Peter HettichGovernance by Mutual Benchmarking in Postal Markets : How State-owned Enterprises induce Private Competitors to Pursue Policy Goals

(Part-The Journal of Institute of Public Enterprise, Vol. 34, No. 1&2 2011, Institute of Public Enterprise1) In many regulated sectors, we deem private markets to be the most promising way to provide goods and services. Some economists argue that most governmental intervention in markets is motivated by the lobbying of special interest groups or the self-interest of politicians. Generally speaking, the true scope of government, according to economists, is probably small under efficiency considerations. Public law scholars, in particular, however, argue that cost savings by privatization , if any, are the result of abandoned public policy goals, rather than increased efficiency
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6 4

. Consequently, they call for more scrutiny in privatization decisions and an extension of public law norms on private actors by contractual or regulatory provisions (traditional command-and-control regulation) Traditionally, postal markets have been subject to public policies like universal service, fair and equitable pricing and reliable and efficient service.

Public-private competition triggers a mutual benchmarking

process, which allows withdrawal of other sector-specific regulatory safeguards. The performance benchmark of the SoE induces private actors to provide a minimum standard of service; it also pressures them to consider and implement policy goals in their business strategy. Since a benchmark is not coercive, it leaves the competitive process intact. In contrast to competitive sourcing
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, public-private competition remains in place permanently, continuously securing policy goals, which the competitive process between private actors does not produce in postal markets. In public-private competition, governmental and private actors are both providing services in markets. Regulators, however, should apply universal service obligations only to the SoE and leave private providers committed to market forces. Postal markets, like most infrastructure

Some economists argue, however, that competition between government and

private firms is disconcerting sequently, possible drawbacks of governmental ownership and the conditions
of fruitful public-private competitionhave to be discussed in Section-4.. ConPostal Services in a Rapidly Developing IT and Telecommunications World - The Case For Postal Sector Reform in Egypt Sahar Tohamy Working Paper No. 72 September 2002 Performance Indicators of the Egyptian National Postal Organization Egypts postal services comprise traditional core services provided by postal authorities in the majority of countries. These services include the delivery of addressed letters and parcels, as well as the operation of a number of financial services such as the management of postal service and current accounts, the issuance and delivery of money orders, as well as agency services where the postal authority 3 performs some activities on behalf of the government, for instance, the sale of duty stamps, the disbursement of pension payments, and the issuance of vehicle licenses. Delivery services represent the core of postal services because of the volume and network characteristics that support regularly scheduled, dense deliveries in a region.
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Also, because of economies of scope in the form of existing networks of postal offices, financial services represent a typical component of postal services in both developing and developed countries.
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Examining the size of these services in Egypt relative to developing countries can be the starting point in assessing the sectors performance and its potential for growth. The performance of developed countries in this area is not comparable to developing countries due to their level of economic activity which guarantees sufficient traffic flows that eliminate excess capacity possibly associated with universal service commitments. Therefore, the comparison in this section is limited to indicators from the developing world. The most basic set of performance indicators are delivery indicators per capita. The performance of Egypts postal services relative to other developing regions in 1997 appears in Figures 1-2. , Egypts combined per capita flow of domestic and dispatched international letters is low (3.3 pieces per capita) even when compared to regions such as Africa (7 pieces per capita) and Arab

countries (7.6 pieces per capita). When looking at each group separately (domestic vs. international dispatch), we find that an inhabitants share of international traffic does not differ significantly across regions (0.4-2.6 per capita annually). The discrepancy, however, arises from demand for domestic traffic. Similarly, per capita flows of parcels in Egypt is the lowest compared to all other regions (0.03 and 0.003 for every 1000 inhabitants), in contrast to flows that reach close to 150 pieces per 1000 inhabitants in Latin America and Eastern Europe and the Commonwealth of Independent States (CIS). Again, and similar to indicators for letter traffic, domestic parcel flows in Egypt appear to be the source of the limited In terms of operational efficiency, the Egyptian National Postal Organization (ENPO) employs close to 40,000 workers, with an average number of workers per permanent postal establishment of 5.25. This is not different for postal establishments in other parts of the world where it is 5.88, 5.92, 5.66, and 4.65 for Africa, Arab countries, Asia and Pacific, and Latin America, respectively. The only group of countries with a significantly higher ratio are the industrialized countries where the average number of postal workers is 12.63 per establishment. This is probably a function of the high volume of delivery and financial services provided in industrialized countries. Therefore, the worker/establishment ratio in Egypt is not different from other parts of the developing world. Output per worker, however, is low in Egypt (Figure 5). The most striking differences, as can be expected, appear in the delivery of domestic letters where the average number of pieces delivered in Egypt in 1997 was 3,385 per worker compared 6Output per worker, however, is low in Egypt (Figure 5). The most striking differences, as can be expected, appear in the delivery of domestic letters where the average number of pieces delivered in Egypt in 1997 was 3,385 per worker compared 6
Egypt

to output that reaches around 40,000 pieces per worker in Africa and Latin America. An Egyptian postal worker, by contrast, delivered 2,236 pieces of internationally bound mail in 1997. This is higher than corresponding numbers for Latin America, Eastern Europe and the CIS, and Asia and the Pacific regions. The highest figures in this category are for the African and Arab countries.

As a result of demand, productivity, financial results and investment patterns, ENPO appears to exhibit patterns of the vicious circle that many developingcountries postal authorities face: low demand volumes that result in poor financial performance which translate into low investment levels causing reductions in the quality of service that lead to further cycles of depressed demand (Figure 8). In addition, competition from other sectors and services exert additional pressure on postal services. While estimates for Egypt do not exist on how actual or projected developments in IT and telecommunication services impact the demand for traditional postal services, estimates for the US suggest that in the last five years the postal service has lost about 35 percent of its business-to-business first class mail to e-mail, teleconferencing, and faxing. These electronic services especially e-mail and faxes are cutting into the services first-class mail business, which generates 57 percent of its revenues. Similar concerns are echoed by Canada Post: Letter mail volumes no longer keep pace with general economic growth, having been eroded by competition from courier services and electronic alternatives such as fax, electronic mail and electronic fund transfer. The dominant users of Canada Posts letter mail services banks, utilities, credit card companies and other businesses are especially likely to adapt to electronic alternatives where it is cost effective to do so. A study conducted by Coopers and Lybrand for the European Commission (EC) found that physical mail substitution rates would be highest in the business-to-business market and businessto-residential markets. The study found gross substitution rates of 15-30 percent

overall, depending on operator and country characteristics. Therefore, the conclusion is that while Egypts current IT and telecommunication conditions are not as threatening to postal services as they are in more developed countries, the progress in these areas is sufficient enough to increase competitive pressures on postal services. At the same time, slow development in ecommerce and the lack of any significant increase in mail-order delivery result in a net negative impact on telecommunications development in Egypt, which is basically the substitution of letter and document traffic from regular mail in favor of telecommunications and electronic means. This slow progress in e-commerce is due to both the institutional and regulatory framework of the banking system, as well as business practices of the economy as a whole. Corporatization and Commercialization of Incumbent Postal Operators Many countries treat corporatization and commercialization as the first stage of the reform process; others consider them adequate reform measures by themselves. Ideally, countries embarking on postal market reforms should rely on both approaches. This section highlights the main features of each of these models with examples from countries that have chosen to initiate reform in postal services.

The Postal Sector in Developing and Transition Countries

Contributions to a Reform Agenda
Edited by Pierre Guislain

September 2004 The World Bank Group Global Information and Communication Technologies Department, Policy Division
Box 1. Defining the Postal Sector
Websters provides an interesting word history for post: The word post, meaning mail, is ultimately derived from Latin ponere, to place, put in position. This meaning of the word post was a result of the

method of delivering mail. In the 16 century, horsemen were stationed at designated places along certain roads to ride in relays, with royal dispatches and other papers. These couriers were called posts. As the system of mail delivery expanded during the next two centuries, post was applied to a delivery of mail and then to the organization responsible for the entire system of delivering mail. In Middle English times the word mail meant simply bag, especially one used by a traveler for provisions. Such bags were used to carry letters, and the word mail eventually came to designate the contents rather than the container. he United Nations International Standard Industrial Classification, Rev. 3.1 (ISIC), breaks the post and courier activities sector (group 641) down into national post activities and courier activities other than national post activities. National post activities includes pick-up, transport and delivery (domestic or international) of mail and parcels; collection of mail and parcels from public letter-boxes or from post offices; distribution and delivery of mail and parcels; mailbox rental, poste

restante,
etc.; mail sorting; ansale of postage stamps. This class excludes postal giro and postal savings activities, and other financial activities carried out in combination with postal activities. Courier activities other than national post activities includes pickup, transport and delivery of letters and mail-type parcels and packages by firms other than national post. This class excludes similar activities carried out by the national postal authority. The distinction between postal and courier activities is highly interesting as it is based more on the provider of the service than the activity itself, which

is unusual for an ISIC classification. There is a somewhat indistinct border between the postal and logistics sectors, with the postal sector tending towards ongoing collection and delivery networks providing services covering comparatively small items to a wide population base while the logistics sector is characterized by point-to-point deliveries of bigger items to and from a comparatively small base of large customers. The definition of logistics provided by the WTO is as follows: Logistics deal with the supply chain process that plans, implements, and controls the efficient and effective point-to-point flow and storage of goods, services, and related information, throughout the production, distribution and delivery stages, from the initial suppliers of inputs to final customers of product What do the papers suggest about the nature of the postal sector and the incumbent postal operator in developing countries? the quality of service provided by the incumbent operator is often poor. Trust in the postal sector is low and legal universal service obligations (requiring letter delivery to all citizens at a given quality) are far from being met by the incumbent (Postal Policy and Regulatory Reform and Questioning the Monopoly). The efficiency of incumbent operators is weak. Questioning the Monopoly suggests that developing countries deliver perhaps one-tenth or fewer letters per employee than developed countries. The financial situation of the incumbent

operator is dire. Postal Policy and Regulatory Reform suggests cumulated losses of incumbents can run as high as 2 percent of GDP, and that three-quarters of African public postal operators report a negative net financial position.

Conclusion
Post offices throughout the world were established to facilitate the conveyance of mail. To fulfill the collection and distribution of mail, governments built a network of post offices to provide the entire population access to postal services. Many countries realized the potential of such post offices in the provision of other services, thus, post offices diversified into providing financial and government services. But the core product still remained mail services.w What exactly is the role of post offices in todays world? Governments need to define the purpose of their post office: is it a mail distribution company; is it an access point to government products and services; is it an access point to financial services; and is it a commercial self sustaining business? How should it be run? If it is operated on a commercial basis, nonprofitable outlets will need to be closed and service levels reduced in areas of low demand. If this is not acceptable to governments, they must define adequate schemes to maintain and finance the desired service levels and implement them in a transparent way. For example, the United Kingdom government pays Royal Mail a subsidy specifically to maintain the rural network of post offices, which would otherwise be closed. Governments should consider divesting themselves of management control of their post office and put in place commercial practices and management. Social

or public service obligations must be clearly determined and their net cost calculated and compensated. Post offices are still contributing to economic growth in many countries, but in others, antiquated, underfunded networks, and lack of competition limit or reverse that contribution. Governments must reform their post offices to ensure they, once again, become an enabler of economic development for the country as a whole, potentially through leveraging their extensive retail network. As this increasingly involves the provision of services other than traditional postal services, governments will need to ensure that this diversification is carried out in a pro-competitive manner. This means no favored treatment of post offices relative to their competitors, but also freeing post offices from the bureaucratic shackles that constrain them

The Role of the United States Postal Service in Public Safety and Security
.

Implications of Relaxing the Mailbox Monopoly

Sponsored by the United States Postal Service Safety and Justice

A RAND INFRASTRUCTURE, SAFETY, AND ENVIRONMENT PROGRAM Library of Congress Cataloging-in-Publication Data

The role of the United States Postal Service in public safety and security : implications of relaxing the mailbox monopoly / Lois M. Davis ... [et al.]. p. cm. ISBN 978-0-8330-4615-4 (pbk. : alk. paper) 1. United States Postal Service. 2. Postal serviceUnited StatesSafety measures. I. Davis, Lois M. HE6371.R58 2008 363.1dc22
2008044821

Background The United States Postal Service (USPS) has long held statutory monopolies to deliver mail and to have sole access to delivering to the mailbox. While the USPS has defended its monopolies as necessary to fulfill its mission to provide service to every delivery point in the United States, several critics have argued against the monopolies, primarily on economic, antimonopoly grounds related t o leveling the playing field for other competitors and on property rights grounds for mailbox owners (see, e.g., Geddes, 2003a, 2003b; Sidak, 2003; Soifer et al.,2007).However, sometimes lost in the economic debate surrounding the monopolies is the fact that relaxing the monopolies may have ramifications in other areasin particular, public safety and security. When it comes to delivering mail, there are several significant public safety and security concernsincluding, for example, mail fraud, identify theft, and even terrorism, given the previous use of the mail to send letter bombs and anthrax. Given the potential public safety and security concerns, the USPS asked the RAND Corporation to assess the security implications of relaxing its monopoly on delivering to the mailbox (known as the Mailbox Restriction, Mailbox Rule, or Mailbox Monopoly) to allow couriercompanies to deliver directly to the mailbox. More specifically, the project addresses whether relaxing the Mailbox Rule would present a public safety risk to carriers, couriers, or customers. The study scope focused specifically on examining the public safety and security issues related to any proposal to relax the Mailbox Rule.
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The USPS has contracted separately for a study to examine the financial implications of doing so. As such, we only note in this monograph where our analyse suggest that there may be some cost implications (e.g., investigation costs related to the relaxation of the Mailbox Rules). The study scope focused specifically on examining the public safety and security issues related to any proposal to relax the Mailbox Rule. The USPS has contracted separately for a study to examine the financial implications of doing so. As such, we only note in this monograph where our analyses suggest that there may be some cost implications (e.g., investigation costs related to the relaxation of the MailboxRules). To accomplish our objective, we used a combination of qualitative analyses (e.g., literature review, key-actor interviews, and a survey of consumers) and descriptive quantitative analyses (e.g., secondary data

analysis of reported-incident databases maintained by the United States Postal Inspection Service, or IS). In applying this overall approach, we conducted five tasks: (1) evaluate what public safety and security training is undertaken by the USPS and how that compares with that provided by private couriers as a way to assess the risks that untrained couriers, as well as USPS mail carriers, may face if the Mailbox Rule is relaxed; (2) review the existing literature and conduct a short survey and then summarize what is known about the publics concerns about mail security, its experience with crimes associated with the mailbox, and its views about different types of proposed access to the mailbox by non-USPS entities; (3) Analyze the IS database, tabulating and describing the kinds of reported crimes that occur with the current monopolies in place and then making projections on how much certain types of crimes may increase from this baseline if the Mailbox Rule is relaxed; (4) assess whether proposals to relax the Mailbox Rule may inhibit the effective

teChniCAl RePORt

Study on Appropriate Methodologies to Better Measure Consumer Preferences for Postal Services
Final Report
Charlene Rohr , Urs Trinkner

Alison Lawrence

Priscillia Hunt Chong Woo Kim

Dimitris Potoglou

Rob Sheldon Increases in e-substitution and e-commerce are likely to have an impact on consumers needs and preferences for postal services. In the case of regulated postal services, however, such developments in consumer demand are not immediately matched by changes in supply, but must be identified and addressed through policy decisions. Given the significant changes brought about by electronic communication, there is a need for better information on how these developments have affected demand for postal services and on what consumers need from a postal service. number of collection and delivery days.

Review of attributes tested in other postal valuation studies

A number of other studies have been undertaken to examine consumer preferences for postal services and USO attributes. From examination of these studies we see that previous studies have focused on a wide range of attributes including: - speed of delivery and number of classes of services - delivery frequency - collection frequency - time of delivery - service standards - evening delivery and Saturday delivery - access to post offices - presence of registered and insured services - opening hours - uniform pricing - price. We also recommended a third experiment to quantify the importance of the following service attributes: - uniform pricing - proportion of the network covered by postal services - accessibility of postal points of contact (measured as distance) - available services - opening hours - price. Reliability
All consumers also value reliability

All consumers valued improvements in reliability (measured as the percentage of letters or parcels delivered on time). Big businesses placed the highest value on reliability for letter services. SMEs and residents placed high values on reliability for parcel services.
Consumers value higher levels of coverage of the postal network

We observe that business and resident consumers value full coverage of the network delivery to all addresses in a country with SMEs valuing this more than larger businesses.
Consumers have a preference for uniform pricing for letter and parcels within the country, but the value is relatively small compared with other postal service attributes

Generally, we observe that business and resident consumers have a small preference for uniform pricing for letter and parcels within a country, although the value attached to uniform pricing is relatively small (non-vulnerable residents in Poland are the exception here, as they do not value uniform pricing positively). The following tables summarise the resulting values for each attribute level, for the - For the service connecting the sender and recipient side, customers value first and foremost a service where no letters or parcels are lost. The attribute can be intferpreted as a proxy for the value of the information or goods that are handed over to the postal operators. The very high estimates (up to over 500% of base price in Sweden and Poland) highlight the importance of postal services and indicate that customers indeed trust postal services in delivering valuable items. Moreover, customers reveal important preferences for services that include a next day delivery option (same WTP as long as a next day service is offered). This is in line with the qualitative questions where respondents suggested faster delivery services in countries with slower services (Italy, Poland). The WTP for a next day

service is, in absolute and relative terms, generally higher for parcels than for letters. For the latter, a next day option seems to be predominantly important for big businesses. Businesses, and in particular businesses, expect uniform delivery standards throughout the country for letters and parcels, whereas households prefer a priority (J+1) treatment of local letters only. SMEs exhibit an important WTP for uniform prices. To a lesser extent, Swedish and Italian households favour uniform prices. Big businesses care more about the punctuality (percentage delivered on time) of letters than parcels; small businesses prefer punctual parcel services. For households, the WTP for on-time delivery seems to be higher where the actual service levels are lower (Italy, Poland). From examination of these studies we see that previous studies have focuserange of attributes including: - speed of delivery and number of classes of services - delivery frequency - collection frequency - time of delivery - service standards - evening delivery and Saturday delivery - access to post offices - presence of registered and insured services - opening hours - uniform pricing - price . Other information collected in the questionnaire In addition to choice exercises, other background information was also collected in the questionnaires. The questionnaire commenced with the collection of demographic and company information (as appropriate) to ensure the survey quotas were obtained (see Section 3.6). Next, a postal or email address was collected so that the choice experiments could be sent to the respondent. Next there was a series of background questions about the respondents current postal usage, including: - volumes of letters and parcels sent and received - methods of paying postage - internet usage - usage of postal providers other than the universal service provider (USP) - types of mail sent - desired improvements to the postal service. After answering these questions respondents were asked to participate in the SPDCEs. The choice exercises were followed by a few questions asking about respondents understanding of the exercises. These were then followed by a couple of questions investigating: - value for money of the postal services - changing patterns of usage of postal services - post office usage - classes of postage used - views on needs for uniformity of postal services.

The last part of the questionnaire collected background information for classification purposes.