Examination of Witnesses (Questions 80-99)
POSTCOMM, OFCOM
AND OFGEM
Q80 Mr Mitchell: It does not include
weekend deliveries?
Ms Chambers: It does include Saturday
deliveries, but it never included Sunday collections; that was
never part of the universal service. However, Saturday deliveries
and collections are included in the universal service and we have
no plans to change that.
Q81 Mr Mitchell: Has Ofgem ever made
a calculation of the economic costs and benefit of all this switching
to and fro and the extra burdens placed on consumers by it? At
the end of the day, given the fact that there seems to be a massive
drift on the part of some sections of the population, while others
cannot be bothered, there must be a substantial economic cost
to all this switching, changing the billing systems and the whole
lot. Have you calculated that?
Mr Buchanan: To give you an example,
the market has driven efficiency, so if you look at a company
like Scottish and Southern six or seven years ago its cost to
serve a customer was about £40. It has driven that down to
about £23.50. Its cost to serve is the most competitive in
the marketplace. During that period it has driven up its customer
base from about four to nearly nine million. Interestingly, if
you Look at Scottish and Southern last year it won another 200,000
and yet, with a customer base of nine million, it had only 900
complaints. The level of complains was down by 12%. Therefore,
in a competitive market you can win on quality and cost to serve
and give customers a relatively lower price. Clearly, it is not
an absolutely lower price because of the issues I mentioned right
at the beginning of this hearing. World prices plus environmental
subsidies are driving prices north, but what we have to do is
make sure that the information about opportunities is available
to all, which is exactly your point, and there is no flagrant
mis-selling. As I said, we are pursuing a case against Enpower.
Q82 Mr Mitchell: There has been flagrant
mis-selling.
Mr Buchanan: We are looking at
that. We are also looking at what might be called under-the-surface
mis-selling where companies do not give enough information. In
those cases we will look at licence changes through the year.
We will make those changes to improve the lot of consumers, particularly
the vulnerable ones.
Q83 Mr Bacon: Ms Chambers, you said
in reply to Mr Mitchell a minute ago that Saturday deliveries
were part of the universal service and you had no plans to change
this. On 10 May there was an article in the Daily Telegraph
the first sentence of which read: "Postal deliveries on Saturday
may be discontinued under plans by the industry regulator to save
money for the Royal Mail."
Ms Chambers: That is completely
untrue.
Q84 Mr Bacon: It quotes Shauna Jones
of the Communication Workers Union representing most of Royal
Mail's 130,000 delivery workers who have said it is absolutely
shocking for the regulator of all people to suggest moving from
a six-day to five-day service. I agree with her.
Ms Chambers: That is not true.
Q85 Mr Bacon: I have not asked you
a question yet. We were very fortunate to have a reassuring statement
the same day from the chairman, Mr Stapleton, who I suppose is
your boss. He said in terms: "The story printed in today's
Daily Telegraph has no substance whatsoever." It is
hard to find a firmer refutation than that. I then leafed through
back copies of the Daily Telegraph to the issue for 27
June of last year where it referred to the head of Royal Mail's
regulator who admitted that householders would have to pay a premium
to receive post six days a week. It referred to a Sarah Chambers,
Chief Executive of the regulator Postcomm: "Ms Chambers said
that insisting on the continuation of the Saturday postal delivery
could lead to higher prices for other Royal Mail services."
The quote continues: "`If people see a rise in the cost of
stamps to preserve the present universal service obligation they
may wish to look at the options', she said. There are other ways
to deliver a service to customers in far-flung areas than insisting
on a six-day-a-week service.'" My question is: is that an
accurate quote?
Ms Chambers: It was not a direct
quote.
Q86 Mr Bacon: It is in quotation
marks. Is it an accurate quote?
Ms Chambers: It was taken completely
out of context.
Q87 Mr Bacon: Were they words that
came out of your mouth and are they the same words that you used?
Ms Chambers: I honestly cannot
remember. It was in the context of a Q&A session at the end
of a conference when we were talking about our postal strategy
review. We were indeed starting a debate about what should be
the future of the universal service in a changing world where
customers' needs and Royal Mail's costs were changing. I make
no apologies for the fact that we started that debate and instigated
a lot of research about the cost of the different aspects of the
universal service and what customers wanted from it.
Q88 Mr Bacon: You even consulted
an economics consultancy to help you?
Ms Chambers: Indeed we did, although
it has not been published.
Q89 Mr Bacon: But the work has been
done?
Ms Chambers: The research has
been completed but it is not yet published.
Q90 Mr Bacon: When do you intend
to publish it?
Ms Chambers: We are publishing
it shortly.
Q91 Mr Bacon: Can you send us a copy
in the mean time?
Ms Chambers: We will certainly
send you a copy.
Q92 Mr Bacon: Just to make sure we
are talking about the same thing, this is an analysis of the cost
and benefits of modifying the universal service commissioned by
Postcomm from Frontier Economics?
Ms Chambers: There are two separate
bits of research. One is about what customers want and one is
about Royal Mail's costs.
Q93 Mr Bacon: Are they both being
done by Frontier Economics?
Ms Chambers: One is being done
by Frontier Economics and one is being done by a company called
FDS.
Q94 Mr Bacon: Can you send both of
them to us?[2]
Ms Chambers: Yes. They are not
yet published but they will be shortly. To explain, as the regulator
charged with securing the universal service I think it was right
and proper for us to debate and investigate the cost of providing
such service—unless you know what the cost is you cannot
be sure how it can be financed—and also what customers want.
Our other duty is to promote the interests of customers. I make
absolutely no apology for the fact that we were making a review
of strategy and instigating this research. Where the Daily
Telegraph got it wrong was to suggest that we had a policy
recommendation, which we did not and do not have now.
Q95 Mr Bacon: The story in the Daily
Telegraph said "Postal deliveries on Saturday may be
discontinued"; it did not say there was a policy. Under "plans"
perhaps they went too far. You may be right about that.
Ms Chambers: They never checked
it with us.
Q96 Mr Bacon: You are saying that
you had not formed a policy?
Ms Chambers: We have formed a
policy and our policy is that it should not be changed.
Q97 Mr Bacon: Therefore, you are
against the removal of the six-day obligation from the universal
service?
Ms Chambers: Indeed, but they
had not bothered to check that with us.
Q98 Mr Bacon: That is good to hear.
Can you explain a question put by Royal Mail in a letter sent
to your colleague Fran Gillon on 7 May concerning the timetable?
They say: "You advised in your letter of 7 March that Postcomm
did not expect to make any major policy decisions until early
2009 following consultation and research during 2008. You are
now proposing to publish this report ahead of your consultation
in summer 2008, an acceleration of the original timeline."
Ms Chambers: I think they are
confusing two things. Our final policy decisions on the new regulatory
framework and price control that has to take effect from April
2010 have to be made in 2009, but we always intended to publish
in the first half of this year the outcome of our research. We
shall be submitting to the independent review panel set up by
the BERR our views on how to secure the universal service, so
it is in that context that we shall make clear our recommendations
in this regard.
Q99 Mr Bacon: Royal Mail nonetheless
seem fairly unhappy with the way the process has gone. They say
they have been willing to discuss and comment upon Postcomm's
analysis and, where possible, without fettering their discretion,
to suggest ways in which some of the obvious difficulties and
risks with the work could be managed. The letter goes on: "We
felt that this process was working well. It was therefore disappointing
when the team were invited to a demonstration of the models on
Friday 25 April to be presented instead with the outputs, particularly
as these had apparently been shared with Postcomm two weeks previously."
Would you like to comment on that?
Ms Chambers: I do not have the
letter in front of me, and I was not aware that this letter had
been sent to anybody other than ourselves.
2 Ev 17
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