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Privatising Australia Post

The cry has gone up from the BCA to privatize Australia Post.  Its a weak argument from a posturing bunch of low-intellect phonies who are promoting self-interest, neo-con ideology and third-rate economics.

Australia Post is a natural monopoly.  Its mail sorting and handling operations as well as its delivery and transport operations are characterised by considerable economies of scale and scope. You only want one firm carrying out these functions because the businesses cost function is sub-additive. Inevitably the issue of running it as a private firm inevitably raises difficult regulatory issues.

The BCA state that the letter business lost $218m last year and that these losses could have been avoided had the firm been privatised.  That misrepresents the situation.  These losses reflect the community service obligation (CSO) to charge a uniform postal rate irrespective of the source or destination of mail in Australia.  It also represents the obligation of Australia Post to handle all classes of mail rather than the highly-profitable commercial bulk mail sent along Australia’s east coast.  Finally too it reflects the increasing use of electronic mail services.  Whether the CSO should exist – I think it should – the issue of these losses is not tied to Australia Post’s ownership structure but to whether a privatised Australia Post would be obliged to follow this CSO.  Abolishing the CSO would enable a publicly-owned Australia Post to “cream skim” bulk mail deliveries just as well as any privately-owned firm.  The decline in revenues diue to the growth in electronic communications is not an ownership issue either – it only means that private firms will bid less for the business.

The claim that the sale of Australia Post’s assets worth $4.2b would yield $3b is unconvincing without specifying the income the Commonwealth gets from the business and the role of CSOs in restricting that income. As it turns out the business earned $312m in profit in 2013 which would have yielded over a 10% return on the BCA’s anticipated sale price.  Profits last year grew by 10.9%.  A sale at a price of $3b would impoverish the Commonwealth and transfer several billion dollars of public wealth to the private sector.  It would be a scandal.

An earlier post of mine on these issues is here.

8 comments to Privatising Australia Post

  • Why would it be a scandal? Are you saying the selling price should be higher than $3b?

  • Also, on the “community service obligation”, here is John Singleton and Howard: “Why don’t we also charge the same airfare for trips all over Australia — Sydney to Perth to cost the same as Sydney to Melbourne, for example? Or have all telephone charges, local and trunk, at the same rate?”

  • hc

    Yes higher. 10% return is too high on a quality asset such as this.
    Various arguments for CSO – don’t want to enter into a discussion of Yobbo Singleton ergonomics. The main point above is that vthe CSO can be abolished with or without a change in ownership. A red herring.

  • So if it sold for a more accurate valuation, then you would support (or at least not object to) the sale?

  • Maybe Australia Post is going the way of Sensis, worth ~$10 billion a few years ago, now sold for under a billion. This could be a brilliant move by Tony and Joe.

    Only joking. Keep it publicly owned.

  • Jim Rose

    The post office where I live wants to cut delivery to three times a week because of falling revenue. Sell while someone wants to buy this sunset industry.

  • rog

    The idea that AUS Post should charge $30 for 5 day delivery is just silly – the postman will still get paid 5 days regardless and additional costs re sorting and storage would be a burden, particularly with parcels. I doubt that many people will pay extra, it makes no difference which day you get your bills.

  • So if it sold for a more accurate valuation, then you would support (or at least not object to) the sale?

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