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Environment and Communications Legislation Committee
28/05/2014
Estimates
COMMUNICATIONS PORTFOLIO
Australia Post

Australia Post

CHAIR: Welcome, ladies and gentlemen. Mr Fahour, welcome. Would you like to make an opening statement?

Mr Fahour : Good afternoon, Chair, and senators. Thank you very much for this opportunity. I have spoken here previously about how we are transforming Australia Post to ensure our services remain vital and relevant to the lives of Australians today and into the future. That involves adapting all of our services in line with the community's shift to digital communications, digital payments and services and online shopping. More specifically, it involves being very focused on the contemporary needs of our customers.

From our customer research, the community's view on what they want from a modern Australia Post is very clear. It can be summarised into five simple points. One, they see our delivery and retail network as a vital community asset, especially our post offices. Two, they want us to remain relevant and accessible in both our stores and our parcel offering. Three, they understand that letters are declining. But the community still expects a reliable letter service that gives them choice. Four, they want the convenience of weekend post office trading, weekend parcel delivery and access to more services online. Five, finally, the community expects Australia Post to look after its employees, rural and regional Australia and the elderly and disadvantaged. We are listening to this feedback and we are addressing each of these community expectations in our change program.

In my previous appearance before this committee, I have talked about our focus on developing services that offer our customers greater convenience, choice and control in the digital economy. For instance, the My Post digital mailbox is a completely free and secure online portal for consumers where Australians can control how they connect and transact with government and businesses. Another example is the 24x7 parcel lockers that we have already installed in 160 locations across Australia so that the community can conveniently collect their online shopping when it suits them. Today I am pleased to report that we will soon introduce Saturday deliveries for parcels and Express Post and we will begin Saturday trading in our corporate owned postal outlets. This will become a permanent extension to our services, starting in November this year. Given most licensed outlets already open on a Saturday, that means post offices across Australia will now be open six days a week. Again, this extension to our service is aimed at providing greater levels of customer convenience, especially for those who rely on us for the delivery or collection of their online shopping.

Let me also reiterate that the corporate plan that will be soon submitted to the shareholder ministers will reflect our strong commitment to the development and maintenance of the physical post office network. We continue to maintain 4,400 plus stores nationwide, including over 2,500 outlets in rural and remote areas of Australia. We have the nation's largest retail network. We are absolutely committed to maintaining that physical presence in communities everywhere so that we can continue our role of providing trusted services that connect all Australians. This year, we are continuing to see this parcel year on year growth. Unfortunately, however, the community shift away from our letter service is accelerating, with letter volumes declining 6.2 per cent year to date. Last year, we lost $218 million in our regulated letters business. In this financial year, that loss will grow to around $350 million. Under current momentum, with letter volumes expected to fall by eight to 11 per cent through to 2020, the loss in our regulated letters business will soon grow to around a billion dollars a year.

Obviously, we cannot absorb that kind of substantial loss in our letters business, and we will not allow that kind of loss to eventuate. If we did, it would completely overwhelm the profits we make in our commercial parcels and retail business. So this year is a critical turning point for Australia Post. We have to change the letters service now while we are strong in order to maintain our broader services and protect the community's equity in our business. One of the ways we are doing this is by introducing an additional second speed service delivered to a slower timetable so that senders have a choice of delivery speed and price. Senders can choose the slowest speed, which will be available at that lower price. This option is available to business customers and governments next week. We are aiming to have a range of services—regular letter service, priority service and express mail services which operate at different speeds, frequency and prices—also available to all Australians next year. Ultimately, though, we will need to change our letter service operations and pricing to recover the true cost of these services.

But this is about choice and convenience. As we manage these changes, we are being very careful to support the segments of the community that are most reliant on our services. That is why we recently introduced the concession stamp for Australia's 5.7 million concession cardholders. This initiative effectively freezes the cost of postage at 60 cents, which was set back in 2010, until 2017 for the elderly and the most vulnerable members of our community.

The other important stakeholders in our business that we are providing new levels of support for are our 2,900 licensees, who run postal outlets throughout Australia. In summary, this is what we have done so far. One, to assist with licensees' cash flow, we have brought forward $35 million in fees for private box sorting from April to January. Two, we also extended the trackable article fee to post office boxes and counter mail delivery points, adding a further $2.6 million per annum to LPO payments. Three, we have introduced new services for the community called the My Post concession account, which I mentioned earlier. Australia Post is offering a fee to the licensed post offices to conduct this service. This has produced $1.5 million of new income in just two months. Four, the recent 10 cent price increase in the basic postage rate also meant an additional $25 million in payments will flow through to the LPOs in the coming financial year. In the coming weeks, we will announce a sustainability package to support the viability of those rural outlets. By changing our business now, I am confident that we can maintain Australia Post as a vital piece of community infrastructure that provides social and commercial connections for all Australians. Thank you. We welcome your questions.

CHAIR: Thank you, Mr Fahour. You have said a lot there, Mr Fahour. It has been a long inquiry into Australia Post and licensed post offices. Is the $1.5 million already earned through My Post continuing income every year all the time for LPOs?

Mr Fahour : We pay the post offices when they set up an account for the concession cardholders called the My Post—

CHAIR: That is the 5.7 million you were talking about?

Mr Fahour : Yes. Each time an LPO sets up this account, we pay each LPO per account a $5 fee, which, as you know, is a pretty substantial amount of money. That is a one-off.

CHAIR: The point is that fee will terminate. There may be a trickle. After three years, postage for those 5.7 discount cardholders—pensioners and low income earners—will wane in 2017. So the point I make is that is not a continual income for LPOs. It is a one-off?

Mr Fahour : That is correct. But I guess what my colleagues were indicating that I would like to add, though, is we have just set up the My Post account for right now the concession cardholders. Our plans are to roll out the My Post account, which has all these extra services, such as the digital mailbox et cetera, to all Australians. So this is a new income stream that we are working on.

CHAIR: And if you set that up for all Australians—because, let us face it, in a perfect situation, within three months, the 5.7 million Australians will be registered with My Post—that would be the perfect situation. But I do not expect that to happen.

Mr Fahour : We would like all Australians to be My Post customers.

CHAIR: Then you can go on for perhaps another eight or 10 million Australians and businesses. Will that also give a flow of income to those licensed post offices?

Mr Fahour : Correct.

CHAIR: Ms Corbett is certainly nodding her head.

Mr Fahour : Yes. She is. We are both very excited by this. You may remember in the Senate inquiry, we spent a lot of time talking about the new opportunity through trusted services that we could deliver through the post office. This is a tangible, real-life example right now of the 700,000 accounts that we have signed up. Post that account signing up, there are going to be a range of opportunities to do things for the community through the post office. Each one of them means that we can pay the post office more income to support their viability.

CHAIR: With the My Post for the pensioners—that is what we will call them for simplicity's sake—they receive five free stamps when they sign up. Is that correct?

Mr Fahour : That is correct, Chairman. They receive their five free stamps. They also receive—

CHAIR: And how many a year can they post at 60 cents? Is it 50?

Mr Fahour : Fifty they can have. In addition—I am happy for Ms Corbett to elaborate—we have also included a range of other things that they could get to look after them at a more attractive price.

CHAIR: My big question is: how is it being received, Ms Corbett? What has been the response to My Post, the free stamp sign-up, 50 stamps a year for three years at 60 cents, not the new price of 70 cents? How has the response been?

Ms Corbett : The response has been fantastic. That is from our corporate offices, from our licensed post offices and, importantly, from members of the public. We have been overwhelmed by the response, given that it has been only two months. Quite literally, we are getting tens of thousands of registrations per day.

CHAIR: That is good news. I know that on the radio stations I speak to every week in regional areas, I certainly have given it plenty of plug. So that is good news. You mention new plans or services for regional Australia in the near future. Are you allowed to elaborate, or is that still confidential?

Mr Fahour : As I am sure you are aware, we talked a lot about the rural post initiatives that we have been undertaking. We have been doing a lot of consultation. Right now we are just finalising what we call the rural sustainability package, which we are working our way through. It is a five-point plan of things that we are going to do in addition to the four that we have already done. What I can say to you is that it will cover very important areas that came up through the inquiry that many of our post offices, many of our licensees, had raised to the inquiry. They are what I would call not primary ones but secondary type issues. The primary ones were around the stamp price, as you remember, and some parcel fees, which we have tackled very quickly. I do not want to test your memory here on the other ones that came up, but I do want to raise them. For example, they were saying, 'What is the minimum amount of revenue that we can survive on? Can you give us a floor?' Another one was this E-pass technology. Another one was about the representation allowance. We are going to put together a package which we will announce only after we finish the consultation process. We have this coming Friday a meeting with the LPOG group, just as an example. We want to make sure that POAAL and other relevant parties are comfortable with it. Once everybody is comfortable with it, we will look forward to announcing it soon.

CHAIR: There is no question that the number of letters being posted is in decline. There is no question about that. You have clearly stated that case. I think it is one billion less over the last five years and falling. I am going to ask you a difficult question. I live on a farm roughly 15 kilometres out of town. My mail gets delivered three times a week—Monday, Wednesday and Friday. What is more, it does not worry me. I do not care if I do not get the mail every day because I do not get a lot of mail these days. There is a lot of emails and invoices and the council rates and insurance et cetera are paid online. With your plan of user pays, for example, if you want it quick, you pay more. Have you tested the water with the public about how they feel about having their mail delivered three days a week to general households in cities and towns et cetera? Has there been any response to that suggestion? Clearly if you did, it would save you money, but I do not know if the public would accept it. Have you actually engaged the public about a three-day home delivery service of letters?

Mr Fahour : Thank you for that question. We have done some extensive research over many, many years, particularly earlier this year, around what services the society wants and what ones they value. What are the results of that work? We conducted research by talking to the community and talking to our customers about what they are looking for. The answer that came back I mentioned a bit earlier in my opening speech, but I will give a bit more detail. What they want is for Australia Post to modernise itself into the 21st century. They are saying to me—and I am very clear on what this research is coming up with—that they want more services in, for example, parcels. They are saying, 'We do not want that five days a week. We want that six days a week.' That is why we are now going to do parcel delivery six days a week, including Saturdays. They are also telling us that they love their post office. Their post office is a very important part of the community. Do not shut on Friday because on Saturday we are not working. Some of us are not working and we would like access to the post office. So we are going to open post offices on Saturday where they are not already open. Some are already open and some are not.

They also told us, 'You know what? We get a lot of our bills and our statements already and they are coming in exactly as you said.' Ninety-five per cent of our mail volume is business and government sending statements to citizens. You and I sending mail to each other is less than five per cent of the total business, as you know, Chair. So we asked our customers about their sending preferences. What do they want? What are they doing? As you know, they are all digitising anyway. What they are saying is, 'You need to give us choice because there are some things that we want to send six days a week. There are some things we want to send five days a week and there are some things we are happy to send two or three days a week.' That is what they tell us. But we want a price to reflect the different service levels. That notion of a multi-tiered offering is being made available to business customers next week.

We asked citizens who receive their mail some questions in the survey. We asked, 'If you were receiving it five days a week'—this got a bit of attention in the press—'and you had a choice between keeping it at five days a week to receive your bills and your statements versus paying some form of fee for that, what would you prefer?' The overwhelming majority of Australians said, 'Forget it. I don't need to get it five days a week.'

CHAIR: Really?

Mr Fahour : The overwhelming majority—

CHAIR: If they are thinking like me, I do not really care if I get my mail three days a week. To me, that is plenty because it is great for council rates or an insurance bill. It might even be some advertising mail. The great majority of Australians are thinking like that as well?

Mr Fahour : The great majority are saying, 'We are already getting a lot of our stuff digitally anyway.' But I will say this. They wanted choice. Some said, 'We would like a five-day service.' Some said, 'We would like it six days.' What I am saying to you is, 'No problems. They can have any speed they want, but they have to pay the right price for it.'

CHAIR: So if I lived in a street and Senator Fifield lived alongside me and Mr Fahour lived on the other side of me and I said I want my mail five days a week, I would pay a fee to Australia Post. My neighbours would say, 'We are happy with only three days a week'. Would they not pay a fee, or would they pay a smaller fee? What is the plan?

Mr Fahour : We asked that question. They are saying, 'Forget it. We don't want to pay any fees at all.' We literally asked the questions, 'Would you pay less than a dollar a day? Less than a dollar a week?', and the answer was, 'Forget it.' Something has to change. What is happening is society is changing. But the senders of mail, being business and government, who pay the bills through their stamps, are saying to us, 'We want you to offer services at a price that matches the service frequency,' and that is what we intend to do.

CHAIR: I find that amazing. The majority of Australians are happy with three days a week mail. Some want the five days but neither wants to pay.

Mr Fahour : Rural and regional Australia only get it that way, as you said, just a minute ago anyway.

CHAIR: In some cases. Many rural towns, of course, get it every day with deliveries around town et cetera.

Mr Fahour : It does not surprise you and it does not surprise, I think, anybody to know that, as you said, five billion letters were moving around only just a few years ago. We are now down to four billion. It is very much declining. But there are 400 billion emails each year. There are trillions—

CHAIR: Is that around the world or in Australia?

Mr Fahour : In Australia.

CHAIR: Four hundred billion?

Mr Fahour : Emails per year compared to the four billion letters.

CHAIR: If Get Up stop sending emails, it would be down to 300 billion. It has been a good Senate inquiry, Mr Fahour. I think we are achieving a lot. Hopefully in the future we can achieve a lot more. I believe that if you lose your post office in a country town, you have lost the heart of your town. I want to take up some other things. I know you have seen this in the meeting, because I took it down to the back. It says, 'Abbott government rules out privatisation of Australia Post'. What effect has that had on you today?

Mr Fahour : Zero, because, as I have said before, the speculation was speculation. Certainly I was not privy to know that they were thinking about it or not thinking about it. I have to say that it is useful that this is out there so people can really focus on what really matters here.

CHAIR: So, in other words, delete the speculation and—

Mr Fahour : And focus on this transformation.

CHAIR: Know that Australia Post is going to stay in government hands. You have a tough job in front of you, not only your business but all those licensees you represent, to keep the show on the road. And it is a tough job. I commend you. I think you are making good progress.

Mr Fahour : Thank you very much, Chair. Can I put on the public record how much we appreciated the opportunity to be involved in the Senate inquiry because it gave us a real chance to talk about the issues that affect them and affect us.

CHAIR: You said in your opening statement you are having discussions with POAAL and the LPO Group. Are those discussions going well?

Mr Fahour : As far as I am concerned, extremely well with regard to this issue. They are not yet aware of obviously the rural sustainability package that we are going to talk them through on Friday. But in terms of the previous issues, I think it went very, very well because we got the stamp price increase, we accelerated the payments, we introduced the new post office box fees and we have introduced the My Post account. They are four tangible examples of money in the pocket to support them.

CHAIR: Good. Your negotiations used to be wholly and solely with POAAL. We have seen an increase in the membership numbers, I believe, of LPO Group. You are communicating with them and prepared to communicate with them as well as POAAL, no doubt?

Mr Fahour : Chair, this is very important. We do not have an exclusive relationship with POAAL. It is not exclusive. They are a very important partner in representing many licensed post offices. We have had a very fruitful relationship. But the reality is we have also agreed that we will deal with any individual post office or a collection of them. We have agreed that LPOG represent a number of legitimate licensed post offices and they should have a voice. We are very happy to engage.

CHAIR: But you do have a formal agreement with POAAL. Correct?

Mr Fahour : Yes.

CHAIR: Do you have a formal agreement with LPO Group?

Mr Fahour : Yes, we do.

CHAIR: You have a formal agreement with both of them?

Mr Fahour : They are different types of agreements. In a sense, we have formalised and recognised LPOG. We are having conversations that recognise that they are an important stakeholder in the licensed post office community.

CHAIR: Good. I want to take you to your profit after tax. In 2008-09, it was $261 million. In 2009-10, it was just $90 million. In 2010-11, it was $241 million. In 2011-12, it was $281 million. In 2012-13, it was $312 million. This is what I find a little hard to understand. We know your letters have been in decline since 2008-09 yet your profits increased from 2009-10 from $90 million to $312 million. It has gone up $220 million. What is holding your profit up? Is it the parcel network? Is it that?

Mr Fahour : I think I have been on the record now for a number of years. The reality is 2010 also had a one-off provision in the accounts. That was a provision that we took for a restructuring of the business. If you look at it from 2008-09 through to 2013, in essence, the profit has been holding up in that $300 million zone. The primary driver of that during that time period has been the increase in profit in our non-regulated commercial services activities—largely parcels. It has neatly offset against the losses that have been accumulating in letters. The second driver of that is the efficiency and productivity program that we have put in place. It is a very important component of how we have managed to hold up the profit. But what I have been saying Senate estimates after Senate estimates—I cannot even recall how many times I have said this both publicly as well as in this room—is that we cannot defy this trend of the decline in the letters business any more. The warnings have been getting louder and louder. What I am now saying, as I said recently, only in the last Senate estimates, for the first time since corporatisation in this second half of the year, is that the losses in letters are so large that they are going to overwhelm the profit in the commercial parcels business. They are going to be so large that next year the full year will be a total loss. That is our projection.

CHAIR: I am looking at 2013-14 of $190 million after tax. In 2014-15, it is $28 million. Or I can go to dividends declared. It is a $142 million estimate for 2013-14. It is $21 million for 2014-15. Then it gets worse after that.

Mr Fahour : The $21 million projected for next year was last year's projection. It was a projection made last year.

CHAIR: Putting the budget out forward.

Mr Fahour : Given the revelation of our new trading position, given the acceleration of the letters losses that is occurring, I believe it is highly unlikely that the $21 million will be paid. It is a matter for the board. We will see how things progress. I am not even confident of the $21 million, but I am very confident that it will be zero.

CHAIR: The other situation, when your letter volumes are declining, is your fixed costs. You are getting to the stage where your fixed costs of running the postie bikes and the posties et cetera is with the volume of letters. You are just going to lose such a bucketload on handling letters.

Mr Fahour : Yes.

CHAIR: I bring you back to that point about the three days a week delivery or whatever. We in Australia are very good at having an attitude that if we have not got it, the government has to give it to us. It is a culture has developed in the last 10, 15 or 20 years. Someone is going to have to pay for this. If people are not going to say, 'Well, I'll accept three days a week delivery of my mail out of five,' the taxpayers are going to have to pump money out of this place into Australia Post.

Mr Fahour : Chair, the reality is that we have a fixed cost business. Small increments in volume have a huge impact on the bottom line. I mentioned earlier that this year's year to date volume decline was six per cent or so. Three years ago, it was in the order of two to three per cent. So it has doubled. And we are forecasting that it is going to go between eight and 11, which is doubling again. When you look at it that way, you can see why the losses are going to be huge. The good news, though, is that society and the community, through all the research work that we have done, does not want to stand in the way of us modernising this business. They are actually happy for us to take resources and tailor them to the things that are relevant for them. They are voting with their feet.

CHAIR: We talked about how the basic postage rate went up 10 cents except for those 5.7 million Australians who are excluded and have it at 60 cents for three years. What effect has that had on the bottom line of Australia Post?

Mr Fahour : I will not go into the—

CHAIR: When did it start? Was 1 May the start of the 70 cents?

Mr Fahour : No. It was 31 March because we could not do 1 April. It will have a bottom line impact.

CHAIR: For the positive?

Mr Fahour : No. The 60 cent stamp is holding the price down.

CHAIR: No. I am not talking about the 60 cents. I am talking about the other stamps going to 70.

Mr Fahour : Oh, yes, of course.

CHAIR: What effect does that have on your figures?

Mr Fahour : It has helped tremendously to reduce the amount of the loss. But, at the end of the day, we have a substantial loss. The price that we are charging today does not recover the cost of the service.

CHAIR: The public is telling you what they want. They are saying parcels six days a week. I will be very simplistic here. Let us say you carry 100 parcels a week and deliver them five days. If you can open six days, you are still going to carry only 100 parcels, are you not? It is going to cost you more in wages and costs to open Saturday mornings, say, from nine until 12. If you are only going to carry the same amount of parcels, how is that going to help your bottom line? Are they simply going to pay more if they pick up on a Saturday? What is the story?

Mr Fahour : True. This service enhancement will cost more. But our job is to provide a service that society wants from us and they expect us to deliver. So rather than just add new expenses, we would like to take away the resources that are sitting in the declining letters business—take away the people, which we are already paying for—and move them over to the growing parcels business. I do believe in the long term that when our clients see that we are offering a quality six-day a week service, we are more likely to win new customers and, therefore, new revenue streams.

CHAIR: Australia Post delivers six days a week and launches a digital mail offering. Explain to the committee the digital mail offering, Mr Fahour. What is it about? How are you going to get revenue in? What is the advantage to the public et cetera?

Mr Fahour : As we were talking about earlier, the reality is that Australians are voting with their feet. They are using digital means of communicating more and more and more. This is the reality. When the national broadband corporation was formed, it was all about accelerating the digitisation and the e-Government delivery of information and communication. Broadband services are expanding. The prices are getting lower. There is no doubt about it that corporations, business and governments and individuals are using digital means of communicating with each other. We at Australia Post have been in the business of delivering communication for 200 plus years. It is just that it is moving from a handwritten form to a typed form to a digital form over the internet. The digital mailbox gives every Australian free of charge access to their mail seven days a week, 24 hours a day, all year around. So they do not have to wait three days. They do not have to wait five days. They can get their mail seven days a week all year around 24 hours.

What is beautiful about this digital mailbox is that we have made it so simple and convenient for Australians for free. When the majority of mail that comes through, which is a bill these days from corporations or businesses, it will actually allow you to pay the bill right there and then in a secure way and store that information digitally, all in three easy clicks. So this secure private network digital mailbox offering by Australia Post gives citizens a peace of mind that they can receive their mail in their pocket no matter where they are in the world.

CHAIR: So you are telling me that I would open one of these digital mailboxes with Australia Post. For example, my electricity supplier would email my invoice into my digital box?

Mr Fahour : Not email it. They will post it into this private network that does not use the public internet. That is why it is secure. You hop on. You put your user name and password in like a website. You go into your box and it is there for you. It tells you that you have mail.

CHAIR: So tell me about the address. Instead of an email address or whatever, we have an Australia Post address in a digital world?

Mr Fahour : Correct. You will have your own unique address.

CHAIR: And the company or the corporation sending you the invoice has your address in their system?

Mr Fahour : That you have approved. They can only send you things that you have approved.

CHAIR: So you can access them all the time. When does that kick off?

Mr Fahour : It opened up late last year. We were in beta mode, which means we were trialling it. Now we have removed it off beta mode and we are now fully up and running. I will be writing a letter to all Australian citizens soon to let them know that their digital mailbox and their digital ID as provided by Australia Post is available to them right now.

CHAIR: Do you get free postage when you write those 20 million letters, do you?

Mr Fahour : Some steak knives.

CHAIR: Take us back to this beta part and the early days of it. Perhaps Ms Corbett—

Senator KROGER: How many users in the second stage who have subscribed are actually using it?

Mr Fahour : We have just launched it. We have kept that information commercial-in-confidence, because we have competitors that we are dealing with. So we are just trying to keep that quiet. But what I can say, which is public—when you hop on, you can see it—is that we have signed 44 contracts with senders of the mail, because really it is our clients who pay us to send it. We have 44 at the moment. Approximately 20 are live right now in the system. We anticipate the remainder. I made a public statement last week that one of the four major banks will be announced very shortly. A major airline will be announced very shortly. We have big announcements in the pipeline, but I have to say it is at a very exciting stage right now. We launched the My Post concession account to the 5.7 million Australians. When you sign up for that account, it prepopulates your digital mailbox. So that is available, and we do a lot of work for the citizen. I am pleased to say 700,000 Australians in the concession space have signed up for this account.

Senator KROGER: How do you make your money? Is it through your users? Do they pay a fee?

Mr Fahour : The senders. Like they do right now. When they send a letter, they buy a stamp. But this stamp, this digital stamp, is substantially cheaper than a physical stamp.

CHAIR: How do you define substantially?

Mr Fahour : Substantially cheaper?

CHAIR: Well, we know one is 70 cents. You said substantially cheaper. How do you define substantially in this case?

Mr Fahour : Again, Chair—

CHAIR: Commercial-in-confidence.

Mr Fahour : I will say, if I may, just as an infomercial, that it is absolutely worth their while. We can save corporates a lot of money and this government a lot of money too.

CHAIR: Has this been run around the world in any other country?

Mr Fahour : I would consider Australia Post not a pioneer but certainly among the leaders. As you can imagine, there are some Nordic countries that are quite advanced in this space. I would say that if we get this rolled out, we can maintain the status of Australia Post as a government owned enterprise and one that is going to continue to be among the leaders of the world of digital service delivery by government. I feel there is a great opportunity for us here to put even more substance and meat behind this e-Government opportunity.

CHAIR: Excuse my ignorance. I always say I am just a broken down shearer. How do I access it? Do I go to my telephone? Do I go to an Australia Post website to go to my digital mailbox? How do I do it?

Mr Fahour : Go straight into the Australia Post website and your digital mailbox will be there. You can download it. If you have an iPhone or an iPad, just go straight to the apps store and get the mailbox. It downloads free.

CHAIR: So step one is the Australia Post website?

Mr Fahour : Or the app store.

CHAIR: I suppose when you get to the website there are some adverts on there as well you can see?

Mr Fahour : And there are all sorts of wonderful services that are available to you that we would be more than happy to service you with, Chair.

CHAIR: Have you ever sold cars for a living? You would be very good at it.

Mr Fahour : I might have to if we do not reform Australia Post.

Senator PRATT: Do you have any questions, Chair, rather than banter?

CHAIR: Please, go ahead, Senator Pratt. We have plenty of time. This is really interesting. There is some good news, hopefully, for the survival of Australia Post and its network.

Senator PRATT: Mr Fahour, thank you for your attendance today. Australia Post, unlike NBN Co, does not publish its corporate plan currently, does it?

Mr Fahour : That is correct.

Senator PRATT: In your opening address to estimates in November, you said:

We paid a dividend this year to our shareholder, the Commonwealth, of $244 million so we aren't dependent on any taxpayer resources and we hope to continue to be the same. In fact, we actually contribute to the government's consolidated revenue and we want to continue our strong history of returning a dividend to the government.

As you have already I think highlighted today, Mr Fahour, in your opening address to estimates in February, you also said:

At the current rate, we anticipate Australia Post as a whole is likely to lose money in the second half of this financial year for the first time since corporatisation. Our losses in postal services also for the first time will exceed our profit in parcels. Our gross profit in the full year 2014 will be less than the full year for 2012-13 reported profits. Given these losses, it is unlikely we will be able to pay future dividends to the federal government.

Can you step through for us, please, what has changed from the estimates of 2013 to the estimates just in February? It is not a very long time period.

Mr Fahour : Firstly, nothing has changed. I stand by those statements that I made last year and I made in February and I just made today again. Let me just put on the record the numbers so that nobody is under any doubt as to what they are. In terms of dividends paid as opposed to dividends declared—it is a very important distinction—the dividend paid by Australia Post to the federal government in the first half of 2012-13 was $115 million and in the second half was $129 million. That adds up to $244 million for the full year of 2012-13 as a cash dividend. That reconciles with the number that you mentioned earlier. So that is in the 2012-13 financial year for the federal government in terms of cash payments. Secondly, to reconcile back with Senator Urquhart's earlier comments regarding the year 2013-14, which was $142 million, that number of $142 million is made up of $64 million that we paid in the first half and $79 million that we paid in the second half. That was just recently—like last month. That gives you a total of $142 million. What I said in February is that, given the mounting losses, as I look forward, it is unlikely that we are going to pay a dividend. That is opposed to looking back. What I just said earlier to a question that the chair asked me is that the $21 million that was forecast last year for next year's financial year is now looking highly unlikely. That is a matter for the board anyway when the time comes to decide on the dividend later this calendar year. So all those numbers reconcile.

Senator PRATT: I understand they reconcile. The question is: you forecast that projected loss. There was not a loss. You are saying they reconcile, so there is no disparity between the two numbers?

Mr Fahour : Everything adds up at the end of the day. What I am indicating and what that data shows and proves is that our dividend has gone from $244 million to $142 million and it is going to go to virtually zero. Why? Because, as I have been saying at every Senate estimates, as the rate of letter volume declines, it is accelerating at an exponential, not a linear, rate. When you have a fixed costs business, what happens is every one per cent drop—

Senator PRATT: So why is the accelerated version not in the estimates? Why has the linear version been used in those estimates?

Mr Fahour : Well, it is going from $244 million to $142 million to zero. That is pretty exponential to me.

Senator PRATT: Well, it is now. Surely that should have been reflected in the original figures.

Mr Fahour : It was. We gave a forecast two years ago under the previous government that highlighted very clearly what the forecast was going to be. This trend is not new for either side.

Senator PRATT: I have heard you say this many times, Mr Fahour, so, yes, I can appreciate that. Thank you for—

Mr Fahour : At least you know I am consistent.

Senator PRATT: stepping me through that so that I understand it. For the annual report of 2012-13, the chair wrote:

The downside of this digital disruption can be seen in the steady erosion of letter volumes. The community shift away from mail is impacting our commercial performance. The loss incurred by our regulated mail services increased to $218.4 million. The loss is becoming increasingly difficult to absorb. We will need the support of our shareholder and the community to move to a new model for mail that secures a sustainable letter service for all Australians.

So what support from the shareholder and the community was the chair referring to?

Mr Fahour : Our chairman was referring to the fact that, as the department secretary said in his earlier testimony to the committee, we need to modernise this business, because the rate of decline is large. We can do a certain number of things as Australia Post within the envelope we have been given. There are certain other things that the government of Australia and the parliament of Australia have privy over, and they need to decide what they want to do. The bottom line is—

Senator PRATT: Are you speaking in code for things like the regulated service standards currently?

Mr Fahour : There is no code whatsoever. I have already said that we need to review and reform these to reflect what society wants. I want to add one other thing.

Senator PRATT: That is not what is explicitly said by the chair or by you now. It seems to me that ultimately it is those parameters that are set by the parliament that you are referring to, which comes down to things like the frequency of mail delivery et cetera.

Mr Fahour : If the parliament of Australia and the government of Australia wish to absorb the losses to deliver a service that Australians are using less and less and less, that is a matter for the government and the parliament of Australia. We will deliver—

Senator PRATT: I just do not think you are being very clear about what you are asking the Australian public or the parliament for.

Mr Fahour : I laid out in a speech very clearly what I believe the new modernised version of Australia Post can look like, which provides for a sustainable business. What we are doing right now is we are incorporating our ideas and our plans and our efforts into our corporate plan, which you know, Senator, is due for all departments and all government agencies by the end of July. We will incorporate all the detail in there and we will give it to our ministers.

Senator PRATT: In the same report, I think you wrote:

Over the past four years, we have maintained profitability by offsetting letters with strong growth in parcels. However, the accelerating decline in our letter business is becoming unsustainable and a handbrake on performance.

These are things you have already said to us tonight too. It continues:

The only way we will remain financially self-sustaining into the future is by moving to a new model for pricing, regulation and operations of letters services. It goes without saying we will manage this change in a way that protects our employees and maintains a high level of service for our customers and the community.

It seems to me that there are three areas of reform that you are flagging there—pricing, regulation and operation. Is the recent increase in the standard letter rate the only increase in prices currently foreshadowed?

Mr Fahour : I get asked this question every year. What I say every year is that we are not ruling anything in or out. We just got our stamp price increase. What I can say is that the current stamp price does not cover the cost.

Senator PRATT: I understand. You have said that tonight already.

Mr Fahour : I would just like to repeat that for clarity's sake. As you know, the postal service delivers an outstanding quality service. We believe that Australians really value it and they like it. Therefore, we would like them just to pay for the cost.

Senator PRATT: Have submissions been made to the shareholder minister proposing regulation changes? If so, what submission have you made and what does it propose?

Mr Fahour : We are in the process right now of developing our corporate plan. We are working through a range of options and scenarios for the ministers to review as part of our corporate plan submission. As you can imagine, as was said earlier, if we do not make changes to add services in parcels, and reduce resources in letters, we will be an unviable business.

Senator PRATT: So that is what you mean by a new model for mail that secures sustainable letters. In a sense, you are looking for the support of the government and the community to do that. Are you, underlying that, talking about the service standards that currently apply to letters because of the loss that they are making? You are not being explicit about the fact that it is issues like daily delivery or whatever other things you might put forward to manage those costs within letters.

Mr Fahour : I am terribly sorry that I am not being clear. I thought that we were being abundantly clear that we are offering a multi-tiered service to the community for our business customers that does not require government support for the 95 per cent of the volume that I have. We will be offering a two- to three-day service, there is a five-day service and a six-day service. There is choice and they will be priced at different prices. What I am saying is we would like to do that next year for households, which is for the five per cent of my business. For me to do that for households does involve some regulatory change.

Senator PRATT: So you have put forward those proposals for regulatory change?

Mr Fahour : We announced it.

Senator PRATT: When was the submission made? Clearly, it proposes regulatory changes. Are you able to step through the detail of those changes?

Mr Fahour : Again, we are incorporating them into the corporate plan. The corporate plan is due at end of July.

Senator PRATT: So the answer is they are still being drafted?

Mr Fahour : Yes.

Senator PRATT: So we can expect that service standards around letters will be within the proposed regulation changes but the Australian public will not yet know what they look like. You have asked for community support for those changes prospectively. We do not yet know what they are.

Mr Fahour : I beg to disagree with that statement. We have asked the community to tell us about what they value and tell us what they do not value; tell us what is important for them; and tell us what they want to pay for. What we are very clear about is that they are not using letters as much as they used to. It is a declining service. We will need to change. Otherwise we are going to be a burden on the taxpayer. What we are saying is our job is to stop us from being a burden on the taxpayer. If we do not reform, we will be a massive burden.

Senator PRATT: You are very being explicit about what you are saying, but you are still obfuscating what you are not saying, which is highlighting the kinds of things that might be asked of the Australian public in considering those changes to the letter service.

Mr Fahour : I think what is respectful to do is to give your ministers an opportunity to review it all in its entirety in our corporate plan, which is due at the end of July. Once the ministers and the government of the day have had a chance to review that corporate plan, they will then decide what they wish for us to do and not do.

Senator PRATT: So you are looking for public support for that, even though clearly we do not yet know what those plans are. But they will be before the minister shortly or are currently before the minister?

Mr Fahour : As I said, the corporate plan is not due until the end of July. I would argue to you that the issues and the opportunities and the change are very well understood by the community. I believe and trust that the community has a very good understanding and appreciation that mail is declining, parcels are going up and that the losses have to be dealt with. We have to invest in the services they want. That is very clear to me.

Senator PRATT: I think you would overestimate the level of engagement from many in the community who take the delivery of their mail on a daily basis for granted.

Mr Fahour : You would be amazed at how engaged we are with the community on a daily basis.

Senator PRATT: My dogs bark at the postie every day.

Mr Fahour : Unfortunately. When we do any kind of change, we are one organisation that really hears very quickly from the community.

Senator PRATT: The posties know. I know they do. On page 6 of the annual report there is a box that contains the words:

$177½ million for investment in our CSOs to deliver a reliable and accessible service to an expanding population is a large investment for our business. This year, the expense of meeting our CSO obligations was up 7 per cent.

So is it the case that the word 'investment' in a business context usually refers to an amount spent with the expectation of a future series of returns?

Mr Fahour : Yes.

Senator PRATT: So is the amount of $177½ million actually the cost of providing the CSO obligations, as reflected in that second sentence?

Mr Fahour : The CSO and the costing of the CSO, which is how much you spend invest over and above the revenue that you generate from that regulated service, is a strict definition that is given to us to use. I believe that number underestimates the investment in the CSO. I do use the word 'investment' very deliberately because I believe the CSO over the last 20 or 30 years has served us well. It has served us well when mail volume was growing and it was an important part of society. It has allowed us to have a terrific brand with a high-quality service offering. The problem with the CSO was the CSO and the regulations that govern the letter service were written in the 1980s.

Senator PRATT: This is a rather long answer, so can you just tell me: is that the cost or not? I have lost the bit where you might have actually responded to that bit of the question.

Mr Fahour : What I said was that the definition of the CSO is a strict definition of what you can count as your revenue and expenses. Under the definition given to us, the $177 million reflects that definition. I believe that the cost of the CSO a la the investment is greater than the $177 million if you use alternative methodologies.

Senator PRATT: That is according to the current methodology. So is the seven per cent that you reflect on the current CSO figure?

Mr Fahour : Yes. In this annual report.

Senator PRATT: So you are saying the expense of meeting it is actually up more than seven per cent really, in your view, even though that is what your annual report says?

Mr Fahour : Yes. It is up seven per cent in 2013 on 2012.

Senator PRATT: And that is the figure of $177 million?

Mr Fahour : Correct.

Senator PRATT: Thank you. Does the term 'investment' attempt to convey the impression that this is an expenditure at the benevolence, I guess, of Australia Post rather than being an obligation on them?

Mr Fahour : It is not benevolence.

Senator PRATT: No. It is a legal requirement in that sense, is it not?

Mr Fahour : Yes.

Senator PRATT: I want to return briefly to the corporate plan that I think you said is due in July. Have you made submissions to the minister before that? Is it completely structured around the corporate plan in terms of restructuring, like putting forward ideas about things like the CSO?

Mr Fahour : I am sorry, Senator.

Senator PRATT: You have said that really you are waiting for the corporate plan, which you are finalising, to put forward proposals to the minister about how things like the CSO might change. Is that when you will make a formal submission? Is that corporate plan, if you like, the formal submission to the minister? Have there been previous submissions to the minister on those questions to really scope what goes in the corporate plan?

Mr Fahour : The answer to your question is that of course the corporate plan, as you know, is done each year to formalise the planning that the board approves and submits to the ministers. It does that every year. It has for many, many years. But it is fair to say that certainly since I have been responsible as the managing director, the conversations with the then minister have been on a regular basis. There are lots of conversations that occur between the department, the minister and ourselves about the issues that we are dealing with. Most of them talk about what we are doing, how we are handling it, what the problems are and what the opportunities are. They are the regular conversations that you would expect the board and the ministers and the departments to be engaged with on a regular basis. So we are looking forward to the corporate plan bringing together the various pieces of work. But the changes that we need are obviously and urgently needed.

Senator PRATT: But why would you not therefore make a submission before the corporate plan?

Mr Fahour : I am sorry?

Senator PRATT: Why wait until the corporate plan is due? The board and the minister could make a decision before that.

Mr Fahour : That is the requirement that is imposed on all GBEs—to formalise their strategy and so forth, to bring it in a structured way that outlines the financial plans. And that is what we have been working on.

Senator PRATT: That is clear to me now, then, why that has not been pursued earlier.

Senator URQUHART: Do you talk to the shareholder ministers more than once a year, or is it only at that time? I am not sure why you are laughing, Minister. I am just trying to work it out.

Senator Fifield: It was just a surprising question, that is all.

Senator URQUHART: I was just sort of gleaning from that that you do meet more than once a year?

Mr Fahour : Absolutely.

Senator URQUHART: That is fine.

Senator PRATT: I will move on to some different topics. The question of executive salaries comes up reasonably often before this committee. On pages 98 to 100 of your annual report, there are two sets of tables reporting the highly paid employee annual reportable remuneration paid at parent entity and group levels. So using the first two of these, the number of employees with reportable earnings over $180,000 increased from 330 to 435 over the year. Are these comparable numbers, or is there an increase due to the inclusion of a new entity?

Mr Fahour : Yes. That is correct on both counts. They are not comparable. Yes, we did, which is the StarTrack acquisition.

Senator PRATT: Clearly that answer is yes. Why did the number of highly paid employees increase by a number of one-third? That is the acquisition of StarTrack?

Mr Fahour : Not completely and exclusively. There were several factors, but the two important one is, yes, we did acquire some entities. Those people have whatever the economics was. It was a separate private company that was only jointly owned, which was not included in our historical numbers. The second one I think I mentioned. I am not sure if you were there, as this is obviously last year's annual report. I did mention to the Senate at that point that we use a number of external contractors. We found that a cheaper way was to bring those people on to the payroll than pay them compensation as external contractors. So it would save money for Australia Post by bringing them on to the payroll rather than paying them as contractors, which we were not doing in the previous year. So that was a cost saving initiative, actually. One of the ways I can prove that is if you take the total compensation paid and divide it by those numbers—

Senator PRATT: You have completely lost me in terms of the context of my original question.

Mr Fahour : I was just answering your question, but I am happy to not answer it.

Senator PRATT: No. You might just need to step back and return to the context of the question. You were discussing why the number of highly paid employees increased. Is that right?

Mr Fahour : Yes. I said there were two factors. One was the acquisition of businesses. The second factor was that there were a bunch of contractors that were external to the payroll. By bringing them on to the payroll in 2012-13, it saved us money. It was cheaper to do it that way than to pay them as a contractor.

Senator PRATT: I can understand that in terms of the money saved. But my question only went to those employees who were at the higher pay rate, not the overall question of whether it saved money as a service.

Mr Fahour : I am saying it is apples and oranges. They were not in the previous years and they are in this year's number, so you are not comparing like for like.

Senator PRATT: Could you provide the data for 2013 on a comparable basis?

Mr Fahour : I guess I could take that on notice. I will look into that. What I was trying to explain about that is that if you add up the compensation of what they were paid and divide it by the number of people, the year on year number was flattish.

Senator PRATT: I would like to know the extent to which salaries over $180,000 grew within the original Australia Post entity versus your new acquisitions.

Mr Fahour : I will give you the answer.

Senator PRATT: So that part should be simple enough.

Mr Fahour : Actually, I have the answer for you right now. It actually fell by 2.1 per cent on a like for like basis when you compare the average pay per person. So it actually fell 2.1 per cent.

Senator PRATT: Good. That answers that part of the question.

Mr Fahour : Great.

Senator PRATT: Can you advise what average pay rise was provided to employees with annual reportable remuneration above $150,000? You may need to take that one on notice?

Mr Fahour : No. I can answer that. I think the Senate is aware that, for our non-award employees, three of the last four years has been a wage freeze, including for me. The second one is the one year where we did have an increase in wages of non-award workers. It was 1.85 per cent. So that is less than what we paid our award employees.

Senator PRATT: Although they are much better paid than many of your award employees. The footnote to 6, note 2(c) indicates that you, as the CEO, received a lump sum contribution to 'restore the value of the original contract as a result of erosion through the impact of changes in legislation'. So my question is: will Australia Post be increasing the salary of all executives earning over $180,000 to compensate them for the government's two per cent tax levy?

Mr Fahour : No.

Senator PRATT: I am glad you said a quick no to that. If not, why is it only the CEO who has remuneration protected from the impact of legislation?

Mr Fahour : That is referring to a specific situation that occurred in 2010. What it is referring to is an unfortunate error that took place in my salary. It was unfortunately understated. There were some calculations done. They figured out there was an unfortunate error that none of us realised was the case. There was an adjustment made to fix that error historically. I am comfortable that it has been picked up appropriately and it has been noted. It has been disclosed. It is not something I look at every day.

Senator PRATT: I am sure you are glad that that problem was fixed.

Mr Fahour : I am glad that somebody found it.

Senator PRATT: The number of higher paid executives seems to have increased. Total employment at Post declined from 33,031 in 2012 to 32,732 in 2013. Is that trend going to continue or accelerate?

Mr Fahour : I do not know where you got that number that the total number of executives has increased. I just indicated to you that—

Senator PRATT: You said it has decreased by 2.1 per cent. Is that what you said?

Mr Fahour : I said that the average compensation for the high income earners has fallen by 2.1 per cent.

Senator PRATT: The number of employees earning over $180,000 increased from 330 to 435. A large proportion of them was due to other acquisitions. Nevertheless, I think I understood there was still an increase in the number of people—

Mr Fahour : Senator, I just answered the question for you. Those contractors who did work in 2012 are not in those numbers, but they are included in the numbers in 2013 because they have come on to the books. So they are not apples for apples. But when you compare apples for apples—

Senator PRATT: There are fewer executives, in your view, now?

Mr Fahour : There are fewer executives. If you compare what has happened since 2010, there has been a radical reduction in the total number of head office functions.

Senator PRATT: If there is some way that you can demonstrate that for us in a table, that would be very welcome, Mr Fahour, if you could take that on notice.

Mr Fahour : Delighted to, Senator.

Senator PRATT: In the American Chamber of Commerce speech that you gave in May, you said that by 2025 the letter business will have completely evaporated. Are you saying there will be no letter service by that date?

Mr Fahour : Well, if there are no letters to send, I do not think there is going to be a letter service.

Senator PRATT: So it is your view that there will be no letters by that date. That is quite newsworthy. Have you reported that anywhere else or just to the American Chamber of Commerce and now to us at estimates?

Mr Fahour : I think it has been very widely publicised.

Senator PRATT: Can you provide a trajectory for that future decline? Will all remnant mail items become classed as parcels?

Mr Fahour : I have already said very much publicly that our forecast suggests eight to 11 per cent volume decline per annum.

Senator PRATT: So at which point do we arrive at no letters? Is it 2025?

Mr Fahour : We estimate, just using that trajectory, that by the next decade this notion of people sending and receiving letters and mail will be quite a small niche business. It will be transactional mail. The reality is that it will be an adjunct service to the thing that people will be getting, which is an increasing number of parcels. It is just a big letter in a box, hopefully, that we are delivering.

Senator PRATT: Hopefully that has something nice in it. Bills will all be received by email, so hopefully parcels will be happy experiences.

Mr Fahour : I hope they are not received by email. I hope they are received by the Australia Post digital mailbox, which I understand you are going to open up very soon.

Senator PRATT: In your speech, you said that Australia Post lost $218 million in the regulated letter business last financial year. Can you explain how that figure varies from the $177 million that the community service obligation costs?

Mr Fahour : They are two different numbers altogether.

Senator PRATT: Yes. I understand that. What is the relationship?

Mr Fahour : The $281 million relates to the total letters business. That is the total domestic letters business. The $177 million is the calculation of how much the CSO within the letters business under one particular methodology is costing to provide. So, in other words, we lose, in addition to the CSO definition as defined, an additional sum of money to give you the total loss of $281 million. It is $218 million, not $281 million.

Senator PRATT: In your speech, you identify 2008 as the tipping point when many made the switch from physical products to digital. Given the tipping point is six years ago and that you have been running the Future Ready strategy since 2010, are your financial projections evidence that the strategy is failing?

Mr Fahour : I would beg to differ. The strategies, as outlined to the previous government, were very clear on what is happening to the mail business and very clear about the opportunities that we have in front of us for the parcels business and the trusted services offering in our retail. As a matter of fact, it is vindication that the last three years have been extremely successful. You could see that we managed despite the decline in the mail business. The parcels business grew at such a rate that we were able to pay an attractive dividend to the government. So I would say that the Future Ready strategy was a huge success. Back in 2010, we said that around 2014, 2015 and 2016 we will start to see Australia Post's financial position significantly deteriorate unless we make change. We could not make those changes back then because mail volume was still going along but not declining at the same rate. This issue is well past its due by date to deal with.

Senator PRATT: You said in that same speech that you have experienced a steady decline in customers going to retail shops as a consequence of the decline in the letter service. So what is that decline? Does it implicate eventual failure for a strategy of leveraging the retail network?

Mr Fahour : The customer visitation number we put into the LPO inquiry. Since 2008, that has declined by 31 per cent compared to the letter decline of about 30 per cent. So they roughly match over that same time period per delivery point. This decline in customer visitation is actually driven by two factors. One is letters. The second one is financial services—payment of bills over the counter. Both of them have declined. Therefore, people have less need to turn up to the post office. What we also put into the inquiry, interestingly, was new services. Trusted services have delivered 20 per cent of the new profit streams by 2013 that we did not have in 2010. That is things like travel services and other services. That payment stream to the LPOs is one of the faster growing elements. So I believe new revenue, new services via our post office, is one of the most important opportunities in front of us.

CHAIR: Order! Senator Pratt, sorry to interrupt you, but the committee will break for dinner and return at 7.15 pm.

Proceedings suspended from 18: 15 to 19: 15

Senator PRATT: Before the break we were discussing your speech to the Australian Chamber of Commerce. You referred to research that has been previously canvassed at estimates and you said that the customer feedback was extremely clear and you listed six items. As these relate to your regulated activities, could the committee be provided with that customer feedback research?

Mr Fahour : I have given the answer to the customer feedback. We do customer focus groups all the time. We do them in confidence; we promise the user groups that we would keep those as commercial-in-confidence. The results of those that I have outlined and I am delighted to put those on the record per my speech. I did summarise them, but I am happy to reiterate those things on the record.

Senator PRATT: Do you have a written version of that research to provide to the committee?

Mr Fahour : Apparently there is a question on notice around the survey and we are in the process of responding to the parts that we can—the parts that are not commercial in confidence.

Senator PRATT: Can you say who asked that question on notice?

Mr Fahour : I have just sought clarification of that. What was requested was the survey itself, which we did supply, but I stand by what I said earlier: that I am more than happy to give the results of the survey as summarised on the basis that it is non-commercial and non-identifiable.

Senator PRATT: That would be appreciated. We can do that as a question on notice.

Mr Fahour : Senator, I want to be fully transparent. I have already publicly stated the summary and the bits that are not commercial in confidence we are happy and delighted to provide on notice.

Senator PRATT: Your speech also referred to the introduction of a second-speed letter service for Australian business, which has a slower frequency of delivery but a cheaper price than a five-day-a-week service. Can you explain whether this means the sender pays a lower price and if so how that saves you money?

Mr Fahour : As I mentioned in my opening speech and in response to earlier questions, we have announced that we will be offering a multispeed choice for our customers—being the senders of mail. They will have the ability to send mail at different speeds and different frequencies to their customers. We are saying that it is analogous to what happens in the United Kingdom, New Zealand and the United States: there is first-class mail—

Senator PRATT: We already have Express Post as an example of different speed and different pricing—

Mr Fahour : Which we have extended to six days. Express Post is part of this announcement. We have a five-day service now, and then we will have a two- or three-day service and each one will be priced. Obviously, the higher the speed—

Senator PRATT: So a two- or three-day service will mean a lower price for the sender?

Mr Fahour : Of course.

Senator PRATT: Great.

Mr Fahour : Yes, for the business sender, which is what we are talking about here.

Senator PRATT: Yes. And how will that save Australia Post money if you are charging the sender a lower amount of money?

Mr Fahour : It is a complicated formula, but rather than have one size fits all, which means you deploy resources in an inefficient way, what we sense is going to happen is that a majority of customers—the large bulk of customers—have told us that they do not want to do five days a week because they do not have the need to send five days. Things that are urgent they are just sending online now. What they are really saying is that they want a basic minimum service, so a lot of the volume will shift to a slower speed, slower frequency service. The way it saves us money is that we can take the resources and, instead of having posties go down the street and not have anything to deliver, we can say, 'On these days we are doing letters, but on other days we can do more parcels.' So the whole transformation is predicated on the basis that we want to grow the parcels business. We do not want to add new people from the outside; we want to take our staff with us on this journey. This is a great opportunity. It is a win-win for the community and a win for our staff. The proof that I gave you, Senator, was that at the last Senate estimates I said to you that 25 per cent of our parcels are delivered today by our posties, from zero.

Senator PRATT: You did say that at the last estimates. Your speech noted difficulties being faced by the US Postal Service in having postal reform blocked while not being able to grow their parcels business because of lobbying by FedEx and UPS. What strategy is Australia Post employing to ensure against similar outcomes here?

CHAIR: Lobbying the Australian Labor Party.

Mr Fahour : We are hoping that these big giant integrators who want to grow at the expense of Australia Post do not get an unfair access to the good senators around this room and the parliamentarians. I am hoping our shareholder will be there to look after our interests and not be easily lobbied.

Senator PRATT: The interest of the Australian customers, that is right. I have some final questions; some of these things have been resolved in announcements today. Recommendation 58 of the National Commission of Audit states:

Twenty years ago, the Hilmer report highlighted the gains to the community from opening up government enterprises to competition. The Commission considers that Commonwealth bodies that operate in contestable markets should be privatised. The Commission recommends that the following 10 bodies be privatised over the short, medium and long term, in accordance with established practice.

Australia Post was listed as an entity and recommended for privatisation in the medium term. I know there have been announcements today ruling that out, which I was pleased to see, but I am still worried about the medium and the long term. To what extent is Australia Post a body that operates in a contestable market?

Mr Fahour : That is a matter for the government, Senator. As you know, today's announcement is pretty clear.

Senator PRATT: Whether you operate in a contestable market or not is not a question for the government. Clearly you do.

Mr Fahour : By definition we operate aspects of our business in a contestable market, but I think right now the government has made clear its policy intention and what this does is remove this red herring out of the way and allow us to focus on what is really important right now, which is to deal with the decline in the letters business and the growth opportunity in parcels.

Senator PRATT: You have advised that Australia Post will not pay dividends in future years. Are mature businesses that do not pay dividends a suitable candidate for privatisation?

Mr Fahour : Are you asking me a question or are you making a statement?

Senator PRATT: It was a question. It may or may not be one that you are prepared to answer, Mr Fahour.

Mr Fahour : My job is not to give you my opinion about these theories, but I can say this to you for one clarifying point. I did not say that we will not be paying a dividend. It is a matter for the board to decide as to what the dividend will be. What I will say is that, given the amount of losses we are incurring, it is highly unlikely that we are going to be paying dividends.

Senator PRATT: If you were to sell Australia Post today, with its existing customer service obligations, for example, you have to be able to give your shareholders a dividend, surely. It is not a very attractive privatisation prospect then, perhaps.

Mr Fahour : I think the announcement today by Minister Cormann deals with this issue and we can move and focus on the important issues.

CHAIR: Hear, hear!

Senator PRATT: Well, Senator Cormann did make this announcement today, but we know that, philosophically, the government put privatisation on the agenda and that they are looking to the medium and indeed the long term. This might be an announcement for the next however many years, but it may expire after the next election, as many of their other policies seem to. So, if only the parcel business of Australia Post were privatised, what would the financial position of the remaining business be?

Mr Fahour : Let me once again reiterate that I think today's announcement deals with this issue.

CHAIR: Just to interrupt, Senator Pratt, Australia Post is owned by the Australian people, the government. If it is to be privatised it is a decision of government, not Mr Fahour.

Senator PRATT: I understand that.

CHAIR: Senator Cormann has made the statement today that there will be no privatisation of Australia Post. You are asking hypothetical, in my opinion—'what if this and what if that?'

Senator PRATT: I know Australia Post has had to think about these issues and be prepared for them, because they have not been ruled out previously. They have now been ruled out, but the Commission of Audit talks to the long-term issues.

CHAIR: Minister, can you clarify this position, please.

Senator Fifield: Chair, this is, as we know, the budget estimates, and it is obvious when you look at the budget that the government has decided not to act on the Commission of Audit recommendation.

CHAIR: Exactly, as the government has the choice to do.

Senator PRATT: At this point in time. How would Australia Post be funded for a community service obligation under such a model? You must have considered these issues, Mr Fahour.

Mr Fahour : I am spending no time, literally, and the only time I do spend is to answer questions about it as opposed to anything else. My job and that of my management team and the board of Australia Post is focused on one thing and one thing only. We are focused on how we stay relevant and a sustainable service provider to the Australian community for decades to come. I can assure you that that is where the attention is. There are tens and tens of thousands of Australia Post employees. Today's announcement will be good because it puts aside any kind of sense of other things going on. It confirms what I have been saying to them for a long time, and we can now get on with what is important. That is really important, because the community do not want to hear it and the employees do not want to hear it.

Senator PRATT: I know they do not want to hear it; I certainly know that is the case. Have you had to consider how privatisation of Australia Post would be structured?

Mr Fahour : My previous answer stands.

Senator PRATT: I can imagine that is the case, given that you have got—

CHAIR: You can skip a few of those questions.

Senator PRATT: I had one last question. We spoke earlier this evening about the $177 million cost of the community service obligation, but the point I wanted to come to was the cost of the community service obligation really being dwarfed by your superannuation liability, which in 2013-14 looks to be around 44 per cent of profit. You are really trying to pull back and have a strategy to address the community service obligation issues. I want to know what you are doing about superannuation.

Mr Fahour : I need to better understand how you came up with the 44 per cent. In our annual report, in my public statements we have flagged that the superannuation scheme is a massive liability that we have inherited over the past several decades. The fortunate news is that right now the assets equal the liabilities, so we are running at about 100 per cent. But the bad news is that that has come down from 180 per cent. Secondly, the annual cost, as I have said publicly, is going to skyrocket from $140-odd million—that is reported in the annual report—to over $300 million this financial year, just to keep it going as it is. This is a really big problem. Dealing with it has taken a lot of consultation. As you know, we work with the ACTU as well as each of the individual unions. We struck a landmark agreement with the unions and the ACTU back in 2012. It was agreed that we would close the defined benefits plan to new members, new employees, because the cost was going to overwhelm the organisation. That has very successfully limited the liability growth in the scheme. We have opened up an accumulation scheme, the way everybody else has. That was very important, but we are not completely out of the woods because, unfortunately, the portfolio we inherited was weighted mostly to fixed assets. That is why the VBI deteriorated the way it did.

CHAIR: Did you inherit a mess? We did when we got into government.

Senator PRATT: What has been done to realign those assets?

Mr Fahour : We have managed to significantly increase the liquidity of the portfolio without losing any of the VBI performance—around 100 per cent. When I first came into the role, the VBI liquidity position—how much cash is available—was sitting at 10 per cent or so. It moves every day, but it was in the range of 10 to 20 per cent. I am pleased to report that we have significantly increased the liquidity ratio and made it less risky over that time period. I think we are at around 30 per cent. That is nearly a tripling of the liquidity position. I think there has been a lot of very good progress. The trustees, who are both union trustees as well as employer trustees, have done a good job in the difficult circumstances of the last three years. I commend the trustees on the good work.

Senator PRATT: Is there a risk that that remaining liability will still outweigh the other work you are doing through your corporate strategy to address your budget balance?

Mr Fahour : I think that is a very real possibility. As I have said to our employees, back in 1990 there were 750-plus defined benefit plans but by 2012 there were only eight defined benefit plans still open, of which one was a commercial organisation—us—and the other seven were federal government entities. As I have said to some of our employees, we look like we are a funds management company with a small postal service attached to it. We have a very big scheme that has approximately $6 billion in total assets. The net assets of Australia Post are only $2 billion. The net equity is $2 billion and the pension fund assets are $6 billion. So this is a very high-risk area and it is one the board and the management team are managing incredibly well in the circumstances.

CHAIR: What measures and policies have postal operators in other countries implemented to turn their postal services around?

Mr Fahour : As I mentioned to Senator Pratt in response to one of her earlier questions, we have worked closely with the minister and the minister's office in both this government and the previous government. One of the requests we received through the department several years ago was for us to identify the options available to us and to benchmark those options against what other postal operators around the world have been doing. So we have done our own review. I know the department will have their own view of the validity of what we found. But, when we went around the world and looked at what New Zealand was doing, what Canada was doing and what the United Kingdom was doing, we had to conclude that what we have is world-class. We have a set of proposals that will keep Australia Post among the most admired postal operators in the world. We formed all of this information. We lodged a PSR—postal services document—to the department. We have written so many papers on this. We have publicly talked about it. Senator Pratt just referred to my AmCham speech where I referred to some of the work that we discovered in that international review that we undertook. I was just reminded I even wrote a white paper on this that I have submitted. We have been talking about this for a long time. We benchmarked the world. We know exactly what we need to do. We have a plan, and I am hoping to formalise it altogether in our corporate plan in July.

CHAIR: Good luck with that. Australia Post owns StarTrack Express?

Mr Fahour : Yes.

CHAIR: How do you go competing one with the other? If you are going to be delivering on Sundays, would it concern you if you take business off StarTrack Express?

Mr Fahour : We own—

CHAIR: If I own two businesses, hypothetically, and I want to build one at the expense of that one, I am going to say, 'What I get on the merry-go-round here, I take off the hurdy-gurdy.' How is it going to work?

Mr Fahour : The beauty about StarTrack Express when we bought the other half of that business—

CHAIR: I have a conflict of interest too: my brother actually owes a StarTrack Express franchise in Inverell, where I live.

Mr Fahour : No problems at all. I think he will be delighted to hear the answer to that question, which is that StarTrack Express is what we call a business-to-business organisation. It does what we call B to B. Australia Post does B to C, to the home. They do warehouse to the store basically. They are a different type of business. One is a business express offering and the other one is a consumer offering at Australia Post. Since we have acquired the other half, we have merged the two businesses together so that we can offer what we call B to B to C, so it is not one competing against the other; it is actually one helping the other.

I will give you the best example of that. Let us take a retailer like David Jones, for example—a terrific organisation—Myer or anybody else. They move fashion items from their warehouse or overseas to their stores. Increasingly, these big retailers are now wanting to go online and sell directly to the customer, so rather than come to us just to say, 'Take it from my warehouse or my store to the customer,' we can now offer the customer a fully integrated picture. We can say, 'We can move it from the warehouse to the store, but if the customer bought it online we can send it straight to their home and bypass your store and give you a full service end to end.' We have been merging it. I am really pleased to say that the merger of those two businesses is ahead of schedule, ahead of plan and ahead of budget and will be fully integrated and ready to go by 1 July.

CHAIR: Yes, good.

Senator XENOPHON: I understand that StarTrack pays LPOs almost six times the base rate for their parcel delivery than Australia Post does. That is the information that I have been given.

Mr Fahour : That is not correct.

Senator XENOPHON: Is there a difference in the base rate that StarTrack pays directly than Australia Post does for parcels?

Mr Fahour : The StarTrack of today is different to when StarTrack was a joint-venture company. When it was a joint-venture company we used to charge StarTrack an access fee to our network. We used to charge them a fee. They were a tiny sliver of our total business. I am talking about in terms of the number that they pay which is commercial—remember we are competing against Toll and DHL so I do not want to reveal and put them at a disadvantage, even though this is historical stuff. Once they became an internal 100 per cent company there is no charging going on between us. It is an internal matter. It is not what we charge them for.

Senator XENOPHON: Do LPOs get paid more for a StarTrack parcel than an Australia Post parcel?

Mr Fahour : I would love to take that on notice, but I can just give you the bigger picture. Today there is no such thing as a StarTrack parcel and an Australia Post parcel because we have integrated the businesses, and increasingly what is a StarTrack parcel and what is—

Senator XENOPHON: So there is no difference in remuneration between the two if it is an Australia Post parcel or a StarTrack parcel?

Mr Fahour : My answer stays—which is that, historically, as a joint venture company, it was different. Now it is an integrated company, the internal machinations make it virtually impossible. But as I mentioned earlier, I am happy to take that on notice and give you the exact numbers.

Senator XENOPHON: Even if it just shows whether it is differential or not. I will not take it any further than that, if you can take it on notice.

Mr Fahour : I really appreciate that.

CHAIR: Do you know how many post offices we have lost over the last 12 months? Do we usually lose about 10 a year, shut down because of lack of financial turnover?

Mr Fahour : I will have Christine Corbett answer that question. But I think it is important to note this: when this new management team came together under the Future Ready program, I am really pleased to say that it has been one of the very few periods where we have had more post offices in the network by the end of the program than we did when we started. That is the first thing—and that is quite amazing when you consider what is happening around Australia.

CHAIR: Are you telling me that you have increased the number of post offices?

Mr Fahour : Over that three-year period—financial year 2013, when the annual report was released, to the financial report of 2010. I can assure you that it is going against and defying the trends of corporate Australia retail stores.

CHAIR: Is that because post offices are opening up in growing urban areas?

Mr Fahour : Exactly—because we have urban sprawl.

CHAIR: And have you been closing them down in the country towns in the last 12 months?

Mr Fahour : What I can say to you is that, on average, each year something in the order of 10 to 20 changes of services have occurred, and there has been a net 10 reduction. When you consider that we have 4,400 stores, that is an insignificant number. Christine, did you want to elaborate on that?

Ms Corbett : To answer specifically, in the last 12 months there have been nine post offices in total—we have nine fewer outlets.

CHAIR: This afternoon, Mr Clarke, the head of the department, in an answer to, I think, Senator Urquhart, said that Australia Post needed to have a change of business plan, and that there has to be legislative change. You are clearly changing your business plan, doing your best to recoup business and keep it alive. What needs to be changed in relation to the legislation?

Mr Fahour : As the secretary said back then and as I have outlined, I believe we need to look at the letters business and start to give Australia Post more flexibility in offering different levels of services that the community wants, as opposed to a one-size-fits-all.

CHAIR: Would that require change of legislation?

Mr Fahour : It may require—

CHAIR: Is there legislation that says 'mail must be delivered in towns five days a week'—things like that?

Mr Fahour : It may require changing regulation, not necessarily legislation. It is the clarifying bit that I would like to add.

CHAIR: Fair enough. Senator Xenophon, do you know much about the Greek postal service? Do you know whether it has been going okay?

Senator XENOPHON: Is that a serious question?

CHAIR: No. Would you like to ask some questions.

Senator XENOPHON: I would love to ask some questions. So how is the Greek postal service going, Mr Fahour?

Mr Fahour : I met the Hellenic postal office CEO at a recent global CEO conference.

Senator XENOPHON: They have beautiful stamps.

Mr Fahour : They are amazing. I am not sure about the Cypriot post office, though, because I understand that it is for sale.

CHAIR: I have to interject. We have recently opened a Greek museum at Bingara in the Roxy Theatre. We had a lovely street party out on the street in Bingara. They are truly great people, Senator Xenophon.

Senator XENOPHON: I have a few questions to ask, if I may, Chair.

CHAIR: Please go ahead.

Senator XENOPHON: I have until 11 pm?

CHAIR: Yes, but you will be very quiet then. You will be asking questions to yourself, probably.

Senator XENOPHON: We are here until 11, though, aren't we, Chair?

CHAIR: We are.

Senator XENOPHON: That is good. That is what I want to know. If looks could kill I would be in a wheelchair!

CHAIR: You'd be dead!

Senator XENOPHON: Going to stock issues, over the last few months in particular my office has experienced a higher than usual number of emails and calls from licensees experiencing issues with Australia Post stock. Can you advise how you expect licensees to decrease their credit levels if they are on 'stop credit'. In other words, how many people are on stop credit at the moment?

Mr Fahour : That is a fair question, Senator. Ms Corbett can give you a sense of that and if we cannot right now, we are happy to take that on notice. Christine, are you in a position to be able to give a bit of information on that?

Ms Corbett : I will certainly take on notice how many licensees are on stock credit at the moment.

Senator XENOPHON: Do you have a rough idea how many there would be?

Ms Corbett : I will take that on notice, because it does actually go up and down all the time. I think we put on notice previously—

Senator XENOPHON: Can you give me an idea of whether it is gone up or down, whether it is trending upwards or trending downwards? That would be useful.

Ms Corbett : Okay. I will get that information for you. I do not have that information to hand.

Senator XENOPHON: Can you tell me whether it is trending upwards or downwards at the moment?

Ms Corbett : To my understanding, it is relatively stable.

Senator XENOPHON: Right, that's good.

Mr Fahour : Senator, just to add to this, one of the things that we were quite alarmed about that Senator Boswell raised earlier was that-

Senator XENOPHON: I am channelling Senator Boswell for tonight—I want you to know that!

Mr Fahour : He raised the question about how many are on credit. His view was that a third of the post offices—and this is back in December, January, February—are likely to fall over. As a matter of fact, we have not seen any of that trend at all.

Senator XENOPHON: I guess the issue is that where there is a stop credit they cannot purchase stock, and the catch 22 is that selling stock is their only means of reducing debt so it becomes a vicious cycle they cannot get out of.

Mr Fahour : It is unlikely that this is a problem particularly in the last three months, for two reasons. One is: remember that we injected a whole $35 million—and I talked about this earlier—

Senator XENOPHON: Yes.

Mr Fahour : and we created two new payment streams. Very importantly, on 31 March, the stamp price went up and so therefore a lot of the post offices had a 10 per cent increase immediately in their revenue sources. So if anything, all I would say is that I think we have stabilised the ship through that very successful Senate inquiry—

Senator XENOPHON: It is still going.

Mr Fahour : and I think it will continue to be successful. I think it has raised the issues and it has also allowed us to deal with some of those elements. So I think we are in a really good position to say that we are dealing with the issues and focusing on them in a very tangible way.

Ms Corbett : With regard to stock fulfilment, our current stock delivery performance for on-time fulfilment—we do measure this on a monthly basis—is at 99.5 per cent, which is the on-time dispatch of available stock from the warehouse. That is with orders placed by 10 am Monday to Friday.

Senator XENOPHON: But that is not to do with stop credit though, is it?

Ms Corbett : No, that is actually to do with whether the stock is actually available for them in terms of stock availability. I think that what you are talking about is credit so that when a licensee is not on direct-debit arrangements and they have not actually paid their account, we then put them on a cash arrangement. That may be what you are referring to rather than availability of stock.

Senator XENOPHON: Sure. It is 'stop credit'—

Ms Corbett : 'Stop'—sorry, I thought you said 'stock '.

Mr Fahour : I thought you said 'stock credit'.

Senator XENOPHON: Sorry, my diction is not very good!

Mr Fahour : We are definitely happy to take that on notice and we will definitely get back to you.

CHAIR: It's just your accent, Senator Xenophon!

Senator XENOPHON: You are on a roll tonight, aren't you, Chair! Okay, I will enunciate. Maybe I will spell out words that I am not enunciating clearly—S-T-O-P! So the issue is in terms of stop credit. What are the criteria for a stop credit order or a stop credit to be applied to a licensee? The concern is that a number of licensees cannot seem to get out of this vicious cycle of being able to get enough credit in order to sell stock.

Ms Corbett : Different licensees are on different credit arrangements—whether on direct debit or not—and when a licensee is not able to pay that account when it is due, we have our network partnership people call that licensee and often they will come to some specific arrangement. We want to make sure that stock is available in terms of stamps. What often happens is that once we make those individual arrangements they will then go on to what we say is a cash account, which means they pay up-front for that particular stock so that stock can be advanced to them. Then we come back to various repayments on an individual basis where we work directly with the licensee; that is why it is hard to generalise.

Senator XENOPHON: I know it is hard to generalise, but are you able to say, on notice or otherwise, whether you have had an increasing number of licensees whose credit has been stopped because they have not met the usual criteria of payment terms with Australia Post?

Ms Corbett : Certainly, I will take that on notice. I have not been advised of any increasing trend. I think from memory, from previous Senate estimates, generally it is around 100 or so outlets out of close to 3,000 licensees at any one time—

Senator XENOPHON: About three per cent.

Ms Corbett : might be actually on an arrangement—and they come in and out of that—and then they can go back to a credit arrangement.

Senator XENOPHON: So, on notice, would you be able to tell me what those numbers are in terms of stop credit at any particular time?

Ms Corbett : Certainly.

Senator XENOPHON: Just so that I can establish whether it has gone up or down, whether there is increasing pressure in the LPO—

Mr Fahour : We are very happy to. But I think one of the things, just to give you comfort tonight, is that neither Christine nor myself are aware of any change in trend. Therefore, we are not alarmed by it, but we will give you the facts.

Senator XENOPHON: Sure, that would be good. I can give you a real-life example from an LPO on stop credit. It showed that all the income from the previous days is used the very following day to purchase stock from a corporate post office as a workaround, which puts them in a difficult cycle of not being able to break through that debt, because they have to use their cash to buy it at a higher rate from the corporate post office.

Mr Fahour : I would not be surprised if you have examples like that. As you know, I used to work for a bank—the largest banking organisation, especially in terms of small business customers. In this sector of retail you will have, at any one time, at least 10 per cent of your portfolio under some form of financial hardship. It is quite common to be on very limited credit from your bank and to not be able to access working capital unless you put up security or other things like that to be able to do that. These people find it very difficult. I am really pleased that when we did the benchmarking work—this was quite important in the LPO inquiry, back to it—on the difficulties that the normal retail sector would have out there in society and in all industries versus Australia Post, we were way down low with our licensees versus normal small business—and I know you know small business incredibly well. The number of people we have on credit watch or stop credit vis-a-vis the size of our portfolio is significantly better than the industry average out there that we know.

Senator XENOPHON: Thank you. In respect of that, would it be fair to say that there is more flexibility now in terms of someone going off stop credit because of a greater degree of communications with LPOs?

Mr Fahour : 100 per cent. That is why I keep coming back to it. I am not being flippant when I say this, but I think we achieved a lot of things through this LPO inquiry. I think we really did. We had some good breakthroughs, and one of those was—

Senator XENOPHON: Senator O'Sullivan may not agree in respect to that—but he is not here!

Mr Fahour : I am of the view, and the chair said earlier that he is of the view, that there has been very good progress. One of those items of the progress is I think better communication and understanding. I will give you the really great example: do you remember in December for Christmas we set up that hotline phone number where we would take direct calls about stock issues leading into that?

Senator XENOPHON: Yes.

Mr Fahour : We opened that up to the entire network. We received in total about 50 phone calls, and we were able to respond directly on that day to those issues.

Senator XENOPHON: Sure.

Mr Fahour : This is a good tangible example. It is very important.

Senator XENOPHON: I want to go to the issue of the new financial services transactions. Corporate post offices are providing new financial services transactions at the moment. Is that right? Are there some financial services transactions that are now available that are not available to LPOs? It is not a trick question.

Mr Fahour : I remember now that we talked about this at the last inquiry. We do. There is a bunch of identity services. For example, when we work with state or federal governments or businesses, they will say to us, 'We would like to offer these services in this area.' They identify the stores and the areas they want. Typically they start small. They might say, 'We will do five post offices.' They always start with our corporate post office, because if they get it wrong, we are able to control that destiny and to get it to work properly. The only way we make money is if we can roll it out to as many of our post offices as possible. So we are aligned to try roll some of these out.

Senator XENOPHON: The concern has been expressed that the new financial services are not available through LPOs yet. Are you saying that they will be available?

Mr Fahour : That is correct. It is our 100-per-cent intention—not 99, but 100—to try to roll out as many as we can, because it is the only way we make money. The more they do, the better off we are. But we have an issue: we are largely not in control of the decision. It is the client's decision as to which and how many post offices they wish to roll a particular service out to.

Senator XENOPHON: Do you mean the decision of the LPOs?

Mr Fahour : No, the client. DFAT is the best example with passports. They tell us how many post offices and where. DFAT is the customer. Banks are customers; state governments are customers. For example, for the Working with Children card they specified how many post offices. A lot of contracts specify the exact post office they want.

Senator XENOPHON: If you only have a limited number of post offices, would you roll out services like passports to the CPOs because they are the largest post offices?

Mr Fahour : If we can. It is not about CPOs and LPOs. We need to get them out to as many areas as we can because it is the only way we make money.

Senator XENOPHON: If a CPO is busier than an LPO, would you normally put it in a CPO?

Mr Fahour : But they are in different areas. Really, what we are trying to do is get geographical reach. Whether one is bigger or smaller is irrelevant to us.

Senator XENOPHON: I want to go back to the issue of stock credit. Can you understand me, Chair?

CHAIR: I was not even listening, Senator Xenophon. What did you say? I was reading an email about Peppa Pig.

Senator XENOPHON: That is the story of the day, isn't it?

CHAIR: It is. Sorry, could you repeat the question?

Senator XENOPHON: No. In respect of that you have said quite fairly that there has been a boost of about $35 million into the network which has helped LPOs with their cash flow and additional revenue. Is there a concern that now that money has gone into the system there may be a build-up in credit issues amongst LPOs which may be financially stressed?

Mr Fahour : I spoke earlier about some topics that you are extremely familiar with. The first one is the shot in the arm of $35 million; that is the bringing forward of the cash flow. Some big benefits that have been delivered, as opposed to being promised, are three other items. I remind you that on 31 March the stamp price went up and the BPR was up 16.7 per cent. That is a cash flow that every day and every year is going forward. That is another $30-odd million annualised in benefits to the LPOs. Then there are a bunch of new payment streams to the LPOs that have happened over the last three months. One of those is a new parcel payment for the extra work they have been doing. I said in my opening speech and I will say it again because I enjoyed saying it: the truckable article fee for PO box and counter mail delivery points is going to produce $2.6 million per annum to the LPOs. The third one I mentioned that we have delivered on is the MyPost concession accounts. For those concession accounts, which have a digital mailbox and five free stamps, we have paid the licensed post office so far, in just two months, $1.5 million. As they sign up, they get a big payment for that as well. That is what we have done in terms of new income streams.

I also mentioned that, in the coming short time period, we will also announce the rural sustainability package for post offices, which is the second tier set of information that was raised through the LPO inquiry. I do not mean second-tier in that they are not important—they are very important—but in quantum they are a little bit less. For example, there are things like the EPOS technology and the fees, and they are also related to representation allowances. The good news around this is that we have just about formed all of that. We are now in the consultation phase. I mentioned to the chair that we are seeing various interest groups. This Friday we have LPOG, which we are sitting with, and we are walking them through it. We will make sure that we do very good consultation. We will talk to your office and any other persons with a relevant interest in this. We will make sure that, when this is announced, people will see there was a good shot in the arm in the past and there was another good shot in the arm, and we are taking seriously all the submissions that are being made. I think this is a great outcome due to the Senate inquiry.

Senator XENOPHON: I will keep moving because I have quite a few questions. I am obliged on behalf of my constituents—

Mr Fahour : I am not interested in the rugby either.

Senator XENOPHON: I am a sports tragic. I know nothing about sports. In terms of some of the financial services that are available at post offices and rolling them out, my understanding is that tax file number applications are only available through CPOs?

Mr Fahour : It is the same as passports. The customer, being the ATO, tells us how many post offices we are allowed to roll it out to. It is a huge source of frustration, I might add. If you have any influence, we would love to roll out more.

Senator XENOPHON: I have no influence. I cannot just say—

Mr Fahour : We think it is a great service. We do a great job on it and we would like to roll it out to more post offices.

Senator XENOPHON: It is an issue to raise with the ATO—the limitations with respect to tax file numbers. You would not have a problem if the tax office said, 'Roll out the number of people to do tax file numbers—

Mr Fahour : Senator, you would be doing a great service to this country and to Australia Post if you were able to help us get that.

Senator XENOPHON: So it is not an issue from your point of view—rolling it out to LPOs?

Mr Fahour : No. As a matter of fact, it would be a great delight.

Senator XENOPHON: What are RSAs and RSGs? I will put this on notice. My understanding is that there are some other services that are only available through CPOs.

Ms Corbett : It is the same for everything, for all of our business. I think that what you are talking about is our identity services transactions?

Senator XENOPHON: Yes.

Ms Corbett : They are all, as our managing director said, client decisions. We often pilot to start with. Some of the clients are state based and some of them are federal. The client will decide what is the span of the network that they want to offer. Certainly, we are very happy, as a growing source of revenue, to expand it as much as the client or the principal would allow.

Senator XENOPHON: We will raise with the ATO, for what it is worth. I am sure Senator Williams will be at that estimates.

CHAIR: I am sure I will be.

Mr Fahour : We love the ATO. To be clear, they are a good client—

Senator XENOPHON: I am not suggesting that. I am saying that—

Mr Fahour : If they could do more with us, we would be delighted.

Senator XENOPHON: There was your recent speech, on 9 May, to the American Chamber of Commerce on the modernisation of post. Has that question already been asked?

CHAIR: About five hundred times!

Mr Fahour : Several times.

Senator XENOPHON: There is only one of me, Chair.

CHAIR: We are not criticising you, Senator Xenophon. Please do not take that the wrong way.

Senator XENOPHON: Did that consider the extra day a week on which licensees will have to compete directly with CPOs for business? Was that one of the questions asked of you?

Mr Fahour : No.

Senator XENOPHON: See, there you go, Chair. In your speech you announced that there would be an extension of trading to include Saturdays at all of your corporate post offices. Is that correct?

Mr Fahour : We already do Christmas. We open up on the weekend. From Christmas, we intend to continue to make sure that Australian society has access to all of the post offices, not just some of the post offices, on Saturday.

Senator XENOPHON: That will mean that LPOs will be expected to be open on Saturdays?

Mr Fahour : In this announcement, we did not make any statement about what LPOs will and will not do. We said that the post offices that Australia Post is in charge of will be expected to be open.

Senator XENOPHON: That is, the CPOs, the corporate post offices.

Mr Fahour : We would be happy, though, if all of them were to open on Saturdays.

Senator XENOPHON: There is a thing called penalty rates, though, on weekends that small businesses have real issues with.

Mr Fahour : That is what we have to incur, but Australian society has told us through the survey that they are frustrated because they are working Monday to Friday and they want to get access to some of the trusted services that we have in the post office. They say they go to some and they are closed, and they go to some others and they are open. That is a huge inconvenience and that is one that we want to deal with.

Senator XENOPHON: I understand it is driven by consumer demand and the brand of Australia Post. What I am trying to understand is: is this something that you discussed with LPOs prior to the announcement?

Mr Fahour : There is no change here to the LPOs. This is, as you just—

Senator XENOPHON: But there will be consequences to LPOs, though, won't there?

Mr Fahour : As I said, there is no impact to the LPOs. We are not asking them to change their trading terms. This is the corporate post offices opening to deal with the community that operates around them.

Senator XENOPHON: Sure.

Mr Fahour : Because they are mostly open on Saturdays anyway.

Senator XENOPHON: LPOs?

Mr Fahour : Yes.

Senator XENOPHON: Do you know how many are open?

Mr Fahour : Yes, we know exactly how many are open: 2,500.

Senator XENOPHON: Of the 3,300?

Mr Fahour : Just approximately, give or take. I am sure I am going to be wrong by a couple. The great majority are open on Saturdays. I have a local LPO around me. They are terrific. They open up nine o'clock to one o'clock on a Saturday, but then I go to my other one in the city and it is closed.

Senator XENOPHON: In my home state there has been a big debate about shop trading hours for smaller businesses competing with larger businesses, which I will not get into now, but if all of them will be open an extra day a week then they will be competing with those LPOs that are already open—correct?

Mr Fahour : I do not accept the statement that they are competing. We are all one network. Why do people want the post office open on Saturday? What do you think is the most important reason why they want to go to their local post office?

Senator XENOPHON: For service and convenience.

Mr Fahour : It is mostly to pick up their parcel. They have a card. You are at work from Monday to Friday, you cannot get around to it, and the parcel is delivered to the nearest area—not LPO versus CPO; it is the nearest area to where you live. If that happens to be a corporate post office, why should those citizens be penalised against because they go to work from Monday to Friday? That is the most important reason. This is about a service.

Senator XENOPHON: I am not suggesting anyone should be penalised in terms of consumers having access to a service.

Mr Fahour : No. I am just explaining why we are doing it.

Senator XENOPHON: I understand why you are doing it. I am not suggesting there is anything untoward about it. Do you acknowledge that there will be some impact on LPOs? In terms of not just parcel delivery but in terms of general services in a particular geographical area, if some of them are LPOs and a couple are CPOs, if the CPOs are open they will be in competition to those LPOs on a Saturday?

Mr Fahour : They are generally spread around in such a way that I do not accept the position that they are competing. They have their own little catchment area and they focus on that catchment area. That is No. 1. No. 2 is that, in the long run, the LPOs will benefit from this. I will tell you why they will benefit. I can tell you right now that the United States are going from six days to seven days for parcel delivery. They are doing Sundays in 22 cities right now. In the United Kingdom they are doing weekend trading as well. We are behind the times. The day of five days a week in the corporate post offices is behind the standards. When people buy online they want items delivered to their home, parcels and packages, and they want to be able to go to the shop and pick those up and do whatever they need to do.

Senator XENOPHON: I understand that.

Mr Fahour : So we are moving all the time. I will tell you why I believe it is in the interests of LPOs. When the sellers of online items look at what Australia Post has to offer now, this wonderful retail network that is open on Saturday and delivering on Saturday to the home, they will say, 'Gee, do I give this business to competitor A, B or C or do I give it to the post office?' I think we are going to get more revenue that we can share across the network and support the network rather than this being a competition issue. This is really a net positive to Australia Post. Why else would we do it?

Senator XENOPHON: Again, I am not questioning the motives of Australia Post for doing it. If there are more outlets open, clearly there will be more competition. You might just be just spreading the jam a bit more thinly over a larger piece of bread.

Mr Fahour : If you ask me for my honest opinion, I do not agree with that statement.

Senator XENOPHON: I hope the concerns of LPOs are wrong.

Mr Fahour : I think that would be a very short-term perspective. There might be some cases here and there but, by and large, the Australian community, in the surveys that we have done, has spoken very loudly. If I had a dollar for every time somebody complained by saying, 'Geez, your post office is shut; it is open nine to five Monday to Friday; how do you expect me to get to it,' I would be a very rich man. They want these services. They love their parcels. They do a lot of online shopping and we need to be relevant in the modern world.

Senator XENOPHON: On the flip side of that, let us assume that it might increase trade for some LPOs when the message goes out to consumers that it is open on a Saturday—although you are assuming an increase in demand for overall sales.

Mr Fahour : I believe that is what will happen. But there is service though. It is a service proposition they cannot support right now. If a parcel card is delivered to you and you need to go and get the parcel, and your local post office happens to be corporate one and is shut, what happens to you? What do I tell you? Which is, by the way, where the majority of Australians are. Do we tell them, 'I am sorry, you cannot have your parcel. Wait till Monday morning when we are open at 9am'?

Senator XENOPHON: I am exploring the issues that have been raised with me. The feedback that my office has had from a number of licensees is that they request to have their mandatory Saturday trading removed from their agreement because the business is too marginal and they are unable to recoup the costs to open for only three hours that are mandatory in the agreement. Would there be greater flexibility from Australia Post if your corporate offices are going to be opened that they could be excused from that part of the agreement? I am giving you the flip side of it. Some are worried about whether they will make a quid. Some are asking if they can bail out of that part of the agreement.

Ms Corbett : I sent a letter to our licensees on 13 May following the speech. I was invited all our licensees—

Senator XENOPHON: That was on budget day, do you know?

Ms Corbett : Yes, but I did actually say that if they had any questions. It was specifically with regard to the announcement around Saturday trade. I gave my email address for people to come to me to give me any feedback on that. Out of our network, I have had two people who have asked me those questions out of our 3,000 licensees. I have had two responses and they were to the letter signed by myself. To that, one of those letters was by a licensee who brought up the very issue that you are raising—they are open for three hours on Saturday, they do not do a lot of business at that time, they do pay penalty rates, and, all they do on Saturdays generally is hand out carded items. Is their discretion to change their Saturday trades.

In each of the agreements for different licensees, the hours of trade is one of the clauses that is put in there when they are signed. To the licensee that has written to as on that, we have said we are happy if there is not the customer demand there to trade. As our managing director said earlier, we will continue to meet the demands of what our customers say they want. If there is a specific incident where no customers are coming to a licensee on a weekend and they do no business, we are happy to look at that on a case-by-case basis.

Senator XENOPHON: So there is some flexibility there?

Ms Corbett : Absolutely.

Mr Fahour : Senator Xenophon, are you happy to get your parcels on a Saturday?

Senator XENOPHON: Nobody gives me parcels. I do not get mail; I only get bills.

Mr Fahour : No parcels?

Senator XENOPHON: No, I do not get parcels.

Ms Corbett : You do not order anything on the internet either?

Senator XENOPHON: No, I do not know how to use the internet. Just to put it in context, the inquiry into licensed post offices has been very useful. I am grateful that there has been a dialogue and communication. It has been shot in the arm, but I am still extremely worried that there are many, many LPOs who were feeling pressure, for a whole range of reasons. We talked about the drop in mail. Parcels are still going well, fortunately. Remuneration for services is one of the issues that has been raised. There is a genuinely serious issue because, if we lose those LPOs, especially in regional communities, we will lose a big part of the social infrastructure in those communities.

Mr Fahour : We have not in any shape or form denied that. How can we deny that they are under pressure when our own organisation has now publicly stated that, unless we change and modernise, we are financially unviable ourselves?

Senator XENOPHON: You do not want to take over those LPOs, because the costs involved—

Mr Fahour : Who is going to take us over? We will run out of money if we do not change. We already said that next year, for the first time in our corporatised history, the losses in letters will be significantly bigger than the profit in parcels. We will be in a loss position next year.

Senator XENOPHON: Are you looking at the UK model of first and second class, for instance?

Mr Fahour : Absolutely.

Senator XENOPHON: And not necessarily having daily post?

Mr Fahour : I have announced that. That is exactly what we are looking at doing. We are going to have for business customers next week the opportunity for them to pick different speeds and different frequencies at different prices. They are 95 per cent of the business. Ninety-five per cent of the mail is business and government sending out to citizens. They are going to have that service next week.

CHAIR: Sorting the letter you want there tomorrow compared to the one you do not care if it gets there for three days, is that going to be an extra cost to your business? Is sorting the quick deliveries at the higher cost from the slower deliveries at the lower cost going to be an extra cost for your business?

Mr Fahour : We already do that with express post items, for example, which are guaranteed next day in the network. They are sorted one way, and the regular items are sorted in another way. What we are really doing is now sorting another degree of the granularity. We have technology, processes and ways that allow us to say, 'This one here has a higher priority.' It is like, for example, today there are a whole bunch of what we call marketing materials. We call that off-peak mail. Off-peak mail sometimes goes only twice a week. I think it goes out on Tuesdays and Thursdays. The off-peak material is set at a cheaper price. That is, again, another version of first class and second class like we used to have in Australia 20 years ago. You used to be able to buy a first class stamp. That was 20 years ago. You paid $1 for the stamp you got a little priority sticker. You would stick that on and it would be a first-class stamp. That had a service requirements around it. So this is not new to us. It happens in the UK. It happens in the US. This is, as you said yourself, Chair, not rocket science. If we are to keep Australia Post relevant and viable into the future, we have to offer our customers choice and we have to give them a range of prices to reflect speed and frequency. That is happening for business next week.

Senator XENOPHON: Is this what is referred to as varied speed segregation? Is that what it is? Is that the lingo—'varied speed segregation'? Have you heard that, Chair?

CHAIR: Yes.

Senator XENOPHON: There is increased work involved in varied speed segregation of mail, isn't there?

Mr Fahour : It will not add any cost to us.

Senator XENOPHON: Let me rephrase the question. If you are a post office, whether a CPO or an LPO, is there more work involved in varied speed segregation?

Mr Fahour : No, because the post office itself does not deliver mail.

Senator XENOPHON: But is there any sorting that has to be done? I am just trying to understand.

Mr Fahour : I will let Christine Corbett answer the question, but, by and large, no.

Ms Corbett : It is very minimal. Our post offices at the moment do various breaks now. They do local-to-local breaks. They do an interstate break.

Senator XENOPHON: So they do local breaks and interstate breaks. Do they do overseas breaks?

Ms Corbett : Yes.

Senator XENOPHON: So those are the three breaks they do?

Ms Corbett : It is a little bit more complex. It depends on the size of the outlet. There is a regime, and different outlets are graded in different ways and therefore their requirements depend on the size and bulk of the mail they get. It is part of the everyday operations that our licensees and corporate outlets have always carried out.

Senator XENOPHON: Let us just deconstruct that a bit. At the moment there are various breaks in types of mail, and that forms part of the remuneration for sorting mail and the like.

Ms Corbett : Yes.

Senator XENOPHON: Does the new varied speed segregation system of mail involve some extra breaks?

Ms Corbett : One extra break. Again, what we are asking our licensees to do—

Senator XENOPHON: Only one?

Ms Corbett : When you think about it, this is for business mail. The vast majority of our business mail comes through our business hubs or gets lodged directly into the mail stream.

Senator XENOPHON: I understand that. In terms of an LPO, for instance—as that has been the focus of my concerns—they are being paid for a certain number of breaks and there will be only one extra break in respect of the varied speed segregation.

Ms Corbett : There will be different breaks depending on the requirement of the outlet. I do not have that detail available, but it has been communicated to all of our licensees.

Senator XENOPHON: I am a bit confused about this, and I apologise for not understanding it. Does the varied speed segregation involve one more break in terms of segregating the mail, or more than one more break?

Ms Corbett : We have always had an off-peak and a regular service—

Senator XENOPHON: Sorry, I will clarify. In addition to what has been the case for some time now.

Ms Corbett : We have rebranded it and we have informed our licensees and corporate outlets that there is a change to streaming requirements, and for those streaming requirements we pay our licensees a payment in terms of the streaming that they are required to do.

Mr Fahour : Can I jump in here, Senator? If there is more work to be done, they will need to be compensated. If we are asking them to do something different that is extra work than what they have today, as a general principle, you can rest assured that is one of the things we factor in in that. Let me go one step further and say to you that we have thought about this change that is required as the mail volume comes down. As you know, at this moment, they are not having to accept the losses that come with that, because they are not paid by volume; they are paid by delivery points.

One of the things that we have been thinking about is to say, 'Geez, they are going to get killed if we are not careful,' because the mail volume decline is killing Australia Post and we do not share that with them. We do not impose that on them; they get paid per delivery point. So what we are saying is that as we manage for the gradual and now accelerating decline of mail volume—because it was at 3 per cent, it is now at 6.2 per cent and it is forecast to be 8-11 per cent—is how do we reduce the cost of the service?

Senator XENOPHON: Which in turn you hope will arrest the decline to some degree.

Mr Fahour : The losses that Australia Post has are not being borne by the LPOs. How do we get them to help us maintain the payments to the LPOs, and, quite frankly—and it is in our corporate plan that we are working on right now—how do we find new income streams despite the mail volume decline? I think that is a big deal. We have got a year to work on this, by the way, because I said that this will not be happening until next year anyway.

Senator XENOPHON: Are we talking about the varied speed segregation?

Mr Fahour : Correct. For consumers and households, I said that is not until next year. What I am saying is that over the next year we are going to have to have lots of consultation and dialogue, and LPOs are absolutely high on our priority list for that consultation and dialogue about what it means, whether we are asking them to do more work, what they should be compensated for, what is fair and what is reasonable.

Senator XENOPHON: So, as a general principle, if there is more work to do with the new varied speed segregation of mail, that could mean an additional payment for the LPOs.

Mr Fahour : Just as it was when we launched the MyPost Concession Account for the discounted stamps for senior people and concession card holders, we asked them to do more work. We paid them a substantial amount of money per account that they have done, which has now led to $1.5 million in a new payment stream. When we ask the post offices to do substantial work, we generally pay for that. However, sometimes what we say is, 'This is actually going down, so instead of paying you less can we ask you to do some other things so we can hold up your payments?' That is reasonable, I would have thought.

Senator XENOPHON: I do not say this in an inflammatory way and I hope it does not come across like that but you talk about sharing the loss. You are not asking the LPOs to share the loss of the drop in mail business?

Mr Fahour : What I am saying is, so far cumulatively, we have lost $550 million of taxpayers' money.

Senator XENOPHON: In ordinary mail delivery?

Mr Fahour : Yes. We will lose $350 million next year so that brings the loss cumulatively to $900 million. And then it is going to end up being $1 billion. So far, one of our greatest sources of pride is we have been able to not impose that on the LPOs, not let them share in those losses.

Senator XENOPHON: They would close down if they had to share in those losses.

Mr Fahour : What I am saying to the senator here is unless we get reform and introduce multi speed, varied speed products, unless we introduce appropriate pricing and fair pricing of the products and services that we sell, unless we recover the costs not only will we not be able to shield the LPOs but we cannot even shield it from ourselves. We are in a financially vulnerable position.

Senator XENOPHON: I understand that but the parcel business is still going well, correct?

Mr Fahour : The parcel business is going well but the loss in letters is now bigger than the parcel business. That is a big change. It is the first time.

Senator XENOPHON: Are you seeing an increase in the parcel business or has it not offset any loss?

Mr Fahour : It is growing a little bit, like normal. But the loss in letters—

Senator XENOPHON: What is 'like normal'? I do not understand what 'normal' is in this place.

Mr Fahour : Say it is going up 10 per cent, for argument's sake. The loss in letters is going up 50 per cent. So when loss doubles in size, it does not matter what you do in the parcels world, you are never going to make up for the size of the mail business declining. As of this calendar year 2014, we are getting overwhelmed. What I am saying to you, Senator, is: unless we reform this business, forget about Australia Post. We cannot save the licensed post offices. And the best way to save the licenced post offices is to save Australia Post. We need to modernise this company fast.

Senator XENOPHON: I am not arguing with you.

Mr Fahour : It is a very important issue.

Senator XENOPHON: If there is going to be the new varied speed segregation of mail, the LPOs will be appropriately consulted in terms of where there needs to be change in remuneration?

Mr Fahour : Absolutely, I can give you an unequivocal guarantee that we will have extensive consultation and dialogue about it.

Senator XENOPHON: I will go to evidence that Mr Ian Kerr gave on 26 March in this inquiry.

It is greatly disappointing that Australia Post has failed to negotiate increases in this payment in good faith with Licensees.

I just want to make it clear that it is in relation one thing, carded articles. He said that there was no change in Australia Post's attitude towards negotiating that payment. That was just one payment, to be fair.

Licensees in metro areas are typically eligible to receive the carded article payment. The payment is negotiable for LPOs that receive in excess of 25 carded articles per week. It is greatly disappointing that Australia Post has failed to negotiate increases in this payment in good faith with Licensees

That was a complaint made by Mr Kerr. Have there been any other further negotiations since that time? On the record, you can tell us there has been an improvement in that or are there still negotiations in respect of that? Or do you consider the complaints are unreasonable?

Mr Fahour : I think negotiating with POAAL for the last seven-odd years has been of a satisfactory nature.

Senator XENOPHON: How many years?

Mr Fahour : POAAL has been around for seven something years. I am saying I believe, from looking at the track record that I have seen, that we have actually been very good at discussions and dialogue with POAAL. Where we have had to face into the current reality is that there are other interest groups who are either a single post office or a culmination under different groupings, we have had to improve the quality of dialogue with them too. We are happy to say that we have improved a lot since that Senate inquiry. You would agree with me, Senator, wouldn't you?

Senator XENOPHON: I am just asking some questions.

Mr Fahour : I just thought I would throw my weight in as well.

Senator XENOPHON: That is fine. You know what? If I can get elected to the Senate, you certainly can, Mr Fahour. There is a live issue that Mr Kerr raised on behalf of POAAL. There was a complaint that he raised. Have there been negotiations in the two months since he gave that evidence or is this still a live issue for discussion between POAAL and Australia Post?

I will answer your question: this whole process has been very useful in opening up dialogue and it has been a very positive process. I am really grateful for it.

Mr Fahour : Thank you.

Senator XENOPHON: But if you want to ask more questions, you can run for office.

Ms Corbett : There are probably three aspects to the issue that you have raised with regard to that fee. The first is with regard to the carded article. Obviously, when the BPR fee went up, so did the carded article fee. That has also gone up by 16.7 per cent.

Senator XENOPHON: Can you clarify this for me: the latest BPR increase, has that been applied to carded article payments?

Ms Corbett : Yes.

Senator XENOPHON: It has?

Ms Corbett : Yes.

Senator XENOPHON: I thought it had not, but you say that it has.

Ms Corbett : Yes.

Senator XENOPHON: That is pretty clear. My information was incorrect.

Mr Fahour : She said 'yes' three times.

Senator XENOPHON: I accepted the first 'yes'.

Ms Corbett : That is because of the payment structure. One of the issues raised through the inquiry was that certain delivery related payments, of which the carded article fee is one, were actually connected to the BPR. One of the issues that licensees raised was the fact that because the BPR had only been increased less than a handful of times over the last 20 years, those payments had actually fallen behind. With the latest BPR increase, the carded article payment has gone up 16.7 per cent.

Senator XENOPHON: Is that for all negotiated payments though, in terms of the BPR increase?

Ms Corbett : That is for the delivery related payments. It is for the payments in the schedule that are related to the BPR and they are itemised in everyone's individual contracts.

Senator XENOPHON: It is not all negotiated payments though, is it?

Ms Corbett : No. I think we have quoted previously the 29c rate. As I said, that has now gone up 16.7 per cent. In addition, one of the other issues—it certainly was an issue for some licensees—was that it did not apply. We then introduced a 22c scanning fee. That did not actually apply to parcels that came through a post office box, so we have now applied that. That would be the second advance, I would say, in terms of what has come out since—

Mr Fahour : That was a trackable article fee to post office boxes and counter mail.

Ms Corbett : the trackable article fee. They are two quite significant advances that have actually progressed since the LPO inquiry.

Senator XENOPHON: But not all payments have gone up with the BPR?

Ms Corbett : No, not at all. Only the ones that were meant to be—only the ones that are linked to the BPR.

Senator XENOPHON: I understand.

Mr Fahour : Let us be clear though: the non-BPR linked ones have been going up anyway.

Ms Corbett : Yes.

Mr Fahour : So they have all gone up too, but not linked to that. But we can now show demonstrable evidence that every single one of these major items is going up; if we look at our expenses, in terms of the fees that we pay to LPOs, between last year and this year, they have gone up a lot.

Senator XENOPHON: Can I go back to the issue raised by Mr Kerr on 26 March this year. I do not have to repeat his complaint relating to carded article payments.

Mr Fahour : No.

Senator XENOPHON: There was an issue in terms of negotiations in respect of that. He said: 'I would say there is a significant issue with regard to a variety of matters'—this was a question in respect of viability of LPOs—'(1) revenue, (2) storage, then occupational health and safety, staffing that was fit and so on. It is more severe at some LPOs than others'. If you have not already done so, can you give me an undertaking that this is something that will be negotiated in good faith with POAAL?

Mr Fahour : We negotiate with POAAL on a regular basis. If anything, some people have been criticising us, saying that we have only been negotiating with POAAL—

Senator XENOPHON: Which I am going to get to in a moment.

Mr Fahour : and I do not believe that that is a fair criticism at all today. We act in good faith. When you sit down and negotiate—negotiation does not mean they ask and I give whatever anybody wants. Negotiation means we have a dialogue; we have a discussion; we have a debate; we look at the facts; we look at what we can afford. I have just said that we are about to lose money and we are becoming financially unviable. There are some things that they will get and there are some things that they will not get. When they do not get it, it is not good enough in my opinion for them to go around and say, 'Well, they didn't give me this.' Well, that is called a negotiation. A negotiation is not 'I ask for 10 things and I get 10 things'. I am sure you would agree with that?

Senator XENOPHON: You are asking me questions again! But the issue is that it is a complaint from both the LPO group and from POAAL in respect of that. You are saying that there will be no further discussions or negotiations at this stage in respect of the carded article payment.

Mr Fahour : No, not at all. We have regular, ongoing discussions regarding all payment items. I believe, in the sum of the scheme right now, given where we are, we have been more than fair for this very important network—no matter who we are negotiating with. I believe we have been fair and reasonable but I believe we have a bigger problem, Senator. I want to keep coming back to this, and I know you're sick of hearing me say it—I'm sounding like a broken record. Year after year, I keep coming here and saying this: unless we reform Australia Post; unless we find ways to change what we are doing, we are financially unviable—if we stand still today, we cannot look after the LPOs, we could not look after concession card holders, we can't look after the community; we can't keep the post offices up—

Senator XENOPHON: I understand that.

Mr Fahour : I am just saying to you: we will not be able to pay for any of this.

Senator XENOPHON: In terms of the audit commission's recommendations—correct me if I'm wrong—were there any recommendations in respect of Australia Post in relation to additional services?

Mr Fahour : Look, I think the Commission of Audit did raise the possibility that the government should review the opportunity to give Australia Post more trusted services—things like, for example, a payments mechanism, which we do a lot of, and the government does some of; is there a way of looking at those? They raised the possibility of that. And we await to hear what the outcome is. I think Minister Cormann today dealt with one of the other issues in regards to the Commission of Audit.

Senator XENOPHON: In terms of privatisation, I think; yes. But you believe that you have the resources and the capacity through your CPOs and your LPOs to provide additional services.

Mr Fahour : We have a great network and we are ready to go. We would love the government to give us more services—

Senator XENOPHON: Okay, good.

Mr Fahour : that we can deliver through them, and pay them for it.

Senator XENOPHON: With appropriate remuneration to LPOs.

Mr Fahour : Absolutely.

Senator XENOPHON: Can you just confirm—and I don't want to get stuck on this—in respect of the carded article payments above the base rate: they should have the BPR increase, is that right, Ms Corbett?

Ms Corbett : Let me take the specifics of that on notice. Certainly, the carded article fee—

Senator XENOPHON: I just don't want to be accused by the chair of not enunciating properly—

Ms Corbett : No, that is clear. Let me take that on notice. Certainly, the carded article fee has gone up by 16.7 per cent. I think that your question that I will take on notice is, if there is a negotiated fee above that, how is that affected?

Senator XENOPHON: And is it the case that Australia Post has deferred, or will not negotiate, any further increases for another 12 months? Or not?

Ms Corbett : I'm not aware of that.

Senator XENOPHON: You are not aware of that. That is fine. If you could take it on notice; I am just trying to clarify—

Mr Fahour : But did you know there are some new announcements around some other fees that will be announced after we finish our consultation process over the coming weeks?

Senator XENOPHON: Sure.

Mr Fahour : So clearly, that is not right.

Senator XENOPHON: Okay, that is fine. I am very happy to take that on notice. Can I go to the issue of representation: the LPO group now has, I think, several hundred members; its membership has increased. Obviously, POAAL has been around much longer, and has a substantial number of members. Because the LPO group now represents a significant number of post offices, is there a formal MOU at this stage, in terms of being able to negotiate with them, or to involve them in your negotiations?

Mr Fahour : As you know, one of the positives that came out of the Senate inquiry is that we have agreed on an extended level of understanding for consultation and dialogue to include the LPO group, and we have exchanged letters on that basis.

Senator XENOPHON: So they are part of the negotiating process now. They are acknowledged and recognised—

Mr Fahour : Absolutely—part of our consultation process, and part of the dialogue around what are the things that we need to do with licensed post offices. I think they have a fair representation of a fair number of post offices, and we need to deal with them. And, as I think I might have mentioned before you came in, we have a meeting this Friday, I think; Christine—it is this Friday isn't it?

Ms Corbett : Yes.

Senator XENOPHON: Okay. There is an ongoing dialogue.

Ms Corbett : Yes. We had a meeting at the end of March, again in the middle of May, and there is another meeting scheduled for this Friday.

Senator XENOPHON: Can I just go to the issue—and I am trying to get to the home stretch, Chair—

CHAIR: Take your time!

Senator XENOPHON: Australia Post-employed drivers have a role to deliver stock to post offices—is that right? I am trying to work out whether, logistically, Australia Post drivers deliver stock to LPOs.

Ms Corbett : Yes.

Senator XENOPHON: I raise this sensitively—an allegation has been made that some Australia Post-employed drivers are saying, 'We cannot deliver it to your LPO,' so licensees have to go to Australia Post hubs to collect the stock. Is there any policy on that, or is that just an aberration?

Ms Corbett : I am not aware of that. It was brought to our attention by a licensee, probably two weeks ago, that there had been an isolated incident in metropolitan Sydney where there had been some delays with delivery of stock to a licensee. We have now confirmed with that licensee that that is now back to normal. That is the only situation that I am aware of.

Senator XENOPHON: I am very pleased to hear that. So the protocol is that stock should be delivered to the LPOs rather than the licensee having to go to a hub? Is that what normally happens?

Ms Corbett : Yes, that is my understanding.

Senator XENOPHON: Yes. So there has not been some new measure or ruling—and, if that did occur, it would have been an aberration.

Ms Corbett : Yes.

Senator XENOPHON: It is not the intention to require LPOs to cover that extra expense and time?

Ms Corbett : There has been no change in policy that I am aware of that would require licensees to go to a hub.

Senator XENOPHON: That is very good. I want to refer to question on notice No. 148 from the additional estimates hearings in February 2014. You obviously do not remember that question! That is a joke.

Mr Fahour : Please remind me, Senator.

Senator XENOPHON: I was not suggesting seriously that you remembered that question, Mr Fahour. Your answer included:

Steps have been taken to ensure that any future change in LPO credit limits will include consultation with the individual licensees involved prior to any change being made to their credit limit—

that is, that there would be consultation in respect of that. I was not seriously suggesting that you knew the answer to question No. 148, Mr Fahour. Now, as recently as this afternoon my office received contact from a licensee claiming that their credit limit had been changed unbeknownst to them, and they had to contact Australia Post for an update. Is that an aberration? There is a protocol for consultation?

Mr Fahour : I am sure that some miscommunication occurs from time to time, even with the best of intentions. But it is something that we regularly dialogue—we have lots and lots of conversations. It is not in our interest for an LPO to not trade to the maximum possible amount for them. I keep coming back to this point: when they make money, we make money. Why would we not want them to be successful? It is counterintuitive. Sometimes there is a breakdown in communication. I cannot promise you that every conversation, every post office, every day—and I am sure they will be some isolated incidents, but there are no policy changes on this issue.

Senator XENOPHON: Okay, that is fine, and I will not take that any further. If there is the occasional breakdown of communication, which is inevitable with so many post offices—and I think that the dialogue and the communication is much better—for the record, I think that there are new processes in place for that dialogue.

Mr Fahour : And the hotline number is still open, isn't it, Christine?

Ms Corbett : No, that was just for Christmas. It was a Christmas hotline. But the arrangements for licensees are that, if there are any aberrations like that, they should call their network partnership manager. Certainly, the processes with regard to credit through our credit management area should be that, if there is any change in credit limit, the licensee involved is consulted before any changes are made.

Senator XENOPHON: Going to the issue of stamp orders, is there a back order on stamps, a one- to four-day delay in stamps, or was that just a temporary delay in the supply of stamps? I have had a complaint in respect of some remote and rural LPOs having an issue with getting stamps.

Mr Fahour : No, we have plenty of stamps. We would like people to buy some more. It would be really handy if they could.

Senator XENOPHON: Are you saying that, if there was a problem, it is no longer a problem?

Mr Fahour : It might have been a localised, one-off issue. Who knows?

Senator XENOPHON: I want to go to the digital mailbox and the reports I have seen of the US digital mail company Zumbox. I thought it was related to Professor Zumbo, whom I know quite well and have a lot of regard for!

US digital company Zumbox has announced that it is shutting down after five years of business. I think it said at this point the time and cost required to deliver on the vision is more than the market is prepared to invest. Does that say that the time for the digital mailbox has not yet come? Time had not come for Zumbox in the US? How is the digital mailbox vision for Australia Post doing in terms of its rollout, its progress? Where do you see its role now and where do you see it in five or 10 years time?

Mr Fahour : I think the digital mailbox is one of these fundamental decisions. In the next five to 10 years we will look back on this and say, 'How could we even be discussing it?' The idea of receiving your mail in a letterbox is rapidly declining and already today the great majority of your correspondence is in digital form. The irony that I find in life is that, whenever we do something at Australia Post and people complain to me, all of the complaints I get are in email. They complain about the letter service and they complain via an email, and the irony of that is, I am sure, not lost upon you. This notion of: it is ahead of its time, is the most preposterous thing I have heard because email—

Senator XENOPHON: Zumbox basically shut down.

Mr Fahour : Yes, as I understand it. That is a venture capital, a small company in the United States offering one service. I mentioned to the chair that we deliver four billion letters and I asked him how many emails do you think—I have got good at asking questions here at Senate estimates—occur in Australia? And the answer is—

CHAIR: I guessed it right: 400 billion.

Mr Fahour : Yes, 400 billion, absolutely correct. There are 400 billion emails. Society has moved to digital communication. The question is: which channel will win? What type of digital communication? Is it email, is it social network sites, is it alternative channels? The Australia Post digital mailbox is a fundamental part of moving into the 21st century for us to deliver the mail in digital form. I do not believe it is a tomorrow thing. It is not going to be tomorrow. It will be something that will develop over the next five or 10 years.

I will say something about the United States that is different to the other countries and this is very important. We find that the rate of mail decline and digital mailbox take-up rate is 100 per cent correlated to two key factors. One is the price and the spread of fast broadband services. The cheaper the price and the greater the uptake of broadband services, the faster the digital penetration is. The second factor is what is called e-government delivery, when you deliver services on e-government. We correlated about 30 countries around the world and what we found is one of the lowest e-government penetrations in the world was the United States. Firstly, e-government is low in the United States as opposed to, say, the Nordic countries in Europe, or even New Zealand or Canada and, secondly, I do not know whether you have been to the US, but certainly when I lived there a lot of people used DSL services. So broadband prices and broadband penetration is not anywhere near where some of the European countries are—UK, Germany, France, Australia, Korea and New Zealand. And so I do not think that is the best benchmark we have. If you look at other countries, you will see they are really starting to take hold and they are delivered best by the postal organisation of that country, because they are used to delivering sensitive, private, communication material. That is our core business and I think we are uniquely placed to deliver on that service into the future.

Senator XENOPHON: You have said that most of your complaints on the postal delivery come by email. So you would take it more seriously if it was sent by stamp?

Mr Fahour : I actually do not really respond to email, because most of them get spammed. But I love it when there is a stamp on an envelope. I open it up and I personally respond.

Senator XENOPHON: If there are any issues, I will make sure that I do not send you any more emails in future.

Mr Fahour : I would greatly appreciate you keeping the postal service singularly going.

Senator XENOPHON: The greater the success of the digital mailbox—and I understand the way technology is going—what impact will that have on LPOs in rural areas where part of the business model is 'snail mail', for want of a better word?

Does that really drive the need for diversification? As digital mailboxes become more highly used, it is more important to have a whole range of other services.

Mr Fahour : I think for a lot of these LPOs the digital mailbox is neither here nor there. The reality is email, Facebook and social network sites set in a long time ago. The last generation of people who used mail is now down to five per cent of our volume. Five per cent is you and me writing letters to each other. The majority now is business customers sending mail. They are coming off the mail system at a very rapid rate. As I mentioned in my last answer to your question, we have shielded LPOs from that decline. It does not matter for them because they are paid on delivery points. So the great bulk of them have been shielded from this 30 per cent decline in the mail business, and they have not felt the effect of mail volume decline like the taxpayer has felt through Australia Post. What I am saying is—and I have said this in the LPO inquiry, and I will repeat this again—I would urge every single licensed post office to diversify their business and add other services. We will help, but we are not 100 per cent for all of their—

Senator XENOPHON: You need to provide those services to a large extent though, don't you?

Mr Fahour : Not all of them. Some they will do themselves. So many—at least 50 per cent of the network—have gone and put other services in their store. Some have pharmacies, some have news agencies, some have a whole bunch of other groceries—whatever it may be. I am urging the licensed post offices to do this, and I have said it in several conferences that I have attended. I have said to them, 'We will do our bit. We are going to go get as many business and government services to put through you as we can.' Right now nearly a third of the payments I make to licensed post offices come from those trust services that we were just referring to.

Senator XENOPHON: Ms Corbett, how many LPOs are there in the system? Is it about 3,000?

Ms Corbett : Yes, it is just under 3,000.

Senator XENOPHON: How many LPOs do you think there will be in five years time?

Mr Fahour : I am not here to speculate. I am certainly not here to give guesses. But what I will say to you is this: our corporate plan, our modernisation of Australia Post, that we are putting together and finalising right now is being built on the premise that we will still have 4,400 post offices over the entire planning period. We have already finalised several pieces of advice to the minister through our postal services review, through our white paper and through several other forms of communication that we have had with the LPO inquiry. We are not building a corporate plan on the assumption that we are going to shut down these post offices. Therefore, we are building a plan to build the business and support the post office network. It is the bedrock of our postal service business. It is the bedrock of the communities. We have to develop a viable plan that keeps them going. That is what our plan will show, and that is what we are starting to outline here.

Senator XENOPHON: Thank you very much. There are some issues that I have been getting messages about while I have been asking questions.

Mr Fahour : Digitally, have you?

Senator XENOPHON: I do not think there is a mail delivery service to parliament at nine o'clock.

Senator FIFIELD: There are not telegrams anymore.

Senator XENOPHON: I miss the telegrams.

Mr Fahour : So you can see why we need to modernise.

Senator XENOPHON: I think some of the specific matters that have been raised will best be raised on behalf of a number of these licensees with both you and Ms Corbett. I will undertake to advocate on behalf of those licensees.

Ms Corbett : Certainly.

Senator XENOPHON: Thank you very much for your time.

CHAIR: Senator Pratt, do you have any questions?

Senator PRATT: No, but I have some concern to express that we were denied time on the NBN so that we could sit here till 11 with Australia Post.

CHAIR: Yes, we had the same concern last year when you only gave us 3¾ hours. We were very concerned about it too.

Senator URQUHART: I think it is more than that with Senator Xenophon. It is really about time allocation.

CHAIR: Anyway, with that we are finished with Australia Post. If there are no further questions, I thank the witnesses. Thank you for answering all of the questions, Ms Walsh. You did a very good job!

Ms Walsh : That is what I am here for.

CHAIR: We will resume at nine o'clock tomorrow morning.

Committee adjourned at 20:54