Examination of Witnesses (Questions 100-119)
POSTCOMM, OFCOM
AND OFGEM
Q100 Mr Bacon: It was sent to me.
Ms Chambers: That is nice to know.
Q101 Mr Bacon: People send me lots
of things. You would be surprised.
Ms Chambers: We have been conducting
this research in co-operation with Royal Mail for some time. Royal
Mail knew exactly when the project was ending and that we intended
to publish it, so perhaps their surprise is to be taken with a
pinch of salt.
Q102 Mr Bacon: They accuse you of
not being fully candid with them: "You are well aware of
our concerns about the potential political and commercial impact
of this work, and we therefore expected you to be candid with
us about the way in which it would be used and any intention to
make it public."
Ms Chambers: They felt—it
was pure speculation—that we were going to be recommending
a substantial change in the specification of the universal service
and that was what concerned them.
Q103 Mr Bacon: You are saying that
you have not made any recommendations at all yet?
Ms Chambers: We have not.
Q104 Mr Bacon: But when you commission
a study on modifying the universal service obligations one may
expect that in due course you will make—--
Ms Chambers: The study was of
the cost of providing the universal service and what customers
wanted from it. One should not necessarily expect anything from
that except that it will be used in the general course of our
duty to protect the universal service.
Q105 Mr Bacon: Does the report on
the universal service mention international service and the impact
of that on Royal Mail's costs?
Ms Chambers: Not specifically.
Q106 Mr Bacon: That is also what
Royal Mail say: "Frontier confirmed to Royal Mail at a meeting
on 25 April that it has not assessed the impact of the various
scenarios upon Royal Mail's ability to meet its international
USO obligations or allowed for the costs of doing so in its modelling.
This is in spite of Royal Mail repeatedly raising this issue and
providing information." Is Frontier giving you a thorough
and value-for-money study?
Ms Chambers: I think it has given
us a very good value-for-money study. The international element
of this is very small and does not, as I understand it, have any
significant impact on the total figures. We told Royal Mail that
we would look into it and see how it changed things, but I think
it is a distraction from the main issue.
Q107 Mr Bacon: Do you think that
the central estimates for volume and revenue losses in the analysis
conducted by Frontier Economics are relevant?
Ms Chambers: Estimates in what
context?
Q108 Mr Bacon: The central estimates
for volume and revenue losses which would impact Royal Mail if
there were greater competition. I will read the sentence: "Royal
Mail believes that the central estimates for volume and revenue
losses [because of] competition in the analysis conducted by Frontier
Economics are substantially under-estimated. The reasons for this
are two-fold. First, the analysis reflects Postcomm's assumption
that access volumes are likely to plateau at less than six billion
items while Royal Mail believes that access volumes in the long
term are likely to be considerably higher than this figure. Second,
the sensitivities of mail volumes switching to competitors are
not affected by the lower quality of service that Royal Mail is
assumed to offer within the scenarios analysed." Here is
their key point: "Both these assumptions bias downwards the
extent to which Royal Mail could lose volume and revenue in the
scenarios analysed."
Ms Chambers: We have looked at
all those points and we believe that the figures Frontier have
used and will be published shortly in the study are relevant and
robust and based on data provided by Royal Mail themselves.
Q109 Mr Bacon: Do you think that
the proposals suggested by Frontier would be lawful?
Ms Chambers: I do not think Frontier
have made any proposals; they certainly were not asked to.
Q110 Mr Bacon: Let me use a different
word. Quoting again from the letter, they say that on the basis
of the analysis "we further believe that a number of the
scenarios [of Frontier] as they have been modelled and costed
are illegal in that they contravene the requirements of the directive."
Do you have legal advice saying that the scenarios they are modelling
are lawful, or have you no advice on it at all?
Ms Chambers: It depends on what
is meant by "scenarios".
Q111 Mr Bacon: I have not seen the
report; you have. Nobody has sent it to me yet.
Ms Chambers: You make it sound
as though these are scenarios about postulated changes to the
universal service.
Q112 Mr Bacon: That is what it sounds
like. When you ask a consulting firm to consider possible modifications
to the universal service of course that is what it sounds like.
Ms Chambers: We asked them to
cost what the various attributes of the universal service were,
for example the cost of having a six-day rather than five-day
service and the cost of deliveries to the front door rather than
the gate. We felt these were important things on which to get
evidence. In other European countries they do it differently.
I think it is sensible for us to be able to set out for everyone
to see the costs of the universal service and various aspects
of it. Some of these things you could not do without a change
in legislation, and one of those is a change from six to five
days; it is enshrined in law.
Q113 Mr Bacon: When you were quoted
as saying that there were other ways to deliver a service to customers
in far-flung areas than insisting on a six-day service you were
also quoted as pointing out that across most of Europe people
received letters only on weekdays and described the service offered
by the Royal Mail as "more Rolls-Royce than elsewhere".
It then goes on to quote Postwatch: "Changing that would
be difficult. That is how it is; that is what people are used
to; that is what people want." What is your definition of
a far-flung area?
Ms Chambers: That was a phrase
I used off the cuff and I do not have a definition. We do not
have a proposal to change this, so I think this is a distraction
and does not have a lot to do with the substance of what the Committee
is looking at today.
Q114 Mr Bacon: It may not be a distraction
if you live in a village like mine that has no school—it
was closed down 20 years ago—and, even more shocking, no
pub because the landlord has just closed down his business. We
have held on to our post office just by our fingernails and we
get Royal Mail deliveries on Saturdays at the moment, and we are
very concerned that that should continue.
Ms Chambers: If we were making
a proposal that the universal service should go down to five days
I agree that that would be a very important subject to discuss
today. We are not making that proposal; we were never going to
make that proposal, so I am not quite sure what the point of it
is.
Q115 Mr Bacon: That is very interesting.
You say that you were never going to make that proposal. Do you
also say that you will never make that proposal?
Ms Chambers: I cannot say that
we will never do so, because the whole point about regulation
and markets is that things change.
Q116 Mr Bacon: So, it is up for discussion?
Ms Chambers: Who knows what customers
will want in 10 years' time? What customers need from postal services
today is very different from what they needed 10 years ago. No
doubt in 10 years' time it will be different again. I am not going
to sit here today and say that whatever happens in the market
we will never change anything in regulation.
Q117 Mr Bacon: The nature of delivery
is slightly different from the nature of some other things. When
it is a delivery you are the recipient. It is not as though you
go into the marketplace and buy some pick-and-mix from Woolworth;
you are on the receiving end. Therefore, you do not have quite
the same market power as a buyer to get a delivery; it rests on
political will and regulation. What customers in Pulham St Mary
want—I am sure it is the same for Grimsby—is a Saturday
delivery.
Ms Chambers: I absolutely agree.
We have a duty to look after the interests of the users of postal
services and in the case of post—to some extent it is true
in telecommunications—we have to think about the recipient
who does not pay for the service and so does not have the sort
of market power that exists in other areas.
Q118 Mr Bacon: But they are precisely
the ones who are most affected, especially the vulnerable consumers?
Ms Chambers: Absolutely. That
is precisely why we go out and research these things and ask what
those customers, including paying customers, want. They both matter.
Q119 Mr Bacon: I would like to ask
you a lot more questions about this, particularly about the quality
of your research and to whom you talked, but I have run out of
time.
Ms Chambers: I am happy to talk
offline.
Mr Bacon: Perhaps you would write to
us so everybody can see it.
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