The Joint Committee met at 2.30 p.m.

MEMBERS PRESENT:

*In the absence of Deputies D. O'Donovan and A. Morgan, respectively.

DEPUTY N. O'FLYNN IN THE CHAIR.

Business of Joint Commmittee.

Chairman: Members will recall that at the inaugural meeting of the joint committee on 13 November it was agreed to establish an ICT, information and communications technology, subcommittee. The joint committee meeting of 27 November agreed the terms of reference for the subcommittee. They require the joint committee to refer matters to the subcommittee, which should report back to the joint committee no later than three months from the date of referral. Copies of the motions to be referred to the subcommittee have been circulated. Is it agreed that they be referred to the subcommittee? Agreed. The Clerk will contact the members of the subcommittee with a view to arranging a date for the inaugural meeting.

Postal Services: Presentation.

Chairman: Members will be aware that we met the management of An Post on 29 January. We have asked Mr. Alex Pigot and Ms Jacqueline O'Regan to make a presentation to the committee and assist it in its work. Mr. Pigot is managing director of the bulk mail production company, TICO Group Limited, a board member of the Federation of European Direct Marketing Associations and a member of the Irish Direct Marketing Association's regulatory affairs committee.

Before I ask Mr. Pigot to make his presentation I draw attention to the fact that members of this committee have absolute privilege but this same privilege does not apply to witnesses before the committee. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside of the House or an official by name in such a way as to make him or her identifiable.

Mr. Alex Pigot: Thank you, Chairman, and members of the committee. I am honoured to have this opportunity to address the committee and give my views on the postal market in Ireland. I compliment the committee on holding these hearings and encourage it to hold more. Postal services are essential to Irish society and the Irish economy and this is a vital forum to debate whether they are working.

TICO Group Limited produces approximately one in every 40 postal items delivered by An Post every day and are a major customer of An Post. We employ 51 people in Stillorgan Industrial Park and our customers include both major Irish banks, both major telecommunications companies as well as other financial institutions, telecommunications companies, marketing companies, charities, travel companies, multinationals and Irish blue chip companies.

To summarise what we do, we receive data files on disc - more normally CD - by e-mail, files of mails and addresses. We make sure the names are correct and that the addresses are valid. We print letters, invoices, statements and legal notices. We print names and addresses on envelopes or postcards, pack letters and leaflets into the envelopes, sort the mail items into postal areas and bag them. We pay the postage and give the mail items we have produced to An Post.

We think, as do our customers, that the quality of the service we provide is world class. The quality of An Post's service reflects on ours. That is why a high quality service from An Post is so important and fundamental to our business and why we take such a keen interest in the development of the postal market.

I may be rushing through the presentation, but that is because I have much to say in a little time. Please let me know if the committee wants me to slow down. Turning to the question of the universal service and its importance to TICO Group, one cannot walk into a post office and ask for a universal service. However, that is what An Post is supposed to provide. The regulator is also supposed to ensure that we, the citizens of Ireland, have such a service. The European Union definition of “universal service” is the collection from all collection points and the delivery to all delivery points of all mail items weighing up to 20 kilograms five days a week, 12 months of the year excluding bank holidays. European Union member states may direct their USPs to collect and deliver more often, such as in the United Kingdom, where there are Saturday deliveries. Member states may also allow the USP exemptions from collecting or delivering on a daily basis at points which may be inaccessible due to factors such as snow and high seas.

However, the important point is that the universal services is owned by and is the responsibility of the member state. In Ireland, therefore, the universal service is no longer the primary responsibility of An Post. This is a very important change. Therefore, if An Post cannot maintain and guarantee a universal service, this State can, and perhaps must, choose to appoint another USP for some or all of that service. I hasten to add this is not an option we, nor I believe anybody present, would even consider until all possible efforts have been made to encourage and help An Post to provide, maintain and guarantee a high quality universal service.

A universal service is important to us as it is to everybody else in this country. It is the guarantee that An Post or a postal service will collect and deliver mail at affordable prices every working day. Therefore, it is also important that our only USP provides a quality service. This is reflected in the Minister's draft direction to the regulator when he pointed out that the regulator's responsibility is to ensure Irish industry and domestic customers enjoy a competitively priced high quality postal service on a par with the highest quality standards elsewhere in the European Union. In the past two years, ComReg has been doing a wonderful job, overseeing the provision of the universal service. I believe it has come to grips extremely well with the postal service. However, its legislative powers are limited. It can decide whether the USP can increase its tariffs in the reserved area or not, but it has little power to carry out its responsibilities regarding the universal service in terms of making changes to the terms and conditions of access to be provided by the USP. If our national universal service is to be maintained and guaranteed, the regulator must be given greater powers, by way of legislation, such as the forthcoming postal miscellaneous provisions Bill, to empower it to define the terms and conditions of access to the universal service under which any USP offers services to its customers, as well as to define the global area we are discussing, which is postal services.

We are all aware there have been problems with the universal service recently, including the backlog at Christmas, the debate over kerbside boxes and postal codes, the mixed quality of service in terms of delays recently and the discovery of the hitherto unknown loss-making section of its business, which is cross-Border or overseas mail. With regard to the recent delays and Christmas backlog, the problem has been caused, in my estimation, by a combination of changes in work practices and the inability of the new sortation machines, on which an Post has spent €150 million to cope with peak volumes. If I am factually wrong, I am happy to be corrected.

I would like to share with the committee my thoughts and observations as to what the root causes may be. First, An Post's collecting and delivery offices such as Bray or Drogheda now send all their mail to the DMC, located in west Dublin, where mail is supposed to be sorted and sent on to local delivery offices. However, if there is too much mail to sort, the unsorted mail instead goes to either Portlaoise or Athlone for sorting, which causes delays. Second, the reason there may be too much mail to sort is because An Post tried to eliminate any staff overtime. At the same time it will not let local offices such as Bray and Drogheda take care of the sorting of mail they collected themselves. This means there are not enough staff hours when there are peak volumes, which also causes delays.

Members may recall, if they were third level students themselves, that in previous Christmases it was also usual if either Sheriff Street, or more lately the DMC, had too much to sort, they would send it to places like Blackrock or Ballsbridge in Dublin to help out with the workload, pay the delivery staff overtime and use third level students to deliver the post. The first step to solving the problems referred to is the immediate introduction of postcodes. While I would like to explain how the sortation machine works, I am short of time, so I will skip it and members can read up on it in their own time.

The sortation process by machines can be made much more efficient by the introduction of postcodes. With postcodes, the sortation machine only has to read a code and not a complete address. In the UK, everyone knows that if you do not put a postcode on a letter it will take longer for the Royal Mail to deliver, which encourages all users to put postcodes on letters. I believe work practices and new sortation machines are causing problems. TICO's bulk mail is being pre-sorted, therefore, it is not affected. Bulk mail produced by us since November last year has experienced no delays in its delivery, while single piece mail we posted has. This is because our bulk mail is sorted in advance of being given to An Post. Because it is sorted in advance, it does not need to be sorted again. It never goes near a sortation machine and can be transported by An Post to the local delivery offices.

Chairman: Do you hand over a bag for a different county or a different post office?

Mr. Pigot: I hand a bag of mail directly to An Post with a label "Skibbereen - 56 items" on the outside. It never goes past the platform into the room with the sortation machine. Instead the bags of sorted mail are put onto the platform and directly on to the van going to Skibbereen, for example. In my view to enhance the quality of the service, An Post must enable their customers to have down stream access by encouraging them to sort their mail to local delivery offices, as well as postcoding mail and, if possible, putting a bar code into the address block.

Members may be interested to know that 60% of all domestic mail in the United States is delivered by the mail producer to the local delivery office, independent of the United States postal service. Members may also be interested to know that the provision of easier access to the network is one of the provisions of the second postal directive. If both mail is delivered directly to the local delivery office, it will free up logistical and sortation staff in An Post to take care of other backlogs or delays. If An Post does not introduce schemes along these lines, I hope the regulator will persuade it to do so.

Lastly, and probably most simply, An Post should allow single piece mail customers to put their mail in pillar boxes or other collection points which are marked "local only", as in Drogheda only, or "all other places", as has been done in Dublin for decades. This would allow local offices to hold all mail for local delivery and send it to the central sorting offices.

We must encourage more mail volume. So much for improving our current system, but there are other ways to alleviate An Post's losses and problems by increasing volume and turnover. An Post can increase volume. Increasing volume is why postal tariffs generally increase only at times of major changes within the postal system. That is why there has been a 30 cent charge since 1991. There has not been changes, because volumes keep increasing every year and costs keeping increasing. The fact that volumes increase means the turnover is increased, which takes care of the costs.

An Post has a service called Postaim, which is suspended four weeks before Christmas and four weeks before general elections. Postaim is approximately 30% of the mail volume in this country. An Post should increase immediately its annual volume by not suspending that Postaim service. It should also stop subsidising foreign postal operators and their customers. An Post should pull out or renegotiate REIMS and create new bilateral or multilateral agreements. It should do so immediately with Royal Mail which accounts for more than 90% of our incoming cross-border mail. This, I estimate, will immediately increase An Post's income by in excess of €11 million per annum. I will come back to REIMS later if time permits and members would like to ask questions on it.

Slide 10 indicates a chart which is used in the postal industry to show the breakdown of costs in the collection, sortation and delivery of mail. Some 10% is used for collection, that is, picking up at pillar boxes or businesses, 18% for outward sorting, either in the DMC or local office where they used to sort, 2% for transport, for example, from the DMC back to Drogheda, 5% for inward sorting - when the mail arrives in Drogheda, it is for the postmen and women to sort it into walk sort, and 65% is allocated for delivery, for example, where the postman or woman leaves the office and goes out on the bike, walking or in the van to deliver the mail to the address. Some 10% of the price of a stamp can be allocated to collecting mail in the UK and delivering it to the DMC in Ireland. As long as Royal Mail charges its customers no less than 80% of the Irish tariff, it can make money out of mail produced in the UK and sent to An Post, for An Post to deliver. This translates, by my calculation, into a figure of 32 cent for each item. Therefore, as a customer of Royal Mail, one can expect to pay no more than 32 cent to send a letter to Drogheda from the UK. However, in reality they actually pay less. These rates, either the 32 cent or 28 cent mentioned earlier, are not available to Irish customers of An Post - the best rate possible and available only after taking on the burden of 28% of the costs is 36 cent.

An Post knows this is the reality of the postal market but, as yet, it has not publicly shown its plans as to how it intends to solve its biggest source of losses as per its 2001 accounts. To be fair, until the regulator, ComReg, required it to produce the separated accounts for 2001, which we have all seen on the website, An Post always thought it was making substantial profits from inbound mail. However, An Post, as a matter of urgency, must address this matter as the haemorrhaging of Irish jobs and profits is continuing every day this problem remains unsolved.

Therefore, to improve as well as maintain and guarantee our universal service, I would like to see An Post do the following: introduce postcodes, barcodes and separated pillar boxes; encourage downstream access to the network; not suspend posting; and renegotiate REIMS and other terminal dues agreements.

The Minister says it is the responsibility of ComReg to ensure Irish industrial and domestic customers enjoy competitively priced, high quality postal services on a par with the highest quality standards elsewhere in the EU. There is no doubt that An Post provides a high quality service. I would class the men and women who sort the mail and deliver it with other State servants such as nurses, teachers, gardaí and fire fighters. In his recent presentation to this committee, Mr. John Hynes stated that An Post has a "grand plan", which necessitates concentrated sorting offices. He said postcodes are not necessary but that half a million kerb-side post boxes are essential. Unfortunately he stopped short of giving more details of this plan. If our national universal service is to be maintained and guaranteed our only universal service provider should be encouraged to share this plan with all stakeholders so that we can understand and accept more fully the changes An Post proposes. The regulator must be given greater powers through legislation to define the terms and conditions of access to the universal service.

I thank the Chairman and the committee for their time and kind attention.

Chairman: Thank you, Mr. Pigot. I am delighted you took an interest in the proceedings of the committee two weeks ago and in what Mr. Hynes said on that occasion, which caused us to ask more probing questions.

You mentioned that your company produces one in 40 postal items for An Post. Is your company An Post's biggest customer?

Mr. Pigot: I do not know. It would be one of the top 50 customers. I have been told this by An Post.

Chairman: How is your company treated by An Post, as one of its top 50 customers? Is An Post delighted with its business?

Deputy Crowe: Mr. Pigot does not have privilege for this answer.

Mr. Pigot: I get on extremely well with the people I deal with in An Post. I have never had a problem.

Chairman: You are treated well, therefore, as a company. Is the customer king?

Mr. Pigot: I am treated very well by everyone I know in An Post.

Chairman: You mentioned REIMS, which is of concern to us. I have noted the figures for losses from An Post in the 2001 accounts, which are €5.6 million for international outbound reserved, €11.1 million for international inbound reserved and €8.2 million for international inbound non-reserved. These are losses of €26 million for delivering other people's mail or for delivering mail from this country to another country. You have given us a short account of your view on the question of renegotiating. I presume it is in the power of An Post to charge prices which will not reflect a loss for delivering other people's mail in this country.

Mr. Pigot: Are you asking if it is within An Post's power to renegotiate that agreement?

Chairman: Why would An Post deliver mail at a loss?

Mr. Pigot: Until the regulator suggested it produce separated accounts, An Post always thought it made a lot of money out of inbound international mail.

Chairman: The reports do not reflect that.

Mr. Pigot: No.

Chairman: An Post has lost €26 million on inbound and outbound international mail, under their universal service provider.

Mr. Pigot: That is right.

Chairman: Not all of it, of course. Some of it is reserved and some of it is unreserved.

Mr. Pigot: Much of the mail that is arriving is unsorted in bags and must then travel directly to the DMC where is it put through the sortation process which I have described. I am not sure what An Post is getting for that. I recently saw the figure of 73%. The figure in the REIMS agreement is 70% but I know that if I take mail from here to the UK and mail it from the UK I could get a rate somewhere in the region of 68% or 69% of our standard tariff.

Chairman: In an article you wrote in a national newspaper on 10 January you said the Dutch had opted out of the REIMS agreement. Why did they opt out?

Mr. Pigot: Because the rate they were getting was not sufficient.

Chairman: Therefore, An Post could opt out as well. Is that what you are suggesting?

Mr. Pigot: As far as I know the agreement can only run until 31 December 2001. What is referred to as REIMS 3 is being negotiated at the moment. I think I read somewhere that An Post is hoping that REIMS 3 will give it about 90% of its headline tariff. This brings me back to the chart I showed the committee. That would allow 10% to Royal Mail to collect and bring the mail here to Ireland.

Chairman: We notice that much mail coming into the country is from Irish companies but is posted in a foreign country. This applies particularly to periodicals and second class mail. Is this because, as you said earlier, it is cheaper to produce mail and send it from another country?

Mr. Pigot: There is a number factors but the main reason has to do with post. For example, if one wants to produce mail and use a service like mine, the conditions under which one would do it, the costs for example, are more or less the same in the United Kingdom as they are here. However, if a mail run happens to be 10 million items, because it covers the whole of Europe, a print run of 10 million items should, obviously, be done in one place. If most of the items are to be posted in the UK then the printing and posting would be done there. The costs are more or less the same but the main factor is the cost of posting. It is cheaper to mail in bulk from the UK to Ireland than to mail from Ireland to Ireland.

Chairman: Or Germany, for example. Many periodicals come into Ireland with German postmarks.

Mr. Pigot: Yes, it is also cheaper to post from Germany to Ireland.

Deputy Broughan: I also read the article and found the point Mr. Pigot made about REIMS fascinating. The Chairman has asked many of the questions I had in mind to ask. For example, how would various countries try to renegotiate the REIMS agreement so as to give everyone the best possible percentage, relative to its total mail? I believe 90% of our incoming mail is Royal Mail. What percentage of our total mail is that?

Mr. Pigot: Of the mail An Post delivers every day, 20% comes from outside the country.

Deputy Broughan: That is clearly something that screams out at one. I certainly was not aware of it before reading Mr. Pigot's article.

Mr. Pigot made a reasonable proposal regarding postcodes. How would barcodes work along with postcodes? Would that be an additional cost for businesses like his own or for users of the service such as ourselves? Members of the Oireachtas, collectively, are probably one of the biggest users of An Post.

I was not able to be present at An Post's presentation to this committee. All Deputies have grave concerns about any kind of attack on the universal service, which is the bulwark of what the postal service was and should continue to be. We were also upset by the postal backlog at Christmas.

May I just ask about businesses such as yours which fundamentally depend on An Post and which have used it well to create business? Is your business profitable enough for An Post? Do you envisage a situation where others will provide a universal service or part of a universal service if the regulator says that An Post will no longer be the only contributor to the universal service? Will it be possible for future providers of a universal service to make more profit from your kind of company which depends on An Post for its business?

Mr. Pigot: With regard to the bar codes, the packs we have shown you are just samples of what we have got. What we suggest is that the barcode on the pack is a representation of the barcode that we suggest at the bottom. This is not fixed in stone but is just a suggestion.

There was a question about extra cost from the business point of view. A business has to put the name and address there anyway. The font might be "times new roman" or something like that but adding a barcode is just the same thing - it is just a different font. It is a barcode 3NI font or something like that. There is really no extra cost because somebody has to type a name and address on it anyway. We are all using Inkjet or laser printers and they print those codes.

In regard to An Post, we are using sortation machines to read maybe six lines of an address. If the square card is turned the wrong way the machine cannot read the address and the card ends up going through the human process I described in my presentation. What can be done instead is that the machine reads just the barcode. The barcode can be scanned both ways like in supermarkets and we get more stuff through the machine at the sorting centre.

I do see more people being involved in the universal service or providing parts of it. I am promoting what I think should be downstream access, which is allowing trucks from people who are producing large volumes of mail to move around the system rather than going to sortation offices and sucking it through those big machines. They can just, for instance, take it from my office and go all the way to Bandon or Skibereen with it. I could take mail for instance from people in Stillorgan industrial park who have already printed their barcodes and could sort it through, put it into bags and send it out. I suppose I could end up putting bags of mail together and being part of the universal service in terms of the one who puts the bag on to a truck that brings it to Skibereen. An Post then does the last part. However, I cannot see and, in my view of where the universal service is going, I would not like to see competitors on the door to door business. Those guys in blue uniforms with the green badge are the ones that give the high quality delivery service. From my point of view, and that of my customers, it is that high quality delivery service we want to retain.

Deputy Eamon Ryan: Politicians are very anxious to get a similar high quality direct marketing delivery service. We are probably one of the big direct marketing groups through the sending of our leaflets. We spend half the time wondering if those leaflets get to the door and so understand what Mr. Pigot is talking about. I would be concerned about holding on to the universal service provider.

I was concerned at our last meeting when the communications regulator made a presentation to the committee. She set out a timetable for the EU directive as to the opening up of the universal service area for post. Unfortunately, I did not hear her reply then as I had to go and now I must wait to read her reply in print. I would be interested to hear Mr. Pigot's views on the same point that the EU seems to be pushing a certain strategy which would allow in other providers. I imagine these other providers would be interested in top companies like yours. There could be cherry picking of where they might provide a good service to companies like yours which are providing well sorted mail and then it might be more expensive to send more irregular packages. What is your general view on where the EU directives are going in terms of liberalisation? Are there fears that the timetable set, which is imminent, will lead to cherry picking or is there room within the legislation to maintain the position of An Post?

Mr. Pigot: I go back and forth to Brussels maybe once a month and I sit and talk to the Commission or other post users. In regard to the legislation my personal view is it is being drafted in such a way as to point out that competition may be coming down the line. It is sort of to incentivise the incumbents into providing a better quality service and into realising that their core business is the collection, sortation and delivery of mail. There is a big fear in what we are doing, especially in privatising the postal operators, that we may end up re-monopolising the market. Does that answer the question?

Deputy Eamon Ryan: I am interested in whether that is your fear.

Mr. Pigot: It is, because then what can I do?

Deputy Eamon Ryan: Then they can charge you. Someone told me a public monopoly can be frustrating to deal with but a private monopoly is a different matter altogether.

Chairman: We will have a question from Senator Kenneally and then suspend for a few minutes when we have finished with Mr. Pigot to allow the communication workers to set up.

Senator Kenneally: I too welcome the delegation and compliment Mr. Pigot on his presentation. It is one of the better presentations I have seen at this committee. There is quite a lot to take in. Mr. Pigot has made some play about what will be done in regard to sorting mail in the larger centres. He gave the example of Drogheda and Bray moving post to Dublin and seems to be against that concept. Will he expand a little on that? He is obviously efficient in how he runs his organisation in that he can produce it for outlets all around the country and is producing one fortieth of the mail. His sortation machines can obviously cope with that volume. That suggests that An Post should be able to use similar machinery in its various centres around the country rather than spending massive sums, €150 million, on massive machines that are possibly not necessary at all. Does An Post need the regulator's agreement to go ahead and do what it is doing in regard to changing its sorting procedures? One reason I am asking is two years ago in Waterford €4 million was spent on a new state of the art mail centre. Now it has been decided that the mail is to be moved to a "super centre" in Cork. It seems to me that things are being made up as they go along and there is no long-term plan.

I also want to ask about Postaim. Is Postaim the low cost service whereby you can target every house in a town or city?

Chairman: Before Mr. Pigot answers, Deputy Kelly has a question.

Deputy Kelly: I am glad to hear what was said about the delivery people. Post men and women project a great image for the company in their daily deliveries. They are pleasant, cheerful, efficient and good people. In regard to the €27 million An Post is losing, is it acceptable that management should lose money or continue to operate at a loss? What should be done about that? I would point out that the computer is up to date, so what is the difference between reading a letter and reading a figure? Are you suggesting the introduction of postcodes which will cost another couple of hundred million euro? The company cannot afford it. The day is long gone when people will tolerate this. You are doing a good job running the company, Mr. Pigot, I am sure you are making a lot of money and I wish you luck. We are delighted that some arm of the postal service is making a fortune. You might be the right man to run An Post for us. Would he agree that if management cannot even break even, it is time for it to move over and put somebody else in charge?

Mr. Pigot: At the moment I sort the mail before I print it. It comes off my machine already sorted for Skibbereen. With regard to barcodes, I see myself producing mail because I get mail that I can sort and also mail that I cannot sort. It might be produced in a PDF file and might be 20,000 invoices, for example. They would be sorted by account number order. I end up with lots of mail that needs to be hand sorted before I hand it over or else I just print it with a particular font that has to go into the DMC. If I had the barcodes I could produce the same sort of mail that I am doing with all the mail that I can pre-sort. I run it off and print, put it into bags and off it goes directly to Skibbereen rather than going through the sortation process. That answers the question about the similar process because they do not print mail, they have the mail presented to them and they sort it. The barcodes would mean they would be able to go through. The big machines are able to read the barcodes and are able to do a similar job to mine. It means that they can do it anywhere but with smaller sortation equipment. It is not that expensive. That in part answers the question to do with barcodes.

An Post has a postcode system which is divided in two. One is small and has the Postaim codes with about 150 codes around the country. There are the Dublin numbers 1 to 24 and Skibbereen and Bandon and places like that. Those are their postcodes and there are the main sorting offices around the country, in for instance, Drogheda and Bray and places like that. The second postcode system is called Geo-directory. It is about nine digits long. It identifies any address in the country by nine digits. The postcode system is already in place and we do not have to spend a lot of money constructing it. The money has already been spent. I am not sure of this but I believe it is what they are using in the big sortation machines to identify the names and addresses as they read them. The pack I have given you shows the postcode and the barcode printed on the back of envelopes. The barcode in printed in orange on the back of the envelope. An Post prints these but business can print a barcode on the envelopes instead so that the barcodes are already printed. The barcode is merely a representation of the postcode. It is not as if there is huge extra cost to put this into the system. We could expect an increased quality of service if we go down the route of postcodes and if we follow it on with barcodes. One or the other does not matter but preferably both.

Senator Kenneally: Does An Post need the regulator's permission to go to these super sorting centres?

Mr. Pigot: As I understand it, the regulator's responsibility is to make sure the universal service is guaranteed.

Deputy Crowe: It is refreshing to hear that Mr. Pigot does not recommend the cutting off of the profit-making section. I was interested in his idea of the local box. It seems to be common sense. How would this work in a rural area? It is crazy that we seem to be subsidising the Royal Mail. My understanding is that it is one of the cheapest rates in Europe.

Mr. Pigot: With regard to the local boxes, we all know that a pillar box has just one opening but I see no reason why there cannot be boxes with two openings.

They must get rid of the loss-making section. There was a loss of €6.7 million in 2001. We have no figures.

Chairman: Mr. Hynes advised the committee that it was €18 million.

Mr. Pigot: It would be nice to see where it is allocated.

Chairman: Other parts of the organisation are subsidising the international mail. The post offices lost €13 million in the last year for which there are figures, not in 2002. We will not go into that now.

Mr. Pigot: With regard to the €18 million, if we look at what the regulator's accounts will be for 2002, maybe we will find that all the losses will again be in overseas inbound mail. If the €26 million was returned in the 2001 accounts, the company would be making €20 million. It seems to be a shame. If it was my problem I would be rushing to solve it pretty quickly.

Chairman: Would you solve that problem before you would spend €30 million on purchasing and installation of roadside boxes?

Mr. Pigot: I would.

Chairman: I am in business myself. Did you answer Deputy Crowe's questions?

Deputy Crowe: I can understand how it will work in towns like Drogheda but what about the country areas?

Mr. Pigot: This may need a little investment but it does solve the problem by being a compromise solution. An Post wants to move everything into the main sorting offices and we think that is mad because Drogheda mail will go all the way to Dublin, Portlaoise or Athlone before it comes back to Drogheda. We would like to hold all the mail in Drogheda so that we can have next-day delivery there. An increase in the quality of service may mean having local boxes and the rest of the mail heads off to the big sortations. This is a compromise that I am suggesting.

Chairman: I am curious about two questions. When the regulated mail is deregulated in 2007, is it your intention to deal with general mail and become a service provider? Why is An Post not offering this service to all your customers? It has purchased a number of overseas companies. Why is it not in the business you are in? Is that bar code used by any other country in Europe in the way it is in your system?

Mr. Pigot: The first question was whether I would take over An Post. Is that correct?

Chairman: No, are you going into the business of delivering post to the door?

Mr. Pigot: No.

Chairman: Are you expanding your network?

Mr. Pigot: No. Our core business is to take mail from companies and produce it for them. Financial institutions are outsourcing their activities so that non-core activities like producing invoices etc. are being outsourced.

Chairman: If we look forward to 2007, do you think people will propose to deliver your mail throughout the country?

Mr. Pigot: I think so.

Chairman: It will not be An Post alone.

Mr. Pigot: It will not be An Post alone. I think that is what will happen.

Chairman: Why does An Post not offer the same service you do? Why does it not have a company offering that service to the banks, telecommunications companies etc?

Mr. Pigot: It does. It has a company called PrintPost that offers the service to do invoices and statements in Ireland. It has a subsidiary in the UK called Eirbusiness, which offers a similar service to myself.

Chairman: What is the company in Ireland called?

Mr. Pigot: PrintPost.

Chairman: How is it doing?

Mr. Pigot: I do not know. It is a 100% owned subsidiary of An Post so the accounts-----

Chairman: Is yours the largest in your business in the country?

Mr. Pigot: I think it is about the largest in my business in the country.

Chairman: You suggested printing the bar code from a PC when printing letters. Is that used in any other country?

Mr. Pigot: I do not know if it is. I cannot give an example of that.

Chairman: That is all right, I was just curious.

Mr. Pigot: I know it is a weak answer. I wish I had the answer. I will go and find the answer and it will be "yes", but I cannot give that answer yet.

Chairman: If you find an answer to that question, will you please communicate with the clerk of the committee?

Mr. Pigot: I will of course.

Chairman: I thank you and Mr. Egan for coming here and for giving us this very important presentation from an operator of the system in the country. If we need to revert to you on any matters, I hope you will be able to help the committee. If we need to use any information from your presentation when finalising our report into the postal area, I hope you will allow us to do that.

Mr. Pigot: I thank you, Chairman. If any of the members would like to visit our installation to see how it works, they are very welcome to come and see us. I would be delighted to show them around. If anybody wants to come to talk to me, that would be fine as well. I really appreciate this opportunity to present our point of view.

Chairman: The committee may very well decide to take you up on that invitation if it decides to visit some of the An Post sorting offices.

Sitting suspended at 3.45 p.m. and resumed at 3.50 p.m.

Chairman: I welcome the delegation from the Communications Workers Union, consisting of Mr. Con Scanlon, Mr. Stephen Brophy, Mr. Sean MacDonagh and Mr. Brian Shanny. The union will make a presentation to the committee as regards An Post. I draw witnesses' attention to the fact that members of this committee have absolute privilege but this privilege does not apply to witnesses appearing before the committee. Members are reminded of the long-standing parliamentary practice that members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. Mr. Scanlon is welcome to comment on the presentation by Mr. Pigot. I would welcome the delegation's views on his presentation at any stage during this discussion.

Mr. Con Scanlon: I ask the committee to excuse my voice as I have a cold and I may sound a little hoarse. I would like to comment briefly on Mr. Pigot's contribution. I thought that he was trying to be honest, but I do not agree with certain comments he made about the An Post sorting system. The union does not doubt, following an intensive investigation into why all mail was not delivered at Christmas, that all mail could have been delivered before 25 December. The system was not at fault, but rather there were problems with the way affairs were managed at the time. There were no problems with implementing new industrial practices, even if An Post may have seemed anxious to convey that such difficulties existed. The committee should listen to those involved in the new system if it wishes to understand it.

Chairman: I do not doubt that the committee will take up such an invitation. I have received hundreds of telephone calls from young women who are concerned that their cards will not arrive on St. Valentine's Day. Will everything be all right for Friday?

Mr. Scanlon: John Hynes is keen that there will be no problems - I do not think he will receive a card if there are. I am sure that the cards will be delivered on Friday, although I am glad that I am not responsible for it. The system needs to be examined by the committee so it can understand how the technology works.

Mr. Pigot referred to the introduction of codes and it is very easy to say that codes are simple and would improve the system. The technology being used at present can read almost any address. It has a unique address system that would not be provided by codes. The new system is much better than a system of codes in many respects. I suspect that we need to examine these matters on a deeper level to ascertain why certain people are asking for the introduction of codes. Mr. Pigot would like to be able to bring mail to Skibbereen - I believe that the Chairman is from that part of the country - to be delivered there by An Post. The unique code system is of greater benefit to people like Mr. Pigot, who collect or produce mail and like to place it in the system further down. They wish to pay only the cost of delivery up-front.

The presentation my union will make today will deal with the other side of this issue. One cannot have everything the way one wants it. Someone will have to pay at some stage. It is all very well to say that one would like to have a perfect universal service, but that is no use if one takes steps that mean that regardless of whatever else one has, one does not have a universal service. Mr. Pigot's mail may be delivered cheaper, but someone in Ballydehob, the Black Valley or Donegal will have to pay more for their mail if the service develops in such a direction. People often say they want a perfect system with a high quality delivery service - Mr. Pigot made such a demand - but they do the things that make such a service impossible. As a country with a population of less that four million people, Ireland faces huge disadvantages in terms of economies of scale. My presentation will elaborate on these concerns.

We need to examine the type of environment in which we work. The Minister for Finance spoke about demographics when he launched the national pay talks. One can look at things slightly differently when one talks about demographics, if it suits one to do so. This is an important aspect of the postal service that will be provided by An Post in the future. We have a peripheral market - we represent less than 1.5% of GDP. It is hugely significant that we have the lowest ratio of citizens living in urban areas in the EU as it means that we simply do not have the economies of scale found in other countries.

One size fits all in Europe but, thankfully, the European Parliament took a huge interest in this area in the most recent EU directive. Many Fianna Fáil, Fine Gael and Labour Party MEPs were actively involved in the debate and put down a number of amendments. The general view was that while the market should be liberalised, account should be taken of where everyone is at present. People often talk about proportionality and subsidiarity, but they ignore such important concepts when making decisions.

Mr. Pigot referred to the fact that 28% of An Post's revenue comes from international mail, compared to the EU average of 9%. This shows that a liberalised international mail market will not help An Post - no great scientific explanation is needed to show why An Post would lose. The fee for domestic deliveries has to be charged when dealing with post from countries like Germany, France and the UK. If one sends a letter to another EU country, the local postal service charges the local delivery rate, which is higher in almost all EU member states. An Post is making a loss because it does not receive the revenue it should from the letters it delivers for the large multinational companies. It is not a complex matter.

Mr. Pigot made the point that An Post's charges have not increased for some time and I will speak about this matter later. Charges were not increased because An Post was able to survive due to the increased mail volumes that were caused by the growing economy. Mail tracks the growth, or otherwise, of the economy. If the economy is growing, mail volumes will do likewise.

I mentioned regulation and liberalisation at the beginning of this speech. The debate that took place about this matter over a long period of time eventually concluded in the European Parliament, which took a different view from the Commission. The Parliament decided on a slow roll-out of liberalisation to take account of events in the industry. The EU directive will open an average of 23% of European markets, but it will expose about 44% of An Post's market to competition. An Post will be affected by liberalisation to a greater extent due to demographic differences in Ireland and its high proportion of international mail. This proves that "one size fits all" regulations do not work. The Government's biggest decision in relation to this issue relates to the type of service it wants to provide. Many European Governments are paying lip service only to the idea of retaining the type of quality service we have in Ireland. A good standard of service cannot be maintained if one cuts corners and reduces costs.

The Chairman mentioned the question of cherry-picking. It was recently suggested that the addressed publicity post market should be liberalised. This is a matter of concern to members of the Communications Workers Union as we do not believe that one can draw a distinction between publicity post and other post. One cannot decide which mail belongs in which category. We would need to be certain this area could be policed and we do not believe that is possible. There will be cherry-picking, as there currently is in the telecommunications area. These companies do not want to compete in the west, the Black Valley or similar areas. They will only compete where they can make money, which will be in large population centres.

According to what is known as the 80:20 rule, 80% of revenue derives from 20% of customers. In such circumstances, why would one go after the other 80% of customers who only have 20% of the revenue? Companies will not be prepared to do this. If liberalisation comes about or does so too quickly, profitability will be affected and jobs will be lost all over the country.

Until now, the Government and others have shared our view on two connected issues, namely, uniform tariffs and universal service. Universal service is about providing the same service for everyone, regardless of where they live, at a uniform tariff. If one starts to liberalise in a certain way, this will no longer be possible. We saw this at first hand in telecommunications. We know that once the die is cast, it cannot be rolled back unless the Government is prepared to pay to do so. One can deliver a quality, universal service to customers - perhaps better than has been the case to date, particularly in terms of business customers - within the resources of An Post, provided it is regulated in a particular way. The only way in which this can be achieved is for the Oireachtas to set out clearly what kind of postal service it wants.

I mentioned the delays in getting increases in tariffs. I, and my colleagues, have no desire to see prices increased beyond what is fair. We have not complained that we have not had an increase in price since 1991 and when the price was rebalanced in about 1998 or thereabouts, it was slightly reduced. I understand An Post has received permission from the regulator to increase international rates, but has not cleared the hurdle on domestic rates.

A company operating in an unregulated business which was not making a profit would do what every similar business would do, namely, increase prices. If one considers how prices have evolved in the postal sector, it would almost drive one to drink. The consumer price index far exceeds price increases in postage. The cost of newspapers is a good illustration of rising prices, while transport costs continue to increase, primarily because they must.

Customers of other companies, for example, the ESB, who want a particular type of service or network must pay for it through investment. We saw this in the telecommunications sector recently when the regulator decided to change the mechanism for increasing prices from the CPI minus eight formula to CPI minus zero, which is recognition that keeping prices at current levels entails costs, one of which is that companies are forced to lose money.

We now serve many masters. We deal with the company on a daily basis through the board and chief executive. We also have a relationship with the shareholder, which is the Minister and his Department. In the middle, we have the regulator who can make arbitrary decisions, with whom no one can talk and from whom no satisfaction is forthcoming, which is frustrating.

As I stated earlier, people say all the right things. The regulator, for example, has published a report setting out her views. There has been considerable changes in the past 25 years, not all of them for the better. Her regulatory responsibility is to ensure the daily delivery of post remains an essential feature of life here. Action is needed to make that happen. Commenting on investment, Business Week noted that it is an economic truism that low prices yield low investment and one gets what one pays for.

I am sure the committee is interested in ways of improving An Post's services. We are not here to defend the company. Over the past three years, we have been involved in a radical change agreement with An Post which was set to bring about a cultural change in the way we operated and provided service to customers. In one way we did this for selfish reasons, namely, recognition that the world is being changed by deregulation and liberalisation and we will need to live in this new environment.

The introduction of new technology is essential. An Post needs to explain to the committee what it is doing with its new technology. The technology in place around the world is centralised. All the mail in Northern Ireland, for example, is brought to Belfast before being redistributed. What An Post is doing is, therefore, not unusual. The hiccups being experienced are not entirely due to a problem with a centralised system. There are also management issues which need to be ironed out. The idea of a local box has some merit and should, therefore, be considered.

The agreement we made was predicated on the introduction of substantial change. The committee will understand that one of the long-running problems in the post office was overtime. While problems arose in many forms and in many schemes, as soon as one digs a little deeper, one finds that the main problem is overtime. Staff need overtime to get a half decent wage because they are low paid, whereas the company needs overtime to run the system.

The company's problems could never be solved without addressing the overtime issue. At some risk, we decided we had to solve the problem. Our view was that the cake could be divided up in such a way as to allow An Post to pay half decent wages to its staff, while ensuring the work was done in an effective, efficient manner. Employees would be given contracts which provided that they could work a fixed amount of overtime and in return a certain measurable level of service was demanded. We made substantial progress in this regard, although at times not to the extent we would have liked. For example, last year we had some problems in the post office division, which we could have done without. Coming from the angle of the telecommunications side of the organisation, I had a feeling at one point that it would be difficult to implement changes. However, I received excellent support for them from my own side. Regrettably, however, the commitment given by the company at the outset was not sustained.

The issue of roadside letter boxes has been raised. We are discussing this matter with the company in the context of a new pay agreement in the deliveries area. The company argues that substantial savings could be made in deliveries, which is true. These would arise because fewer staff would be required. It also argues, with some justification, that roadside letter boxes are in place in other European countries, with the exception of here and Britain. We have not taken a principled stand on the issue one way or the other. We have held discussions with the company, some of which has been geared towards making savings.

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