Hildegarde Naughton (Galway West, Fine Gael)
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Item No. 3 is An Post. I take the opportunity to welcome all our witnesses here this afternoon. The committee has decided to consider the following matters at our meeting today: policy issues arising from the Communications Regulation (Postal Services) (Amendment) Bill 2016; and the report of the post office network business development group and the implementation group. The committee is very aware of the urgency of these matters.

I welcome the witnesses we have with us today from the Department of Communications, Climate Action and Environment. They are Ms Patricia Cronin, assistant secretary, and Ms Barbara Leeson, principal officer. From the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs, we have Mr. William Parnell, assistant secretary, and Dr. Stjohn O'Connor, principal officer. From the Commission for Communications Regulation, ComReg, we have Mr. Kevin O'Brien, commissioner, and Mr. George Merrigan, director of market framework. From the post office network business development group, we have the chairman, Mr. Bobby Kerr. From An Post, we have Mr. David McRedmond, chief executive officer. In attendance from Age Action Ireland Limited is Mr. Justin Moran, head of advocacy. From the Communication Workers Union, we have Mr. Steve Fitzpatrick, general secretary, and Mr. Ian McArdle, head of regulation. From the Irish Postmasters' Union, we have Mr. Ned O'Hara, general secretary, and Mr. Paddy McCann, president, and from Tico Mail Works Limited, we have Mr Alex Pigot, chairman and managing director, and Mr. Michael O'Dwyer, adviser to the managing director.

Opening statements have been circulated to all our members. I propose that the main witnesses will speak for five minutes each followed by a question and answer session not exceeding three minutes. Is that agreed? Agreed.

The first witness is from the Department of Communications, Climate Action and Environment, Ms Patricia Cronin.

Ms Patricia Cronin:

I thank the committee for the opportunity to discuss the Communications Regulation (Postal Services) (Amendment) Bill 2016. By way of background, I will explain the role of the Department of Communications, Climate Action and Environment in terms of An Post. The Department is responsible for the postal sector, including governance of An Post, to ensure the company is fully compliant with the code of practice for the governance of State bodies and the governance functions included in the statutory framework underpinning An Post. Following a Government decision earlier this year, responsibility for the post office network and associated matters transferred to my colleagues in the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs. I should also point out that operational matters and the role of developing commercial strategies for the post office network are a matter for the board of management of An Post.

The mail business is undergoing a profound structural change both here and internationally. Electronic substitution has made significant inroads into the letters business while also providing opportunities for growth in parcels. The trend is particularly apparent for large volume postal customers such as banks and utility providers. The trend, which has been evident for some years now, accelerated in 2016 and has resulted in An Post facing serious financial difficulties. To give an example, mail volume decline, which was projected at 3.5% for 2016 at the start of the year, is now estimated to have reached 5.5% for the year as a whole, with this trend to continue and accelerate in 2017. This outcome represented a doubling of the year-on-year volume decline and if this rate continues, volume decline could reach 50% by 2019 compared with 2007. As the mail business generates approximately two thirds of An Post revenue, the scale of the decline is having a significant impact on company finances. The other issue that impacted last year was a 2.5% Labour Court pay recommendation which has added €8.5 million to payroll.

Members will recall that the challenges facing An Post were well set out by the chair of the company in his appearance before the committee in July 2016. In addition, at the request of the Minister, NewERA has conducted an in depth review of the company in recent months on behalf of the shareholding Ministers and has confirmed the seriousness of the situation facing the company. In light of the scale of the challenges facing the postal sector, the company has started a fundamental review with a view to identifying the strategic challenges and restructuring necessary to maintain the company on a sound financial footing. The Government fully supports this review and looks forward to the outcome which is expected in May 2017.

One of the main elements of the postal service is the daily delivery of post to every address in the State. The Minister recognises it is important that An Post has the capacity to continue to provide the service which is valued by communities in both urban and rural areas. In addition, the company requires some financial headroom to undertake and implement the findings of the strategic review. Recognising both imperatives, Government has agreed to bring forward legislation repealing the price cap mechanism in the 2011 Postal Services Act. This will enable An Post to increase the price of the stamp and generate much-needed additional revenue. As it stands, Ireland falls well below the European average in terms of stamp prices and it is expected that the proposed increases will bring the price in line with European norms. The Minister is cognisant of the impact such a measure might have on consumers and the SME sector. Therefore, the Bill also provides that the Commission for Communications Regulation will undertake a review of the consequences of the repeal of the price cap after a two-year period. ComReg will report to the Minister on its findings within six months after the commencement of the review and the Minister will lay the report prepared by ComReg before each House of the Oireachtas as soon as possible. In addition, provision is made to enable ComReg to undertake such consultation as it considers appropriate in carrying out the review. It is important to emphasise - the Minister is very keen to make this point - that despite the difficult financial situation, there was no threat to the mail deliver or the universal service obligation. An Post will continue to deliver post to every address every working day. This amended approach to pricing aims to ensure that An Post can continue to fulfil this obligation. Once again, I thank the committee for the opportunity to address it and am happy to take questions on the legislation.

Hildegarde Naughton (Galway West, Fine Gael)
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Our second witness is Mr. William Parnell, assistant secretary at the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs.

Mr. William Parnell:

I thank the Chair. I welcome the opportunity to address the committee as it considers matters related to the post office network. The interest of the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs in the post office network is in the service that post offices provide throughout the country and particularly in rural Ireland where they often serve as a hub for social and economic activity above and beyond the delivery of core postal services.

The Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs has no statutory function in relation to An Post and has no role or responsibility with regard to service delivery at individual post offices. Overall, policy responsibility for the postal sector falls within the remit of the Department of Communications, Climate Action and Environment, as Ms Cronin has already said. While operational matters and commercial decisions relating to individual post offices are a matter for the management and board of An Post, nonetheless the post office network plays an important role in both urban and rural communities and has been a central part of the fabric of rural towns and villages for generations.

The future of the post office network is therefore of great interest to my Department in the context of its rural affairs remit. The Department is currently preparing an action plan for rural development which will act as an overarching structure for the co-ordination and implementation of initiatives across Government for the benefit of rural Ireland. The plan will contain a number of time-bound actions designed to improve the social and economic fabric of rural communities. The plan will be published in the coming weeks. However, the Department has already introduced a number of practical measures to support rural communities, including through the roll out of initiatives such as the town and village renewal scheme, the development of the rural economic zones initiative and the reintroduction of the CLÁR programme last year.

One of the objectives of the forthcoming action plan for rural development will be to maintain and enhance services in rural communities. As I have indicated, the post office network provides a very important role in rural communities by serving the needs of personal and business customers and often acting as a locus for other community engagement. As we have already heard, however, the postal sector is undergoing systemic change with migration towards electronic communications resulting in a decline in mail volumes year on year. Changes in the way people access services have also led to a decline in footfall in the post office network. Nonetheless, in accordance with commitments in the programme for a partnership Government, the Department has been working to find solutions to ensure, as far as is possible, the sustainability of the post office network into the future. The Post Office Network Business Development Group, chaired by Mr. Kerr, was established in late 2014 to examine the potential for additional Government business, as well as commercial business to be transacted through the post office network. The final report of the group was published in January last year and made a number of recommendations to support the future sustainability of the post office network. On foot of this report two working groups were established to progress the recommendations arising from the report of the business development group. These were the post office network renewal implementation group, chaired by Mr. Kerr and the post office hub working group chaired by the Minister of State at the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs, Deputy Michael Ring.

The role of the post office hub working group was to identify potential models under which post offices could act as community hubs, especially in rural areas. The membership of this working group included An Post, the Irish Postmasters Union and rural representatives, as well as the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs. The working group has now completed its work and final drafting changes are currently being made to the group's final report, which the Minister of State, Deputy Ring, will make available to the Government as soon as possible. The group has identified a number of potential options under which the post office network could act as a hub for broader activities, depending on different circumstances. It is fair to say that the most flexible model would see local post offices act as multi-purpose spaces for the community. This approach has proven successful in other jurisdictions. The working group has recommended the establishment of a small number of pilots to test the various models as soon as possible and as circumstances dictate. This is, however, only one part of a wider picture, which other contributors will speak to today. My Department has also been examining the potential for the post office network to deliver other services such as the renewal of motor tax. A number of delivery options for this services have been identified and proposals are currently being finalised in consultation with the Department of Housing, Planning, Community and Local Government. One of the key recommendations emerging from the report of the post office business development group was that An Post should introduce a basic bank account as one means of increasing customer footfall. I note that An Post announced its intention to launch a new payment account in the first quarter of this year when its representatives spoke at the Oireachtas Joint Committee on Arts, Heritage, Regional, Rural and Gaeltacht Affairs on 9 November 2016. This is a significant development and one which I hope will encourage and attract new customers to An Post.

On a somewhat related matter, the programme for a partnership Government envisages that An Post, the Irish League of Credit Unions and other interested stakeholders will be asked to investigate and propose a new model of community banking such as the Kiwibank model in New Zealand or the German Sparkassen model, which could be delivered through the post office network. My Department has held an initial meeting with the Department of Finance on this matter and we have agreed to develop a work plan to examine these various models. Officials will meet again in the coming weeks and we hope to be in a position to conclude this piece of work around the middle of this year.

These are all elements of an effort to support the post office network and to help it adapt to an ever-changing operating environment. I am sure further elements of the wider picture will be outlined by other speakers today. In conclusion I thank the committee members for their attention and am happy to answer any questions the committee may have with regard to my Department's role in this area.

Mr. Kevin O'Brien:

I thank the joint committee for the invitation to attend today to discuss important matters relating to the future of the universal postal service. As members are aware, as well as responsibility for postal regulation, the Commission for Communications Regulation, ComReg, is also the regulator for the electronic communications sector. In my presentation I will give an overview from ComReg’s perspective of the matters in hand. We also have made available to the committee some factual background material.

Our remit to regulate the postal sector comes directly from legislation, in particular from the EU postal services directive and the Communications Regulation (Postal Services) Act 2011. Under the Act, An Post is designated as the sole universal postal service provider. The Act sets out a general description of the universal postal service that An Post is required to provide. This includes delivery to all addressees in Ireland and collection of posted mail five days a week. Under the Act ComReg's core function is to ensure that all persons in the State can avail of an affordable universal postal service that meets their reasonable needs. We also have a role to protect the interests of postal service users, inter alia, by ensuring complaints and redress procedures work properly. We are charged with specifying aspects of the scope of universal service and we measure the quality of service achieved by An Post. ComReg also sets certain price controls with regard to the service. We do not regulate the price of mail which is outside the scope of universal service. Less than one third of An Post group revenue is subject to our price cap control. I understand that price regulation is of particular interest to the committee today, given the proposed amendments to the Act. ComReg has no role in the postal network and has no prudential function with regard to An Post.

The universal postal services are those necessary postal services where there is no effective competition. The nature of the universal postal service is set by an EU directive and transposed into Irish legislation by the Act. In many European states, and further afield, we see a serious and marked decline in letter volumes, offset to some degree by growth in packet and parcel traffic arising from e-commerce. Such packet and parcel traffic tends to be outside the scope of universal postal service and is largely based on commercial negotiations. In Ireland the universal postal service consists largely of the posting of letters. As there is no effective competition for these postal services, the EU directive and the Act require that the prices for such monopoly universal postal services are cost-oriented and affordable.

As An Post is the sole designated provider of the universal postal service, we remain concerned about the liquidity situation of An Post, which has declined from a cash-in-bank balance of some €350 million in 2008 to less than €40 million. The liquidity issue facing An Post has been steadily developing over several years. Since 2013 ComReg has engaged experts to review the financial situation of An Post and has informed its shareholders and stakeholders of these findings through reports and in our publications. The universal postal service has been losing a lot of volume and according to An Post these volume declines are to accelerate significantly while costs have not fallen at the same rate. To date ComReg has taken measures to allow prices for universal postal services to increase significantly to ensure continued provision of the universal postal service. For example, the price of a stamped letter has increased by 31% in recent years, from 55 cent in 2013 to 72 cent today. This has mainly been achieved through the current price cap control, specifically required in legislation and established by ComReg in June 2014. The price cap in place took forecasts from An Post on volumes and costs, sought certain efficiencies and allowed An Post to make a profit. As a result, losses on the universal postal services subject to the price cap have reduced significantly, from €57 million at the end of 2012 to €19 million at the end of 2015.

When ComReg set the price cap control, it was designed to bring the universal postal services segment of An Post’s business back to profitability over five years. This was, however, dependent on certain assumptions provided to us by An Post and the success of the price cap in bringing the service back to profitability has also been dependent on certain actions to be taken by An Post.

The forecasts and assumptions, provided by An Post as input to the price cap, have not transpired in four significant ways. First, An Post forecast that there would not be any wage increases to be made within the five-year term of the price cap but, as mentioned earlier, wage increases have been agreed. It is worth noting that in rough terms, each 1% increase in wages adds €4 million in costs per year. Second, the decline in mail volumes has exceeded An Post's decline forecast. Each 1% decline in volume reduces revenue by about €4 million each year. Third, An Post has not achieved the target of a 2% improvement in efficiency per year. This modest efficiency target was based on internal benchmarking in An Post that showed potential inefficiency of up to 22%. However, An Post has failed to meet the 2% annual target in any year, as confirmed to ComReg by An Post in a letter in September 2016. Finally, An Post has not increased prices by the full amount permitted by the price cap mechanism. Therefore, ComReg commenced a review of the price cap last September.

According to An Post's media release of December 2016, we understand that following the proposed repeal of the price cap, An Post is planning price increases in 2017 of the order of between 14% and 35%. ComReg is concerned that price increases of such magnitude could appreciably hasten the ongoing decline in mail letter volumes. Given that our core function is to ensure the provision of a universal postal service for all, I will make a number of key points. First, large mailers are price sensitive and will move to electronic substitutes. Research conducted for ComReg confirms that most mail in the State is comprised of letters. Most of those letters emanate from 20 large customers of An Post. They are comprised of the larger consumer-facing businesses and organisations such as utility providers, financial service providers and State agencies. These customers use bulk mail products, which usually require a minimum volume of 2,000 items.

Our research has also confirmed, through customer interviews and observing behaviour, that An Post's biggest customers generally seek the cheapest price and will prioritise cost of delivery over speed. This means that they generally opt for the cheaper deferred delivery option. They are content for their mail to be delivered in two to three days rather than one day if slower delivery costs less. For example, a lot of bulk mail has moved to a bulk mail product that delays the mail for three days rather then two days but at a price that is only 2 cent cheaper. It is worth noting that half of all post is not next-day delivery.

Second, in terms of price, there is limited scope to gain significant additional revenue from SMEs. The universal postal service consists largely of the posting of letters. Letters posted by SMEs are mainly stamp or meter payment. An Post's annual revenue from stamped and metered letters is about €100 million, which is one eighth of its total annual revenue of €800 million. This means there is limited scope for An Post to gain significant additional revenue from increasing prices for its stamped and meter letter service. For example, the proposed 35% increase for stamped and metered letters would only provide an extra €17 million or so in revenue at a maximum. It is likely that this additional revenue will be much smaller when subsequent volume declines are factored in.

In conclusion, ComReg is an independent regulatory body. Therefore, we recognise the necessity for the Minister and Government to develop the policy framework and for the Oireachtas to consider and pass legislation. We wish the recently-appointed chief executive officer and chairperson of An Post well in their endeavours. We recognise the commitment and contribution made by An Post staff. Our role is to carry out whatever tasks and duties are given to us in legislation. We will carry out our remit as proposed by the amending Act upon its commencement, including the proposed requirement to produce a report to the Minister in two and a half years after the amendment. Our overarching function will remain that of seeking to ensure the provision of a universal postal service that meets the reasonable needs of users. Undoubtedly, the pricing freedom proposed by the amendment will allow An Post to increase the price of certain universal products. However, significant restraints to price increases exist for the majority of mail as bulk mailers can choose cheaper options, including electronic substitution. With a view to the medium-term sustainability of the universal postal service, price increases must be combined with the development of new business models, the achievement of cost structure changes and efficiencies and ultimately a fundamental consideration of what type of universal service is required and desired by the State. I thank the committee for the time to discuss this important matter.

Hildegarde Naughton (Galway West, Fine Gael)
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I thank Mr. O'Brien for his presentation. Our fourth witness is Mr. Bobby Kerr, who is the chairman of the Post Office Network Business Development Group. I call on him to make his presentation.

Mr. Bobby Kerr:

I thank the Chairman and the committee for inviting me here today.

I am the author of the final report of the Post Office Network Business Development Group that was published in December 2015. Subsequently, I was asked by the board of An Post to chair a working group of invested parties, that included directors of An Post and members of the Irish Postmasters Union, to make implementation recommendations for the future of the post office network in urban and rural Ireland. I worked from January to December 2015 on the initial report and from January to December 2016 on the supplementary report that I submitted to the company on 24 December or Christmas Eve 2016.

The board of the company has yet to consider my report so I shall give a relatively high level summary of its contents to the committee. There are 1,130 post offices in the network. It was, and still is, my stated ambition to keep open as many of them as possible to serve the needs of the community, particularly in rural Ireland, where quite often the post office is the last remaining business in a town or village. The market has changed and the product mix and service that customers require has also changed, which means the network must change to meet consumer requirements. Two thirds of business is transacted in the top 350 of the 1,130 post offices. As the cost of keeping open more than 530 offices that are not required to fulfil the social welfare contract is €10 million per annum and rising, radical action is necessary.

I can say the following having worked closely with the IPU and the company for two years. While all parties do not agree unanimously with my recommendations, there is agreement on a large element of them. Further negotiations are necessary between the company and the IPU of a contractual nature in order that a new contract can be accepted and implemented as soon as possible for anyone who wishes to take up such a contract.

In order for the post office network to transition to a new model that is more about the provision of financial services in larger offices and providing limited post office services and more community-based services in rural post offices, I propose that the Government invests €56 million over a four-year period commencing in January of this year. My overall recommendations include a proposal for three new categories of post office, in a four-year proposition with a different solution for each category of post office, and its commencement date should be now or imminent. I propose a capital investment plan for the larger offices, as well as a limited exit package for an estimated 80 offices over four years, because some post offices desperately want to leave the network and I do not believe there is real value in keeping them. I propose a co-location incentive to incentivise the relocation of offices into bigger retail formats, which is where a stand-alone post office would merge with a shop operated by the likes of Centra or SuperValu, a bonus incentive for larger offices and a financial incentive for the top post offices to move to a new contract. This would mean that post offices of the first and second categories would sign a new contact that is less favourable to them, thus ensuring savings for the company. I also propose scaled income protection to include full protection for smaller offices and limited protection on a scaled basis as revenue rises in rural offices. In addition, I have outlined a specific responsibility for An Post and the IPU in terms of receiving Government support.

On the commitment required from the postmasters, they must operate the company’s proposed basic bank account, as was referred to earlier, and I propose that all contractors must sign new contracts in grade 1 and 2 post offices. The option to co-locate is also encouraged. The commitment by An Post, as proposed, is to endeavour to keep the network open, to advertise all vacancies and to provide financial transparency for the Government and Irish Postmasters Union, accepting the principle that some matters are commercially sensitive and cannot be shared. The Government must also make a commitment in respect of my recommendations. It must make motor tax services available at all post offices. Equally, it must promote - to the Department of Social Protection - post offices as an option in the context of the collection of social welfare payments. The Government must give An Post the option of distributing additional government services and must underwrite the four-year deal.

With the support of Government during the next four years, the post office network can remain largely intact and transition to a model that is in line with customer requirements. The new grades of post office will allow for a better commercial proposition in the busier offices and offer protection on a scaled basis to the outlying rural offices. I welcome any questions that members may have and I thank the committee for listening to my proposal.

Hildegarde Naughton (Galway West, Fine Gael)
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I thank Mr. Kerr. I now call on our fifth witness, Mr. David McRedmond, chief executive officer of An Post.

Mr. David McRedmond:

When I was appointed as chief executive of An Post in October, I said that it was an honour and a rare opportunity to lead such a major organisation. An Post is a much-loved company and brand. I had said that my job was to ensure that its future is as bright as its past, meeting the seismic market changes head-on. When I started - and only when I started - it immediately became clear to me that the scale of decline in the mails business was such that urgent action was required in order to provide certainty regarding cashflow for the next two years. It was also apparent that while An Post had done a magnificent job improving the quality of its service to become one of the best postal operators in Europe in terms of quality, there was no strategy to sustain its future against the global trends of electronic mail substitution and the move towards a cashless society. The scale of the problems facing An Post - both in our post office and mails business - is immense. The next few years - indeed the next year - will be a time of great change for An Post. It is necessary change to ensure that the company continues to play its central role in Irish life and business.

I presented to the Department of Communications, Climate Action and Environment the urgent need for An Post to have a step-change increase in its pricing in order to bring it into line with - not beyond - its European peers. The Minister for Communications, Climate Action and Environment, Deputy Denis Naughten, responded decisively by proposing the removal of the price cap, which was an anachronism in the age of e-mail and social media. Legislation to give effect to this is now working its way through the Houses of the Oireachtas. I also tendered for a global consultancy to undertake a comprehensive review of the postal market in Ireland and of An Post in the context of international best practice. Recently, the selected consultancy, McKinsey and Company, has installed a team at the General Post Office. Its work will be completed by May. In the last days of 2016, we took delivery of the final report of the post office network strategy group, which is Mr. Kerr's report.

I will now turn to the issue of pricing. The decision to increase pricing in the mails business was not a difficult one in the context of the global trends in post. The inexorable substitution of e-mail for physical letters is a well-established trend. Although Ireland had been slower to adopt e-mail, that trend is now catching on here. Mail volumes in Europe have declined by 41% on average in the past decade and in Ireland by 38%. We expect that by 2020 mail volumes in Ireland will have declined by at least 50% since 2007. An Post incurred losses of approximately €15 million in 2016. With current volumes, without price increases, losses of at least €40 million would be forecast for this year. To balance the loss of volume, letter prices in Europe increased by 36% from 2007 to 2015 and with further increases of up to 10% in 2016. In Ireland, over the same period, prices have increased by only 16%. The average stamp price across the EU15 is currently €1.06 and increasing. A price increase in line with peers will allow An Post to continue to meet its universal service obligation, delivering mail to every house in the State each weekday for a uniform price, with one of the highest next-day delivery rates in Europe. We expect to increase our prices as soon as the legislation is approved and signed. This will be a one-off increase in the range of 12% to 38% across our range of products and is urgently required for An Post’s sustainability without any recourse to State or taxpayer funding. It is the only means to provide financial certainty while An Post restructures its business following the strategic review to ensure its long-term viability.

Another issue of vital importance to the committee is the future of the post office network. This area of the business is also subject to inexorable global trends. The move to cashless transactions, electronic transfer and e-mail substitution is reducing the need for a physical post office network, not just in Ireland but across the world. In the past three years, the number of social welfare customers has declined by 17% and bill-payment transactions have fallen by over 20%. The latter reflects an increased number of electronic transfers. Simply put, fewer people need to visit post offices. Some of the decline has been mitigated by a range of new services. Our foreign exchange cash-and-card has become a significant income stream and has captured 30% of the foreign exchange market. Bank services that An Post operates for AIB, Ulster Bank and Danske Bank have captured some of the transactions from closed bank branches. State savings continue to grow impressively - now standing at over €20 billion, or 17% of savings in the State - through the post office network. Overall, however, the post office network will incur losses of over €10 million in 2016 and these losses will accelerate.

I am well aware that An Post has more than a financial imperative. The post office network is not just about making money, it is also - critically - about meeting a social need. I and my colleagues are committed to the dual task of commercial viability and public service. I have met several times with officials from the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs and the Minister of State, Deputy Ring. I have also had meetings with Mr. Bobby Kerr and the Irish Postmasters’ Union. I received the final recommendations of the post office network strategy board in the closing days of 2016. That report has not yet been seen by the board of An Post. I have only just received it and it would be unfair to enter into too much detail on the report at this stage. My initial reaction is that while I agree with the broad thrust of the report in the context of the future viability of the post office network, it does not - and cannot reasonably be expected to - go far enough to be considered a plan capable of implementation. Nor does it provide a funding solution that maintains the integrity of An Post as an independent semi-State. These are issues that can be resolved, and I hope will be resolved, but they will take a matter of months to do so. My job, and the job of my team, is to complete the rigorous and detailed plan and professional work that will see a strengthened post office network that is commercially viable and meets social need. We need to review the current configuration or real estate at a unit level, local level and national level. We need to identify the future product set such as what will be sold through post offices and scour the globe for best practice elsewhere. We also need to properly size the overhead requirements. I am doing this work with McKinsey and Company and it will involve all stakeholders. This work will be completed by May. The Bobby Kerr report is an important and valuable input and I look forward to discussing it further with the Minister of State, Deputy Ring.

I wish to impress upon the committee the urgent and vital need for the price increases that will ensure the short-to-medium term future of An Post and bring it into line with its European peers. There is no alternative to these price increases if we wish to keep An Post as an independent semi-State and to ensure its future. These price increases must be made and An Post must be brought in line with its European peers. I must emphasise the importance of carrying out a rigorous and professional strategic review in order to provide the design for the long-term viability of An Post.

The price increases will provide cashflow for two years. I intend to work with the chairman, the board and all the stakeholders in An Post to redesign the company within those two years so that it has a long-term future. There is much else going on at An Post while I lead these initiatives. When I arrived, my assessment was that too much was going on. Since then, we have reduced our efforts from 120 ongoing projects to concentrate on six major projects of which pricing, the strategic review and the post office network are just three. The intention of this work is to ensure An Post’s commercial viability and, more importantly, its ability to meet and exceed its public service obligations. I look forward to sharing our progress with this committee in the year ahead.

Hildegarde Naughton (Galway West, Fine Gael)
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I thank Mr. McRedmond. I call Mr. Justin Moran, who is Age Action Ireland's head of advocacy.

Mr. Justin Moran:

I thank the Chairman and the other members of the committee for giving me this opportunity to speak. I will begin by recording our concern about the likely impact of the Communications Regulation (Postal Services) (Amendment) Bill 2016 on older people. It is widely recognised that older people are more likely to use the postal service. According to media reports before Christmas, the price of a national stamp could increase to between 90 cent and €1. I can tell the committee with absolute certainty that an increase of such magnitude - 25% at the lower end - will be noticed by someone whose sole income is the State pension. Older people will make a conscious decision to send fewer letters, with a corresponding knock-on effect on postal volumes.

I assume a potential increase of this nature would not be considered without detailed research to assess its likely impact on existing mail volumes. It would be helpful for this discussion if such research were published. If research has not been carried out, it should be commissioned because it would be a mistake to proceed with the removal of the price cap in its absence. I recommend that the committee should consider amending section 2 of the Bill to ensure a review of the consequences of any repeal of the price cap starts no later than a year after the commencement of the legislation. Under the Bill as it is currently drafted, ComReg would not deliver a review to the Minister until two and a half years after the repeal of the price cap, with a further delay before the review would be made public and possibly another delay before any necessary corrective measures could be implemented. If it transpires that the removal of the price cap is a mistake, the sooner we can identify any problem and correct it, the better.

I would like to comment briefly on the report prepared by the Post Office Business Development Group. I welcome the recognition in the report that the post office is an essential service for facilitating communication and interaction in local communities. It is especially important for older people who use the post office to collect pensions, access cash, pay their utility bills, save money, buy stamps and, most importantly, meet their friends. One member of Age Action Ireland has described the local post office as the most sociable place in town. For many people, pension day continues to be the highlight of the week. Other members with whom we spoke in advance of this meeting told us that the post office is the only place for them to meet people to catch up and that post office closures help to isolate the elderly.

The closure of post offices in rural communities forces older people to rely on the rural transport system - as Deputies and Senators are aware, it is absolutely not fit for purpose - or on the kindness of friends and family members to get to the next town. As a result of the closure of the post office in the west Galway village of Cleggan in September 2015, the 260 residents of Cleggan must now travel 3 km to Claddaghduff for postal services. A local resident has explained that pensioners and others with disabilities are struggling to pick up their benefits. While the issue of post office closures is often seen as a rural one, urban communities are also affected. A supporter of Age Action Ireland told us in advance of today's meeting that since the closure of the post office in Sandymount, some older people are hiring taxis to get to other post offices to conduct their business. Post offices are undoubtedly of greater importance in more rural communities but we should not lose sight of the centrality of this service in larger towns and cities as well.

The report touches frequently on the increasing use of online communications, which has been raised by many of those who have already spoken at today's meeting. With the rise of e-mail, there is a corresponding decline in postal volumes. We are certainly becoming more digitally focused as a society. I emphasise the importance of appreciating that not everyone is moving at the same pace. In September 2015, a EUROSTAT report found that just 37% of Irish people between the ages of 65 and 74 use the Internet. This compares unfavourably with Britain, where the figure is 70%. Across the EU as a whole, the average rate of Internet use among this age group is 42%. These figures take no account of people aged 75 and over. The most recent figure for such people comes from the 2013 national digital strategy, which found that Internet use among those aged 75 and over is negligible at approximately 3%. I stress that this figure is not low because older people are incapable of learning. Age Action Ireland's Getting Started programme, which is funded by the Department of Communications, Climate Action and Environment, has provided free one-to-one training in computers to almost 30,000 older people over the past ten years. We know that older people are as capable of mastering new technologies as anyone else but we also see nervousness among many of our members about learning something new and frustration among those who are unable to use what they have learned after they leave our classes because they live in broadband blackspots. Despite the rise in the use of e-mail, a robust and sustainable post office service and network remains essential for such people so that they can communicate with their friends and family and carry out their daily business.

We strongly support the recommendations in the report regarding the expansion of banking and financial services. We look forward to the introduction of the new payment account highlighted by An Post today and in its presentation to the Joint Committee on Arts, Heritage, Regional, Rural and Gaeltacht Affairs. The report notes that banks are moving away from providing financial services in rural communities. I am not sure that members of the committee fully appreciate the frustration of many older people with their current banking providers. In 2014, research carried out by the County Wicklow network for older people found that many older people are very critical of the service provided in banks. They are frustrated by restrictions on counter services, by overt pressure from bank staff to use automated services and by the continued efforts of banks to move services online. It is a recurring complaint that our staff hear from older people across the country who prefer to carry out their financial business face to face, dealing with people they know, trust and on whom they rely. I believe there is an enormous opportunity here for An Post. I suspect that many older people will be eager to avail of it. I thank the members of the committee for their time.

Hildegarde Naughton (Galway West, Fine Gael)
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I thank Mr. Moran. I call Mr. Steve Fitzpatrick, who is the general secretary of the Communications Workers Union.

Mr. Steve Fitzpatrick:

I thank the committee for inviting me to today's meeting. I have the happy task of representing 8,500 postal workers who are the public face of the post office. It has been made clear in every survey that has been conducted over the years that postal workers are seen as the most trusted workers in the country. This is particularly the case in provincial Ireland, where many people do not have contact with anybody else. Like many workers throughout the country, the staff of the post office endured a pay freeze for eight years. The collapse in mail volumes during that time enabled us to reduce the number of full-time equivalent staff by almost 1,800 without any recourse to industrial action. That was not something I was happy to see, but we had to deal with it. We also dealt with the pension crash and helped to rescue the An Post pension fund.

Half of the recent pay increase, which was mentioned earlier in this meeting, was paid for by the cuts made by staff. It is interesting to note that the Labour Court said that the shareholder, the management and the staff of An Post had responsibility for pay movement in the company. It is noteworthy that this was included in the Labour Court recommendation. The quality of the service provided by An Post has improved from 64% next-day delivery during the administration prior to the most recent administration to 94% next-day delivery at present. There is no doubt that this is one of the best services not just in Europe but in the world. The post office has not received any State subvention since it became a semi-State body in 1984 even though it was promised €55 million under legislation that was introduced at that time. This money was never paid.

It is a considerable worry to all of our members that despite the ongoing cost reductions, the pay freeze and all the efforts we have made, the company remains in a precarious financial position. The pricing strategy that has been followed in the industry over the last 12 to 15 years has played a large part in the maintenance of this precarious financial position. If modest price increases had been sanctioned over that period, perhaps to bring average prices in line with other European countries, we would not be having this debate here today and the company's financial position would not be of concern. I listened with interest to the ComReg view of the world, but the reality is that within its remit it is supposed to take account of pay movement and other issues under the postal services legislation.

It is interesting to track the collapse in mail volumes. It started with the economic collapse. At that time, mail volumes reflected economic activity. The approach taken at that time hastened the move towards electronic substitution. Other things are going on each day. Every banking utility in the country incentivises people to stop using mail. The reality is that elderly people and people in technological blackspots are subsidising those who are able to pay lower prices to service providers. Many companies reduce the bills of those who do not use the services of the post office while maintaining higher bills for those who have no option but to use them.

The decision to allow these utilities and banks to force customers to opt-in rather than opt-out has hastened the demise of the postal business.

On employment, a delivery office in a town is the equivalent of a small factory. It helps to create economic activity. That should never be misunderstood. An Post is probably the single biggest employer in the State, with the biggest fleet and reach and paying the State significant amounts in employee and consumption taxes.

The social aspect is one of the main features that seems to be missing in society today. What kind of society do we want? It impacts on the postal network and post offices. Post offices have a contract with the Department of Social Protection, under which they must encourage social welfare recipients to go online. They would lose elements of the contract if they did not push the online piece. The contract will do away with post offices.

Like most people, we are impressed by the Bobby Kerr report and believe something drastic needs to be done. Every town should have a centre where people can congregate and do their business electronically work if they cannot do so nearer home so as not to denude rural societies. I do not share completely the view that it is also a city issue. With the availability of public transport, one has some hope of gaining access in a city, but we do not have that option around the country. It is largely about the kind of society we want to have. Obviously, it is aksik about providing employment within that role.

I thank the committee for its consideration. In dealing with the terrible difficulties to do with finance and property one might consider we have citizens and workers who are also of interest to us.

Hildegarde Naughton (Galway West, Fine Gael)
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I thank Mr. Fitzpatrick. I call on the general secretary of the Irish Postmasters Union, Mr. O'Hara, to make his presentation.

Mr. Ned O'Hara:

On behalf of postmasters, I thank the Chairman and members of the committee for giving us the opportunity to present our views. I heard what Mr. Bobby Kerr said about his recommendations which I welcome. Even though we do not agree with all of them, we are prepared to work with An Post immediately to translate them into an immediate action plan. This must be done. On a personal level, I thank Mr. Kerr for his work with us in the past two years, during which he successfully overcame a serious illness.

We view the post office network as a national asset. It is a key resource in dealing with many of the challenges facing communities, both urban and rural, throughout Ireland. We can offer expanded State and financial services, as well as innovative social and community services. The network can become the State on one's doorstep by providing improved access to Government services locally and good value for the people in so doing. An Post is one of the most trusted brands in Ireland and this trust and goodwill have been represented to us. We were able to collect 500,000 signatures in a two-week period and hand them in to the former Minister, Mr. Alex White, 18 months ago. In an online poll conducted recently on thejournal.ie, subscribers of which would not be traditional post office customers, 82% of those who replied within three hours stated they wanted more services to be made available through post offices. The post office network needs the recommendations made by Mr. Kerr to be translated into an action plan immediately. Otherwise it will collapse. The network is owned by the people of Ireland and part of the fundamental economic and social fabric of the country. It is a national asset.

The current changes happening in the country are affecting and damaging communities which believe their views are being ignored and have been by successive Governments. In particular, rural communities need support to help to stop the negative multiplier effect as different services are withdrawn. For instance, when the Garda station or a bank is closed, there are few jobs available and higher unemployment. Everybody has said people have to travel further to access services and there is a negative knock-on effect in reduced footfall. Local pubs and shops close; young people become more disillusioned; more people leave and the decline continues. Post offices serve as a magnet in retaining footfall in towns and villages and, in some cases, attract an increased footfall. When post office services are withdrawn, there is less incentive to visit or stay in a town or village and other businesses suffer. The State, as the owner of the post office network, has a major role to play in redressing the issues faced by communities which experience significant barriers in accessing State services. The network currently provides sensitive and secure services and is well positioned to address gaps in the provision of State services and be developed into a network of community hubs which would see communities participate in dealing with health issues, providing financial services, engaging in social enterprises and providing information on Government, tourism and transport services.

Postmasters are paid by transaction. They are independent contractors, but they cannot select the services they offer. They depend on the Government and An Post in that regard. They cannot decide them themselves. Additional State, financial, social and community services post offices could provide include all Government payments for the Department of Social Protection, as well as motor tax, Health Service Executive, Central Applications Office, third level and licence fee payments, as well as fines. We could supply all Government forms, including identity verification forms. Research we have carried out suggests postmasters could fulfil the role played by peace commissioners. We could operate a standard An Post bank account. We can and do carry out contact transactions for all commercial banks, including Ulster Bank, AIB and Danske Bank. Technology would allow us to provide for remote health checks and have prescription drop-off points. We could provide information on transport and bookings. We could also provide for transport pooling by providing a meeting point. We could provide IT and IT training services. We could guarantee broadband provision. Post offices could be a citizens' and tourists' information centre, but these services would require Government investment, both current and capital. The level of investment required, as I have stated, would provide good value for the people of Ireland, but action is needed now.

All of the issues have been debated at length by the post office business development group set up by the former Minister, Alex White. As he stated, Mr. Kerr was appointed in December 2014 and we have worked with him for the past two years. The two working groups are almost finished their work. Mr. Kerr presented his report to An Post on 23 December 2016 and we received a copy of it yesterday. The post office hub working group which is chaired by the Minister of State, Deputy Michael Ring, held its initial meeting last July and its findings are being finalised. All of the issues affecting the post office network have been identified and considered. The time to finalise a comprehensive five-year plan to transition the network is now. The post office network is at breaking point because of the reduction in transaction levels and the collapse of the network is imminent. Individual postmasters remain under pressure to maintain their post offices. As such, we need the action plan now. The recommendations have been made. They need to be translated into an implementable action plan, not today or tomorrow but yesterday.

We are ideally placed to make a significant contribution in meeting the challenges faced in both urban and rural Ireland. As I said, we can provide good value in doing so. We ask the committee to request the Ministers, Deputies Denis Naughten and Heather Humphreys, and the Minister of State, Deputy Michael Ring, to act immediately to ensure an action plan immediately will be finalised immediately with us and An Post.

Hildegarde Naughton (Galway West, Fine Gael)
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I thank Mr. O'Hara. I call on our final delegate, the chairman and managing director of Tico Mail Works, Mr. Pigot, to make his presentation.

Mr. Alex Pigot:

I thank the Chairman for the invitation to present to this august group. I have a short Powerpoint presentation. What I have to say is contained in the report, copies of which are available if anybody wants one. Apparently, it is also available online. I will be as brief as possible.

I am the owner of the company which is an SME. I would be seen around the world as an addressing and postal expert. For 14 years I have been a member of the consultative committee of the Universal Postal Union, the United Nations affiliated organisation which regulates the terms and conditions postal operators around the world use with each other in dealing with cross-border mail.

Postage cost is an important issue for Tico Mail Works, a bulk mail provider. We produce 15 million pieces of mail every year. We provide An Post with one of every 50 pieces of mail it delivers and an income stream of €7 million.

Corporate social responsibility is extremely important to us. The sustainability of our customers and our suppliers is extremely important. An Post helps us achieve those objectives. The quality of service it provides is world class and its staff, network and initiatives at community level provide this country with a huge amount of the social inclusion we are looking for as a society. We want An Post, as I believe does everybody else here, to be sustainable also. That is the first reason we are here.

The second urgent reason we are here is that we are looking at legislation which will remove our domestic price cap. According to the press releases we saw at Christmas, the domestic tariff of 72 cent could increase the price of a stamp to as much as €1.06. In terms of the reasons given for that, we have heard falling mail volumes and that tariffs are not comparative with An Post's peers. I will agree that letter mail volumes around the world are falling on a regular basis, and they have been doing so for ten years, but the e-commerce side of An Post's business, as the regulator has told us, is bringing huge numbers of packets and parcels into the business. In fact, in terms of the income stream from those volumes, what post offices around the world are losing in letter mail they are gaining in this packet and parcels area.

With regard to the tariffs being lower than those of our peers, I suggest that we look at our nearest neighbour, which provides us with possibly as much as 90% of our inbound international mail. Its headline tariff today is 64p. At today's rates, that works out at about 73 cent where the rate here is 72 cent but the United Kingdom has a second class tariff of 55p, which is in the 64 cent rate, so I would say that our tariffs are comparable to those of our biggest trading partner.

The last published An Post accounts we have seen are the 2015 accounts. If we look at its business, members will see that mail domestically in Ireland, which turns over about €360 million in those accounts, lost just €1.6 million, so it is effectively a sustainable business within the four corners of this island. The problem, if we look at those accounts, is that the international inbound and outbound mail is causing An Post to lose in the order of €20 million, and there is another element on that chart, which is in this report, which is that the registered mail is not being charged at a high enough rate. As members will see in the corner of that chart, I am saying that the average amount of money being paid by foreign postal operators for An Post to deliver its mail here in Ireland is 44 cent, whereas if the members or I were to go down to the post office and mail a similar item with a stamp on the front that somebody has written on the outside, that would cost us 72 cent.

The solution to the problem of this €24 million loss in those 2015 accounts is the three points I have outlined. First, increase the tariffs for registered mail, which would make that service sustainable. Second, increase the tariffs for the outbound mail to make that service sustainable. Those areas are outside the price cap area and An Post can do that themselves. The third area is to negotiate new bilateral agreements with the largest deliverers of mail into this country, the largest being Royal Mail.

There is one other reason we would increase the charges foreign postal operators are paying for mail into this country, and it goes back to this EU directive which states: "Whenever universal service providers [that is, An Post] apply special tariffs, for example for services for businesses, bulk mailers or consolidators of mail [consolidators being Royal Mail and Tico Mail Works] from different users, they shall apply the principles of transparency and non-discrimination with regard both to the tariffs and to the associated conditions." This directive states that An Post should be charging Royal Mail not 44 cent for those pieces of mail but somewhere closer to the 72 cent rate or at least 43% more than it is charging currently to make that service sustainable for An Post.

I was before this same committee in 2003 and, more or less, I made the same statement. In 2003, An Post was losing €20 million on international inbound and outbound mail. A quick examination of the accounts shows that nothing seems to have changed in the 14-year period. An Post is still losing the guts of €20 million on that international traffic. I am sure people in An Post have tried hard to renegotiate those agreements and, as a small postal operator, I will guess that it has been difficult so perhaps we should be looking at these international agreements to see if we can work with their terms and conditions to provide ourselves with sustainable cross-border, by which I mean international, mail traffic.

There are two multilateral agreements which An Post has signed up to. One is called Reims, which is effectively with European post offices. The other is the Universal Postal Union terminal dues agreement, which is more or less with the rest of the world. Under these agreements, An Post gets 80% of its headline tariff for each piece of mail so it should be getting 57.6 cent, based on the 72 cent rate, for every piece of mail that comes into the country from European postal operators, and 39.6 cent from the rest of the world.

If we increase the headline tariff by, say, 43% to €1.03, An Post will have a sustainable service, we will be getting 84.8 cent from the Europeans and the rest of the world will be paying 58.3 cent, but what would be the effect of that increase? As we heard earlier, increasing the headline tariff will have a detrimental effect on postal mail volumes in Ireland. Around the world there is no price elasticity with regard to consumer mail, which represents about 10% of the market. That is common knowledge, outside this country anyway, so even if we increased the price to €2, and I apologise to Age Action, there will be very little change in this market. That is consumer mail and by that I mean consumer to consumer or consumer to business.

However, business mail is a completely different picture. Business mail is highly price elastic, as we have heard already. Every time An Post increased its rates over the past 30 years, I got telephone calls from my customers saying they have a budget for postage this year and asking what they can do about it, and the only real solution has been to reduce volumes. If we are to increase the headline tariff to what has been suggested, namely, €1.03, then in this business mail area there should be no tariff increases or as few as possible. There should definitely not be tariff increases for bulk mail products.

The solution is the same as before. We need to increase the tariffs for registered mail and increase the tariffs for international outbound mail. If we cannot renegotiate those multilateral agreements, we should not increase the prices for business mail and especially the bulk mail. I thank the members for listening to me.

Hildegarde Naughton (Galway West, Fine Gael)
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I thank Mr. Pigot and all the witnesses for their comprehensive presentations. I will start with some questions for a number of the witnesses and I might move on to another member before I ask Mr. Pigot to answer them. If it is possible he might bank the questions as members ask them.

I will address my first questions to Mr. Kerr. Do I take it from his report that he is recommending the closure of 80 post offices over the four-year proposed plan? Is that the limited exit strategy he referred to and, if so, has he identified any particular ones or how did he arrive at that figure?

Mr. Kerr might expand on what the €56 million Government investment figure would be spent on. He recommends definitively that motor tax should be one of the services provided by An Post but he is vague on other services. Was that intentional? Does he see that as something that should be resolved at a lower level within An Post?

Mr. McRedmond of An Post indicated in his submission that the Kerr report does not go far enough to be an implementable plan and it does not provide the funding solutions maintaining the integrity of An Post. What do you mean precisely by that? Will he give an honest opinion on what needs to happen in order for An Post to be on a sound and secure footing? Will Mr. Pigot speak more about the effects of increasing the headline tariff for households who only post a few items per year? Is there international evidence on that?

With regard to the Department, coming back to Mr. Pigot's point this evening, the vast majority of losses in the mail service come from registered post and international mail. If those two items were addressed, the loss in domestic mail could be more easily managed. Was that part of the consideration when considering removing the cap? With regard to the Irish Postmasters Union, the Kerr report recommends three different categories but is the union in favour of them? They are retail, service and community. Will the witnesses expand on the consequences of those post offices categories for the Irish Postmasters Union? The report identifies a lack of consensus with regard to the role of postmasters. Do the witnesses agree with this or what measures do they feel should be put in place to ensure there is greater consensus among postmasters?

I will ask Deputy Dooley to contribute before reverting to witnesses.

Timmy Dooley (Clare, Fianna Fail)
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I thank all the witnesses for what has been a very intensive round of submissions. There is much to take in and it is unfortunate that we probably do not have more time to address the matter. I will not go back over what has already been addressed. It is clear there is a recognition by all sides of the perilous state that the company finds itself in and an acceptance in general that some drastic action must take place. I am not overstating or understating the issue. There is some change in emphasis in how this might be addressed.

From our perspective, the first matter we must address is whether we support the proposed legislation. It seems from my party's perspective that there is a necessity to do something immediately to address the financial hole emerging in the An Post balance sheet. This seems to be the most obvious way to do that. I am taken very considerably by Mr. Pigot's comments and I ask Mr. McRedmond in the context of his internal review and the work of McKinsey if there has been consultation with Mr. Pigot and those like him in his company in addressing proposals.

Mr. O'Brien made an important point towards the end of his presentation, which contained much good stuff, in saying that ultimately there should be a fundamental consideration of what type of universal service is required and desired by the State. That will pose a significant question to An Post and McKinsey in terms of the proposal it has brought forward, as well as Mr. Kerr. It asks if consideration had been given in Mr. Kerr's report to looking at the current universal service obligation of next-day delivery. Ms Cronin indicated the Government's position is very strong in retaining that. If we bring all that together, the question to Mr. McRedmond is whether he believes it is sustainable. Does he believe it is possible to have An Post operating in a financially viable manner, taking into consideration all the pressures that have been identified? Will it be possible to maintain that into the future?

Following from the Chairman's comments on the Kerr report and the difficulty in taking it as an implementable plan, is it Mr. McRedmond's belief, based on the terms of reference that have been provided to McKinsey, that he will get back a deliverable or output from that process that will be an action plan or where an action plan will have to be developed from the conclusions of the report? I ask this not to be overly prurient about how the company does its business but with regard to timing. It is clear from the comments of Mr. O'Hara and others that there is an immediacy about addressing this. There was mention of the end of quarter two for the production of that report but will that be the definitive report and action plan at appendix two, five or whatever? Will it be just a document forming the basis for an action plan that the management team will have to put forward?

Mr. Bobby Kerr:

With regard to the exit package I have proposed, first I suggest that a limited exit package is made available for a period. There are some post offices that are no longer viable within the network. Mr. O'Hara and Mr. McCann would concur with that. The other point is that we must be realistic and say it is not realistic for every post office to survive. Some of the revenue from an outlying closed post office - where there is a wish to close and exit the system - will transfer to other offices. I stress that I call this a conditional exit package and it is only available to category 3, which is the smaller post offices. It is only available where the specific post office is not required to fulfil the social welfare contract. I have made a proposal around it that is similar to other exit packages in the past. I estimated the cost of €50,000 per closed office, providing that up to 80 would be allowed to close over four years, costing in the region of €4 million. Those figures have been provided to me by the company. If that is clear I will move to the next answer.

There is a breakdown of the €56 million I am proposing that the Government would invest in the business to sustain it. I am talking about a capital expenditure programme of €9 million. Without getting too detailed, I propose that the capital expenditure would be largely spent in bigger offices. There would be approximately €50,000 in the top 50 offices, approximately €18,000 in the next 300 offices and small money of less than €2,000 in the remaining offices. I also propose a co-location grant of €1 million, which is again for the smaller categories, 2 and 3, to move from a standalone post office. If approved by the company, these would merge with a Centra or Spar, for example. I am proposing €8 million for contract sign-on. Taking the contract that is currently in existence, the current postmaster contract has existed for longer than the State and it has not been changed. I am proposing that categories 1 and 2 would move to a new contract that would be less favourable commercially, with €8 million to incentivise the move. Currently categories 1 and 2 are on a three-year rolling contract and there must be an incentive to ask them to take less favourable conditions.

There is also the guarantee of providing every postmaster with the minimum wage. Currently, the guaranteed minimum paid to a post office is €11,000 per annum.

I propose we increase that to €20,000. The minimum wage is €19,000, so just slightly above the minimum wage would be guaranteed to every postmaster. If I may, I will take a drink of water.

Timmy Dooley (Clare, Fianna Fail)
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If Mr. Kerr gets that over the line, he will be sent a whiskey.

Mr. Bobby Kerr:

The guaranteed income, which is the scaled payment I propose for categories from €20,000, which is above the minimum wage, up to €100,000, would cost €18 million over the four years. This is an element of my proposal that is not acceptable to the company, but I propose that €12 million be paid to the company to ask it to keep the network open, advertise all vacancies and basically support offices that are not commercially viable. I mentioned earlier the exit package, which is €4 million. This comes to a total of €17.75 million for the first year, €11.75 million for the second year, €13.75 million for the third year and €12.75 million for the fourth year, giving a total of €56 million.

I only mentioned the water tax specifically because I have mentioned in the initial report a whole raft of services that I believe should be provided. The reason we drill down into motor tax in this recommendation is that it is probably the most significant service in terms of adding value to the post office. It is the one service that will bring the most commercial value and the best commercial return to the postmasters. That is the reason for the focus on it and singling it out.

To answer Deputy Dooley's question about the universal service obligation, I did not consider it. I only considered the retail services provided within the network of the 1,130 post offices.

Hildegarde Naughton (Galway West, Fine Gael)
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I ask Mr. McRedmond to answer the questions asked of him.

Mr. David McRedmond:

First, regarding the Bobby Kerr plan, if he does not mind me calling it that, the issue we have in being able to implement it simply concerns drilling down into the detail. The reality is that there are 1,100 post offices, most of which are individual businesses. We have a real responsibility to do this job properly. Given the nature of how the industry and electronic substitution are developing, I do not think we will have a second chance at this. It must be done very seriously and very properly. It must be costed fully through. There is nothing in Mr. Kerr's report that has not been done properly but, quite simply, it will take the full team at An Post to work through all the detail. I also want to include the international best practice we can get from McKinsey. I very much hear what Mr. O'Hara from the IPU had to say. I hugely sympathise with the postmasters and postmistresses and the predicament they are in, but this only makes it all the more important that I and my team do the job properly. Considering what the services can be not just four years but ten years from now, we have one go at this and we need to do it properly. What I am saying relates to Deputy Dooley's question as to whether we will come up with an action plan as a result of the strategy work. The answer is "Yes". It is not actually a strategic plan, it will be a set of decisions, and these decisions will come forward to the An Post board. We will involve all stakeholders, including Government, employees and our customers. Everybody will be involved in this. I fully intend to bring forward some major decisions, both for the mails business and the post office network business. I do not expect, for example, with the post office network business, to stray far from some of the recommendations in the Bobby Kerr report.

The issue I was asked about regarding the integrity of An Post is probably a policy issue. It is one on which we are in discussion with the Department. I have also had discussions with Bobby Kerr about this. It simply concerns the flow of funds. It is extremely important that we do not have a semi-State company become a State company by receiving a subsidy from the State. It is very important that funds do not go into An Post from Government because that could become an open chequebook. Rather, the relationship that Government has is more properly with the postmasters, since the whole issue is whether the postmasters can provide a whole range of services outside of An Post. Our job in An Post will be to keep the network open, keep investing in the network and work with the network. The issue really comes down to the level of what might be considered a subsidy, the minimum payment, that is made to post offices that do not reach that threshold through their commercial activity. This is where the discussions are, but these discussions can be held reasonably quickly. The Department with responsibility for rural affairs has already asked us to have such discussions. I am happy to discuss that with the IPU and everybody else.

Deputy Dooley asked about Mr. Pigot's views, which are very interesting. I enjoyed his presentation greatly. He put more emphasis on price increases and services with which he is not involved than services with which he is involved, but I would certainly consider the international issues he raised. I think he also knows that An Post has very little influence in many of those agreements. I would probably come more from Mr. Pigot's view that there is more we can do about it and challenge. There are certainly elements in what he has said that we will take into account. That is very much where we can rely on working with McKinsey, which works with every post around the world, to get its views and the views of other posts. I will be in the UK next week and will meet several chief executives from different posts. That work absolutely will happen and will be accelerated.

The final question was whether the USO is sustainable, which Deputy Dooley asked. It is very clear in my mind that what we are doing with this price increase is giving An Post a two-year cashflow to be able to restructure and reshape the company. It is not a panacea for the long term. We must get our work done within those two years. For the period during which we are doing it, we certainly intend to maintain the universal service obligation, USO. It would be invidious to say we will put up prices and reduce the service, but there is a major strategic issue about what our customers want. What are the services customers need most? There are interesting examples. I was very impressed by Age Action's presentation. However, if one considers the example of pensions, of new pensioners coming into the system, fewer than 10% go to a post office to get their pensions. They get them through electronic transfer. These are the sorts of realities we must deal with. This is not to forget the 10% who probably need to come to the post office, and we need to deal with that, but these are all the issues we need to consider properly. I cannot answer the question about the USO. It is absolutely the right question because the other side of this equation is the costs of An Post, and I am absolutely clear that we need to consider our costs. An Post will be a smaller organisation, but in the immediate term we need to have the cashflow for the next two years to address these questions properly. Come May, we will have an action plan that I would like to then share with the committee.

Hildegarde Naughton (Galway West, Fine Gael)
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I call Mr. Pigot to respond to the questions asked of him.

Mr. Alex Pigot:

The Chairman asked a question about the price elasticity for consumer mail. Consumer mail represents 10% of overall mail. I have given a reference to this in the paper I have made available to the committee. I can find more references if asked to do so. As it says in the reference in the paper, "As far as letters sent by consumers are concerned, we can now speak of a service that is completely without price elasticity." What I am stating there is that increasing the prices for the consumer side of mail should have little effect on our volumes.

If I may have one more moment, I thank the CEO of An Post for saying my presentation was interesting. I have been in the postal world for 30 years and have a huge number of contacts and information from outside the country. If he is interested, I would be delighted to talk to him later.

Hildegarde Naughton (Galway West, Fine Gael)
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Regarding Mr. Pigot's earlier reference and my question about registered post and international mail and dealing with its cost, could Ms Cronin say whether this was considered prior to considering removing the price cap?

Ms Patricia Cronin:

The Minister effectively considered matters at a higher level than that.

He considered the scale of the volume decline last year - effectively there was a doubling of the decline - its impact and that of the price increase arising out of the Labour Court recommendation. In terms of dealings with An Post, that left it in an acute financial situation. The Minister is conscious that the universal service obligation is an obligation on the State, which it has assigned to An Post and, leaving that aside, it is a very important obligation. People value the five-day-a-week delivery service and the issue for us was that An Post absolutely would be able to continue to provide that service. In order to continue to provide that service, it needed the financial wherewithal to do that.

In addition, we asked NewERA to conduct an in-depth review of An Post. It worked closely with An Post and spent nearly a year doing that. This is the second time it has done a very in-depth review of An Post. It broadly concurred with the conclusion that An Post is facing a serious financial situation. NewERA is highly experienced at examining State bodies.

The Minister also asked An Post to get some independent verification and the company asked Indecon to examine its pricing work to ascertain whether the consultancy was satisfied that the price increases proposed would help An Post to be financially viable in order to continue to provide a universal service and, as its chief executive said, to give it a runway to have a fundamental review of the company. Those were the parameters. It is not our role to get into that kind of detail because we are also conscious that international agreements are covered and it is set out in legislation that they are international agreements. An Post is only one of many in terms of those agreements.

Hildegarde Naughton (Galway West, Fine Gael)
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I ask Deputy Lowry to put his questions to the witnesses.

Michael Lowry (Tipperary, Independent)
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A number of the questions I intended to ask have been answered. The contributions that have been made have been very informative and useful. Unfortunately the common theme running through them is a confirmation of what we know, which is that An Post is in deep financial trouble. It is in a perilous position and, effectively, in its present format it is running into the sand.

Mr. Pigot made the comment that he was here in 2002. With all the people we have around the table this evening, particularly including the Department officials, why does An Post have to go to the edge? Why does it have to be on the brink of collapse before some constructive and positive action is taken?

Mr. Kerr's report has been generally received favourably because it makes a genuine attempt to address the many issues that need to be addressed. I ask Mr. McRedmond whether Bobby Kerr's report will become the basis and subject of analysis and discussion through the McKinsey report. In other words, there must be a starting point. Many advancements have been made in terms of the co-operation Mr. Kerr's committee received. We need to expand on that and see what elements of it are workable and achievable.

We all want to preserve An Post, we want to retain the network and we want a universal service. The Minister would be pleased to hear that the Government do not necessarily have to pay for a universal service but somebody has to pay for it. The Government most definitely has a responsibility in funding some element of the universal service. If it is not going to be funded by way of a subvention, the postmasters around the country would expect that financial support will be provided if they are to maintain the service, which is part of the basic fabric of rural communities. The Government has a role, an obligation and a responsibility to play its part in that regard.

The reality is that An Post, as we know it, is a failed entity. It is floundering. In its existing format it does not have a future. If one was to consider it in any context, one would say it is currently on life support and in need of financial resuscitation. I have no difficulty with the increase of between 12% and 38% across An Post's product range. Obviously that must be done because An Post is in crisis but I ask Mr. McRedmond what assessment has been done of the impact such a price increase would have on the volume of mail traffic? How confident is he that this increase will be an interim measure that will be successful? With such increases, there can be the habit of saying in two years' time that we have not had sufficient time or we may need another increase for another further two years before we can make the hard decisions that are necessary.

Everybody involved understands the difficulties with an Post. We have had it analysed and assessed, we have had evaluations, reports and recommendations but there is very little time left for reflection. I am glad that at least the McKinsey report has a timeline of May because the time for reflection is limited. It is time for action and decisive policy initiatives. It is imperative that An Post is redesigned and restructured to take account of the current environment both at home and internationally. Mr. Pigot made the comment that we view this from the perspective of our consumer base. That is what attracts everybody's attention with respect to how it has an impact on our people, communities and society. The points Mr. Pigot made about the possibility of increasing tariffs for international outbound mail and the renegotiation of the bilateral agreement are important. In other words, the burden would be shared across all of the group's operations.

Hildegarde Naughton (Galway West, Fine Gael)
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I ask Senator Lombard to put his questions to the witnesses and then I will ask the witnesses to respond.

Tim Lombard (Fine Gael)
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I thank the witnesses for their interesting contributions on this serious issue. I note the Bobby Kerr report was commenced 24 months ago. We have had two phases of that report and will have to wait another six months for an update on where An Post is going. It will be 30 months since this review was commenced. It is a perfect storm, in that the demand for the service is declining yet the population is increasing. People have moved to the use of electronic services and away from the use of the old traditional services. This poses the question as to how we will deal with that. The national spatial strategy indicates that 1 million more people will be living in Ireland in the next 20 years. We have had an additional increase in population of 1 million over the past 20 years. The population has increased yet the demand for this service has continued to decrease. The concern is on how we can move the service forward over the course of the next 20 years, if it survives.

There are two lines of thought on this. We are considering reform of the service and increases to the pricing. I might be wrong on that but I believe that is the general thought on how we will move An Post forward. The proposed reform of An Post includes providing a banking structure or working with a bank and perhaps incorporating a shop and offering a motor tax service. Those are the reforms proposed in the Bobby Kerr report. When we take into account what the regulator, Mr. Kevin O'Brien, stated regarding the proposed reform of a 2% saving that failed to be delivered by An Post, what confidence can we have that An Post can deliver these reforms? That is a concern. If the 2% saving proposed previously was not delivered, how can we have confidence that these lines of proposed reforms can be delivered? That is the dilemma we face. We must have confidence that these reforms can be delivered. Previously a proposed reform was not delivered but we are saying these proposed reforms can be delivered. I hope that can happen. The reforms Bobby Kerr has proposed are positive. It has taken 24 months for them to be put forward but they are good. If we look at the history, do we have confidence that they can be delivered?

There is also the issue of the pricing structure. The cost of a stamp to post mail locally is 72 cent. The cost of sending a postcard to New Zealand is €1.10. I can send a card to my friend from Cavan seated beside me for 72 cent but it would cost me €1.10 to send a postcard to my first cousin in New Zealand. There is a major issue regarding our pricing structure and how we are going to address that. That is the other side of the equation. The question is: how are we going to deal with those issues? The international post side needs to examined more than anything else as it is a key issue in delivering a pricing structure that can benefit the network.

Can these reforms be delivered, taking into consideration the history and the regulator saying that they were not previously delivered?

Hildegarde Naughton (Galway West, Fine Gael)
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I ask the witnesses to respond, first of all to Deputy Lowry's questions.

Mr. David McRedmond:

The view Deputy Lowry paints of An Post is not inaccurate. The Deputy might be going a little bit too far but it is not inaccurate to say that it is a very challenged entity. The whole purpose of doing the strategy work is to carry out a very fundamental redesign of the business. In particular, we must recognise the need for the different elements in the business. The post office network is a very different element from the mails business and from the packets business. Each of these areas need to be very tightly defined and operated in order that there is clear accountability for those businesses. My own observation is that it is quite difficult to manage as a very large single entity with a single centre. We will certainly be looking at that very carefully.

The Bobby Kerr report is at the basis of what we are doing with McKinsey when it comes to looking at the post office network. It is a very important input. I cannot say for certain that it is the absolute basis. We are in agreement on the financial envelope being in the area of €56 million to €58 million. The deficit currently incurred in the network is somewhere in the region of €10 million to €12 million a year. To that degree, I believe we are very much on the same page. I like many of the ideas in the Bobby Kerr report. The real issue is in bringing it down to a detailed local level.

The economic need can be defined. There are profits and losses for each post office. However, I believe we have to define social need. One of the things that is often said is that it serves a social purpose. We need to define what that is, whether it is the distance from a post office, being within 15 km of a post office, maintaining a community of 100 people or 500 people, and so on. That is the kind of detailed work we will do. Most importantly, we will provide solutions. We have to come up with solutions for postmasters and postmistresses whose businesses are struggling. We must make sure that they are solutions that can actually work. If there are some cases, as Bobby Kerr has identified, in which there is not a solution, then we need to work out how these people can work financially to be able to leave their businesses. That is the level of detail that we must work to.

There was a question about the impact and the volume and whether we have done the work. We have done considerable work on elasticities, which everybody is talking about, which essentially asks how much it will actually be for every percentage price increase. There is no doubt that price increases will accelerate volume reductions, particularly with regard to bulk mail. That is why we have to be very careful how we structure the increases and where we bring them in. We have done that work at a very detailed level. We are not proposing these price increases to reduce our revenue. We are proposing them to increase the revenue to provide An Post with certainty for the next couple of years. That work has been done in a lot of detail and has been shared with the Department. I believe it is a robust piece of work. We did it with Mr. Alan Gray of Indecon. It has since been checked by PwC and NewERA. Therefore, several groups have looked at it.

While talking about the areas of An Post that are very challenging and difficult, there are also areas that are really valuable and growing rapidly. That is the difficult piece in designing An Post for the future. The first is the parcels and packets business. These are the shovels for the goldrush of e-commerce. We grew our sales in the packets and parcels business by 24% in December. That is a business that will grow rapidly. It just so happens that over the next couple of years, it is insufficient to close the gap on the reduction in mails. That is a very important and substantial business and is the future of posts around the world. We have direct mail, which is advertising mail. In Ireland, we send a quarter of the direct mail that is sent in the US and half of what is sent in the UK. It is a business in which An Post is already substantially established. It is worth about €60 million in revenue and that could be doubled in a relatively short period to become a very big media company in the sale of direct mail. We are launching a current account in the financial services sector within the next few months. The current account will be followed up with other financial services. We have been very successful with Post Insurance. It is a fabulously-run company based in Athlone. There are several examples of good growth in An Post. The issue for me is simply trying to get it into a structure that is more coherent for the future and for the long term.

My final point on the future of An Post is that postal services throughout the world are not doing badly. Postal services in Europe are doing well. They have often taken very different models. In Denmark, there is a model which has almost eliminated mail. In Italy, there is a model in which the post office network is hugely driven by financial services and is the largest provider of credit card services, etc. There are different posts in different countries that are working and that have found a way through the issues of declining mail.

I am not here asking for two years to be able to do things. I fully believe the work we do will be designing a company that has a very strong future. It may a different size and it will be a different configuration, but that is what we will do.

Senator Lombard asked whether we are confident that the reforms can be delivered. He raised the issue of ComReg reporting the 2% of savings not delivered. I need to understand that issue a bit better. Mr. Fitzpatrick mentioned the reduction of 2,000 employees in An Post over the past eight years. We are continuing everyday to redesign our network and to make incremental reductions to tailor the network to meet the falling mail volumes. We also need to invest staff in our parcels and packets business, for example. With all of that, there will be huge challenges. There will be huge challenges for the employees, the unions, our customers and for everybody in terms of whatever changes we make. However, we will work our way through it. I am confident in what I have seen so far that there is a will to work our way through these issues and find a way to find an An Post of the future.

I believe it is very important for employees to have a sense of what that future is. It is not good enough just to say that we are going to remove X number of jobs. We have to show them what the future is, what the future of the post office network is, what the future of the mails business is, what the future of the parcels business is, what the future of financial services is and design the plans to do that. I believe it is incumbent upon us to do so as we look to restructure and reform within An Post. I believe it is quite reasonable for the employees to demand that.

With regard to the pay increases that happened, which representatives of ComReg mentioned, I have no issue with people who have been under a pay freeze for nearly ten years to be able to have what was a modest increase of 2.5% last July, with the Labour Court making that recommendation over the three years. I accept that. We have to work on that, but we also have to deliver the savings. I believe it is well-recognised by the unions and employees that those savings need to made and agreed targets need to be reached, and we will get to them. Those are the sorts of issues we are facing. It is not going to be easy for anybody. However, I would not be here if I did not think we could reform the company.

Hildegarde Naughton (Galway West, Fine Gael)
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I invite Mr. O'Hara to contribute. I apologise for not bringing him in earlier on the two questions on the Kerr report.

Mr. Ned O'Hara:

A couple of questions were asked but I prefaced my remarks by saying that we did not agree with everything that was in the report. However, at the end of the day, we are probably in a position in which our members will decide whether we accept it or not.

I was asked about the three different categories of post office.

Our position is that all post offices should offer all services. We recognise that there is a difference between busy urban post offices in Dublin, Limerick or Galway and rural post offices. I also agree with Mr. McRedmond about the challenges that face us in both businesses - mail and retail. In respect of the retail business, where postmasters operate, we have gone through a process for the past two years of inviting submissions from the public. We spoke to everybody, produced a report and designed a solution. We do not agree with all aspects of the solution. There is lack of consensus on some issues in the report.

There are serious issues for us in respect of the contract and we need to get into the detail. The devil is in the detail but we need to do that now. I recognise the need for a strategic review of the company on the McKinsey report but our fear is that if we get involved in that we will be sitting here next January and nothing will have been implemented. The process relating to the report started in January 2014. It is now 2017. We have to do this now. We have to get into the detail and produce a plan. An Post needs to do some of the things that are in the report quickly. Like Senator Lombard, we recognise the threat from electronic substitution. We cannot plan. I do not know whether there will be a post office in ten or 15 years' time but I do know there will be one five years from now. We should plan for that and in three years’ time, we should plan for the following five years because the world is moving forward apace. We have invested two years in producing solutions - I was going to say we have wasted two years. We do not disagree with the big picture but we need to work out the detail now.

Hildegarde Naughton (Galway West, Fine Gael)
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What measures would the Irish Postmasters Union put in place to achieve consensus?

Mr. Ned O'Hara:

We and An Post have to spend two weeks in a room with someone banging our heads together until we come out with this detail.

Joe O'Reilly (Fine Gael)
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This has been an extremely worthwhile meeting, with very interesting and worthwhile presentations.

This is a very sensitive and important issue for all of us. The people we represent are watching our performance, with reason. They value the postal service and the network of post offices highly. I do understand there has to be change but they value what exists and the universal services obligation. For them it is an extremely important service. That is why we are all sitting around late tonight and there is an earnestness about the meeting. This is not something casual or trivial. We, as politicians, are reluctant to approve price increases. We tend to do the popular thing if we can but it is interesting that across the political spectrum there is an acceptance that An Post needs the increase. I share that view but I also pay tribute to colleagues who are not of the Government party and who share that view. Not to engage in populism on an issue like this takes some political courage.

Mr. Parnell, Mr. Kerr and several others said they want to widen the services, get a greater range of financial services in, and make the post office more usable and attractive with more happening than traditionally and there are different types of post office to attract extra business and make them more relevant. I applaud that. While I know that Mr. Kerr is keeping that to a minimum but we at this end of the table do not want post offices to close. We want them to be open and successful. I am somewhat persuaded by the view of Deputy Lowry that there will be a need for a level of State subvention. We do not want unfettered, unchecked, uncontrolled and wasted State support but there will have to be a level of support and I would be in favour of that in order to preserve the universal social obligation and keep as many outlets open as possible.

All of us, including the Government, have mitigated against post offices by actively encouraging electronic social welfare payments. When I was a child, the collection of pensions and other social welfare payments at post offices involved a social dimension and that has been undone. It was a societal and cultural shift which I suppose had to happen.

I do not mean this in any patronising or silly way but I am very encouraged by Mr. McRedmond's vision and commitment. He has a great handle on this. I was going to ask about parcel post, which has not caught up yet. Intuitively, I think he is correct that parcels should become a big business because Internet sales are growing exponentially. I notice my children buying stuff via the Internet in a way that I would never have done. That is important and so are financial services and the current account dimension may help. The direct leaflet drop is also important for industry. It is good to hear Mr. McRedmond identify three positives that we could build on, as well as seeing the need for reform and change and that is healthy.

Mr. Pigot's contribution about the review of the international agreements was very interesting. It would be great if something was done about that. We should not be losing in that area if we can avoid it because we do not want a diminution of service or outlets.

I am impressed by the speed of action. We need to move fast when the McKinsey report comes out and it is good there is a date for that. The questions have been asked but this is so important that I make no apology for speaking. I wanted to put it on the line that the people I, as a Senator, represent in Cavan and Monaghan dearly value their post office network, want no reduction except where it is impossible to avoid and want a good universal service. I am encouraged that a real effort will be made to achieve that. If that needs a level of subvention then so be it as long as it is sensible and used properly.

Brian Stanley (Laois, Sinn Fein)
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It is very clear that the network and the corporate entity of An Post have been drifting into a fairly serious crisis over a long period. Some of those here may not have been in positions of responsibility during much of that time. Since this committee was formed at the start of last summer and the appearance here of the new chairman it has been clear that the company had major problems. I do not profess to be an expert in corporate entities but I am chairperson of a small company and that type of drift would not go on from one month to the next without people being called in and action being taken.

The corrective action that is needed would be monitored every month. The first thing that An Post, as a big semi-State company, needs to do is to get out of this position. It needs to start getting on top of things. The Minister and the Department need to keep a close eye on things in this committee and this House to ensure this is happening.

I would like to speak about the network in the first instance. I read the Kerr report very carefully. It was one of the first things I did after the formation of the Government. I felt it was important as an Opposition spokesperson to do so. I think there are many good ideas in the report. There are many things in the Kerr report that Sinn Féin would have suggested and agreed with over the years.

I would like to ask Mr. Kerr a question about the smaller post offices. The social importance of the network is a reality, just as the commercial reality is. In small villages and towns, services are provided in small clusters by shops, post offices, pubs and Garda stations. If one of those facilities is withdrawn, the hub is reduced and the cluster loses some of its effectiveness. Has the issue of shorter opening hours been considered? Perhaps post offices could open in the mornings only. Maybe they do not have to open every day of the week. Have such options been examined?

Regarding the investment of €56 million, I am concerned that the larger and more commercially viable post offices are getting the largest slice of the cake. I am not sure that is what is needed. It has been mentioned that banking services will be provided at larger post offices. Is it proposed that full banking services will be available at smaller post offices? Would the single payment account be available at every post office? I think that would be important.

Mr. McRedmond of An Post management said that the plan does not go far enough. I agree with his point that in light of the scale of the drift, we will have one chance to do this. I think there has been a scandalous drift. It is regrettable that we have allowed it to get to this point, but we are here now. Tomorrow is the first day of the future. We cannot go backwards. In what way does the plan not go far enough, according to Mr. McRedmond? I would like him to articulate or spell out his views in this regard.

Mr. Kerr and the IPU have suggested that the recommendations need to be implemented quickly. What kind of timescale do they have in mind? The IPU suggested that new services could be provided at post offices. Mr. O'Hara referred to the role played by peace commissioners. I remind him that the position of peace commissioner is a voluntary one. Is the IPU suggesting that people should charge for signing forms? I know that those who carry out this role at present, one of whom is my wife, are happy to do so on a voluntary basis. I have had to go to peace commissioners over the years. I have never been asked to pay anything in return for their services. My own view is that the current position should not change. There is a good tradition of civic duty in Ireland. People like to provide things voluntarily. Is the IPU suggesting that its members should receive a payment if they were to take on this service?

I would like to pick up on the point made by Mr. Pigot of Tico Mail Works about the amount of wriggle room or elasticity it enjoys when it is charging for mail. I am not convinced about that. He probably has a point. I think we need to take on board Age Action Ireland's point that many elderly people who live alone depend solely on the State pension and have to pay all their household bills from their low incomes. I think a price increase would lead to a reduction in the use of the post office by those who depend on it most. I am sure the statistics we heard from Age Action Ireland have been researched. Mr. Moran told us that just 3% of those over the age of 75 use the Internet and e-mail. This means such people depend heavily on the services of An Post. I would question the point made by Mr. Pigot. He might flesh it out a little bit more.

Hildegarde Naughton (Galway West, Fine Gael)
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I ask the Deputy to try to conclude.

Brian Stanley (Laois, Sinn Fein)
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I am nearly there. I waited for almost three hours. I have been very patient.

Hildegarde Naughton (Galway West, Fine Gael)
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You have.

Brian Stanley (Laois, Sinn Fein)
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The increase proposed by ComReg would bring the price of a postage stamp to more than €1. Given that ComReg does not regulate or set the price of stamps, perhaps Mr. O'Brien might articulate a little more clearly what role it has in this regard. If it merely sets a cap, how is that cap reached?

I would like An Post management to address what will happen if the price of a postage stamp is increased by up to 38% in the absence of a marketing strategy and the full implementation of the Kerr report. I do not think these issues can be separated. Unfortunately, two different Departments are responsible for the network and for An Post. The Department of Communications, Climate Action and Environment is responsible for An Post and the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs is responsible for the network. I do not think they can be separated. The recommendations of the Kerr report and the business development group need to be implemented quickly. I suggest the imposition of a significant increase in the price of postage in the absence of the implementation of those recommendations would be counterproductive because it would turn people away from postal services.

Hildegarde Naughton (Galway West, Fine Gael)
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I thank Deputy McLoughlin for his patience. I am not trying to rush him when I ask him to try to keep his questions and comments brief.

Tony McLoughlin (Sligo-Leitrim, Fine Gael)
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I thank the Chairman and the members of the joint committee for giving me an opportunity to raise some issues. I commend all the representatives of the various groups and agencies who have contributed to this meeting by attempting to discuss the policy issues involved in providing greater communications regulation in Ireland and by addressing our concerns about the development of the post office network into the future.

I am delighted to welcome Mr. Bobby Kerr and I look forward to the implementation of his report. I believe this debate is of the utmost importance to the constituency I have been elected to represent. People in many rural towns and villages are living in fear and worry because the local post office has been lost or is under threat. People who are worried are watching and listening to us.

It is particularly important for Mr. McRedmond to comment on the position going forward in light of recent experiences. I would like to ask him about the ongoing difficulties caused by the closure of post offices in rural locations throughout Ireland and specifically about the status of two post offices in my constituency. There has been uncertainty about the future of Ballygawley post office in County Sligo for quite a while. I cannot understand why a decision has not been made.

Mr. McRedmond might be aware that in November 2016 I was advised by the management of An Post in Sligo that following the death some weeks before of the local postmaster, Mr. Colm McTiernan of Ballygawley post office, whom I knew, that an operational review of the post office needed to be undertaken by An Post. I argued against this, given the popularity of the post office and the ability of his wife to continue the business and service at Ballygawley.

Mr. Angus Lafferty, a public affairs manager with An Post subsequently confirmed to The Irish Times that the contract for Ballygawley post office was now under review. He said that a consultative period would continue until 2 December 2016. He finished by stating that a decision on whether to keep the post office open was expected some weeks later. As I am the local public representative, I alerted the community and the local media to the fact that it was important for the community to let An Post know how important their post office was to them during the time allocated for public submissions. I was pleased that hundreds of people have signed petitions and sent letters calling for this post office to be saved. I would like an indication from Mr. McRedmond as to when a decision can be expected on this issue from An Post. I have been in constant contact with Mr. Peter Gillespie, who is a fine ambassador and excellent employee of An Post at regional level about the urgent need for this post office to be retained in the local community and for a decision to be made on Ballygawley post office as well as the post office in Blacklion, County Cavan.

Hildegarde Naughton (Galway West, Fine Gael)
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May I ask Deputy McLoughlin to conclude? I will ask that his questions be answered but this meeting has a different remit.

Tony McLoughlin (Sligo-Leitrim, Fine Gael)
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I appreciate that and thank the Chairman.

Hildegarde Naughton (Galway West, Fine Gael)
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I ask the witnesses to respond. A number of questions were addressed to Mr. Kerr, as well as that question for Mr. McRedmond.

Mr. Bobby Kerr:

I will respond to Deputy Stanley's part-time proposals. I am suggesting as part of my report that in category three post offices, the small rural post office, that a pro ratascenario could be operated whereby a part-time service could be entertained. There would be specific negotiations on a case-by-case basis with the company but I think An Post would be prepared to look at the solution of part-time service in particular locations.

In regard to the Deputy's second question on expenditure, which he believed was misdirected and directed towards larger rather than smaller post offices, I think that could be the case relative to capital expenditure only. If one looks at the spread of the €56 million, almost as much is going to the 700-odd post offices as to the other 300 but it costs more to refurbish the larger shops and that requires greater capital expenditure. I hope that answers the Deputy's question.

Deputy Stanley asked about the speed of implementation of my report. I have now finished my work and have determined my exit from this process. I asked both the postmasters and the company if I could bring my remit to a conclusion because I felt that if I did not do that, we could still be here in five years' time. I am one of those consultants who decided that he wanted to get off the train.

I do not think that Deputy McLoughlin had addressed a question to me or did he?

Tony McLoughlin (Sligo-Leitrim, Fine Gael)
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Not specifically, Mr. Kerr.

Hildegarde Naughton (Galway West, Fine Gael)
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Does Mr. O'Hara wish to address the IPU question?

Mr. Ned O'Hara:

Yes. I have made this point three or four times already - the Irish Postmasters Union has gone through the process for two years - but as far as we are concerned, the timescale should have been yesterday. I heard the point that tomorrow is the start of it. We are prepared to start tomorrow on the detail to get this done as quickly as possible.

The issue of peace commissioners in post offices came up in a number of listening sessions we had in towns of 800 people around the country which have a post office but no bank and no Garda station. People have to travel. I understand that peace commissioners are not paid. We are not looking for a payment per sefor this role but people suggest they must travel 15 to 20 miles to a local Garda station to get their identity verified but the garda does not know who they are. The postmasters, however, know who everybody is and it is a service they can provide. The question of payment has not arisen but it is a service people have told us that they want in the local post office.

Hildegarde Naughton (Galway West, Fine Gael)
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Different Deputies have put questions. Would Mr. McRedmond like to respond to Deputy Stanley?

Mr. David McRedmond:

Deputy Stanley said that if An Post was his company, he would be taking corrective actions and he raised questions on what corrective actions we were taking. I genuinely think the issues in An Post are a result of global trends. There are issues on whether we should have known this earlier. Indeed the Department has written to us to identify better processes to ensure we could do that. I am quite clear that people in An Post are committed to ensuring the future viability and good management of the company. I think that sometimes forces can be very strong and we have discovered, particularly in the third quarter of 2016, that the acceleration in decline in mail was very notable. That happened to coincide with the time I took up the position and we could see the picture more clearly then. While it was a trend, the trend accelerated quite dramatically in that third quarter. On the question of whether financial services will be available in all post offices, yes, I hope so. On the question of whether the account will be available in all post offices, yes I hope so.

In response to questions on the Kerr plan and the ways in which it does not go far enough, I think I have covered most of these areas. It is really describing a four-year window and I think we need to see beyond that. There are some commercial elements and a contract needs to be negotiated with the postmasters and postmistresses. I think there is room. However, we have to bring this down to a really detailed level such as, for instance, the questions Deputy McLoughlin has asked of me. I will not be able to answer them now but I will be in contact with him this week on Ballygawley and Blacklion.

The consultative periods are very important. We get different levels of response. Sometimes one gets no response or a limited response and sometimes one gets a response that is negative or a response that is positive. The outcomes of the consultations are taken seriously and we look at them because they give us an indication as to whether there is an activity there in the future. It often can be an indication that we cannot find somebody willing to take up the contract and that can be indicative that there simply is not sufficient activity there. We have to understand what the community wants and how much the community will engage with it. Sometimes those answers are not always obvious and they can be surprising. I will revert to Deputy McLoughlin on the post offices.

Deputy Stanley stated that the increase in the price of the postage could be counterproductive. There will always be an element of that when there is a price increase. We have done as much due diligence as one reasonably can in terms of working out the elasticity. One difficulty with bulk mail is that some of our very biggest customers are switching to e-substitution quite rapidly. To be honest, whether the price they are paying is 57 cent, 67 cent or 80 cent, if they can see the opportunity to make a level of saving, which is not between 57 cent and whatever the higher price might be but actually is to save the whole amount through e-substitution, they will do that. One of the real difficulties when one looks at decline in mail is in questioning how much of the decline is due to price and how great the decline would be in any event. We forecast, even if we did not increase the price, there would be a very substantial decline. Indeed we are forecasting a 10% decline in mail even without an increase in price.

We have done the work to the best of our ability to say that the proposal will deliver a yield, the question is how much that yield will be and whether it gives us room to implement the changes we need to make.

Hildegarde Naughton (Galway West, Fine Gael)
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I thank the witnesses. Does anybody wish to comment before we finish?

Brian Stanley (Laois, Sinn Fein)
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I asked a question on the regulator.

Hildegarde Naughton (Galway West, Fine Gael)
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Will Mr. Fitzpatrick be as brief as he can be?

Mr. Steve Fitzpatrick:

It is useful that the regulator is coming in because he said that through their work they reduced the losses in the USO from €57 million to €19 million over a period of years.

I think it could be argued that their inactivity in the pricing arena led to the losses in the first place. If one calculates the losses on the USO over that period, it runs in hundreds of millions. That was the money the company could have used to invest in new products and new services and could have used it to invest to make the transition from letters to parcels and packages and could have used the money to try to encourage people to leave as the business collapsed. All that money has been wasted in plugging the gap for many years. The USO is the cost of delivering to every household in the country five days a week. When one loses 1,000 letters on a delivery, the postman is probably going into a house with two letters instead of three. It is very difficult to make those savings. The way to deal with it was to reflect the movement in price across the EU, not to have Ireland with the cheapest postage stamp rates in Europe. The demographic spread on our small island means that Ireland should have the dearest postage rates in Europe. The regulatory body that deals with these crises, looking after itself and paying bonuses, has questions to answer on how its pricing strategy led to the company losing hundreds of millions of euro. Much of that money went across the Border, as Mr. Pigot has pointed out. I think the committee might consider asking those people questions, although I recognise the difficulty the committee had in doing that previously.

Hildegarde Naughton (Galway West, Fine Gael)
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There is a question for Mr. O'Brien on the role of the regulator. Will he keep his response to a minute or so?

Mr. Kevin O'Brien:

I will be very brief. Deputy Stanley asked if we could describe how we implement the price gap. The price gap was required under legislation and has been in place since 2014. It is built basically from information provided by An Post. It is something of a mathematical equation. With the An Post volume decline estimate, we sought the 2% per annum efficiency which I mentioned. We had An Post's costs estimates and we put these basically into the model. We also allowed for profitability on universal service, so there is a margin to be gained. Based on the information we had in 2014, we put a model in place. As I said in my presentation, it was based on information from An Post, and An Post indicated at the time that it was happy with that. I would indicate that it was a ceiling on price, so An Post was free to increase prices to whatever level it wanted within an overall basket. There was a sub-control of the stamped and metered price to protect SMEs because under the Act we were required to protect SMEs. That was the model in place required by legislation, which we put in place.

It significantly reduced the losses in USO in relation to revenue covered by the price cap. As Mr. Pigot has pointed out, there are separate losses to do with the international inbound mail issue. ComReg has performed as required by the legislation in all cases, according to its remit, so any suggestion that we have been negligent is totally incorrect in that regard.

Hildegarde Naughton (Galway West, Fine Gael)
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I take this opportunity on behalf of the committee to thank the witnesses for coming before us today and for their excellent presentations and responses to questions. I propose that the committee publishes the submissions received in respect of the meeting and the letter received from the Minister. Is that agreed? Agreed.