Australia Post wants to raise the price of stamps to 60 cents. That would mean a 10 cent increase over two years. You know the story: population is growing, having an all points delivery system is mostly fixed costs, but the internet is killing post traffic. You need to recover the fixed costs from a smaller base and so prices rise. That is a good argument for the direction of the increase (I can’t say much about the magnitude) but it is also contributing to a death spiral as that price increase will only reduce post traffic further.
I am not sure what regulatory constraints the ACCC is working under but the issue here is that the stamp pricing itself is surely the problem. I’m not concerned about the subsidy from short distances to greater distances (that is, today just matching the competition). It is the focus on the envelope delivery price in contrast to the prices of delivering other physical packages.
What the ACCC should do in this review is consider pricing structure and whether it should be freed up or whether it should expect Australia Post to do better. I suspect that the stamp price cap is all about being able to offer certain discounts to business. What is probably required is a revenue cap on Australia Post (for all its services) with the stamp price fixed forever as a transitional mechanism. Put simply, that price is hardly reflective of what should be regulated in Australia Post in this changing environment.
Core Economics 
I believe our postage prices are amongst the cheapest in the developed world. Australia Post is also one of the few postal systems to be profitable, mostly due to its efficient mode of operation. I have no problem with the price increase as I believe it still represents good value. Thanks.
LikeLike
A large part of the discounts to business for letters (and it’s a captive market because it allows businesses to avoid the “junk mail” label) comes from businesses doing the hard work of pre-sorting the letters into postcode, or even DPID (delivery point identifier) order.
That said, AusPost have been neglected for about 10 year introducing a service to businesses that is a significant revenue stream for many EU postal services: reverse hybrid mail. (I think back then it was about 100 million euro per post per annum). Such a service would be valuable to Australian businesses. Mind you, there are significant privacy concerns if information security isn’t handled well.
And you probably won’t get the treasurer putting the dividend to government in jeopardy! It’s now about $150 million per annum – significantly lower than a few years ago, while the value of the Community Service Obligation has probably gone up. See budget papers, revenue measures, for details – and interestingly, I can’t find forward estimates for the dividend.
LikeLike
Couple of things on this.
First, the ACCC can only give its approval to the price rise or not. It cannot stop the price rise even if it doesn’t approve it.
Second, Dave is right on the bulk post discount which is basically checked using an avoided cost methodology – so the Aust Post margin is pretty much the same from all standard letters.
Third, the price difference between basic letters and other parcels arises because only the basic letter is covered by the Aust Post monopoly. Anyone can send a parcel and compete against Aust post.
The real regulatory issue is that Aust Post are trying to cover a largely fixed cost base from a diminishing volume. So as demand for standard mail services falls, Aust Post average cost is rising and this is what pushes up the cost of the stamp. Of course the problem is the first bit of this statement – the demand for standard mail is falling due to the internet. This will continue and until this basic technological change is faced, Aust Post is going to look like a dog chasing its tail. Demand falls, so average cost rises, so price rises pushing down quantity demanded.
So how should this be solved? The government needs to work out if it still needs a basic ubiquitous mail service. If the NBN becomes a reality then we will have an e-mail service that can replace the Aust Post letter monopoly to most parts of Australia. So maybe the government should be thinking about phasing out the Aust Post standard letter monopoly – and its ubiquitous delivery service – as the NBN is rolled out.
Final point – I clearly have to get up earlier if I am going to get my post up before Joshua’s post – rather than just turning it into a long comment!
LikeLike
I agree that the rise in the price of stamps is not the issue. It’s a symptom.
The challenge is that ALL of Australia needs a reliable way to get its mail, and there’s no easy way to subsidise delivery to dispersed centres, especially those which are remote. So the price of this service was set as a monopoly for Australia Post in the letter space, so that Post builds an infrastructure to support delivery of letters, which it can also use for parcel delivery (and where it faces stiff competition against couriers such as UPS etc).
If the letter monopoly is removed, then who would be able to afford to deliver to regional/rural areas, especially where the population density is also low – like in the Northern Territory, most of northern Queensland and all of WA north of Perth…. It may be that cost efficient alternative delivery methods exist – or perhaps the standards of service could vary more for isolated services. What makes it really hard is that letters are rapidly being superseded by email, and how then will Post get a subsidy for its business in the future? Another price increase just distorts the market more.
As an inner-city resident I dont really care what it costs to post a letter – I send less than a dozen per year, and I’ve embraced e-communication. So have hundreds of my friends and colleagues. Its more convenient, and cleaner for the environment (in terms of paper costs and carbon-footprint for transportation). However I still want a reliable and cheap way to send parcels across Australia. Maybe it is time now for increased competition and deregulation??
LikeLike