ECPR identifies the price at which the network provider is indifferent between supplying its own end customers and supplying competitors. Simplified, ECPR is calculated by deducting from the retail price those costs that are avoided when a piece of mail is sourced from an access customer, as opposed to an end-customer, and adding on any incremental costs of providing that access. Note that this calculation is more complex when the competitor has a partial bypass network. 56. Despite its legal standing, ECPR is contentious. It is not suitable for industries with high barriers to entry, nor those with no forces to control monopoly rents. In these circumstances it is seen to protect inefficient incumbents. For these reasons it has been legislated against in many areas of the Telecommunications Industry in NZ. 57. We have been advised by our lawyers and economists that ECPR remains appropriate for the Postal Industry. The Commerce Commission’s application of ECPR confirms this advice. [ECPR is discussed in more detail at paragraph 134.]
What are the Current Access Arrangements? 58. New Zealand Post operates two types of network access models.
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Lodgement: used by other postal operators with their own delivery networks. X
Lodgement access customers use New Zealand Post as a residual carrier i.e. to deliver mail to addresses their networks do not reach, or volumes beyond their network’s capacity.
X
Postage issued by these operators is not valid for New Zealand Post’s network. Instead, the operators lodge their residual mail with New Zealand Post at a New Zealand Post Mail Centre according to the lodgement requirements in their access agreement.
X
New Zealand Document Exchange (DX) - part of the Freightways Group - is currently the only postal operator with a lodgement access agreement.
X
New Zealand Post offers a lodgement access discount of up to 16% from the retail rate.
Pre-paid: used by postal operators that do not have their own processing and delivery network. X
Operators ‘rebrand’ New Zealand Post’s postal service and compete solely on customer service, marketing, retail distribution and postage production costs. Some combine this service with other offerings, or as an incremental product line, whilst for others it is substantially their sole line of business.
X
Postage issued by these operators is valid/pre-paid for New Zealand Post’s network. It can be posted directly into New Zealand Post street receivers, rural delivery letterboxes and posting panels.
X
The following postal operators have pre-paid mail agreements – Fastway Post, New Zealand Mail, Pete’s Post, Croxley Mail and Spring Global. Croxley have recently elected to become a pre-paid access customer rather than a reseller of the New Zealand Post brand.
X
New Zealand Post offers pre-paid access discounts of up to 19% from the retail rate.
How does Access Current Pricing compare to Legal Minimums? 59. To date New Zealand Post has relied on the ECPR rule as a background to negotiation with access customers. That is, in the first instance, the price must comply with the legal minimum, and from then, negotiation has been on a case by case basis. 60. In terms of compliance with New Zealand Post’s background ECPR standard, an appropriate Activity Based Cost model has only recently been developed to enable accurate calculation of ECPR. Historically, calculations were estimated. 61. The ECPR calculation today , as a discount off the RRP excl. GST for the standard letter (DLE), for a Pre-paid access stamp ranges from 2.99 to 6.30% and for a Lodgement access letter ranges from 3.04 to 6.80%. The lower number represents costs that can be avoided immediately with any change in volume, the higher represents costs that can be avoided over the longer term. (All ECPR calculations are detailed in Paragraph 179). 62. External independent economic and accounting advice has been taken throughout the ECPR calculation process. The higher number in this range represents the advice we have received on how we should calculate ECPR conservatively in a manner that if anything favours other operators. Further, for lodgement access, the ECPR calculation above does not take account of opportunity costs/ lost profits relating to those letters delivered on the other operator’s network (bypass volumes). New Zealand Post is not seeking to recover those costs at this point.
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63. The following table summarises current access discounts off the RRP (excl. GST) for the standard letter (DLE) provided by New Zealand Post (once an access customer sells over 2 million letters per annum) compared to the highest ECPR calculations.
ECPR
Current Discount
Excess Discount
Pre-paid
6.3%
17-19%
10.7-12.7%
Lodgement
6.8%
16%
9.2%
64. In summary, New Zealand Post’s current access pricing substantially exceeds legal minima.
Why has New Zealand Post Priced Access so Generously? 65. Since deregulation in 1998, New Zealand Post has sought to avoid the litigation / regulation path for network access that was taken in the New Zealand telecommunications sector. Instead we negotiated access agreements direct with other operators, seeking to accommodate their business models and to address issues they raised over time. 66. The aggregate outcome of that approach over the last 11 years has been generous access terms. While New Zealand Post always expected, and openly stated to other postal operators, that these terms were beyond what was legally required, it could live with them at the time. 67. A range of factors (complaints from other postal operators about pricing, questions about ECPR, a Commerce Commission investigation) have recently led New Zealand Post to reconsider its access approach. Having developed a detailed cost model, and taken external economic advice, the gap between the terms we are offering and what it would be economically rational to offer has been identified i.e. New Zealand Post’s current access discounts are up to three times the required level.
What Is The Financial Impact Of The Current Approach To Access? 68. The large gap between the current access discounts and ECPR causes substantial commercial problems for New Zealand Post. Other than foregone revenue from access customers, excessive access discounts lead to uneconomic and unsustainable downward pressure on postal unit rates, channel churn that is not based on efficiency, and inequalities between access customers and New Zealand Post’s own customers’ work-share arrangements. The forward looking consequences of these impacts range from $22 to $56 million per annum for New Zealand Post. 69. There is a further cost from lodgement access that relates to New Zealand Post’s network being used as the network of last resort. Under current settings lodgement customers can lodge mail at any mail centre for any reason (e.g. capacity constraints). This potentially leads to major and unpredictable variability in volume, which is costly to manage – New Zealand Post either retains excess processing capacity just in case, or pays overtime and penalty rates to process mail in excess of capacity.
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Why the Current Approach to Access Is Now Unsustainable The Postal Sector in New Zealand 70. In the broadest sense, the postal sector comprises: X
addressed letters, large letters and packets which are small enough to be posted through letterboxes;
X
unaddressed items which can be posted through letterboxes but do not contain an address, such as leaflets and brochures
X
express items which are guaranteed to arrive on a particular day or time, and/or which require a signature on delivery or “track and trace” facility
X
parcels which are not guaranteed to be delivered by a specific time and cannot be posted through letter boxes.
71. The focus of much of this document is addressed letters (envelopes, packets, packages, wrappers) priced at less than 80c (inclusive of GST). These are referred to as Letters. 72. Alternatively, the postal sector may be classified by application: X
transactional: mail generated by businesses to facilitate/support a financial transaction, such as invoices, receipts, statements of account;
X
fulfilment: goods ordered by mail, internet or telephone which need to be delivered to residential consumers and businesses;
X
advertising: mail advertising products or services, sent to a business or household;
X
publications: periodicals and magazines delivered to the consumer;
X
social: mail sent between residential consumers, such as birthday cards.
73. Letters are, in the vast majority, either, transactional, advertising or social in nature. represent well over half of New Zealand Post’s postal business revenues.
Letters
74. Prior to 1998, New Zealand Post had a monopoly on the delivery of letters in New Zealand. In April 1998 the New Zealand postal market was liberalised. Since that time all aspects of the domestic postal market have been open to competition. Any registered postal operator is now able to sell and provide postal services in New Zealand, whether or not it has its own postal network. There are currently 28 postal operators, including New Zealand Post, registered with the Ministry of Economic Development (MED). 75. New Zealand’s postal services compare very favourably on an international basis. In particular, addressed letters and parcels can be posted in any community nationwide, and the vast majority of homes and businesses have to-the-door delivery six days a week. Since the establishment of New Zealand Post as a state owned enterprise in 1987, service levels have been reliable, loss rates low, and pricing affordable.
New Zealand Post’s Role in the Liberalised Letter Market 76. New Zealand Post is responsible for maintaining a universal postal service for all New Zealanders.
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What is a Universal Service? 77. The universal service offering (USO) is set out in the Deed of Understanding between New Zealand Post and the Government. The Deed sets out specific service minimums that New Zealand Post must meet, including: X
a minimum number of delivery points throughout New Zealand;
X
a minimum frequency of delivery to those points;
X
a minimum number of retail outlets; and,
X
not reintroducing a rural delivery fee.
78. The Deed also contains a three year price cap for the standard (medium sized) letter (45 cents) which expired in 2001, but New Zealand Post has since agreed to consult with the Minister of Communications prior to any medium sized letter price changes. 79. In practice, the USO ensures physical communication across all business and household addresses in New Zealand regardless of their location (generally 5 or 6 days a week). Today, this requires a national network of retail and acceptance points, processing centres, transport, and final mile delivery.
The Universal Postal Service is an International Obligation 80. The Universal Postal Union (UPU) was established under the Treaty of Berne in 1874 and is now a specialised agency of the United Nations. The UPU has 191 member countries (including New Zealand). “The mission of the UPU is to stimulate the lasting development of efficient and accessible universal postal services of quality in order to facilitate communication between the inhabitants of the world” i 81. The UPU focuses on appropriate standards of service with respect to: accessibility to services, customer satisfaction, speed and reliability, security, liability and processing of inquiries. “In order to support the concept of the single postal territory of the Union, member countries shall ensure that all users/customers enjoy the right to a universal postal service involving the permanent provision of quality basic postal services at all points in their territory, at affordable prices.” Why is the Universal Service Offering Important? 82. A national network strengthens social cohesion by ensuring that everyone, whether large urban, regional, rural or remote, has an accessible, reliable means of communication and the capacity to send and receive physical goods. 83. The universal service enables trade. Companies of all sizes rely on the postal service to build their business, supply goods and receive payment. 84. An affordable service protects the ability of vulnerable consumers and those with lower incomes to send and receive items. 85. A uniform tariff protects those who use the postal service rarely or live in areas of low population density. They might otherwise face a connection charge, higher prices or less convenient services. It is also easy to understand and practical to operate.
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86. The counterfactual is to consider an economy without a reliable, secure and affordable means of moving small items, messages and payments across all geographies. 87. New Zealand’s USO may change over time as technology allows, but the need for a USO as a fundamental piece of economic infrastructure will not change in the foreseeable future.
How has New Zealand Post performed as the Guardian of the USO? 88. New Zealand Post has responsibly managed its social obligations by providing a reliable, affordable and efficient postal service to all New Zealanders. Reliable 89. In 2007/08 New Zealand Post maintained six-day-a-week deliveries to 96.62% and five-day-aweek deliveries to 99.89% of all delivery points. Total delivery points exceeded Deed minima by 28.7%. New Zealand Post has consistently performed at these levels over the last decade. Affordable 90. New Zealand Post has managed the price of the Letter well below the rate of inflation over a long period. Figure 1.1 illustrates that if the price of a standard medium letter had been adjusted to inflation since 1987, it would be over 75c today (as opposed to 50c). Figure 1.1 – Real Standard Letter Price
91. Compared to other OECD countries, New Zealand Post’s pricing is very affordable. Figure 1.2 illustrates that after adjusting for both currency exchange and purchasing power parity, our 50c stamp price ranks New Zealand Post as the third cheapest provider of a standard letter service. [Note: these comparisons are difficult as geographies, service levels and maximum weights vary vastly. This analysis illustrates the cheapest way to send a 20g letter domestically within each country].
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Figure 1.2 – Price of Standard Letter International Comparison
Postage rates in NZD Purchasing Power Parity Adjusted Goods/Service Index*
1.60
**Index calculated from a basket containing 122 goods and services geared to Western European consumer habits.
1.40
1.20 1.00
0.80 0.60 0.40
0.20
Mexico
Italy
Greece
Finland
Norway
Germany
France
Czech Republic
Denmark
Austria
Belgium
Japan
Ireland
Poland
Sweden
Turkey
Luxembourg
Slovakia
Switzerland
Netherlands
Canada
Hungary
Portugal
USA
Australia
Spain
UK
New Zealand
0.00 South Korea
*Using Total expenditure on goods and services Index** from 2006 Edition of Prices and Earnings.
Based on std stamp price of NZD 0.50 1.80
OECD countries
Efficient 92. New Zealand Post continues to seek productivity improvement throughout the business. However, already, today it is considered to be one of the leading postal organisations in the world in terms of efficiency. Efficiency can be demonstrated by reference to a number of facts about New Zealand Post’s postal business, including: a)
New Zealand Post is profitable and well ranked on an international comparison basis. Figure 1.3 illustrates New Zealand Post postal business 2007/08 operating margin (EBIT/revenue) compared to Western European postal companies and the USPS (2007) ii .
Figure 1.3 – Operating Margin (%) International Comparison (07/08) 20
15
10
US (USPS)
UK (Royal Mail)
Norway (PN)
Italy (PI)
Spain (Correos)
Belgium (DP-LP)
France (La Poste)
Denmark (DP)
Switzerland (SP)
Austria (AP)
Finland (Itella)
New Zealand (NZP)
Sweden (PAB)
-5
Germany (DPWN)
0
Netherlands (TNT)
5
-10
b) New Zealand Post’s labour cost ratios benchmark well. Figure 1.4 illustrates PSG 2007/08 labour costs as a percentage of revenues compared to Western European postal companies. A high percentage would indicate excessive headcount, an over-reliance on manual mail processing, or salaries and benefits that the business could not afford.
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Figure 1.4 – Labour Costs as a % of Revenue International Comparison (07/08) 80 70 60 50 40 30 20
Spain (Correos)
UK (Royal Mail)
France (La Poste)
Belgium (DP-LP)
Denmark (DP)
Finland (Itella)
Austria (AP)
Switzerland (SP)
Sweden (PAB)
Norway (PN)
New Zealand (NZP)
Italy (PI)
Netherlands (TNT)
0
Germany (DPWN)
10
c) New Zealand Post postal business overhead cost per unit (08/09) is well managed at 1.5c per unit. This has only increased from 1.3c per unit since 03/04. This increase is attributable to volume reduction, CPI and salary increases over this period. In other words, there is not undue management overhead within the business. Further, during a strong period of economic growth this ratio was well managed. d) Processing costs per unit have only increased from 11.5c to 13.5c per unit over the same five year period. This has been achieved through significant investment in productivity improvements; however, this investment has not been able to completely offset the effect of falling volumes and some wage growth. 93. In summary, New Zealand Post’s postal business offers low prices, manages costs well, and is profitable. 94. This financial success has not been achieved by running down assets. New Zealand Post continues to invest in technology and capability. For example, between 2003/04 and 2007/08, over $30 million was invested on state-of-the-art letter sorting machines at six key mail centres. 95. Nor has it been achieved by putting workers at risk. New Zealand Post’s lost time injury frequency rate for postal workers was 4.23 in 2007/08. This compares with Australia Post’s rate of 6.6 for the same period. Health & Safety is a major priority for New Zealand Post. 96. It is also worth noting that New Zealand Post is committed to environmental responsibility and has more recently established energy, waste, fuel and paper baseline usage statistics and set reduction targets.
Future Outlook for the Letter Market 97. Letter volumes are partly a function of economic performance. Until recently there has been a straightforward correlation between economic growth and the growth in letter volumes. 98. However, since 2002, penetration of substituting technologies throughout the population (internet, email, mobile telephony and text messaging) has driven a wedge between this correlation (illustrated conceptually in figure 2.1).
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Figure 2.1 – UK Data – Letter Volume Growth v Economic Growth
(source: PostComm UK)
99. This “digital revolution” substantially impacts both transactional and social mail. X
Transactional mail – large companies are offering their customers incentives to receive and pay bills on-line, or by direct debit. Smaller company accounting packages now come with inbuilt electronic invoicing and email database management functionality.
X
Social mail – texting, email and social networking sites are now widely used as the means of sending and receiving messages and images to family, friends and colleagues.
100. The rate of substitution from the letter to alternative technologies is the most significant factor affecting volumes. 101. The letter market is now in structural decline. It would appear that volumes reached a peak in 2002 and have been falling since then. The average amount of mail delivered per delivery point has decreased from 1.4 to 1.1 items per day over the last three years – this represents an over 20% decline. Recent downturn in global economic performance has rapidly increased this rate of decline. 102. At the same time, costs of delivery have increased. X
Delivery Points – New Zealand has experienced population growth of 5.4% over the last five years. In that time the number of delivery points that New Zealand Post has to deliver to have increased 9.4%.
X
Labour Costs – Until recently, New Zealand, like much of the OECD, has enjoyed a sustained period of economic growth. With this growth came upward pressure on wage and salary rates.
X
Transport Cost of Delivery – A significant percentage of total cost relates to the transport from where an item is posted to where it is picked up for final delivery by the postie, or for rural delivery. Over the past five years these costs have increased by more than 26%.
103. Thus, the letter market faces a challenging future. Demand levels have structurally altered downwards and costs continue to rise. This is not a sustainable situation.
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The Future Outlook for the Universal Postal Service Offering 104. There are opportunities for segment growth within the postal sector and thus sustainability for New Zealand Post’s postal business. These opportunities exist in, for example, fulfilment, catalogues and publications, and advertising. 105. As well as physical growth segments, the same technology that is allowing transactional and social mail to be substituted, facilitates possible future shapes of the door to door delivery paradigm. 106. New Zealand Post believes that the postal business has a viable future. The letter will become a smaller proportion of the business and technology will change aspects of the service model, but New Zealand consumers and businesses still have, and will continue to have, a fundamental need to deliver items door to door in a regular, reliable and affordable manner. 107. New Zealand Post will have to balance the management of the declining letter segment, which will be generally focused on cost and margin management, with the pursuit of new revenue from existing or emerging growth segments of the postal sector. This dichotomy will involve carefully balancing a number of facets of the business including: X
Maintaining Relevant Products & Services: As the emphasis of the postal business shifts from the letter to other segments (e.g. parcels, packets) the service that supports those products that is valued is likely to alter (e.g. delivery times, postage kiosks, hybrid digital solutions). This means that the USO may change shape over time as the needs of New Zealanders change.
X
Retaining Efficient Low Cost Operations: New Zealand Post continues to seek opportunities to improve efficiency and reduce costs so that its postal services are affordable. This will always be done responsibly with a view to long term sustainability rather than short term gains.
X
Pricing to Remain Sustainable: As letter volumes decline the pressure to increase pricing grows. New Zealand Post is reviewing its pricing structures throughout the postal business. This includes pricing for access to its network by competitors. It is critical that all pricing is economically robust.
108. No one lever is sufficient and New Zealand Post will need to appropriately manage this complexity over the next period. 109. This review relates only to access pricing. 110. New Zealand Post is considering a range of strategic options to help manage the postal business in difficult times. Access pricing represents just one, but it is crucial that the access framework is economically sound to ensure these challenges are shared and not just imposed upon New Zealand consumers.
What Should Access Pricing Look Like? 111. Throughout this review we have taken advice from New Zealand economists within NERA and LECG, economist Prof. Jerry Hausman from MIT in the USA, expert competition lawyers from Chapman Tripp, and senior costing accountants from within PWC. International postal models were studied and compared.
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The Economics of Access 112. The universal service offering (USO), which New Zealand Post is required to maintain, defines the economics of its letter business. 113. The USO refers to the delivery of a letter anywhere in the country for a uniform price and defined service level. This results in a network that charges an average price based on average costs to all customers. In other words, lower cost to serve regions/delivery routes are subsidising higher cost regions/delivery routes. 114. The alternative would be pricing based on costs to deliver. For example: 40c to a large city, 60c to a large provincial town, and $1.00 everywhere else. This de-averaged pricing is not explicitly prohibited by the Deed of Understanding now that the price cap has expired, though the rural delivery fee remains off limits. However, we believe that ubiquitous pricing is firmly preferred for both social and economic reasons by our customers (both sending & receiving) and have consistently received this message from successive Governments. This aligns with New Zealand Post’s commercial preference is for a uniform price given the operational complexities and decreased customer usability a de-averaged price would incur. Currently, those regions in NZ that are substantially subsidised under ubiquitous pricing include Northland, West Coast, Wairarapa, East Cape and rural addresses. 115. There are also costs associated with the universal service – these include frequency of delivery and distribution of retail presence at points of the network that would be uneconomic but for internal cross-subsidies between areas. For example fully allocated delivery costs in West Coast regions are well above the retail stamp price. This cost is reflected in the network building decisions of other postal operators who focus on delivery into dense/metro areas only. 116. While New Zealand Post is committed to the USO, the economics have been finely balanced for some time. New Zealand Post’s UPU designation provides some support for the USO, but like domestic mail, international mail is subject to increasing competitive pressure. So in an environment of structural volume decline that cannot be immediately matched by cost reduction, the economic rationality of all arrangements that impact on the USO need to be re-examined. 117. Thus, the USO creates a specific cost profile for New Zealand Post around which it must manage. This is represented in simplified form below:
Profitability
Reduce costs/ increase prices/ increase volumes
profit
0 loss
Increase costs/ reduced prices/ reduced volumes
Postal Routes/Delivery Runs
118. The objective is to keep the area above the line (shaded profit) greater in size than the area below (shaded loss). Commercial in Confidence
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119. Depending on access settings, access customers can cause the line to move or be re-shaped. There are two different types of access. The defining factor is whether or not an access customer is also bypassing the USO network by operating their own mail delivery network. 120. Access customers with no-bypass (Pre-paid) are more easily priced for and managed as they do not impact total volume flowing through the USO network. This type of access involves substituting some of the work that would have been done by New Zealand Post. Theoretically, the shared work can be traced through to reduced costs.
Profitability
Cost savings from work-shared moves line up
0 Discount to “customer” shifts line down
Postal Routes/Delivery Runs
121. Bypass capable customers (Lodgement), on the other hand, have the capacity to fundamentally undermine New Zealand Post’s ongoing delivery of the USO. 122. As theory alludes and history demonstrates, new end-to-end letter delivery entrants target the low-cost to serve and high volume routes. Volume that bypasses the USO network (delivered by the new entrant) has an immediate impact on the viability of the USO – the area above the line is diminished.
Profitability
Bypassed volume shifts line down and flattens
0
Lodgement discount reduces revenue & lack of “rules” makes cost reduction difficult
Postal Routes/Delivery Runs
123. When that entrant is also able to lodge mail they do not want to deliver back upon New Zealand Post, through an access agreement, then this effect is compounded. 124. In this case the capacity of New Zealand Post to adjust costs for worksharing at the retail level still exists, but there are considerable additional costs to managing variable volume – the New Zealand Post network is the network of last resort as it is obliged to perform the USO, whereas the entrant elects not to. Under current settings the new entrant can lodge at a discount for any reason (e.g. capacity constraints). Commercial in Confidence
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125. The impact from bypass volumes is dynamic. Point (1) - As bypass increases the cost per letter unit for New Zealand Post increases. In order to retain profitability, price must eventually be increased (unless fixed costs can be reduced). This shifts the curve upwards from (1) to (2), but also increases the number of routes that are profitable to operate in for a new entrant. Thus the bypass capable entrant grows and takes away more area above the line from (2) to (3).
2
Profitability
3
1
0
Postal Routes/Delivery Runs
126. This cycle is likely to continue until the USO provider becomes financially unviable unless mitigants are employed. This probable outcome is well supported by international economists who highlight the dangers of fully liberalising access in postal industries. 127. To date, New Zealand Post has managed the economic impact of competitor bypass, in a growth/stable volume environment, through the reduction of operating costs. Its capacity to continue to reduce costs is limited, unless the scope of the service aspects of the USO are reduced. Such reduction in USO scope is complex as it affects capacity to service growth segments. The cost benefits of this approach are finite as well. 128. Alternatively, the way that access is priced can be changed to reduce the likelihood of a negative financial spiral.
What Pricing Models can manage these Risks? 129. In order to manage the economic risks of providing access to its network, New Zealand Post needs to price access in a manner that: a)
supports competition that is efficient , as opposed to being subsidised through excessive discounts; and that,
b)
deters, or at least dampens, cherry picking which undermines the sustainability of the USO and the industry as a whole.
130. There are two essential types of access pricing methodology to consider – top down or bottom up. That is, the access price is based on discounting off the RRP or it is based on adding a margin to the costs of providing the service. 131. After reviewing postal markets internationally, the following is apparent: a)
most markets are not liberalised and thus have no access pricing;
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b)
a number are partially liberalised. Access is generally offered via discounts off RRP for work-sharing i.e. discounts for doing some of the work for the network operator prior to insertion. In some cases, where only access to PO Boxes is offered, a cost based price is in place.
c)
of the few markets that have fully liberalised, only Sweden and the UK have a substantial and well documented history of competitor entry/access. Each has taken a different approach to managing the risks of access and these are discussed below.
132. After reviewing international markets and alternate industries, we believe there are three broad approaches which to varying degrees achieve our aims (Paragraph 129 a & b) and meet our stated objectives (Paragraph 47). These involve either: a)
tightening our avoided cost pricing towards ECPR (plus an increment for competition – see paragraph 137) to remove any subsidisation effects (ECPR PLUS); or,
b)
taking a cost-plus approach and de-averaging the market to remove cherry picking opportunities (DAP) - similar to the UK market approach; or,
c)
option (a) combined with the removal of lodgement access discounts except into true bottlenecks to dampen cherry picking opportunities (NCAO) – similar, but less aggressive, than the Swedish market approach.
133. These three models (ECPR, DAP & NCAO) are discussed below.
The Efficient Component Pricing Rule (ECPR) 134. ECPR identifies the price at which the network provider is indifferent between supplying its own end customers and supplying competitors. Simplified, ECPR is calculated by deducting from the retail price those costs that are avoided when a piece of mail is sourced from an access customer, as opposed to an end-customer, and adding on any incremental costs of providing that access. Note that this calculation is more complex when a partial bypass network is in place. Benefits 135. The benefits of ECPR are: a)
it supports the USO without need for recourse to Government funding for what may be perceived as social or uneconomic aspects of the network;
b)
it only supports the entry of operators who are at least as efficient as New Zealand Post i.e. have sustainable sources of competitive advantage; and,
c)
the impact of ECPR on the network being accessed is economically robust / rational.
Weaknesses 136. From New Zealand Post’s perspective, the weakness in ECPR pricing is that it cannot deter the exploitation of the USO through cherry picking unless either: a)
the calculation is made to take into account the lost profits from bypassed volumes. - which currently has no legal precedence so we are electing not to pursue this approach; or,
b)
Charging access customers more than the retail stamp price for at least some volumes – which is operationally impossible.
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137.
With respect to the development of competition in a market, the Ministry of Economic Development has previously stated that it believes ECPR pricing dampens competition excessively and that applying an access price that is slightly lower (or a higher % discount off RRP) is appropriate.
To be Noted 138. ECPR is not designed to control the absolute price levels of an network operator. In the short to medium term it will not remove any monopoly rents a service provider may be earning. This was one of the reasons it was legislated against in the Telecommunications Act 2001 in the context of pricing regulated services in that sector. In the postal sector this shortcoming is less relevant: a)
barriers to entry are low, as has been amply demonstrated by the development of alternative delivery networks by DX Mail. Large sunk infrastructure investments are not required to enter the postal market e.g. sorting machines may not be necessary, and can be resold if required.
b)
Across a range of measures, including particularly retail pricing, New Zealand Post can demonstrate that it operates an efficient network in the New Zealand context.
c)
As identified earlier in the paper, the standard letter portfolio is not even earning normal returns for New Zealand Post, let alone monopoly rents.
Delivery Zone Discriminatory Access Pricing (DAP) Description 139. DAP involves de-averaging the pricing structure of the letters business based on differences in delivery costs. These differences are due to geographic (distance) & demographic (density) variables. Benefits 140. The intent is to provide access that reflects the costs at a more granular level and removes the cherry picking opportunity that derives from averaging delivery costs. We have looked at this option very closely as a form of it is applied in the UK and it is appealing as a matter of economics. Weaknesses 141. However, there are several major issues with DAP: a)
Firstly, it will underfund the Post Shop network and thus lead to a substantial reduction in the retail footprint component of the USO, unless this is separately funded by Government.
b)
The next problem relates to the price ceiling provided by the RRP – above which access cannot be priced, otherwise the access customer will simply buy a New Zealand Post stamp. So prices in the low cost to serve areas can be reduced for access customers, but this loss in margin cannot be balanced out by charging a higher rate in the high cost to serve markets.
c)
To avoid this impact the incumbent may increase the RRP so that consumers and small businesses pay for this loss. Or alternatively, de-average the consumer price as well (e.g. 40c to a large city, 60c to a large provincial town, and $1.00 everywhere else, including rural and remote areas) removing a fundamental aspect of the USO.
d)
In practice, it would be impossible to limit de-averaging to just the access market. Any deaveraged pricing offered to the access customer must flow through the whole market.
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Otherwise, Post Shops, non-access third party resellers of New Zealand Post branded Letters, and those access customers that also mainly service consumers and small businesses indirectly would be at a huge disadvantage competitively. There are around 160 New Zealand Post franchisees, over 600 Post Centres, and approximately 1200 New Zealand Post product resellers (e.g. Warehouse Stationary) operating today. These businesses are not owned or operated by New Zealand Post. At least one of the pre-paid access customers has a purely indirect sales model. e)
In the UK, the Government reduces the extent of pricing discrimination between geographies by partially funding delivery into those areas. (Note: Royal Mail also receives funding for its Post Shop Network).
f)
Alternatively, an industry levy could be used to reduce the extent of discrimination in pricing. This levy would have to capture volumes across all networks or the exploitation of the USO would continue (i.e. on and off net). This is the approach in the New Zealand telecommunications market. This instrument is an ongoing source of tension and cost. Further, the postal network is highly manual in nature, hence, the fair measurement of that measure would be difficult, or costly to operate.
g)
The final issue relates to revenue protection for New Zealand Post. The Letter is unusual in that the cost of carriage is assessed and applied by the sender, not the network provider. This is only possible because of the one price fits all nature of the product. In contrast, other postal industry items are assessed by weight and destination before being accepted and priced accordingly. Given the volume of letters, to change to a de-averaged pricing system, and ensure that items are priced appropriately, would introduce substantial complexity and cost. That cost would need to be redistributed to both access and end customers.
The UK Market – Operating DAP Model 142. The UK postal market went from a regulated monopoly to full liberalisation between 2002 and 2006. a)
De-averaged (5 zone) access pricing has been introduced (DAP)
b)
The Government funds social aspects of the Post Shop network and non-economic delivery areas.
c)
Royal Mail has been forced to retain a flat retail price resulting in a very significant shift of business related volumes away from the Post Shop network.
d)
There is no competition for consumer and small business volumes and Retail prices have had to increase.
e)
Competition is only economic in the business segment and approximately 30% of volumes are now handled by competitors. But these competitors do not deliver end-to-end. They have placed themselves between the large volume business customer and final mile delivery – trading to a large extent on the size of the access discount provided.
f)
A significant regulator bureaucracy has developed to manage the complexity of the access regime adding substantive cost to all industry participants and Government. Less than 0.2% of mail is carried end-to-end through other postal operators.
g)
Royal Mail’s letters business loses a substantial amount of money.
h)
Large numbers of postal outlets have been closed.
143. The rationale for introducing a cost plus model in the UK related to the historical inefficiency of the incumbent and the desire to force modernisation by rapidly developing competition through advantageous pricing structures. The cost-plus model was de-averaged by Royal Mail to deter cherry picking bypass.
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144. The access environment is in such a mess that the Independent Hooper Report 2008 commissioned by UK Government has recommended a complete overhaul. DAP Summary 145. Economically, DAP is the soundest option to deter cherry picking of the USO network. That said, it is marred by: a)
the need for a Government subsidy to fund social aspects of the Post Shop network;
b)
the removal of a fundamental tenet of the USO – ubiquitous pricing – resulting in geographic discrimination;
c)
multi-faceted commercial complexity (a.k.a cost) with respect to operational change and revenue protection;
d)
the need for a Government subsidy to fund some portion of non-economic delivery regions, otherwise the discrimination would be too substantive; or,
e)
implementation of an industry levy which would be very difficult to accurately calculate, thus, likely leading to a very litigious environment.
Further, given the impact that substitution is having on the Letter market, to introduce pricing complexity into the market would be a commercially unsound decision. Any additional barrier placed in the market will result in faster substitution.
Discounts in Non Competitive Areas Only (NCAO) 146. At the heart of any requirement to offer access is the principle of providing access to an “essential facility” or “bottleneck”. 147. The argument that New Zealand Post’s complete letter delivery network is an essential facility is weak. There are not high fixed costs and barriers to entry are minimal. 148. As a starting point, New Zealand Post can see no legal or logical rationale for providing discounted access to operators in areas where they have their own delivery network – their presence is clear evidence that there is no bottleneck. 149. Further, it follows that New Zealand Post should not be providing discounted access in areas of similar profile to those areas where operators have already developed a network (in terms of density/geography etc). 150. Further arguments can be made that there are no bottlenecks at all on New Zealand Post’s network, and no access obligation. New Zealand Post is not tabling these arguments at this point. 151. With this view, options emerge based on the use of avoided cost pricing coupled with a change to the way access is offered. 152. New Zealand Post could offer legally compliant avoided cost lodgement access pricing only in areas where the operator does not currently or, based on objective criteria, should be able to street deliver. 153. This approach establishes two zones: a)
In the Commercial Zone there are no access discounts, commercial/customer arrangements emerge between operators based on the economics of the individual circumstance (i.e. as for all customers) iii ; and,
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b)
In the Access Zone access is offered on an avoided cost discounted basis.
154. This approach, which we call NCAO, removes the within region capacity to exploit the USO through cherry picking. 155. Or New Zealand Post could go further and follow the Swedish model, offering lodgement access only to its PO Box network. This is known as the All In/All Out model. The Swedish Market – Operating ‘Bottleneck Only’ Access Model 156. The Swedish postal market has been liberalised since 1993. a)
The only part of the Sweden Post’s network that is accessed by delivery capable competitors is the PO Box network (bottleneck).
b)
Competitors that ‘work share’ prior to Letters entering the network receive avoided cost discounts.
c)
Two types of competitors have emerged: i. Workshare – not entirely dissimilar to New Zealand Post Pre-paid access customers; and, ii. Niche Alternative Network – CityMail provides an end-to-end network offering for businesses within the major urban centres based on every 3rd day delivery.
d)
Sweden Post, like New Zealand Post, ranks among the leading postal operators in the world and is profitable. Note: it does receive Government funding for social aspects of the Post Shop network.
e)
The USO is fully maintained including a uniform price linked to the CPI.
157. There are a substantial number of similarities between the competitive structure of the Swedish postal market and the New Zealand postal market (i.e. workshare and bypass capable competitors operating over more than a decade). However, Sweden has specifically avoided exploitation of the USO from its bypass capable competitors. 158. Shifting to an NCAO or All in/All Out model would bring New Zealand more in line with what has proven to be a successful approach to postal industry liberalisation. 159. The All In/All Out model would contravene New Zealand Post’s obligation under the Deed of Understanding to provide access to its network. Whilst NCAO, which only alters the price of access, complies with this obligation.
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Summary of Options 160. In the first instance, tightening access pricing towards ECPR PLUS is economically rational and necessary in the context of declining postal volumes. ECPR is an acceptable guiding principle because New Zealand Post is able to demonstrate that: X
its postal business is efficient;
X
its postal business is not earning monopoly rents; and,
X
the proposed access pricing model will still allow efficient access operators to compete.
161. However, this approach is not sufficient. To place the USO on a sound footing than the threat of cherry picking has to be addressed.
Thus, New Zealand Post considers the choice lies between: A)
de-averaging the market to discriminate pricing on a geographic basis (DAP); or,
B)
firming up qualification for avoided cost based access discounts (NCAO).
162. Both of these models would deter substantial exploitation of New Zealand Posts universal service obligation (cherry picking).
Selected Option 163. New Zealand Post considers NCAO is a more appealing than DAP as an approach because: X
it allows the retention of ubiquitous pricing which is preferred by the broader community;
X
it does not require additional Government funding;
X
it does not require the negotiation and enforcement of an industry charge which has been a source of ongoing contention and litigation in other industries;
X
it does not require substantial and costly operational change to implement;
X
it does not increase the threat of substitution in an already declining market; and,
X
it encourages sustainable and efficient competition.
164. Hence, we are proposing the NCAO model. Involving, in summary: a)
for pre-paid access customers - access discounts based on robust avoided cost pricing.
b)
for delivery capable access customers: i.
Discounts to the Access Zone are based on robust avoided cost pricing; and,
ii.
Arrangements in other areas, the ‘Commercial Zone’, are based on New Zealand Post card rates.
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Proposal for Industry Consultation 165. New Zealand Post’s analysis finds that the ECPR discount for the standard letter (DLE all payment mechanisms) off New Zealand Post Card rates (RRP excl. GST) for access to its network for other postal operators’ lies in the ranges outlined in the table below. The range depends on the period under study (immediate versus long term). This discount includes an adjustment to take into account the average retail price.
ECPR Discount (Standard DLE) Pre Paid (Stamps)
1.33 – 2.80 cents
Lodgement
1.35 – 3.02 cents
166. Alternatively, New Zealand Post could base access pricing off separate postage included envelope (PIE) and Stamps ECPR rates. This would produce significantly lower discounts for access customers overall. New Zealand Post is not choosing to take this approach at this time. This means New Zealand Post is forgoing the margin that is made on a PIE envelope over a stamp for every PIE access item. 167. These costing results reflect assumptions that New Zealand Post will continue to offer uniform national pricing for the standard letter and continue to meet its obligations within the Deed of Understanding. 168. Due to the extent to which an alternative delivery network has now developed in New Zealand (evidencing low barriers to entry), coupled with the substantial impact of electronic substitution, New Zealand Post believes it is not obliged to provide access to many (if not any) areas of its network with respect to its standard letter service. 169. However, in good faith to its many stakeholders, New Zealand Post will continue to provide access to its network in a manner that will not erode the viability of that network in terms of its current configuration and capacity. 170. In the first instance, all discounts will be changed from percentages to an absolute cent amount. This change will be implemented by written notice pursuant to the terms of the access agreements. That notice will be provided at a quarterly review meeting to be scheduled in November 2009, and will become effective in January 2010. 171. In addition, New Zealand Post proposes that: a)
New Zealand Post’s nationwide access price for pre-paid customers is a discount of 3.60c (> 2.80c) for DLE off the current New Zealand Post card rate (RRP excl. GST). There will be a phased introduction of this pricing policy which is outlined below. [ECPR calculations and proposed discounts for other products are summarised in a table below paragraph 18081]
b)
Lodgement access discounts to non-bottleneck areas (Commercial Zone) throughout New Zealand Post’s network will be withdrawn.
c)
New Zealand Post’s access price for lodgement customers in the Commercial Zone will be based on New Zealand Post card rates. Those customers will be entitled to discuss commercial pricing terms with New Zealand Post’s Postal Services Group (like any other customer).
Commercial in Confidence
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Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
d)
New Zealand Post’s access price for lodgement customers in the Access Zone (rest of NZ + PO Boxes) is a discount of 3.93c (>3.02c) for DLE off the current New Zealand Post card rate (RRP excl. GST). There will be a phased introduction of this pricing policy which is outlined below. [ECPR calculations and proposed discounts for other products are summarised in a table below paragraph 180-181].
e)
New Zealand Post will work with its lodgement customer to refine its model of currently competitive areas, and areas with similar characteristics e.g. density (Commercial Zone). The operational management of the two zones (Commercial & Access) will be designed in consultation with its lodgement customer. New Zealand Post’s current view of the zones and two possible approaches to managing them are outlined below (paragraphs 177-178).
172. To be clear, while it is electing to take a pragmatic approach, New Zealand Post does not necessarily accept that it is obliged to provide discounted access throughout the Access Zone.
Proposed Phased Implementation 173. It is proposed that New Zealand Post will move to the new access discount structures in two equal instalments the first on 1 April 2010 and the second on 1 April 2011 (i.e. 50% of the difference between the current and new discount each time). 174. These changes would be implemented by written notice pursuant to the terms of the access agreements. That notice would be provided at a quarterly review meeting to be scheduled in January 2010. 175. It is proposed that New Zealand Post will define the Commercial Zone destinations by 31 March 2010. Lodgement customers will be offered a new access agreement once the zones are finalised. Prior to the new agreement being ready, New Zealand Post will provide one month’s notice of the implementation of zero discounts in the Commercial Zone. 176. ECPR calculations will be produced every quarter by New Zealand Post and the discount policy updated annually prior to 1 April. These calculations will be audited by an independent accounting firm annually. 177. Outline of the Proposed Commercial and Access Zones for Lodgement Customers In the first instance, as a matter of pragmatism, New Zealand Post will not contest PO Box and Rural delivery being in the Access Zone. Secondly, geographic areas where a lodgement customer currently delivers fall into the Commercial Zone. Further, it is proposed that many areas of similar geographic profile in terms of density of population should also fall into the Commercial Zone. Any remaining areas will be placed into the Access Zone. New Zealand Post has used independent Statistics NZ data to test the split between the two Zones. The Statistics NZ data classifies areas of the country by size, density of population and urban/rural characteristics. Using independent data to check the classification of regions ensures that the zones are based on demographic characteristics rather than only New Zealand Post operational practice. Accordingly, the proposed Commercial Zone is: • Urban Postcodes partially or fully contained in all the Main Urban Areas in New Zealand, as defined by Statistics New Zealand; and
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Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
• Urban postcodes partially or fully contained in any Satellite or Independent urban area, as defined by Statistics New Zealand, that the Lodgement Access Customer delivers mail to, now or in the future. The proposed Access Zone is: • all rural postcode areas; • PO Boxes; and • the urban postcodes not captured in the Commercial Zone Based on this approach, the Statistics New Zealand urban area classifications in the Commercial Zone are listed below. Statistics NZ classification
Main Urban Areas
Satellite Urban Area Independent Urban Area
Urban Areas included in the Commercial Zone Whangarei Auckland (4 zones) Hamilton (3 zones) Tauranga Rotorua Gisborne Napier-Hastings New Plymouth Wanganui Palmerston North Kapiti Wellington (4 zones) Nelson Christchurch Dunedin Invercargill Waitara Otaki Whakatane/Edgecombe Morrinsville Dargaville Stratford
DX street delivery in place at present? Y Y Y Y Y N Y Y Y Y Y Y N Y N Y Y Y Y Y Y Y
178. Options for Operation of the Two Zone Pricing Regime Two options for implementing the two zone pricing structure for letters are outlined below. a)
Blended Rate Option - using a blended rate for all letter mail delivered by New Zealand Post, or
b)
Separate Rate Option - charging different rates for letter mail delivered by New Zealand Post in each zone.
Blended Rate Option A blended rate is charged for mail of each size lodged with New Zealand Post regardless of which Zone the mail is destined. The blended rate is calculated using the actual split of mail into the Commercial and Access Zones processed by New Zealand Post from the lodgement customer over a given sampling period. The blended rate will be assessed regularly (based on machine and manual assessments) and also reviewed if areas included in the zones change. This implementation method requires little change from the current lodgement access sorting practices: Commercial in Confidence
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Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
• •
Mail paid for by DPM – no change Mail not paid for by a DPM – will need to be split by zone, as well as size.
A diagram outlining the lodgement customer sorting process is provided below. Lodgement Customer sorting process for the Blended Rate Option
mail for self delivery
Access Customer sorts mail mail for New Zealand
put through Digital Postage Meter
sort into trays by size & zone
sort into trays by size
complete AR19 Lodgement Form
put trays in mail cage
to New Zealand Post mail
put trays in mail cage
Separate Rates for the Zones Option The alternative option is charging separate rates for letters in the Commercial and Access Zones in each lodgement. All mail lodged with New Zealand Post will need to be separated into the two zones. For lodgement access mail paid for by a DPM, two meters will be required to allow for invoicing at different rates and to assist with revenue protection. This implementation method increases the work performed by both the lodgement customer before mail is lodged and New Zealand Post on acceptance at a mail centre. A diagram outlining the lodgement customer sorting process is provided below. Lodgement Customer sorting process for the Separate Rates Option
mail for DX delivery
put Commercial Zone mail through Digital Postal Meter 1
sort into trays by size
DX sorts mail
put trays in mail cage
mail for New Zealand
put Access Zone mail through Digital Postal Meter 2
sort into trays by size & zone
Commercial in Confidence
to New Zealand Post mail
sort into trays by size
complete AR19 Lodgement Form
put trays in mail cage
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Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
Our ECPR Calculations 179. New Zealand Post’s ECPR calculations have been designed in consultation with NERA Economic Consulting and audited for correct application by Price Waterhouse Coopers. The model has also been reviewed conceptually by LECG and Chapman Tripp. Key assumptions for our ECPR calculations are summarised in Appendix A. 180. The following table outlines our most conservative ECPR calculations (discount off postage RRP excl. GST) for all access products:
ECPR
Pre-Paid
Standard
Boxlink
Standard ECPR Discount (cents)
Priority (Fast) ECPR Discount (cents)
RRP ex GST
ECPR Discount (cents)
RRP ex GST
ECPR Discount (cents)
RRP ex GST
ECPR Discount (cents)
DLE
44.44c
2.80
88.88c
5.56
66.66c
4.60
3.02
5.56
C5
88.88c
5.33
$1.33
8.02
88.88
6.32
5.33
8.02
C4
$1.33
9.33
$1.77
13.03
$1.33
10.32
9.33
13.03
OS
$1.77
16.41
$2.22
21.40
$1.77
17.41
16.41
21.40
The following table outlines proposed access discounts for all access products:
Pre-Paid
Lodgement (Access Zone)
ACCESS DISCOUNT
181.
Priority (Fast)
Lodgement (Access Zone)
RRP ex GST
Access Discount
RRP ex GST
Access Discount
RRP ex GST
Access Discount
DLE
44.44c
3.60
88.88c
7.14
66.66c
6.00
3.93
7.14
C5
88.88c
7.03
$1.33
10.58
88.88
8.53
7.03
10.58
C4
$1.33
11.03
$1.77
15.59
$1.33
12.52
11.03
15.59
OS
$1.77
18.12
$2.22
23.96
$1.77
19.61
18.12
23.96
Standard
Commercial in Confidence
Priority (Fast)
Boxlink
Standard Access Discount
Priority (Fast) Access Discount
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Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
182. To illustrate the phasing proposed, the following table outlines how the standard DLE rate change will be phased in over the proposed timing:
(discount in cents)
Current discount to be expressed as an absolute cent amount from January
AS at 1 April 2010
AS at 1 April 2011
Prepaid
8.440
6.020
3.600
Lodgement (Zone A)
7.110
Lodgement (Zone B)
7.110
No Access discount – lodgement on commercial terms
5.520
3.930
Consultation Process 183. We are presenting the facts of our review and our proposal to each access customer individually. This allows us to listen to immediate feedback in commercial confidence. 184. In order for this process to be completed, all information relating to this proposal is embargoed from any public disclosure or discussion until 10am Thursday 22nd October 2009. 185. Initial feedback will be sought in follow-up individual meetings during the week of 9th-13th of November 2009. 186. Final formal feedback is required to be submitted in writing by Monday 30th November. 187. Please submit final feedback in writing to: Robert Bernau Manager, Network Access & Regulatory New Zealand Post Private Bag 39990 Wellington Mail Centre Lower Hutt 5045 email:
[email protected] 188. New Zealand Post will consider individual circumstances (within the constraints of consistency), and also invites feedback and/or counter proposals that can meet the core objectives of this review (outlined at paragraph 47 above). 189. New Zealand Post is prepared to consider compensation for actual losses incurred by other postal operators that result from existing contracts with customers. New Zealand Post does not intend to compensate for any other costs of transition. 190. New Zealand Post will endeavour to make a final decision on its access framework going forward in the middle of December 2009. Commercial in Confidence
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Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
Appendix A: ECPR Key Assumptions All figures have been calculated from costing information provided by New Zealand Post’s Postal Service Group Activity Based Cost Model. This model was designed and built in accordance with advice from by Deloitte’s ABC costing partner in Australia throughout 2007/08. ECPR calculations have been designed under guidance and advice from the NERA Consulting Group and reviewed by Price Waterhouse Coopers. The model has also been reviewed by LECG and Chapman Tripp. The following table summarises how each relevant New Zealand Post cost category is treated in the ECPR calculations: Fully or partially avoidable over short term with change in volume(Y/N)
Fully or partially avoidable over longer term with change in market share(Y/N)*
Cost of Goods Sold
Y
Y
Customer Enquiries
Y
Y
Field Sales
N
N
Telesales
N
Y
Online
N
N
Customer Financial Management
N
Y
NZP Post Shop Sales
N
N
Franchisee Post Shop, Post Centres & 3rd Party Reseller Sales (margin)
Y
Y
Corp Overhead – Marketing
N
Y
Corp Overhead – excluding Marketing
N
N
Acceptance
N
N
Processing (BCM drum only)
N
Y
Returned Letter Office
N
Y
Cost
Sales & Account Management
Further Costs Incurred Access Management
N
Y
*Based on an assumption of 20% total letters share for other operators on the 5yr modelling pewriod. Note: The average retail discount has been treated as a cost and included in the ECPR calculation so that the RRP excl. GST may be used as the headline price. 191. As stated earlier, New Zealand Post is willing to base access pricing off a blended or separate PIE and Stamps ECPR rates depending on operators preference. A split approach would produce lower discounts for PIE & higher for stamps for access customers. New Zealand Post is not choosing to take a split approach at this time.
Commercial in Confidence
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Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
External Reference Material Author
Title
Publication
Date
Bloch, Francis & Gautier, Axel
Access Pricing and Entry in the Postal Sector
Review of Network Economics, Vol 7 Issue 2
Jun-08
Bloch, Francis & Gautier, Axel
Access, bypass and productivity gains in competitive postal markets
Pricing under Entry
Cohen, Robinson, Sheehy, Waller, Xenakis
An Empirical Analysis of the Graveyard Spiral
Ch 6, Competitive Transformation of the Postal and Delivery Sector
2004
Consumer Postal Council
Index of Postal Freedom
www.postalconsumers.org
various
Dr. Christian Wey
How to regulate the postal industry: an economic approach
International Postal Corporation
Aug-07
DX
DX Price List as at 28 March 2008
DX
28/03/2008
DX
Bulk Mail Just Got Slimmer in Price
DX
13/10/2008
ECORYS Nederland BV
Main Developments in the Postal Sector 2006-08 (commissioned by the European Commission)
EC – DG Internal Market and Services
11/09/2008
EU
Postal services: creating a single market, further opening of the market to competition (amend. Dir. 97/67/EC)
European Parliament Procedure File
2006
EU
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 97/67/EC, concerning the full accomplishment of the internal market of Community postal services
COMMISSION OF THE EUROPEAN COMMUNITIES
2006
EU
COMMISSION STAFF WORKING DOCUMENT Accompanying document to the Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 97/67/EC concerning the full accomplishment of the internal market of Community postal services: Executive Summary of the Impact Assessment
COMMISSION OF THE EUROPEAN COMMUNITIES
18/10/2006
Commercial in Confidence
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Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
EU News, Policy Postions, and EU Actors Online
26/01/2009
Postal Sector Work Programme
Ministry of Economic Development
5/06/2007
Gonzales d’Alcantara and Bernard Amerlynck
Financial Viability of the Universal Postal Service Provider
Ch 5, Competitive Transformation of the Postal and Delivery Sector
2004
Hon.Maurice Williams
Government Signals Future Directions for Regulation of Telecommunications, Electricity and Gas
New Zealand Government News Archive
27/06/1996
IBM, USPS
Quantitative Analysis of the Universal Service Obligation: Final Report
International Postal Corporation
Draft phase II report on the USO scope and financing options
Mark Armstrong, University College London
A Decision and Direction by the Postal Services Commission: Access Pricing, Bypass and Universal Service in Post
Review of Network Economics, Vol 7 Issue 2
Jun-08
Mark Armstrong, University College London
Access Pricing, Bypass and Universal Service in Post
Review of Network Economics, Vol 7 Issue 2
Jun-08
Michael A. Crew, Paul R. Kleindorfer
Competition, Universal Service and the Graveyard Spiral
Michael A. Crew, Paul R. Kleindorfer (Eds)
Current Directions In Postal Reform
Kluwer Academic Publishers
2000
Michael A. Crew, Paul R. Kleindorfer (Eds)
Liberalization and the Universal Service Obligation in Postal Service
Ch 1, Current Directions in Postal Reform
2000
EurActiv.com
Financing Universal Service for Mail Delivery
European Parliament, Committee on Transport and Tourism
Proposal for a directive of the European Parliament and of the Council amending Directive 97/67/EC concerning the full accomplishment of the internal market of Community postal services
Free and Fair Post Initiative, UK
FFPI RESPONSE TO THE EUROPEAN COMMISSION PUBLIC CONSULTATION ON POSTAL SERVICES
Glen Saunders, Min Economic Development
Commercial in Confidence
Page 40 of 43
8/10/2008
Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
Michael A. Crew, Paul R. Kleindorfer (Eds)
Competitive Transformation of the Postal and Delivery Sector
Kluwer Academic Publishers
2004
Michael A. Crew, Paul R. Kleindorfer (Eds)
Progress toward liberalization of the Postal and Delivery Sector
Kluwer Academic Publishers
2006
Michael A. Crew, Paul R. Kleindorfer (Eds)
Liberalization of the Postal and Delivery Sector
Edward Elgar Publishing Limited
2006
New Zealand Post
Access Guide – Version 6 Correct as at 01/04/08
New Zealand Post Intranet Site
1/04/2008
New Zealand Post
Quarterly Disclosure of Information by New Zealand Post Limited under the Postal Services (Information Disclosure) Regulations 1998: Quarter to 31 December 2008
New Zealand Post
Jan-09
New Zealand Post
Deed of Understanding 1998
New Zealand Post
Guidelines for Dealing with Competitors
Oxera Consulting Limited
Funding universal service obligations in the postal sector
PA Consulting (Susan Barton)
17/02/1998 New Zealand Post Intranet Site
21/01/2009 Jan-07
The Future Direction of the Mail Industry
June 2009
Philippe De Donder, Helmuth Cremer, Paul Dudley and Frank Rodriguez
Welfare Analysis of Price Controls with End-to-End and Access Services
Ch 4, Liberalisation of the Postal and Delivery Sector
Post & Telestyrelsen (Sweden)
THE LIBERALISED SWEDISH POSTAL MARKET the situation 14 years after the abolition of the monopoly
Postal Affairs Dept, Sweden
PostComm, UK
POSTAL SERVICES ACT 2000, Section 11, Amended Licence
25/05/2006
PostComm, UK
Review of Royal Mail’s pricing flexibility and the level of access headroom (the ‘Interim Review’ of the price control): Postcomm’s Proposals
Aug-07
Commercial in Confidence
Page 41 of 43
Mar-07
Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
PostComm, UK
Review of Royal Mail’s pricing flexibility and the level of access headroom (the ‘Interim Review’ of the price control): A Decision and Direction by PostComm
Jan-08
PostComm, UK
CHANGES TO ZONAL ACCESS PRICING – PROPOSED LICENCE MODIFICATIONS
20/02/2009
PostComm, UK
NOTICE of proposed modifications to the licence granted to ROYAL MAIL GROUP LIMITED
Approx April 2009
PostComm, UK
ANNEX B Zonal access pricing cost reflectivity test
PostComm, UK
Review of Royal Mail’s pricing flexibility and the level of access headroom (the ‘Interim Review’ of the price control)
PriceWaterhouseCoopers
The Impact on Universal Service of the Full Market Accomplishment of the Postal Internal Market in 2009
Richard Hooper CBE, Dame Deirdre Hutton, Ian R Smith
Modernise or decline: Policies to maintain the universal postal service in the United Kingdom
16/12/2008
Royal Mail Group Limited
Regulatory Financial Statements 2007-08
2008
Royal Mail Group Limited
Royal Mail Holdings plc Trading update for the half year ended 28 September 2008
2008
Royal Mail Group Limited
Royal Mail Access User Guide v5.0
8/11/2005
The Greens/European Free Alliance
THE POSTAL DIRECTIVE: A GREENS/EFA APPROACH
24/04/2007
Uni Europa Postal
PUBLIC CONSULTATION ON POSTAL SERVICES – ANSWER FROM UNI EUROPA POSTAL
Universal Postal Union, International Bureau
Status and Structures of Postal Administrations
USPS
USPS Financial Accounts (various)
Commercial in Confidence
Commissioned by the EU
UPU
Page 42 of 43
27/01/2009
Jun-06
Access Pricing Review & Proposal for Industry Consultation – Embargo until 10am Thursday 22nd October 2009
i
UPU website Source Hooper Report 2008 (Deutsche Bank Data) and USPS published accounts iii New Zealand Post already has a range of commercial arrangements in place with other operators ii
Commercial in Confidence
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