Australian environment Reserved letters: 45% of Australia Post - PowerPoint PPT Presentation

Australian environment • Reserved letters: – 45% of Australia Post revenue, but only 32% of profits – 98% of Letters revenue • Price control on reserved letters; – ACCC Notification; assessed on ensuring reasonable returns on an efficient costs base • CSO monitoring: – Auditor General – KPMG • Significant investment in Network and Delivery Efficiency • Current access/flexibility: – Bulk Mail, Aggregation, interconnection • Collaboration with industry: – Code of Conduct – Bulk Mail Partner

Community Service Obligations • Post must provide a Letter service: – Letter service up to 500g • Principle purpose of Letter service: – to carry reserved letters, and – to carry letters between Australia and overseas countries • Provide single uniform price for standard postal articles carried by ordinary post. • Ensure letter service is: – reasonably accessible, and – performance standards meet social, industrial and commercial needs.

Domestic Letters • Reserved Letters 39% of total market: – 4b from 10b • Private operators exist at varying levels; – covering over 90% of residential… to – servicing niche business markets. • Part of the Communications Market: – under severe pressure from substitutes

Letters part of the communications market Communications Postal Services market growing share falling 30,000 40,000.0 50.0% 25,000 30,000.0 40.0% 20,000.0 30.0% 20,000 10,000.0 20.0% 15,000 - 10.0% 1960 1996 2003 10,000 Comms market Postal Services Share 5,000 - 1960 1996 2003 Postal Services Other Telecommunications

World Mail Growth Slowing Domestic Mail Growth Average Growth 95-00 compared to 00-02 6.0% 4.0% 2.0% 0.0% Western USA Canada Aust -2.0% Europe -4.0% 95-00 00-02

Pressures from Substitution Increasing Use of Cheques Uptake of Credit Declining, as…. Cards increase Av per Month 11.0 90 10.0 80 9.0 8.0 70 7.0 60 6.0 50 5.0 40 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Future Directions • Continue to improve productivity • Seek volume growth from Mail Marketing • Promote the value of paper based communications • Continued collaboration with other suppliers essential to enhance letter value chain

Postal Regulatory Environment • Current system strikes a balance between commercial and social imperatives. – Post must act commercially, but has community service obligations; • commercial obligation a major stimulus that has driven improvements in Post’s businesses - and not just reserved. – Minister retains certain public interest powers; – Reserved Prices subject to ACCC notification • ACCC considers the efficiency of costs; – Public Interest performance standards set by Regulation and are independently monitored

Outcomes of Current Regulation • Prices • Efficiency • Service Quality • Innovation • Profitability

Outcomes of Current Regulation • Prices: – BPR delivery virtually same price as 1992 (gst ex) – Actual reductions for bulk users (38.25 to 34c) $0.65 $0.60 $0.55 $0.51 $0.45 $0.45 $0.45 $0.38 $0.34 $0.35 $0.25 Price in 1992 92 price at CPI Todays Price BPR PreSort Letters

Outcomes of Current Regulation HUNGARY 119 Third lowest GERMANY 90 BPR in OECD FRANCE 83 81 JAPAN Countries SWITZERLAND 80 (PPP) ITALY 79 UNITED KINGDOM 71 NETHERLANDS 67 CANADA 56 UNITED STATES 51 AUSTRALIA 50 NEW ZEALAND 43 KOREA 39

Outcomes of Current Regulation Efficiency Total Factor Productivity • Labour productivity 6 more than doubled that 5 of Australian economy 4 % Change • Sustained improvement 3 in Total Factor 2 productivity ahead of 1 the Australian Economy 0 75-81 82-88 89-99 Post Australia

Outcomes of Current Regulation • Service Quality – Independently measured and improving 98.0% % delivered on time 96.0% 94.0% 92.0% 90.0% 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01 /02 02/03 03/04

Outcomes of Current Regulation Innovation: • Future Post ($800m) • Express Post • Aggregation, • Retail Network, • Logistics • Data • StarTrack/AaE • Asia Pacific Express consortium

Outcomes of Current Regulation Profitability – Profits grown in non-letters area – BPR constant $500 $400 $300 $200 $100 $- 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03

Post View on Regulation • A Government decision • Supports phased reductions in reserved service; – assess impacts for unintended consequences. • Supports CSO cost funded from the Letters service revenues • Has supported government legislation to legitimise aggregation and DX practices.

Access • Post has worked with the Postal Industry to develop non-mandated bulk mail access: – Prices substantially lower than BPR – Prices have had regard to, among other things, • costs saved to Post; • statutory requirements for reserved services (CSO obligations); • Post to generate commercial return

Work Share Pricing Barcode Direct Tray $0.37 Barcode Residue $0.42 Clean Mail $0.45 BPR $0.50 $0.30 $0.35 $0.40 $0.45 $0.50 $0.55

Access • Important principles underlying current regime: – access at points equipped to accept mail – discounts offered relate to cost savings (top down, retail less) • This recognises access should not act as a disincentive to investment • Benefit of network recognised by customers: – MMUA “importance.. of two way network cant be overemphasised..”

End to End Letters Network Lodgement Points Transport and Processing Final Delivery Lodgements at: • Street Posting Boxes (SPBs), • Retail Outlets, • Mail Centres SPBs - 16,000 nationally Mailing Houses Originating Terminating Mail Centre - Mail Centre - 31 Metro & 31 Metro & country country Retail Facilities - facilities facilities Delivery Centre - Delivery Points - 4500 (2582 in remote 314 facilities 9.4 million and rural areas) nationally Servicing 1.1 million customers in our outlets daily - Delivering to 9.4 million delivery points

Letter Value Chain 3. 5. 7. 8. 1. 2. 4. 6. List Data Letter- Consolidate Postal Process Create Manage- Process- Print Fulfill Shop & Drop Ship & Delivery ment ing 1. 3. 5. 7. Design & create Transaction Apply Aggregate communications processing postage, mail; enter piece (e.g., billing) presort downstream 6. 8. 2. 4. 3 rd party order-taking and Print inserts, Process and Clean addresses catalogues, fulfillment of products, deliver in the and target mail documents books, reports, etc postal network Postal Process Mail Processing Centre Street post boxes Cancel Stamps, Face mail Manual Sort Delivery Centre Post Offices Read address/apply barcode Sort to Postman Round Outstations Adapted from a Luis Jimenez presentation

Access Points Access Points into Postal Process Post Street Originating Terminating Office, Delivery post Mail Mail Business Centre boxes Centre Centre Centre Australia Post Transport

Letters Business Model • Investment in latest sorting technology and most efficient network configuration – $800m on Future Post. • Reduction of other costs across the network. – Move to part-time, contract, LPOs, Air-by-road • Exercise price restraint: – BPR virtually at same price as 1992 • Work with Customers/Industry Players