The government should reconsider its preemptive rejection of the privatisation of Australia Post — such sell-offs have worked well overseas. But yes, there are some concerns that need to be deal with first.
Malcolm Turnbull’s pre-emptive ruling out of the privatisation of Australia Post (via a good piece by The Australian’s David Uren) is disappointing. It is certainly worth considering by the new Communications Minister — although the case is not necessarily clear cut.
Labor ruled out selling the postal giant in 2009 even though privatised postal services around the world have been successful. Timing-wise, it was the correct call — the financial crisis and ensuing recession not merely smashed capital markets but hammered Australia Post’s profits.
Those profits were already under pressure from the permanent and rapid shift of social and transactional mail (bills etc) online. As Crikey showed in 2009, AP has long been seeking to counter the decline in traditional mail volumes, where it has a monopoly, by encouraging the direct mail market and competing effectively in the parcels market, which is booming courtesy of the growth in online retailing.
This trend has continued under CEO Ahmed Fahour, who has overseen a return to strong profitability. In 2012, AP had its biggest after-tax profit and biggest dividend since 2008, driven by nearly 13% growth in parcel revenue, growth in retail services such as ID services, and 6% growth in direct mail. But it still lost over $180 million on letter delivery, where its Universal Obligation requires it to maintain a national delivery network, and meet performance targets, for a rapidly-declining form of communication.
So why not privatise AP? The company doesn’t have a great deal of fat — successive managements, stymied by the unwillingness until recently of governments to countenance a rise in postage rates, screwed down hard on costs, and much of its retail network is already in the hands of the private sector via franchises. It has no monopoly in parcel delivery and is already competing with the private sector in that segment. Its debt levels have increased significantly since 2009, but it still has an AA+ credit rating. If the company was sold for the same sort of valuations as foreign post offices that have been privatised, the government could earn $4-5 billion.
Still, there are some concerns about privatisation. One is the USO: based on 2012, the company may continue to lose around a third of its profits after tax maintaining its letter delivery network. Privatisation could come with a long-term contract to wind back its USO as the NBN, even under Malcolm Turnbull’s “copper magic” version, rolls out. But it would require some political bravery to tell people that, say, in 2020 AP would no longer be required to deliver letters where it was too costly to do so, and for a Coalition government, particularly, given it means that regional and rural services would be abandoned.
The other concern is about personal data. There’s a reason why AP has so heavily entered the direct mail business: it not merely has the delivery infrastructure, it has your data. It doesn’t just know where you live (around 20% of Australians move house each year, the company warns direct marketers), it has a “Lifestyle Database” of over 5 million people, established using opt-in surveys of Australians. Last year the company merged two areas to create a new direct mail division called PostConnect, which promises “powerful integrated capability provides customers with data, insights and address updating services to enhance their databases, as well as high impact mail house solutions to connect with customers in smarter ways”. The company’s retail services, which include ID services, would also yield rich data on Australians.
The company’s data sources are thus likely to be a key asset for any potential buyer, but privacy protections would need to be locked in so that the new owner could not benefit from having a live database of every Australian’s home address — the sort of information online marketers would kill for.
Neither issue is insurmountable. In dismissing privatisation mere weeks into a new government, the Coalition is cruelling itself and the budget. A rethink is in order.