On foot of an application from An Post to review the pricing structure with a view to putting in place an ‘interim’ price increase from March 1st 2007, Comreg invited any interested party to make a submission in relation to the proposals.  The CWU made the following submission to ComReg (Communications Regulator)

Submission re ComReg 06/67

Introduction
The Communications Workers’ Union (CWU) represents approximately 18,000 workers employed in the communications sector in the Republic of Ireland, of which 8,500 are employed by An Post, the applicant in respect of the consultation document 06/67 issued by the Commission for Communications Regulation (ComReg).

The financial well being and viability of An Post as a business into the future has clear and obvious implications for the job security and general economic well being of the staff in An Post.  As the representative body for the vast majority of those staff it is incumbent on the CWU to articulate its view in relation to the proposal to increase the price of domestic postal services as detailed in the ComReg consultation document 06/67.

As the union with negotiating rights for 8,500 An Post staff and in light of the positive working relationship as exists between both parties, the Union should be considered an important stakeholder with a central role to play in the future success of the business.  CWU has an intimate knowledge of the business within An Post and on that basis makes the following submission regarding An Post’s proposals to increase the price of its domestic reserved services from 1st March 2007 for consideration by ComReg.

Consultation Question
What in your opinion are the pros and cons of ComReg concurring with An Post’s proposal for an ‘interim’ price increase to be implemented on 1 March 2007?

In order to fully consider this subject one must put the question of an ‘interim’ price increase in context and examine the factors contributing to, and affected by, the decision to properly examine the pros and cons as the case might be.

BACKGROUND:

Tariff Principles and Universal Service Obligation
One of the fundamental considerations for ComReg when reviewing An Post’s pricing proposals will be the Tariff Principles as set out in Regulation 9(1) of the European Communities (Postal Services) Regulations, 2002, S.I. No. 616 of 2002 (the “Postal Regulations”) which states that:

‘The tariffs for each of the services provided by a universal service provider which form part of its universal service shall comply with the following principles:

(a) prices must be affordable and must be such that all users have access to the services provided;
(b) prices must be geared to costs;
(c) comply with any uniform tariff decided by the Regulator under paragraph (2);
(d) the application of a uniform tariff shall not exlude the right of An Post to conclude individual agreements on prices with customers and;
(e) tariffs must be transparent and non-discriminatory.

These principles clearly set out that the tariffs should be ‘affordable and must be such that all users have access to the services provided’ in addition to this they should be ‘geared to costs’.  As such it is imperative that the proposed price increases continue to ensure accessibility at an affordable price that is aligned to the costs of running the business.

In addition, An Post must meet its obligations as the Universal Service Provider in an environment that has seen the reserved area reduced in phases whilst the company adapts to the rigours of the open market.  As a supporter of Universal Service, CWU believes that an appropriate pricing strategy that allows An Post to provide the USO on a financially stable basis whilst meeting its commitments to its staff in line with national wage agreements is essential to the continued success of the company.

Furthermore CWU considers it important that ComReg reflects on the Policy Direction 12, issued by the Minister for Communications, Marine and Natural Resources in February 2003, pursuant to Section 13 of the Communications Regulation Act 2002.  The Policy Direction states ‘the Commission shall ensure that, in making regulatory decisions in relation to the postal universal service obligation, it considers the impact of such decisions on the cost of sustaining the universal service, which costs include per employee costs arising from national pay policy.’

CPI and Cost Increases
It is the firm belief of the CWU, for reasons detailed below, that ComReg should concur with An Post’s proposal for an interim price increase in the context of increased CPI and business costs which have been absorbed by the company whilst the price of domestic letter services have not increased for the last 3 ½ years.

It should be noted that in the last 15 years the headline tariffs for the domestic letter have increased only twice; in April 2002 the price increased by 3c and in August it moved by 7c.  This represents an increase of 26% in the headline tariff for that period.  In the same period CPI has increased by 52.3%.  Though the proposed price increase to 55c will mean that, in nominal terms, the tariff is 45% higher than the 1991 rate, it is still significantly below the CPI rate for that period at 52.3%.

As such the proposed increases adhere to the Tariff Principles as outlined above in so far as they are actually below the CPI rate for the reference period and should, on that basis, be considered reasonable and affordable.

In the period since August 2003 there has been no increase in the headline tariff of 48c and should an increase be implemented in March 2007 as proposed, it will be the first increase in 42 months. 

In the same period An Post has had to absorb cumulative increases in its labour costs of 18.9%.  This, in conjunction with significant rises in the costs of fuel and energy, has placed the company in a financially perilous position that will only be exacerbated in the absence of a pricing structure review.

With pay costs accounting for over 70% of the domestic letter service and non-pay accounting for the remainder, the composite increase in costs for An Post in the period August 2003 to the end of 2007, using this ratio, is in the region of 17.7%.  The increase being sought by An Post, at 14.6%, is significantly lower than the costs as predicted. 

Indeed one could argue that this is not aligned to the Tariff Principle that states increases should be ‘geared to costs’ given that the increase is not enough to meet the costs.  However it should be noted that CWU is committed to continue to work in partnership with the An Post management to ensure that change programmes aimed at improving efficiency and quality of service are delivered without delay in the interests of all stakeholders and the continued success of the business.

As such the proposed tariff increase should be considered to comply with the principle that the increase must be ‘geared to cost’ while at the same time it will provide the company with the appropriate resources to meet its obligations under national wage agreements.  In conjunction with this, CWU recognises the importance of the new Accounting Direction which will provide the necessary accounting information to establish An Post’s compliance with Regulation 9 “Tariff Principles” in 2007.

The price of reserved ‘large envelope’ and ‘packet’ products has not been reviewed in the last 12 months and CWU concurs with ComReg’s view that the weighted price increase as proposed ‘compares satisfactorily’ with a movement in the CPI of 4.4% in the 12 months to the end of November 2006.

For these reasons CWU believes that a review of the pricing structure within An Post as proposed is essential to ensure the future success of the business and its ability to meet its commitments as the Universal Service Provider in conjunction with fulfilling its commitments to its staff under the national pay agreements.

Positive Pricing Structure
There are a number of innovations within the An Post proposals that the CWU wishes to highlight.

An Post is proposing to remove the differential in the price for the 50g and 100g fully paid service which represents a decrease of 8.3% on the current tariff of 60c for letters from 50-100g.  Such a development should be recognised as positive and indeed worthy given that the company is operating in an increasingly competitive environment.  General consumers will welcome this move by An Post and CWU welcomes it as strengthening the company’s commitment to its Universal Service Obligations.

In addition to this the company has committed to introduce a discount of 1c for payment by meter franking/Ceadúnas.  CWU supports this proposal on the basis that it should be recognised as a development that is good for the business community that should drive an increase in volumes.

Furthermore if should be noted that a study by Price Waterhouse Coopers conducted as part of the European Commission’s review of the postal sector in Europe  has found that that Ireland has the sixth lowest letter price adjusted for purchase power parity out of twenty seven states.  With twenty one states charging more for their letter post it is apparent that there is room for An Post to increase its tariffs and still remain in line with other European states.

Commitment to Quality
CWU would echo the views of An Post in its proposal that there is no legal basis for the alignment of quality of service improvement with price increases.  Equally however CWU shares the view that the company should be committed to the provision of a high quality, reliable service at affordable prices to its customers. 

In that regard, CWU recognises the innovative proposal by An Post to link the implementation of price increases in 2008 to the achievement of quality of service improvements in 2007.  As previously stated, CWU is committed to working with the new Chief Executive and An Post management to deliver on the agreed change programmes that will help the company realise cost savings through efficiency gains and improvements in the quality of service delivered to the customer.

Consultation Question
What in your opinion are the pros and cons of ComReg concurring with An Post’s proposal for an ‘interim’ price increase to be implemented on 1 March 2007?

Summary
CWU fully supports An Post’s proposals for an interim price increase in the reserved domestic tariffs and feels that a compelling case featuring numerous pros has been made for what is in effect a moderate, justifiable and ultimately warranted price increase.  Given that 3 ½ years will have elapsed since the last price review for An Post should this application be successful, CWU believes that the increases being sought are in line CPI and business cost increases for the same period.

In seeking this increase the company is merely ensuring that it can comply with its Universal Service Obligations whilst moving ahead strategically in an increasingly competitive environment without the threat of potential losses, a substantial pro in and of itself. 

As outlined above, the increases being sought are in line with the Tariff Principles as set out in Regulation 9 of the Postal Regulations in so far as they are affordable, ensure that services are accessible and are geared to costs.  The company, in welcoming the new Accounting Direction from ComReg, is further committed to ensuring that their cost gearing is transparent and appropriate.

Furthermore the innovative aspects of the An Post proposals in relation to pricing and quality of service are worthy of note and are further evidence of a company this is committed to positive progress and continued high levels of customer service in an increasingly competitive environment. 

The discounts as proposed will benefit the citizen and the business consumer alike and this should be recognised as something that can only help to drive an increase in mail volumes.

A potential con, as may be argued by some, is that the increase might have a potential negative impact on mail volumes.  The CWU does accept this argument and believes the moderate increase as proposed, taken in conjunction with the proposed discounts, will not lead to a diminution in volumes and should in fact have the opposite effect.

As such and given the pros and cons outlined herein, the CWU would urge ComReg to recognise the merits of these reasonable views and concur with An Post’s proposal for an interim price increase to be implemented on 1 March 2007.