New rules needed to raise quality of postal services

New rules may need to be drawn up for the postal sector to jolt it into the 21st century. Competition and deregulation has increased considerably in Kenya's telecoms industry, thanks largely to the innovation brought in by mobile phone service providers.

But a trully competitive postal services market remains a mirage, and with the advent of e-mail and the internet, the industry is increasingly looking stone-age.

Letter delivery is a lucrative business. The Postal Corporation of Kenya, popularly referred to as Posta, remains the dominant force and monopoly in Kenya's postal market.

However, in courier services and express parcels there is stiff competition with the major local and international players such as FedEx, UPS, DHL and Nation Courier.

Postal services differ from other physical delivery services because of volume, nature of letters and other goods delivered through the post.

The large and vertically integrated Posta benefits from various competitive advantages not shared by private competitors.

However, as a monopoly, it also suffers from competitive disadvantages, such as the need to comply with Civil-Service labour rules.

Despite enjoying economies of scale in the final delivery of letter, the presence of close substitutes for standard letter mail like couriers and express mail services, suggests that effective competition would develop in a completely liberalized postal sector.

However, more important are the provisions, and the time frame schedule for the much needed liberalisation in the sector.

I believe that underlying market trends, which seem to gain speed, will further accelerate liberalisation.

Despite more deregulation initiatives in other sectors in Kenya, key postal services continue to be provided under the protection of a statutory monopoly by Posta Corporation.

While significant progress in terms of reform has been made in other telecommunication service sectors, the postal service is still in the old order.

In the telecoms sector, we are being faced with the question of how to create effective competition. But for Posta, the real issues of the industry it operates in are yet to emerge. The agenda now should be to open the market for other firms in the near future. This would encourage effective competition, innovation and market development, and secure universal service.

The postal services industry must be brought at par with the other sub-sectors in the telecommunications industry. The ongoing deregulation and liberalisation in other network-based industries, has demonstrated the benefits of competition as a means of enhancing quality, efficiency, innovation and lowering prices to consumers.

Competition can further be enhanced through regulatory interventions, now commonly found in other network industries.

Particularly, structural separation of the monopoly service and the implementation of an access regime. In other words, regulatory restrictions on competition in the postal sector should be eliminated.

The elimination of regulatory restrictions on competition does not, however, eliminate competition concerns. An incumbent may be able to anti-competitively undercut an entrant as long as it has access to a source of funds such as monopoly rents or state subsidies. Eliminating this will typically require further regulation, such as privatisation or structural separation.

A fully liberalised postal services industry would certainly provide some form of service in all areas of a country. Just as other businesses move into rural areas to serve the various needs of rural customers, postal operators could also be expected to do so.

Furthermore, it is not even necessarily the case that the price in rural areas would be higher than in urban areas. In a liberalised market, the decision to adopt a single national price is a product and marketing decision, which may be profitable on strictly commercial grounds such as brand recognition or reducing the transactions costs for customers.

These benefits may outweigh the costs of providing some services at a loss. The evidence for this is that private firms can and do provide universal access.

The advantages of opening up postal services can be seen in the success of similar measures in developed countries, particularly Sweden and New Zealand.

Such a move would bring in new ideas from other operators, reduce pricing for consumers, and lower costs for business. It would also force Posta modernise at a faster pace than it is doing at present.

The author is a telecom strategy analyst