Download The Communication Workers Union (CWU) represents 215,000

CWU RESEARCH
CWU submission to the JCRA – Jersey Post’s
universal service obligation
Overview
1. The Communication Workers Union (CWU) represents 215,000 employees in the
postal, telecommunications and financial services industries. We are the
recognised union for postal grades in Jersey Post and have 276 members in the
business.
2. We welcome the opportunity to comment on the Jersey Competition and
Regulatory Authority’s (JCRA) Initial Notice proposing to reduce the universal
service obligation (USO) for letters in Jersey Post’s licence from six days a week
to five. The CWU is strongly opposed to this proposal. We believe that a six day
USO is a valued public service for individuals and businesses, which supports the
economy, provides a basic form of communication and access to services, and
prevents social exclusion and marginalisation in society.
3. Under the Postal Services (Jersey) Law 2004, the JCRA is obliged to ensure the
provision of postal services which meet demand on the Island. We do not believe,
however, that the JCRA has established a sufficiently clear picture of the demand
(or, as it is arguing, a lack thereof) for a six day service to support the change
and establish that its proposal is in line with its duties.
4. While letter volumes have declined, and this trend is forecast to continue, we
believe there is a more nuanced picture of demand for all types of mail and,
furthermore, that there is a distinction between this and the demand for a mail
service six days a week which the JCRA needs to assess. We also believe that,
in direct contradiction to the current proposals, there is evidence indicating a
continuing demand for the existing level of service.
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5. With regard to the JCRA’s secondary duties, the CWU disagrees with the
regulator’s argument that the USO should be cut on the ground that this would
save Jersey Post the additional costs of providing a service on an extra day. The
logic of such an approach is to continually cut the universal service, despite the
public benefit this provides, and we believe that the regulator’s proposals result in
a reduced service, rather than a more efficient one. We also note that even with a
five day USO the JCRA envisages service levels for the public declining with
delivery times becoming later.
6. The JCRA must additionally have regard to its duties to act in the economic
interests of Jersey as a whole and to consider the special needs of persons who
are disabled or have limited financial needs. Neither of these considerations are
discussed in the Initial Notice despite the significant impact cutting a postal
service is likely to have in these areas. We believe that both of these
considerations mitigate against the proposed reduction of the USO and we would
urge the JCRA to reconsider its Initial Decision.
7. While the JCRA has not sought to justify its decision by arguing that reductions to
the USO are necessary in order to preserve any level of universal service going
forward, we believe that the current reductions are only being considered
because of the financial pressure Jersey Post would face as a result of the
regulator’s proposals for the full liberalisation of the bulk mail market. We have
argued that the proposal to grant licences to major operators such as TNT and
DHL, and to open the large letters market from 2012, will have disastrous
consequences for the survival of a meaningful universal service.
8. We believe that the JCRA’s proposal to cut the USO to five days a week is simply
the first step in this process and that this is part of a decision by the regulator to
introduce competition at the expense of the universal service. We note that the
JCRA is not considering supporting the universal service by establishing a USO
compensation fund as it has the power to do and which it suggested it would do,
in arguing that the introduction of competition would not jeopardise the universal
service.
9. We would urge the JCRA to reconsider its proposals for the liberalisation of the
bulk mail market and we believe there needs to be a fundamental change in its
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approach towards the universal service in this area and with regard to its current
consultation.
Considerations under article 8(1)(a)
10. Under the Postal Services (Jersey) Law 2004 the JCRA’s primary duty is to
ensure that postal services which satisfy all current and prospective demand are
provided within Jersey. Guidance from the Economic Development Committee
stipulates that this includes the provision of a universal postal service five days a
week. In its Initial Notice the JCRA has proposed to reduce the USO for letters in
Jersey Post’s licence, currently at six days a week, to five days in line with this
minimum legal requirement.
11. With respect to its primary duty, the JCRA cites two pieces of evidence to
substantiate its assessment that the proposed reduction is in line with demand: (i)
declining mail volumes reported, and forecast, by Jersey Post; and (ii) responses
to the consultation on the universal service issued by the Minister for Economic
Development in June 2010.
Mail volumes
12. The Initial Notice states that mail volumes fell by 14% in 2009 and 7% in 2010
and that a reduction in the USO from six to five days a week would ‘reflect falling
overall demand for postal services.’ It is clear that letter volumes have declined
markedly in recent years with Jersey Post reporting a fall of 13% in 2009 and 7%
in 2010. However, we believe that this only shows one aspect of developments in
the market as a whole.
13. Volumes of mail both posted and delivered on the Island, which may provide a
more accurate measure of demand for the USO, declined by 6.3% in 2009, less
than half the rate of decline in the letter market which is cited by the JCRA. Total
mail volumes reported by Jersey Post also paint a different picture of the mail
market with a rise of 14% in 2008 followed by a decline of 3.7% in 2009. In
basing its proposals exclusively upon letter volumes we believe that the JCRA’s
Initial Notice underestimates the demand for, and sustainability of, the current
service.
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14. While the JCRA’s proposals for a reduction in the USO relate specifically to the
letters service, we are concerned that the JCRA’s analysis of falling demand fails
to take into account the shifting emphasis from letters to packets and parcels.
Mail operators globally are forecasting further increases in parcel volumes over
the next decade: Royal Mail has forecast that packet volumes would increase
from 2.1bn in 2007 to 2.5bn by 2017 and, while such volumes are unlikely to
provide a direct item-for-item substitute for letters, in revenue terms the value per
item is significantly greater.1 The consequences of this for the sustainability of the
current USO need to be taken into account by the JCRA.
15. In the UK, Postcomm’s recent research into consumer needs also found that 40%
of consumers agreed that they would shop more online if it was easier to have
parcels delivered.2 We believe that as demand for online goods and parcels
increases a Saturday service, which media reports suggest will be lost as a result
of the JCRA’s proposals, becomes more, and not less, important to people. The
JCRA’s reliance on headline letter figures to assess demand fails to take account
of this broader picture, however.
16. As the JCRA acknowledges the wider economy has a significant impact on mail
volumes, which have historically closely tracked GDP growth rates – Royal Mail’s
figures have suggested that, other things being equal, a 1% change in GDP leads
to a 1% change in volumes3 – and the volume figures quoted by the regulator
must be seen in this context. In 2009 Jersey’s economy shrank in real terms by
6% on the Gross Value Added measure and by 10% in terms of Gross National
Income.4 This again indicates a far lower decline in structural (as opposed to
cyclical) demand than the JCRA suggests. We believe it would be a mistake to
cut the universal service without taking account of the possibility that volumes will
grow in line with the economy in the future, as has been the trend in the past.
17. We also believe that the JCRA needs to better understand the demand for a
service on six days a week. Its analysis equates the demand for this with letter
volumes; however whether there is demand for a service on six days a week is
1
Volume forecasts from Postcomm’s evidence to the BIS Select Committee Report into Post Offices,
2009.
2
Residential customer needs from a sustainable postal service in the UK, November 2010.
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p41 Modernise or Decline, Hooper Review, December 2008.
4
States of Jersey, Statistics Unit, GVA and GNI 2009 report.
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distinct from the total volume of letters being sent. We note that in the UK, while
Royal Mail has reported similar volume trends to Jersey Post, there remains a
clear demand for, and value placed upon, the current six day USO: Postcomm’s
recent research into user needs, for instance, showed that both residential users
and businesses would find a 20% increase in prices more acceptable than a
reduction in the number of service days provided.5 We regret that the JCRA has
conducted no such study of demand in Jersey.
18. We note that in carrying out its primary duty the JCRA must assess whether
services are provided ‘at times…that meet the demands of the highest number
practicable of business and domestic users’ (article 8(3)(b)). In relying solely
upon letter volumes however we believe that the JCRA has failed to discharge its
duty in this way. Indeed, the regulator has not even disclosed which service day
will be lost.
19. The JCRA must also consider whether services are rapid, high quality and
reliable (article 8(3)(a)). The Initial Notice states that delivery times are likely to
become later as a result of the proposed cut to the USO, given the greater
volume of mail being carried on each day but the JCRA has failed to carry out
any assessment of the precise impact the change will have and the future service
which will result. We believe that this is an important aspect of ensuring that
demand will continue to be met.
20. Finally, in relation to demand for the current level of service, we would draw the
JCRA’s attention to the petition the union organised and presented to the States
in October 2010 in response to the Minister’s consultation paper on the USO,
discussed below.6 This registered opposition to any cuts to the current service,
calling for subsidy by the States to support this, and was signed by 2,646
members of the public. The JCRA has failed to conduct any survey to ascertain
the level of demand for the USO in formulating its proposals and we believe the
5
Residential customer needs from a sustainable postal service in the UK, November 2010; Business
customer needs from a sustainable postal service in the UK, November 2010.
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The petition stated: After the recent consultation paper from the Economic Development Department,
the people of Jersey feel that the States should fund Jersey Post so that it can maintain the level of
delivery of mail on the Island. Furthermore we feel that the States should intervene on behalf of the
people before we lose our postal service, as we know it, forever! We also feel that the states should find
alternatives to redundancies in Jersey Post before we are left with an large increase to the already high
unemployment levels.
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number of responses to the union’s petition and the public opposition to its
proposals must be taken into account by the regulator.
21. In conclusion, the CWU believes that the JCRA needs to analyse the trends in
the mail market with greater rigour than relying exclusively on total letter volumes
in assessing the demand for a six day universal service and, furthermore, that its
analysis in the Initial Notice conflates these two separate issues. We note that the
JCRA has not completed its first statistical review of the postal and logistics
market which was scheduled for the third quarter of 2010, which we believe
should have been done before making a proposal to fundamentally alter the
postal service on the Island.7 We also believe the union’s petition indicates that
there is a demand for the current service, which the JCRA has not reflected in its
proposals.
Consultation on the USO by the Minister for Economic Development
22. In June 2010 the Minister for Economic Development issued a consultation on
the USO, which the JCRA mentions as background to its current proposals. The
consultation put forward a market analysis, which argued that the current service
could no longer be funded by Jersey Post and that it should not receive subsidy
from the States, or other mail operators; this concluded that the only option was
to reduce the number of days’ service being provided.
23. In its Initial Notice proposing to cut the USO to five days, the JCRA notes that
52% of respondents agreed that ‘the only viable solution’, to the issues identified
in the market analysis was to cut the provision for collection and deliveries.8 This
is the only clear data the JCRA cites which relates to the number of days which
should be stipulated in the USO; however we do not believe that this provides
support for the JCRA’s proposals.
24. Firstly, 45% of respondents disagreed that the USO should be reduced –
although the question itself envisaged the service being cut to around half of its
current level, rather than to five days – so opinion was closely divided as the final
report from the Minister acknowledged. Furthermore, we note that when asked
for a preference between (i) reducing the USO to three days a week, or (ii)
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8
JCRA Strategic Plan, January 2010.
Question 4 of the consultation. 355 people answered this question.
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reducing it to five days a fortnight, 15% of respondents specified that a 6 day
service should be maintained, even though this was not an option presented in
the question. It is far from clear to the CWU that the consultation responses give
a mandate to the JCRA for cutting the USO.
25. Secondly, we have serious reservations over the accuracy of the analysis, which
was presented to the public in the report, to support the conclusion that the USO
should be reduced. In particular, this conclusion rested on the assertion that the
universal service could no longer be cross-subsidised by fulfilment mail in the
future. However, we do not believe that this reflects the business’s forecasts.
From these forecasts the CWU is clear that the current universal service could be
sustained if the JCRA changed its plans for the introduction of further competition
in the bulk mail market.
26. To support its position, the analysis in the consultation quoted the Chairman of
Jersey Post as saying ‘the £5m annual loss incurred by the USO can no longer
be supported by earnings from the rest of our business going forward.’ We are
particularly concerned that the use of this quote may have misled respondents. In
the 2009 Business Review, where the quote is taken from, the Chairman of
Jersey Post went on to outline the steps being taken by the business and the
CWU in order to reduce this net cost from £5m. This was not mentioned in the
consultation and we believe the quotation would have been interpreted as
suggesting that the USO itself, and not the £5m loss that the business and the
union are already addressing, could not be sustained.
27. Furthermore, we believe that the analysis presented an unduly bleak picture of
the mail market stating that ‘Jersey Post’s mail volumes fell by 13% in 2009.’
However, while its letter volumes were reported as falling by 13%, overall mail
volumes were down by 3.7%, a far lower figure. This followed a growth in overall
mail volumes by 14% in 2008. The CWU believes that the omission of these
figures meant respondents did not have an accurate picture of the mail market to
assess whether the current USO could be sustained by the business going
forward. We believe that these problems in the analysis undermine even the
marginal level of support the JCRA cites for a reduction in the USO.
28. Finally, we also note that the CWU’s petition in response to the consultation,
opposing any cuts to the current service, was signed by 2,646 people. This is
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more than fourteen times the number of respondents who supported a cut to the
USO in the Minister’s consultation.
Considerations under article 8(2)
29. Subject to its primary duty, the JCRA must have regard to a number of secondary
issues under article 8(2). In the Initial Notice the JCRA cites article 8(2)(b) and its
duty to promote efficiency, economy and effectiveness in commercial activities
connected with postal services in Jersey. The JCRA provisionally concludes that
the proposed reduction is in line with this duty, citing Jersey Post’s estimate that it
could save £400,000 per year through the change, highlighting efficiency as a
consideration.
30. The CWU disagrees with the logic of this approach. While the proposed cut to the
USO would save Jersey Post the cost of providing a service on an additional day
the result is a reduced service, rather than a more efficient one. Indeed, even
over five days the JCRA notes that the reduction could lead to later deliveries on
certain routes.
31. The reason for having a USO is to protect and ensure the provision of a valued
public service which would not otherwise be provided on a commercial basis. We
believe that the JCRA’s approach which appears to equate ‘cheaper’, with ‘more
efficient’, makes continual cuts to the universal service an inevitability.
32. The JCRA is additionally obliged to perform its functions to further the economic
interests of Jersey as a whole (article 8(2)(c)) and to have regard to the ‘special
needs of persons who are disabled or have limited financial resources or have
particular needs’ (article 8(2)(f)). We believe that the proposed cut to the USO
has a significant negative impact in both respects, cutting a valuable service to
businesses and a communication line for those who are less likely to have
access to email, or other new media, and who are more likely to find it difficult to
access local services.
33. We are surprised that the JCRA has failed to address either issue in its Initial
Notice and we believe it is incumbent upon the regulator to carry out a full
assessment of the impact of its proposals in order to discharge its legal
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obligations. We believe that a proper analysis of these considerations would
mitigate against the proposed reduction in the universal service.
Conclusion
34. The CWU is opposed to the JCRA’s proposal to cut Jersey Post’s USO for letters
from six to five days a week. We believe that the regulator has failed to establish
a proper picture of demand for the current level of service on the Island, or of the
way the mail market will develop going forward. Furthermore, we note the strong
public opposition to the proposed cuts registered in the petition conducted by the
CWU, which was presented to the States Assembly in October 2010.
35. We do not agree with the JCRA’s assessment of its proposals, in light of its
secondary duties, and believe that it has failed to consider the broader economic
and social impact of cutting the USO. We do not believe that a proper application
of its duties is consistent with its current proposals.
36. As we have argued in previous submissions to the regulator we believe that the
current reductions are only being considered because of the financial pressure
Jersey Post would face as a result of the regulator’s plan for the full liberalisation
of the bulk mail market. We would therefore, again, urge the JCRA to reconsider
these proposals and we believe there needs to be a fundamental change in its
approach towards the universal service in relation to competition and with regard
to its current consultation.
For further information please contact:
Peter Donaghy
Vice Chair of the Postal Executive
Communication Workers Union
150 The Broadway
London
SW19 1RX
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Tel: 020 8971 7598
Email: [email protected]
RD11/03/57
Research Department
28th January 2011
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