Why The NBN Means Australia Post Should Be Privatised

Australia Post, and its predecessors, go back over 200 years. The first Australian postmaster began work in the colony of New South Wales in 1809. At federation, the colonial post offices were combined into the Post Master's General department, and in 1975 the name 'Australia Post' was born. So with such a long history of government ownership, why should Australia Post be privatised?

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Australia Post is a parcel and delivery company, like DHL, UPS, FedEx and TNT Express. And Australia Post is pretty successful in competing against these private competitors. It owns Star Track Express (a company that began as a privately-owned distribution service) and in 2012/13 made a group profit of $312m for its taxpayer-owners.

But, unlike its private competitors, Australia Post has community service obligations. It must provide accessible and affordable letter services to all Australians, regardless of where they reside. And for more than a century, Australia Post has helped link the city and the bush.

In recognition of its community service obligations (CSOs), and to avoid private entrants from 'cream skimming' letter profits in the cities while neglecting the bush, Australia Post has an effective legislated monopoly over 'standard' letters up to 250 grams. The problem, however, for Australia Post is that standard mail volumes are falling, raising the cost of the CSOs. And the issue for the Australian Government is that the Postal CSOs will soon be redundant, replaced by the CSOs on the National Broadband Network (NBN).

In 2012/13, regulated mail volumes dropped 5.4 per cent. Indeed, they have been falling at 3 per cent or more per year for the last six years. Australia Post's loss on regulated mail was $91.3m in 2010/11, $148m in 2011/12 and $312m in 2012/13. And this is despite increasing the price for a stamp: from 50c to 55c in 2008, to 60c in 2010, and with a proposal for the price to rise to 70c this year.

The reason is the internet. As more people move on-line, standard mail volumes drop. Every electronic bill, on-line payment or e-mail puts another nail in the standard letter's coffin. And this trend will accelerate, not decline.

Australia Post is not alone in facing this problem. It is faced by postal services worldwide. Most recently, the government-owned Canada Post decided to stop all home mail deliveries. Rather:

"every person … will now have to traipse to a community "super-box" to pick up their mail."

Australia Post could try similar cost saving innovations, such as reducing the number of home deliveries each week or setting different prices depending on the speed of delivery. And if it doesn't do this then the taxpayer burden will just keep on rising. Every dollar of loss on the standard mail service is a dollar less federal government revenue to spend on other things.

Fortunately, in Australia, the NBN means that Australia Post's CSOs will be redundant – replaced by the NBN's CSOs.

"[T]he NBN will provide the necessary infrastructure for every premises in Australia to be able to have broadband access to the internet …"

The NBN will also have uniform pricing Australia wide and, as with post, private competition to the NBN has been legally restricted to prevent 'cream skimming' by private entrants in urban areas.

Now, you may or may not think these restrictions are a good idea. But one thing is clear. Once the NBN is rolled out to the bush, we do not need BOTH the Australia Post CSOs and the NBN CSOs. One set will do. Just as the internet is making standard mail redundant, the obligations on the NBN make Australia Post's CSOs redundant.

Without its CSOs, however, Australia Post is just another delivery company. So there are two sets of questions for the federal government:

First, how is the government working to transition the 'standard mail' obligation from paper (with Australia Post) to email (with the NBN)? And if not, why not, given the growing burden on taxpayers from the standard letter?

Second, once Australia Post's CSOs are gone, what justification is there for the federal government to own a parcel company that would be underwritten by taxpayers while competing against numerous private businesses? And if this means Australia Post should be privatised once the NBN is up and running, how is the government planning the transition towards a private Australia Post?

Partial and full privatisation of postal services is not new. Examples include Germany, Holland, Austria and, more recently, the UK. But the key driver is that technology has changed the way Australians communicate. The NBN will link all Australians. For the small number who need special assistance, that should be available, as it is for the current mail service. As the internet, via the NBN, takes over the CSO under government ownership, it makes sense to remove the CSO from Australia Post. And once that occurs, privatisation of a profit-maximising parcel company makes sense.

Stephen King is Professor, Department of Economics at Monash University. He does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The ConversationThis article was originally published at The Conversation. Read the original article.


Comments

    I would love to be able to receive all of my bills and correspondence by email - but not all companies seem willing to help out in that respect. In fact NSW will now be posting out your photo IDs in lieu of you waiting 5 minutes in an RMS(RTA) office to get them. Which for me, means taking time off work to go sign for it at my 9-5 post office, then probably getting knocked back at the Post Office because my bank IDs have my initials and not my full name.

    I'd be content with fewer days delivery - and I don't see how that would "inconvenience the poor" as some of the media has been suggesting. But I'd want my post office to open on Saturdays at the very least.

      The sending out of drivers licenses was introduced to stop people obtaining the IDs fraudulently. Particular popular with younger people that have younger brothers/sisters who weren't old enough to drink and looked similar.

      The younger one would go into VicRoads and get a replacement license on the spot with their own photo on it. Mailing them out meant that parents would see this happen and hopefully discipline their children.

      This also saved a lot of money by not having to have the printers located at each office, and these printers are REALLY REALLY expensive. Like, really expensive.

      Last edited 28/01/14 11:39 am

        The RMS claimed that it was to "save time" and "Improve customer service" only, but in turn have increase the chances of identity theft by introducing a centralised printing location to distribute to everyone.
        In the past, you had 1-2 RMS workers who might touch your card. Now you have 1 RMS worker, x# Services.NSW workers printing them, postal staff processing mail, plus every postie who delivers them.
        If postal deliveries stop, then your photo ID will sit around an Australia Post office until you get in there to pick it up

          I think the rates of identify theft are next to nil.
          Older siblings getting fake IDs for their younger siblings is actually a really big problem in Victoria.

          It is more of a cost saving exercise, while allowing tighter security of who can print new cards. There are dozens of employees across dozens of locations that could have access to print cards, no more.

            A friend just received a licence in the mail with someone else's signature on it. Well played NSW

    great. free marketeers telling us the market will provide.

      To be fair, it's not as if there'd been any prime free market failures in recent memory......................

    when you privatise AusPost or anything else that the government can't run properly, you make a select few rich individuals very rich..!

    yes, they have the money to buy the monopoly, then they'll make their business decisions to drastically cut services, such as weekday deliveries to weekly, save a bunch of cash, lay off a few thousand workers and make themselves (the majority shareholders) extremely rich in the process...

    same thing has happened in many cases, utilities, ports, roads etc etc...

      Then if people start using it less, they up the price to maintain profits.

      The privatized water. 'Everybody save water, catchments are low.' So people save water, the revenue goes down. As it's privately owned they their increase the cost of water to still get the same profit. So what did any of us gain from saving water? Now the catchments are full again and surprise surprise, the prices didn't go back down.

        Same thing with the electricity, people were encouraged to by solar panels to save on there electricity bills, the electricity company's then made less money, so they then had to put the prices up and continue to do so.

        All that happened was the haves got there cheaper bills, and the have nots (mostly people who cannot afford the solar panels or are renting) got stiffed with higher electricity bills, it's a no loose situation for the electricity company's.

        Victoria's water is still state owned, but the same applies with less usage more cost to account for less usage, so when usage goes up after the drought/ lower restrictions - profits go ka-boom!

    This is a recent issue, but a bloody annoying one... I get a lot of parcels posted to my house, but if someone put's it in a package that's too small for parcel delivery and just a bit too big for an envelope, they actually give it to the postie to deliver on his bike. But here's the stupid part, he can't deliver it to your door, all he can do is beep his tiny, tinny little horn, and if you don't come out quickly enough, he just writes out a "pick it up your bloody self card" so you have to go to the post office to pick it up...? To reiterate... the postie actually has it in his satchel, you were home at the time, but ended up having to go and get it from the post office...? I hope they sort that shit out real soon...!

      That must be with just your postie. Mine comes to my door, and in the event I'm not home and it's a sign to deliver, just leaves the note pegged to the door to collect.

      Last edited 28/01/14 9:59 am

      I think it really does depend on your postie. I've had your experience, where the guy just beeps his little horn then rides off when you don't come dashing out of your house within about 30 seconds, but I've also had a much better experience with a different postie. He came up the driveway and banged hard on the door, shouted out "Australia Post!", and then patiently waited while I dashed around trying to find my house keys. Really friendly guy too. Like a lot of things I guess the level of service you get is dependent on the person providing it.

        @lemontang @talicca
        Looking at it logically, I can't blame the postie, this is a regulation problem. The postie can't be expected to hand deliver, every parcel, he'll never get the job done. I asked to PO, and they confirmed, he's not required to deliver it your door, and he can't leave without authority, so this stupidity is actually built in to their system. Quite ridiculous really when the parcel delivery guy is authorised to leave, so why not let him do it...?

        Last edited 28/01/14 2:55 pm

          Because without proof of delivery the receiver can claim the package never arrived. If you can't prove you delivered it, then you are responsible for the loss.
          The package itself is property of the sender until the receiver signs for it and takes ownership.

          As someone who has worked in the transport and logistics industry, it is sadly the lesser of two evils.
          So often we would have angry customers complaining that their receiver didn't get the package. When calling the driver they would say they left it or worse, delivered to someone but never got a signature.
          We are then stuck with refunding costs and possibly losing a customer.

          You are right though, the system is stuffed

          Last edited 28/01/14 10:18 pm

            My point is that he doesn't have authority to leave. Unlike parcel post vans who usually have a regular driver and keep the form on hand.

      Yep same experience Timmahh.

      Australia Post doesn't actually deliver anything. And when they do they try to cram it in your letter box which then ends up breaking the object inside.

      They are absolutely terrible at delivering parcels.

      I got a Po Box for this problem, they cost $80 a year but well worth it

        I had one, but there are a lot of companies who won't deliver to PO Boxes, and half the time packages I was getting sent were STILL Carded for me to go into the post office itself, even if they would fit.

    We are not getting an NBN. We are getting some half arsed 20th century solution.

      And it isn't going to be a free service...
      How does the NBN take over the CSO of Australia Post unless it offers some level of free connection and a device to receive email?

        plus will they send the letters through the optic cables?!

        what is this, a postal service for ants!?

    Why SHOULDN'T it be privatised? IMO, Governments should run services in those instances where they cannot prevent the free-rider problem e.g. parks, roads. With snail-mail, there is a perfect "user pays" mechanism already in place. If a 60c stamp doesn't cover the costs associated with processing and delivering a letter, the price needs to go up. The sender needs to cough up the extra or source an alternative. Simple economics.

      Cause as explained in the article, "unlike its private competitors, Australia Post has community service obligations. It must provide accessible and affordable letter services to all Australians, regardless of where they reside."
      A Private operator without a CSO would cut (or drastically increase delivery prices) to most regional service immediately.
      Sending a package or letter to a regional address would become completely uneconomic and would severely disadvantage people living in the bush.

      for a lot of reasons.
      the most obvious one is that private companies will be able to cherry pick the most profitable areas, delivering mail 9 times a week, while other areas will be lucky to see the postie once a week.

      60c to post a letter all over Oz, now it 60c for the first 100ks and $1 for each 100ks after.
      Cheaper or dearer rates depending on where you live and where your posting too.

      Multiple private carriers, all of them only offering delivery to certain areas, so you letter has to go through 3 or 4 companies to get to its destination, all of them wanting their own cut.

      on the rather extreme scale i can see companies taking 'ownership' of peoples mail boxes, and charging you, and if you haven't paid your 'rental fee' your mail doesn't get delivered.

    Privatise what..??? 80% of the Aust Post outlets are already privatised. My town is rural and largely pensioners...90% of those can't afford an internet connection now...so they still will not be able to afford the NBN even it runs past their front door, so emails are not an option for those who cannot afford the NBN. Also you cannot believe the rubbery figures advised by AP re losses...they have a different agenda to push. However if AP lost $129m last year because of snail mail, they made over $300m in parcels...more than covering their loss and that figure will continue to rise. All businesses have costs and this is a Govt entity providing vital services, especially to rural area of Australia. So long as it is making money, remain calm and carry on. AP still posted a profit of some $300m last year, largely by screwing those 80% outlets that are privately owned (up to $59m)....However they are still doing quite well off the public they service. So much so that CEO Farour was able to swipe $2.8m by way of a bonus..!!

    Out of curiosity, what are some examples of privatization that have actually worked in Australia and providing public services?

    Utilities work to serve their profit which seems to lead to ever increasing prices at every opportunity. Can't absorb the normal ups and downs of these industries as a yearly return for investors is prime.

    I'm in Melb, public transport, well that's a joke.

    Freeways and toll ways, well they are under built in capacity in most areas. How ever if the government wants to build train lines to compete and ease congestion they have to then pay compensation to the road operators.

    Qantas? Well currently the government is working to get rid of it's owned part so the investors can sell if off to competing airlines. Airlines Qantas can't compete with because they are being propped up with money from the governments that own them. So there's the whole, 'level playing field' lie about privatising it. Yay, we should be proud Australian's, we have a national carrier and it's gone....

    Services like a good, reliable, affordable postal service are what make countries like Australia great. The last thing this crappy internet we're getting needs is more and more essential services shoved into it to overload it's capacity. The problem still remains, what about things which need to physically be delivered and people that don't live close to the cities. Where it'll never be at a price point which is profitable.

    Which gets to the point, essential services like Australia post, DO NOT HAVE TO BE PROFITABLE.

    Last edited 28/01/14 1:33 pm

      Oh God - well well well said!

      Privatising Government services does nothing but make a select few rich while inconveniencing everyone else in the long term

      Imagine Telstra was still government owned - we might have actually had an awesome telecommunications services at a great price. Instead we have this monster that only cares for profits

      Commonwealth Bank?
      Water services?
      Electricity?
      Gas?

      Government get a short term cash injection but everyone else gets long term pain, including eventually the Government.

      Use privatise things when we need the money.

      We only do public-private-partnership road project work because we don't have enough money to build it ourselves....so we pay a little extra for the benefit much much sooner

        It's a joke though that Australia doesn't have enough money. It's just we chose to spend money on less important things. Why is the government signing trade deals that leave Australia worse off with less money? Why are we letting our natural resources make a tiny few extremely wealthy. Why is the government providing amnesty for millionaires who cheat on their taxes? Why is the most profitable sector in the economy getting the most corporate welfare?

        At least don't sign in clauses which guarantee a monopoly and so in the long term work against the public good. The reason they do is, it's never about the public good. It's doing back room deals, corruption and in the short term they can say they raised a bunch of money. Artificially pretending they are doing well for the economy.

        One these things are gone, they're gone. Putting things like ISDS into the trans pacific partnership will pretty much ensure we could never undo this.

    Sorry, but this article just reinforces the point of why AUS Post should remain a public company and why in this instance a public company works.

    For starters AUS Post is posting revenue in the black, which means it isn't dipping into tax revenue to fund itself while offering an unbiased market forces neutral service.

    Australia is massive with a population not confined to major cities, if the standard letter service was to be profitable you could be paying upwards of $100 to post a letter to Darwin from Melbourne, therefore significantly disadvantaging a large number of Australian citizens based on where they live. I for one do not wish for this to happen.

    If I was CEO of a private Aus Post I would mutilate the standard letter postage service and focus purely on the profitable parcel post as you no longer have to report to the Australian citizen but a money hungry board, As a commenter posted earlier this will result in higher costs for a lot of other services that rely on standard letter post e.g your license could cost significantly more because they have to post it to you.

    Don't try and fix something when it ain't broke!

      but if a Government company owns a business that competes with private companies, is doesn't seem right - their parcel system or the Star Track company being half-half owned by Qantas and AusPost competes with all those other delivery services

        Just because it doesn't seem right, doesn't mean it's not right.

        This is Australia we have a state owned postal service. We don't have to give that up to make life easier for the investors in package services. It's there to make things easier and better for the Australian citizen. Which is often what gets completely lost with the free market ideology. It's only ever worked in a regulated system. The point is, the priority always should be, what is best for the Australian people. Not for the profits and the return to a small amount of investors.

        Australia Post completely own Star Track. A couple of years ago, Australia Post sold its 50% of Australian Air Express to Qantas in exchange for Qantas' 50% of Star Track. Makes sense, the airline has the business it knows about running (overnight freight by air) while the postal service keeps the road transport and logistics business.

      could we sell the parcel side of things but keep the letter service and run it at a loss??
      is that a better idea?

        Yeah...So who's going to buy a business that will increasingly run at a loss if it cannot be offset by something that will increasingly run at a profit.

          No I said sell parcel service, the profit making business and keep the loss making one to have the basic service in Government hands?

    If the original ALP NBN was being kept, this argument would hold more water. There are roughly 12.5 million subscribers to an ISP of some sort in Australia, according to ABS figures in June last year. A survey run by Anglicare Victoria for ACCAN last year found that half of all low income earners go without Internet access. That's a lot of people who - under the FTTN proposal - have no more incentive to take up the NBN in the future than they do a non-NBN service today.

    Also, the NBN will not have "uniform pricing" - it has a "price cap", and the Coalition has conceded that there is scope for a disparity in prices between urban and regional users (best guess, according to a previous report on The Conversation, is a difference of about 7%).

    Regardless of whether you agree with privatisation of Australia Post, a justification based on the CSO for the NBN is a number of years premature. Let's wait until it is actually working for a large segment of the country before we decide it is working well enough to potentially cut off millions of vulnerable Australians from their only form of documented communication, eh?

    Last edited 28/01/14 12:55 pm

    It's very easy to see this as a case of 'well, why should the government pay for your mail if you choose to live in the middle of nowhere or don't want to sign up for e-mail' but the changes we'd see under a private Australia Post are much broader than that.
    Without Australia Post my business wouldn't be where it is today. The difference between their pre-paid satchel services and standard couriers opens up a lot of doors if you're not yet shipping in enough volume to attract a decent price from a private courier service. Try and send a stack of five DVD cases with a private courier service, then do the same with Australia Post and you'll see what I mean.
    Admittedly this is stuff that would stick around, there's good money in that part of the business, but I don't think it would take long before they attempted to trim the fat and ended up reducing it to just another courier service. At the very least they'd monkey with the Australia Post store opening hours which would drastically reduce the level of accessibility.

    I just can't imagine the same service being offered by a private Australia Post as the current Australia Post. For a county where a 45 minute drive in any direction lands you in the middle of nowhere we've got a fantastic postal network. It'd be a real shame to lose that just because we feel the need to evaluate the value of a service based on it's profitability alone. If Australia Post loses money but performs at it's current level I say that's money well spent. If it breaks even that's a great deal.

      Exactly DogMan, in this case Auspost is actually *profitable*, so I agree, selling it would be nuts.

    Privatisation of public services leads to one thing.... prices going through the roof.

    Happened with telecom, gas and water utilities.. so why the hell would you want it to go private?

    Glad to see the majority of responses here rejecting the notion.

    If more people have access to internet will that not mean there will be more online shopping. Especially if you are in a remote area.

    I work for an online retail company and use Australia Post as they are the best logistically Australia wide.

    Maybe Australia Post needs to worry less about standard letters and perhaps move their attention to being preferred logistics partner for the growing online market

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