Warning over delays to Ireland’s Downstream Access mail system

Irish parcel and mail delivery company Nightline has said that opening up access for other postal operators to access the last mile network of An Post is the “single most important issue” to be resolved in order to create a healthy, competitive postal sector in Ireland. The Dublin-based company, which claims to deliver one in four parcels in Ireland at the moment and is also delivering some mail, was commenting as Irish regulator ComReg continued its efforts to set up regulations for a “Downstream Access” system in Ireland.

Such a system will grow mail volumes overall in Ireland and increase the competitiveness of the Irish economy, Nightline said.

The process of setting up a system similar to that in the UK, where competitors can collect and sort letters and documents before entering them into the final stage of the universal service provider’s delivery network, goes alongside the liberalisation of Ireland’s postal market under EU rules.

But in its latest consultation response, Nightline expressed concern that An Post was looking to delay the setting up of Downstream Access contracts with competitors

The private sector company backed ComReg’s belief that An Post should implement the system in a “timely fashion”, and also expressed the desire for ComReg to have the power to intervene “speedily” if An Post drags its heels in negotiating and adopting commercial agreements with Downstream Access operators.

Nightline said a Downstream Access system would allow An Post to achieve better network efficiencies, in the same way Royal Mail has achieved driven by competition through its Downstream Access system.

“At all levels it will grow mail volumes across the market as a whole: as service providers make use of the Downstream Access product, business customers will respond by increased use of the mail channel,” the company said.

Nightline added that as Downstream Access provides more competitive mail delivery services for businesses, the system would boost the whole Irish economy as a result.

As it commenting on the proposed regulatory framework for contracting and dispute procedures, Nightline called on ComReg to set clear timelines for the implementation of the Downstream Access system.

“Otherwise there is a risk that the whole process may become drawn out,” it said, warning that as ComReg has proposed the system, there was “considerable scope for strategic procrastination for a party interested in delaying the implementation of a mandated solution”.

Wholesale

In its comments, Nightline said setting up an efficient system offering a distinct difference between wholesale and retail postal services was needed to help the sector prosper.

Nightline said such a situation had already been created in the energy and telecommunications sectors, and would drive innovation by operators and provide value for money for residential and business postal customers.

“It is our belief that a clear wholesale/retail distinction in postal services will result in multiple benefits to all stakeholders within the sector,” Nightline said in its consultation response.

But to succeed, it said An Post’s Downstream Access prices would have to be “substantially” below bulk mail rates offered to An Post’s large retail customers.

Getting the pricing right for a Downstream Access system was the most important element in development of healthy competition, Nightline said.

An Post is currently seeking regulatory approval for a 12% price increase for its domestic letters up to 50g in weight, and an 11% price increase for international outbound products, while stamped letter rates would increase 18% from 55c to 65c. Mail products outside the reserved area had a 10% domestic price increase and an 8% international increase applied back in May.

Volumes and prices

An Post’s proposals include a Downstream Access bulk mail product that would be priced differently than the EUR 0.41 bulk mail rate, and would have additional requirements compared to bulk mail preparation standards.

Even before opening its business mail volumes to competition from Downstream Access operators, the Irish universal postal provider has seen its mail volumes declining at around 7% year-on-year this year, above a 5% level previously forecast for 2012.

An Post has predicted ongoing 3% annual declines in volumes, but analysts have described the prediction as “optimistic”.

Consultants at Frontier Economics provided an assessment for ComReg this autumn suggesting ongoing mail volume declines were likely to be double An Post’s forecasts for 2013 and 2014.

“It is not clear that Ireland has experienced the full impact of e-substitution, particularly with respect to transactional mail,” the research said, suggesting that much of the volume decline in the last two years stemmed from the state of the Irish economy, rather than only e-substitution.

Frontier Economics said it was “unlikely” that a new Downstream Access bulk mail product would counter volume declines from e-substitution, and warned that An Post’s price increases “will have a negative impact on volumes”.

An Post had predicted its price increases would generate EUR 16.3m in extra revenues in the first year, reducing volumes by 1.2%, although consumer surveys have suggested there may be “considerable” public resistance to the price rises proposed.

“An Post’s proposed price increase could result in accelerating volume declines of up to 3.2 percentage points relative to the baseline,” said the Frontier Economics study.

The study suggested An Post’s belief that its loss in 2014 would be reduced by EUR 22m, to EUR 30m was also optimistic, and that the true figure was more likely to be a EUR 14m improvement in the loss figure.

ComReg said last week that An Post has promised to provide revised estimates in light of the Frontier Economics study, amending the price change proposals before the regulator.

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