This article is by John Rice, Associate Professor in Strategic Management at Griffith University, and Nigel Martin, Lecturer, College of Business and Economics at Australian National University. It originally appeared on The Conversation.
analysis Who would run a former government-owned monopoly these days? In the last week, Australia Post’s Ahmed Fahour announced 900 administration jobs were to go from its Melbourne operations, while last week Telstra’s David Thodey recounted discussions from his recent trip to the US, where he was told his “business model is dead”.
Both organisations, ironically once part of the same Commonwealth Postmaster General’s department, face massive disruptive change from new technologies. How they manage these changes will have consequences far beyond their corporate results, with important consequences for the nation.
Once, for Telstra and AusPost, the future was certain. Growth in the core telecommunications and mail businesses was seen as a function of general economic growth. The demand for these essential services, it was expected, was assured.
The internet, in different ways, put paid to those certainties. For AusPost, the most significant change was the collapse of the traditional letter delivery business. Once a monopolistic license to print money, the era of the internet has seen the demand for its core letter delivery services collapse by 30% over the last five years. This has seen this segment of the business become a significant drain on the organisation’s performance – letter delivery lost A$122 million in 2011, A$187 million in 2012 and A$218 million in 2013.
In 2010, AusPost announced its “Future Ready” strategy, seeking to identify future market segments where its performance could be developed and improved. This strategy revolves around developing three areas, namely communications (digital and physical), the provision of a physical portal to access government, business and financial services and finally as a deliverer of parcels.
Of the three business segments identified in Future Ready, one is promising (parcels), one is questionable (the services portal business) and one is abominable (letters) – hence the recent manoeuvres to clarify and separate the business into its core elements, most probably with a view to the future privatisation of that part of AusPost that makes profits – parcels.
AusPost is seeking to innovate – thus far with limited success. For example, in 2012 it launched MyPost Digital Mailbox, seeking to offer customers a secure way to pay bills (sound familiar, BPay?). Recent reports suggest it has met with limited success.
The Digital Mailbox illustrates two key problems for AusPost as it attempts to transform itself into a digital transaction hub. First, it pursues such initiatives as a late mover, confronting established incumbents with deep pockets and an installed base. Second, any such intiatives are subject to eventual competition from the likes of PayPal, and indeed the Australian banks, whose global reach and e-commerce capabilities should frighten AusPost.
Telstra too faces serious challenges. Ever since voice was digitised, telecommunications companies have essentially been in the business of shifting data between users. The problem with this is that the transfer of data is rapidly commoditising, with a large number of alternative and interoperable access arrangements or gateways (wireless, optic fibre, copper) and network infrastructure (NBN, satellites, subsea communications cables) interconnected through the internet.
The risk for players like Telstra has always been that one day (soon) virtual Telcos would emerge, bundling fast data and seamless access points located within cherry-picked markets like our major urban centres.
A major problem for both AusPost and Telstra relates to their community service obligations. These are enshrined in the relevant Commonwealth legislation for both Telstra and AusPost, generally requiring both companies to provide an adequate service to all Australians, wherever they be.
The problem is that postal and telecommunications services to rural and remote areas, while of fundamental importance to those communities, tend to be a financial deadweight for the companies.
For example, one aspect of AusPost’s community service obligations is the provision of at least 2,500 outlets in rural and remote Australia. These are often integrated into local retailers, providing an important hub for communities, allowing access to mail, banking and financial services. Significant closures of these outlets would have devastating consequences for many rural communities.
Thus the government should proceed with caution with any plans to allow AusPost to split in two, and it should monitor carefully the implications of technological change on Telstra. For AusPost, selling the profitable parcels business would leave a legacy letters and services business that would almost certainly see declining use and huge financial losses into the future. For Telstra, the consequences of a myriad of new competitors cherry picking its profitable city markets, while ignoring the costs associated with ubiquitous infrastructure in the regions, could be calamitous.
Regardless of promises and projections, the temptation for AusPost’s and Telstra’s managers to cut services and costs to reduce (especially non-urban) losses could well be irresistible.
John Rice is a member of the Australian Labor Party.
Nigel Martin does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations. This article was originally published on The Conversation. Read the original article.
Image credit: Australia Post
Adapt or die. Simple as that.
And no, “digital mailboxes” isn’t adapting. It’s essentially email, which has been around for 30+ years.
Back in the days they were doing well, they were about providing a service AT COST or LESS.
Today all they focus on is making profits, cutting costs, cutting staff and even giving money BACK to the government in dividends.
They have lost their way and their purpose.
I’m sure if a landline still cost $10 per month, and stamps were 10c they would suddenly find their “business” was booming again!
No Sympathy, let them and their ridiculously highly paid CEO’s wither and rot!
The economic value of the original #NBN is further supported by this article. The providing of a “level digital playing field” for all Australians is essential. This can only be done by Government on a national scale.
Given a “level playing field” business such as Australia Post and Telstra may be able to remake themselves as 21st century digital (Australian) business.
This federal government has no intent of providing such chance.
This. In all of their policies I’m yet to see anything that is about making the competitive markets that exist in Australia today (and the incubation of those in the future) on a level playing field.
Level/Equal according to Hockey, that isn’t the government’s mandate.
Yes, the original NBN would have allowed AusPost and Telstra the possibility of removing or modifying the universal service guarantees. The current version, not so much.
Australia Post remains an essential service. Once Turnbull has finishing destroying the NBN concept, we will increasingly rely on Australia post for sending USB Sticks, DVD’s and external HDD’s as our data requirements continue to grow.
I recently struggled to send 50 full-res photos to a company in Melbourne, if it had been 200, Aust post or driving there would have been the only solution.
They should start a service that scans all my mail and then let me view it electronically in a locker (or just email it to me)
would save them actually delivering it to me, and me scanning stuff to keep it
(lots of issues with this I know…but it would be great!)
+1
This has actually been tried a few times already, but the various national post organisations typically shut it down through legal avenues.
There are a number of these…
I use HotSnail and can highly recommend it. https://secure.hotsnail.com.au/
Unfortunately it requires a redirection, which is an unnecessary expense and delay.
Great when you are traveling though!
Yep a mate of mine had one up and running 10 years ago.
It wasn’t a money maker then, and even then they were noticing volume drop as more and more companies got on board with sending email instead of paper copies.
Australia Post is approaching this wrong.
They should be getting the AG to act on all the pirate mail that is being downloaded from the internet. Someone has got to take act to protect the artists that design postcards, envelopes and won’t someone think of the effects on the paper industry. This is costing the nation jobs.
I don’t think they understood Telstra’s business strategy at all. Telstra is incredibly successful.
1. Establish close links with political party that privatised it as a natural monopoly. Pay political parties from the company and then senior directors and executives donate also donate generously to a particular party. Of course donations have no influence on government decision, it is ridiculous that you would consider such a thing.
2. Assist then opposition minister in designing a strategy that will totally compromise future competition to your long term cash cow. Through think tanks and paid commentators present an overblown picture of the NBN and its progress while you sit on your bum avoiding your contractual responsibilities to actually have ducts ready for rollout.
3. With help from obliging minister, replace the board of competition with stooges and hacks who will ensure the competition becomes an ineffectual shambles that will ultimately be married to Telstra. One way or another they are getting either loads more money or an extremely favourable competitive environment.
4. The new NBN stooge fest can now continue the private donations to the LNP and keep the directors merrygoround for a political class in full swing.
5. Control fixed communications for the next 4 decades. Push prices as far as market will bear.
The idea that the most profitable divisions should be spun off with the unsound divisions left to fend for themselves is ludicrous – as private entities they would collapse in short order with no sustainable business case available, as public services they would be a black hole of unending expenses. While plenty of government departments operate directly through public funding, why do so when you can retain profitable publicly owned services? Historically privatisation of profitable departments and divisions has not netted the government significant remuneration for the loss of privatised assets, often as little as a couple of years’ worth of profit.
So who benefits from privatisation? The quality of the service isn’t improved – privatised government businesses start cutting costs to increase margins the moment they become privately owned, leading to lower quality, less maintenance and worse customer service. They also increase prices from what was fair and reasonable given cost inputs to ‘what the market will bear’. So quality goes down while it costs more for customers.
So consumers are worse off and the government gets no benefit (beyond a single year boost to the bottom line). The benefit goes to the new owners, who are now in control of a profitable monopoly. So the rich get richer on the back of decisions that run counter to the interests of the nation and it’s people. No surprises there. The only surprise is that 35ish years into this rampant capitalism experiment with a huge body of evidence demonstrating the idiocy of such manoeuvres we are still sitting back and passively watching this unapologetic corruption unfold before us.
One interesting aspect of aussie Post is the salaries they pay their execs.
The head of UK Royal mail has a salary of $au2.2m (2013)
http://www.theguardian.com/uk-news/2014/may/06/royal-mail-scraps-plans-increase-boss-moya-greene-pay-vince-cable
Head of US mail receives (2012) $us 550,000 (approx) inc bonus
http://usgovinfo.about.com/od/moneymatters/tp/Highest-Paying-Postal-Service-Jobs.htm
CEO of Aussie post has a salary or $au4.2m (+ bonus?)
No wonder the union gets all excited.
Aussie post contunually gets rated as the most trusted organisation in australia. Way back in ’95 as part of an Internet strategy we identified Post as the most likely organisation to profit from the internet as a result of the increase in packages being delivered. Nearly 20 years later they are still mucking about trying to get parcels to the home. Maybe “parcels to the Node” would work. Give Turnbull a ring. Maybe a combined Telstra/Post box at each corner would work.
bryan
Not surprising when the business model is to contract the parcel work out and then the contractor screws it up because they quoted a low price and have no skills to do things right.
My wife had a parcel “missing” the other month. Called Aussie Post, they contacted the contractor who said they had a signature saying it had been delivered. Which of course it hadn’t. We waited a week, no response.
Shit hit the fan when I got involved and started making loud annoying noises.
Suddenly 2 days later the parcel magically appeared on our deck.
The contractor model is a terrible model. You are unable to directly assure your service levels, no loyalty, and whilst you might be legally free of blame, the negative opinion as packages “go missing” is a hit on your pr.
Stupid
I don’t understand this fascination with building Government services up to becoming profitable businesses, then selling them off. Surely it would be better for a Government service that is profitable to remain under Government control to ensure an income stream that doesn’t require new or higher taxes?
grail, doesnt work that way of course – because increasingly the global advisory and management consulting firms (who pay to sit at the fundraising table) gain their revenues from advising on these very transactions. Look at Airport Link in Brisbane and the traffic modelling that was done. The traffic modelers were repeatedly told to go away until they came back with the right figures that ensured the PPP was viable from a financial point of view. Why because until it was viable from a funding point of view the big advisory firms would not have got paid the big fees. We are increasingly beholden to this dynamic when it comes to the sell off of assets. Over the coming years the privatisations will be driven not from a public interest perspective but from a private sector advisory perspective.
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