Examination of Witnesses (Question Numbers
263-318)
Tim Brown and Jonathan Thompson
15 December 2010
Q263 Chair: Can we make a start?
Could those who are leaving do so quietly, and could those that
are staying get ready for some more? I meant to say, "Order,
order."
I welcome you to the session. Maybe you could
introduce yourselves for the record and also just start off by
saying a little about how, as you understand it, the new legislation
impacts upon the concerns that we have. Our particular concerns
are, first, the maintenance of the Universal Service Provision
to the remote rural areas of Scotland in particular, but also
to the whole of Scotland, and, secondly, the maintenance of the
Post Office Network across the whole of Scotland.
Obviously, there are other issues concerning
pensions and ownership that are UK-wide, but we are not really
concerning ourselves with those; we are concerning ourselves with
these particular issues and, therefore, the question of your role
in all of this is obviously going to be significant.
Tim Brown: I am Tim Brown. I am
the CEO of Postcomm. I have been there for two years, but I had
about 18 years in the industry, including working at Royal Mail
and Post Office Ltd.
Picking up the points that you raised, our primary
duty, as Ofcom's will be under the new Bill, is the maintenance
of the universal service. It's fairly clear in the current Act,
and in the new Bill, that a uniform price and a universal service
are absolutely key and protected. In terms of the service in Scotland
and to Scotland, it is protected by the measure within that.
For us, there are probably three key things
that need to be looked at in terms of ensuring that the universal
service in the UK, and in Scotland, is maintained. First is the
continuation, and the speed, of Royal Mail's modernisation, which
has started. The second is fairer and lighter touch regulation.
The third area is ensuring that, in the transfer between ourselves
and Ofcom, the process doesn't get stalled and that we can move
forward quickly. That is all I would like to say in terms of opening
remarks.
Jonathan Thompson: I am Jonathan
Thompson. I am director of strategy at Ofcom, and I am also leading
the integration of post into our responsibilities.
I would echo everything that Tim has said regarding
Bill. Under the draft of the Postal Services Bill, I think it
is very clear that the universal service is our primary duty,
and our primary responsibility will be to ensure the ongoing delivery
of the universal service. We are obviously new to this, so we
are working very closely with Postcomm to ensure that we understand
the issues and that we get up to speed, and we are committed to
trying to ensure that the transition is as smooth and as effective
as possible so that customers and stakeholders have continuity
of regulation.
In terms of the points that you've raised, I
would largely echo what Tim said. It is vital that the universal
service is a priority within the Bill and that we have the powers
to ensure that that can be delivered. Core to that, obviously,
is the modernisation programme that Royal Mail is leading and
that we have the powers required to ensure that the regulatory
regime supports that and supports an effective marketplace.
Q264 Chair: Can I just clarify
why there are two of you? Are there two regulators?
Tim Brown: No, there is only one
regulator at the moment, which is Postcomm, and we are the regulator
until the Bill is passed—if the Bill is passed. At the point
of Royal Assent, there is a transition process from ourselves
across to Ofcom. So Ofcom is, in a way, picking up what we start,
hence why we are working quite closely to ensure that that is
seamless.
Q265 Chair: So we have Christmas
past then, or rather Christmas passing. Christmas present is the
new man.
Can I just start by asking you about the Universal
Service Obligation? Clearly, you've stressed the fact that it
will remain, but it could remain on the basis of one service a
month at a pound an item were it not for European regulations,
which make the difference. The fact that there is going to be
a Universal Service Obligation does not in itself give us any
reassurance. In particular, it doesn't give us any reassurance
that the present level of service will be maintained, and I see
that it is you who will be asked in 18 months' time to review
it all. Presumably, you're going to be invited to review it downwards.
What reassurance do we have that you're not going to chop it quite
drastically to the minimum that you can get away with?
Tim Brown: In terms of where we
are, the universal service for Europe is set out in the postal
services directive. That says that delivery is five days a week,
and it doesn't include uniform price. You're absolutely right
on that. The Bill has six days a week for mail, five days a week
for parcels, and a uniform price. So that protection is set in
the Bill itself. Our duty now, and that of the regulator going
forward, is to help to ensure that that is sustained.
Q266 Chair: But with respect—which,
as I'm sure you're aware, is what people usually say when they
disagree—the legislation also says that Ofcom is required
to review this within 18 months.
Jonathan Thompson: The Bill requires
us to do a review of the universal service within the first 18
months of our powers taking effect but, as Tim said, that review
goes to the Secretary of State. If it goes any further than the
set of minimum requirements that are set out in the Bill—the
six days a week, affordability and universal pricing—that's
not a decision for the regulator. It would be a decision for Parliament.
In any recommendations that we make or review that we do of the
universal service—which is based on users' needs, which
is the core responsibility in our functions and responsibilities—any
assessment to reduce the USO beyond that is ultimately a decision
for Parliament and not for the regulator.
Q267 Chair: Can I just be absolutely
clear about this? Again, that is not the information that I have.
In that case, I don't see why you're being asked to review it
in 18 months. If in the legislation—the Act—it says
six deliveries, six collections and a minimum price, that is immutable.
What then are you reviewing?
Tim Brown: The review is in terms
of looking at how it is provided, and the needs of users. One
of the big issues that we find is how people use the post is changing
over time, and you can imagine that in a number of years' time
the universal service that is required will be different to that
which is provided now.
Q268 Chair: Sorry, run that past
me again. How could it be different from six, six, and a minimum
price?
Tim Brown: Number one is that
any change is a matter for Parliament and not for the regulator.
The work required of the regulator is to understand what customers
need, and I suppose that the nearest thing in terms of looking
at something fairly similar is within telecoms, when the universal
service used to be "number of phone boxes." Now, 20
years on, something different is required about universal service,
and other discussions are taking place. So, what the Bill allows
for is a review and a discussion about what is needed—plus
or minus—by users all over the country, including Scotland,
from a universal service. This gives the ability to do that. To
change it, however, is a matter for Parliament, not for the regulator.
It is having that constant research about what people need and
want, and about how that is developing, that's important for us
to understand.
Q269 Chair: I just want to be
absolutely clear and specific about this, as we will ask the Minister
about it. You're saying to us that the six, six and set price
can be changed only by a specific vote in Parliament—specific
legislation—and it would be your role, presumably, to trigger
off a report to Parliament saying, "On refection, we think
that the USO should either be improved or reduced." You would
be acting only as the trigger.
Jonathan Thompson: Exactly. Based
on what Tim said, we do a review of how the market is changing
and users' needs. If we believe that there might be a case for
changes to the USO—and that could be up or down—the
ultimate decision to make those changes lies with Parliament.
So you are absolutely right. We are effectively the reviewing
body that would make a recommendation or suggestions to Parliament,
which would then decide on the changes.
Q270 Chair: I'm glad to have that,
because one of the papers that I've been given as a briefing says
that Ofcom does not have to come back to Parliament to change
or weaken the USO, and you're saying that that is not correct.
Tim Brown: The issues on which
to be clear are the six days a week collection and delivery, and
the uniform price, but in terms of the products within it—
Chair: Ah, right. So what products?
Tim Brown: When the universal
service was first established as part of the regulatory framework
10 years ago, every single Royal Mail product was classified as
a universal service. Over time, as needs have changed, some of
those products have come out and some have changed. So there is
some flexibility within the product content—and that is
more within the gift of the regulator—but not in the fundamentals
of a uniform price, which our research has shown is the most important
thing that people want from a universal service.
Q271 Chair: Again, to be clear,
on clause 30, are you saying that none of that can be changed
except by an Act of Parliament? The clause includes delivery of
letters and other postal packets, collections, services at affordable
prices, registered items service, insured items services, services
for the blind and partially-sighted, and legislative petitions
and addresses. Can none of that be changed by yourselves in any
way whatsoever without coming back to Parliament specifically?
Tim Brown: Not without coming
to the Secretary of State, and without the Secretary of State
taking it through the process.
Chair: Fine. You can understand why we
want to clarify this.
Jonathan Thompson: What you have
just said is absolutely right.
Q272 Mr Reid:
Thanks for coming. We had evidence from Royal Mail that Postcomm,
as the regulator, takes into account downstream access and that
Royal Mail has made losses in that part of the business. Can
you explain why?
Tim Brown: Certainly. The access
conditions that we have at the moment were actually set based
on negotiations between Royal Mail and UK Mail. We, as the regulator,
were sitting watching that debate, but before we had to intervene
to make a determination, they agreed a price. The price that was
set was higher than we thought was appropriate, but it was agreed
between the parties and it included a profit target. What has
happened over the period is that Royal Mail's efficiency has not
achieved what was expected at that time, so we also recognise,
as Royal Mail has pointed out, that Royal Mail now makes a loss
on access. However, that wasn't an intention of regulation. We
didn't set out to set a regime that deliberately forced them to
take it at a loss.
Q273 Mr Reid: On those efficiency
targets, did Royal Mail say to you that it could meet them?
Tim Brown: In the debate, we set
a target of 3% per annum. Royal Mail, at the time of discussion,
said that it could achieve 1.5%. If Royal Mail had achieved its
1.5%—there is falling volume to take into account, because
it is very difficult for a business to take cost out when it's
losing volume, so it is recognised that it is a challenge for
Royal Mail—it would be between £400 million and £500
million better off now. So actually, there wouldn't be an issue
in terms of loss on access if it had achieved that efficiency.
However, I will say again that there are two things: first, it
is difficult to take cost down in a declining market, and we recognise
that; secondly, the pace of change and modernisation in Royal
Mail has really ramped up in the last two years and we are beginning
to see some big improvements. We also announced at the beginning
of last month a decision, supported by Royal Mail, to increase
the price of access to a level which is closer to cost.
Q274 Mr Reid: That is something
that Royal Mail has agreed with—
Tim Brown: Royal Mail has made
a proposal to us, and we go out to consult on what customers'
views are and so on, but we have what we call a mind to accept
that decision.
Q275 Mr Reid: We also had evidence
from Royal Mail that it was not allowed to compete with private
companies in the market of collecting bulk mail from companies.
Is that correct?
Tim Brown: There is a mechanism
called Headroom, which is a limit between the price people pay
to access what we call the final mile, and the price at which
Royal Mail charges its big customers. Headroom provides protection
for competition from margin squeeze and anti-competitive behaviour
from Royal Mail. That was set in 2006, and we reviewed it again
in 2007. Royal Mail was unable to provide costing information
to change that. We have now, in this set of recommendations, reduced
that protection by about 27%.
Q276 Mr Reid: Sorry, by reduced
the protection, what do you mean?
Tim Brown: Reduced the headroom
within which competition plays. So, it is actually beginning to
turn the playing field back towards Royal Mail. One reason that
it is now and not earlier is that we have actually had two Hooper
reviews, two Bills and an election, and that has really slowed
things down. As of April 2010, we should have had a new regulatory
framework, so there has been some delay. We recognise that the
regulatory framework we have now is not appropriate for the marketplace
we have now, which is why we are very keen to change it, and why
the way that things are transferred to Ofcom is very important
in order to make sure that that doesn't stop.
Q277 Mr Reid:
So is the handover going to hold things up?
Tim Brown: From Postcomm's point
of view, in terms of the early stages in that process, I don't
think so. We are working very closely to make sure that Ofcom
understands what we're doing and what the issues are, and we understand
how it wishes to act under the new Bill and how it does things,
so at the moment I wouldn't say that the transfer should hold
things up.
Q278 Mr Reid: Thanks. This question
is for Ofcom. We had a discussion earlier about a possible dilution
of the USO. We heard evidence from the CWU yesterday. It was concerned
that Ofcom might use section 32 of the Bill, particularly subsection
(3), where it allows geographic exceptions.
Chair: That is 32(3)(b).
Q279 Mr Reid: Thanks, Chair. The
CWU was concerned that that would be used by Ofcom to mean that
large areas of Scotland would be exempt from the daily delivery,
and it wondered what Ofcom's response to that suggestion was.
Jonathan Thompson: Tim will be
able to answer in more detail, but this clause actually replicates
part of the framework and what is currently proposed for regulation.
There are certain circumstances in which exceptions are made for
delivery where it is effectively impossible to deliver on a six-day-a-week
basis—for example, certain islands in parts of Scotland.
There are certain exceptions that can be made in those circumstances.
Q280 Mr Reid: Are you saying that
when you come to regulate you will only use this clause in cases
where it is virtually impossible to deliver?
Jonathan Thompson: I think our
approach will be consistent with how Postcomm has applied it to
date. Tim, do you want to talk about how it applies currently?
Tim Brown: There are about 1,400
exceptions for delivery in Scotland and a total in the UK of just
under 3,000. They are usually for four reasons. One is physical
access—that it is difficult to do six days a week. The second
one is long-term health and safety issues. Third is short-term
health and safety issues, and the fourth is customer request.
Before this came into play—before 2003—there were
over 4,000 exceptions. There are 2,900 exceptions across the country.
While 1,400 in Scotland is still a large number, it's only 0.01%
of all deliveries, and it's in those circumstances that those
exceptions take place. Royal Mail has to apply for those.
Q281 Mr Reid: Is Ofcom intending
to keep this part of the regulation comparable with what's there
at the moment?
Jonathan Thompson: It would be
wrong of me to pre-judge decisions we're going to make before
we actually take over the powers. My understanding of how this
part of the Bill works is broadly consistent with the powers that
Postcomm currently has, so I don't see any reason why we wouldn't
apply this part of the regulation in broadly the same way.
Tim Brown: We've had only six
complaints in seven years.
Q282 Chair: We are worried about
this. I remember seeing an advert about "exceptional Argyll".
If it defines itself as exceptional, would that then allow you
to make a difference? Particularly if somebody came along as a
private sector operator and said, "Look, this is costing
us huge amounts of money because we're cross-subsidising it. We're
going to collapse—doom and gloom." That could be deemed
to be exceptional.
Jonathan Thompson: An economic
reason for not being able to deliver is slightly different. This
is more for physical reasons of lack of delivery.
Q283 Chair: This is the point.
It doesn't say that. It says "do not need to be met in such
geographical conditions or other circumstances as OFCOM consider
to be exceptional." Other circumstances could very well include
the economic situation of the company.
Jonathan Thompson: What I was
getting at is, if there is a view from Royal Mail that the burden
of the universal service is becoming uneconomic for it, there
are other parts of the Bill that are put in place to try and deal
with that situation. So I don't envisage that we'd be using these
clauses to try and address those situations. There are other parts
of the Bill that try and deal with those circumstances. If it's
helpful, I can talk about it in a bit more detail. But I think
it's unlikely that this would be the clause that would be relevant.
Q284 Mr Reid: There is one final
area I want to ask a question about. We had evidence from Mull
Community Council. I know that Postcomm and the previous chairman
and staff were on Mull two or three years ago to meet the local
community. The community said that it would rather get 80% of
its mail on the first ferry of the day rather than, as happens
at the moment, 100% of the mail on a later ferry. Royal Mail had
said it couldn't do that because of Postcomm regulations, and
Postcomm, despite coming to Mull and meeting people, refused to
change the way that it was regulating. Is there any way in future
regulation that exceptions could be made by agreement with the
local community?
Tim Brown: You are absolutely
right that in 2008 my chair at the time visited Mull to have a
look at that. The issue is that all the mail isn't there for the
earlier ferry, therefore you get much less, so the quality of
service to Mull would be a lot lower than it would be elsewhere.
Q285 Mr Reid: Well, the community
disagrees.
Tim Brown: I understand that.
In some of the work that we did and looked at, in terms of some
of the sending people who had paid for the service, their claim
to us was, "We expect a next-day service." So there
is an element of balancing both the paying sender as well as the
receiver. That is part of where we are. But it is open for Royal
Mail and the local community to look at whether there are alternatives.
I know that they have looked at whether they can open delivery
offices closer to the ferry terminal and things like that, which
has not proved to be cost-effective at the moment. But there are,
even now, mechanisms on which that could happen. We have not had
any request from Royal Mail to change that.
Q286 Mr Reid: So this could be
reopened if there was a request from Royal Mail?
Tim Brown: If Royal Mail put forward
a request on that basis.
Q287 Dr Whiteford: I want to ask
a more general question. What do you see as the potential risks
and benefits of these proposals for remote and rural communities?
Tim Brown: Talking in terms of
part 3 of the regulation piece, there is the continued support
of the USO, which is probably stressed more greatly in the new
Bill rather than in the old one. Ofcom will have greater powers
than we currently have, so it has a bigger toolkit to do what
it does. The aspect that is in this Bill, which wasn't in the
previous one, is the compensation arrangements and the ability,
if Royal Mail cannot deliver universal service economically, for
mechanisms that allow Ofcom to intervene, either through subsidies
or contracting alternative mechanisms. Those things are, I think,
strengthening the potential for universal service in Scotland.
Q288 Dr Whiteford: So you don't
see any risks at all from a community perspective?
Tim Brown: Not from the Bill.
I think the general risks, which are across the board for anybody
within the United Kingdom, are the continuing decline in mail.
Therefore, to be economic, mail relies on the big users of mail.
We may call it junk mail, but direct mail bills and statements
are those big users of mail that give the volume to underpin it.
I think the changing market and people's behaviour are bigger
issues for the long-term sustainability of the USO for the United
Kingdom, rather than the Bill.
Jonathan Thompson: I would agree
with all of that. I think both Richard Hooper's reports have clearly
highlighted the pressures on the universal service and the postal
market more broadly. I think Tim is absolutely right. I don't
think we have any concerns about the Bill as it is drafted, in
terms of giving us the powers necessary to try to ensure the ongoing
delivery of the universal service, which is our primary duty.
But clearly this is a market that faces a lot of pressure. What
is important, from our perspective as the regulator in terms of
what we can do, is that we have all the tools and powers that
we feel we need to try to ensure that we meet our primary duty.
I think this piece of legislation is stronger in theory than existing
legislation, so I think we are comfortable with it with regard
to that.
Q289 Dr Whiteford: Some of the
evidence that we have heard in recent days pointed out that people
in rural and remote communities are more dependent on postal services
than people in areas that perhaps have easier access to them.
Do you think that there are sufficient safeguards in the Bill
to prevent the easy bits of the business being cherry-picked,
and the difficult areas for delivery being left to struggle on
an increasingly unviable basis?
Jonathan Thompson: The clear focus
of the universal service and the minimum grant that we talked
about earlier in terms of affordability, the six-day-a-week service
and a uniform price across the entire country do as much as a
Bill can do to protect those things. Just to repeat what I said,
we are comfortable that how it is currently set out secures that
for the future.
Q290 Cathy Jamieson: Can I go
back briefly to the Bill itself and the universal provision? Again,
in some of the evidence that we have seen, clause 34 will allow
Ofcom to designate more than one provider of universal postal
services. Clause 34(7)(b) will allow the regulator to "consider
what (if any) designated USP conditions should continue to apply
to each of the universal service providers." Can you see
a situation in which you would have different providers in Scotland?
If so, what would that be?
Tim Brown: I think the exercise
of that power is if there are issues in either the administration
for Royal Mail or the compensation fund, rather than when you
are looking for mechanisms to divide the universal service if
Royal Mail was unable to do so economically. I see that being
reflected more as a back-stop case rather than being a primary
focus.
Q291 Cathy Jamieson: Are you saying
that that would only be the case if something drastic happened
to Royal Mail and it couldn't provide the service? Would you then
look to another provider? It seems to me that that clause, as
written, gives you the scope to be more proactive and to go out
seeking other providers. I just need to be absolutely clear on
that.
Tim Brown: In terms of how paragraph
(a) relates to section 43, we talked about the fairness of bearing
the burden of the universal service in the context of: if it is
deemed to be unfair, how would you then support and deliver the
universal service? So the Bill is about ensuring a universal service
and that is provided as its primary focus. The current provider
is Royal Mail and therefore it doesn't have to be Royal Mail if
there are problems.
Q292 Cathy Jamieson: Can I just
press a couple of points on that? It seems to me that the way
that this is written opens up the prospect of two or more providers.
For example, because we are focusing in Scotland, we could, perhaps,
have a provider in Edinburgh and another provider in the north
of Scotland. It appears to me that the way that this is written
suggests that the designated UPS conditions could be different
for each of those providers. How does that then become a universal
service if you have different providers working to different conditions?
Do you have any concerns about how that is written, in terms of
outcomes for customers?
Tim Brown: I saw it as a protection
rather than a risk. In the context of 43, it says that when there
is trouble in providing, under the current set-up, a universal
service, it gives the regulator greater tools to try and ensure
that the universal service is continued. So rather than it being
a risk, it is a safeguard to try and protect it in the case of
Royal Mail not being able to provide it economically. And we have
to look at how that is continued to be provided. So my understanding
about that was, and maybe the Department would be better at answering,
that I read that as a protection rather than a risk.
Jonathan Thompson: Just to add
to that, it may be worth clarifying, from our perspective, how
this part of the Bill works. As Tim said, there may be circumstances
where the universal service becomes an unfair burden on the current
provider, Royal Mail. In those circumstances, we have—
Q293 Cathy Jamieson: Can you explain
how providing our universal service would become an unfair burden?
I am not sure what you mean by that.
Tim Brown: Well, if Royal Mail
cannot provide it efficiently or economically, for whatever reason,
and cannot make money out of it and therefore requires some form
of subsidy or intervention. There are various measures in the
Bill, but there is a back-stop, and the third postal services
directive allows this. Before, there are three mechanisms: one
is compensation from the industry, compensation from the state
and the third option is what's called a procurement option; that
is, you go out and look for someone else to provide it in those
circumstances. So you have got to the point where Royal Mail has
said, "Look, we cannot provide this economically. We are
going bust in that area, please help." At that point, we
help.
Q294 Chair: Can I just come back
to the question of exceptional Argyll? It would be appropriate
now for Royal Mail to come back and say, "Look, we cannot
make money out of Argyll. It is not possible to make money out
of Argyll. We therefore require it to be transferred to somebody
else, or we require a subsidy for it." Similarly, the Western
Isles, whole parts of rural Sutherland and all sorts of areas
are clearly not financially viable.
Tim Brown: The way uniform price
and universal service works is its profit across the entire network,
not in individual areas. So there will be other parts of the country
where they are making lots of money.
Q295 Fiona O'Donnell: I am really
confused. Why would you ever then get to the situation where you
identify that one part was unprofitable if there's cross-subsidy?
Tim Brown: If we look at the past
few years, three or four years ago Royal Mail lost about £350
million on the universal service products. Now, if that was an
inefficient Royal Mail ongoing, then no company, publically owned
or privately owned, could sustain losing £350 million a year.
At that point, you look at how to help support providing the USO.
Partly, it may be just a subsidy. Part of it maybe saying, "Actually
it is very high cost in 'x'" and, to be honest, the highest
cost place of delivery is in London, not in the highlands and
islands. So if they looked and found an operator to provide it
more efficiently, is that a way of going forward? So, once you
have established that the USO as a whole is not economic to provide,
then what are the mechanisms you use to try and provide it and
for it to continue to be done?
Q296 Fiona O'Donnell: What if
the provider says that the compensation that you've identified
isn't of interest to them, so they don't want to provide that
part of the service any more?
Tim Brown: Then the compensation
fund comes in and Royal Mail will be compensated to continue to
provide it. So you look at the various options. Can Royal Mail
provide it efficiently? Can somebody else provide it? The key
test is to try to continue to provide it, and how do you look
at those bases?
Q297 Fiona O'Donnell: Presumably,
there has to be some negotiation there. I'm just thinking about
bus routes we have lost in rural areas because, despite being
offered a subsidy by the council or the Scottish Government, they
say, "You know what? We're not interested in providing this
service anymore."
Tim Brown: The designated USO
provider is Royal Mail. So the default provider is Royal Mail
and if it cannot provide it economically there are mechanisms,
including compensation, to enable them to provide it.
Q298 Fiona O'Donnell: Can it force
them to provide it?
Tim Brown: I believe so, yes.
Q299 Chair: To say, "I believe
so" is not the same as "yes".
Tim Brown: My answer is yes, but
I am not a complete expert on every clause of the Bill, so my
view in terms of it currently is yes, and I will check. I can
ask BIS if there is any reason why that is not the case.
Q300 Cathy Jamieson: The crucial
issue for me is this: is there potential for Scotland to be disadvantaged?
That is what this Committee is looking at.
Tim Brown: I understand that.
Q301 Cathy Jamieson: For example,
if Royal Mail were to say that over the whole area of Scotland
certain things were unsustainable, would, in those circumstances,
this Bill—and again, this is just for the record—give
you the power, essentially, to say that another provider would
be brought in?
Tim Brown: As one option, or compensation.
Whereas that is not in the current legislation. So, currently—
Q302 Cathy Jamieson: So this is
new. It is not there now. This is something that has been added
to the situation and it gives you a power that you did not have
before.
Tim Brown: Correct. It is in the
case of failure and let's hope we never reach there. But yes,
that is an additional power to what Postcomm has. We cannot do
that, and it is also consistent with the third postal services
directive that recognises compensation-type measures will be appropriate
for postal services.
Q303 Chair: Let us be clear though.
Even in the case of financial collapse of part or all of Royal
Mail, the Universal Service Provision—[Interruption.]
There is a Division in the House. You can think about an answer
and we'll hear it when we come back.
Sitting suspended for a Division in the House.
On resuming—
Chair: Right, answer that question!
Tim Brown: Yes. We have a couple
of points of clarification from earlier—it was good to have
a break.
Jonathan Thompson: I think it
was a question about whether we can require or impose universal
service requirements across the whole country on Royal Mail or
whoever the provider is—we absolutely can. That is clearly
set out in the Bill, so we have those powers universally across
the entire country.
There was another point that I was just going
to make about the compensation fund. It is worth clarifying that
the ultimate decision on putting in place a compensation fund
or procurement from other universal service providers lies with
the Secretary of State. We make recommendations to the Secretary
of State, but he would ultimately make that decision. That is
set out in clause 43 of the Bill.
Q304 Chair: Could I just turn
to the question of post offices, which is the other main issue
about which we are concerned? Could you clarify for me the extent
to which you have powers to maintain standards of access?
Tim Brown: In the current Bill
and in the previous one, we set standards of access to postal
services. So, we place a condition on Royal Mail about minimum
access criteria.
Q305 Chair: Where are these?
Tim Brown: They are in Royal Mail's
licence. We have a licence, which we have from Royal Mail, and
that sets those standards. It is for Royal Mail to decide how
it discharges them, and they currently discharge them through
post offices.
Q306 Chair: Where are they now,
then, for the new bidders and so on? We have seen the access criteria
in the BIS document. Are those the criteria?
Tim Brown: Yes, in terms of distances
and service access.
Q307 Chair: Right. The difficulty
for me is that, as I understand it, those criteria could be met
with 7,000 post offices, as distinct from some 11,000 that we
have at the moment. So, going to those criteria could mean 4,500
closures.
Tim Brown: It's really a matter
for Royal Mail to decide how many it actually needs and exactly
what that would meet, so I can't confirm those numbers.
Q308 Chair: We have a certain
number of post offices at the moment. The access criteria could
allow a network of far fewer post offices than in the existing
provision. As I understand it, that would be about 4,000 fewer.
I think we would be a bit anxious if the access criteria that
are in the BIS document went through, because that would automatically
allow 4,000 closures and would still be within the terms of the
legislation. Can you clarify if I have got that correct?
Tim Brown: I don't know the number,
but I can try to find out what the number is. I can't confirm
or otherwise whether that would be 4,000 fewer or not, but I understand
that the principle is that we don't set, as a number, that all
11,900 offices have to provide postal services.
Q309 Chair: The problem for us
of your giving us information later on is that we have the Minister
coming to see us in a little while and, as you will probably be
aware, he is a very slippery character. So, we want to make sure
that we can pin him down on this particular issue.
Tim Brown: To clarify, we don't
insist that Royal Mail have to provide access to postal services
across all 11,900 offices, but I can't give you a figure for what
the number is to meet those criteria.
Q310 Chair: In terms of post offices
being of different types—main post offices as distinct from
Locals, Outreach, Essentials and all the rest of it—can
I clarify whether there are access criteria for main post offices,
which offer the whole range of services, because I do not remember
having seen that in the BIS document?
Tim Brown: There are access criteria
set for access to all Royal Mail services. We don't set them according
to whether they are for main, Locals or whatever the types are.
Q311 Chair: The difference between
mains and Locals is that some offer a smaller range of services
than others. What we are not clear about is whether or not all
your access criteria could, in fact, be met by the provision of
nothing but Essentials, with Essentials being the technical term
for sort of half-post offices, as it were.
Tim Brown: We don't regulate post
offices, so it is difficult for me to answer in a lot of detail—I
know you had Paula earlier. If Essentials offer and meet the requirements
of the access criteria for postal services, we are neutral on
whether a post office is an Essential, a Local or a main. From
a Royal Mail and a mail point of view, we are interested in access
to all postal services.
Q312 Chair: Access to all postal
services?
Tim Brown: Yes, to all postal
services.
Q313 Chair: "All" is
the complete range. That would effectively mean every postal service
that is offered and being supplied in every unit. That looks completely
ridiculous.
Tim Brown: Universal service products.
Q314 Fiona O'Donnell: Perhaps
I can recap, because it will be handy now that the Minister is
here, as he will know exactly what you have committed him to do
in the Bill. So, we have a USO guaranteed six days a week, which
cannot be changed unless it comes back to Parliament. We have
a price that cannot vary across the country unless, again, that
comes back to Parliament, and so is guaranteed under the Bill.
You said that some of the products within the USO may not be available.
Could you just give us an idea of what those would be?
Tim Brown: Some examples, in terms
of looking back about what we have done over the past few years;
for example, special delivery on account for account customers
is not in the universal service, but special delivery for individuals
is. We have taken some of those things out, and part of the reason
is that there is competition. Royal Mail wants to be more commercial
so it is giving it more freedom, and it makes sense for that not
to have to be provided. Access to a special delivery-type service
for consumers, however, is essential so we kept that in. Certain
bulk mail products are not in the universal service, because we
don't believe it is a requirement for consumers to have access
to some or most bulk mail. At the moment, however, we have kept
some smaller products for bulk mail for SMEs, because there is
no choice for access. We have looked at what the needs and requirements
are and what we have to put in the universal service.
Q315 Fiona O'Donnell: When you
say bulk mail services, does that mean that if a small business
in an isolated, remote rural location wanted to do a large mailing
to promote its products, Royal Mail could decline to provide that
service?
Tim Brown: We have kept some—a
few—bulk mail products in the universal service to address
those requirements.
Q316 Fiona O'Donnell: Sorry, I
don't know whether that means yes or no.
Tim Brown: It means yes for the
small business. For larger businesses, in terms of not being in
the USO, at the moment there is a host of providers and the market
is quite competitive for that business. The question we ask is
whether we need to protect them to do that. We only introduce
the universal service or keep products in where we need to protect
consumers, including small businesses.
Q317 Fiona O'Donnell: Do Ofcom
regulate other providers such as TNT as well?
Jonathan Thompson: There are certain
conditions that we can put on other regulators through the legislation,
for example, in relation to protecting consumers in terms of their
postal services. We can and will apply those to Royal Mail, and
we can apply them to other providers as well. There are certain
conditions that the Bill allows us to put on all postal providers.
Q318 Fiona O'Donnell: And would
you deal with complaints against another provider? Jonathan
Thompson: Again, the Bill allows us to put in place conditions
on postal operators—to deal with consumer complaints, for
example—and to require postal providers to be part of a
redress scheme, so that if consumers have a concern and they haven't
been able to deal with it with their postal operator, they can
then go to a third party who will act independently.
Chair: As you'll appreciate, you're just
the second starter. Now that the main course is here, I think
we'd rather move on to the Minister, unless there is a question
that anybody is absolutely bursting to ask. No? Thank you very
much, and we'll move on to the Minister.
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