Price differentiation between contractual and occasional segments
Geographic tariff differentiation according to the distribution area
Elimination of the international economic mail service
Evolution of the margin
The margin of the basket of services concerned by CTT's proposal has been positive. In 2011, according to the annual results of CTT's cost accounting system for 20111, the margin of the basket of services concerned by CTT's proposal was positive, amounting to [Start Confidential Information] [End Confidential Information], corresponding in relative terms to a margin compared to revenues [(revenues-costs)/revenues] of [SCI] [ECI] %.
Based on more recent cost, traffic and revenue estimates presented by CTT for 20122, it is estimated that in 2012 the margin of the basket of these services, corrected for the values of holiday and Christmas bonuses concerning the work performed in 2012 and the value of cuts in that year in wages above 1500€, is also positive, of [SCI] [ECI], corresponding in relative terms to a margin of [SCI] [ECI] %.
For 2013, CTT propose:
- An average overall price increase by around 3.7% in 01.04.2013;
- For prices of postal items weighing 20g of the national standard mail service, in the occasional segment, as well as of the Special Regime international economic mail service (with destination in Guinea-Bissau, São Tomé and Príncipe and East Timor), an additional increase on 01.11.2013, whereby the price changes from 0.36€ to 0.40€, which entails an additional increase of around 0.5% of the average overall price of the basket of services, that is, a cumulative increase of the total tariff concerned by this price proposal of 4.2%, comparing prices to take effect on 01.11.2013 to those currently in force.
Table 1 shows in brief the one-off price variations proposed by CTT, according to service, destination and segment.
It should be referred that prices concerned by this proposal have remained unchanged since June 2010.
|
MAIL SERVICE |
NATIONAL SERVICE |
Proposal for variation on 01.04.2013 |
|
Occasional |
Standard mail |
10.81% (a) |
|
Priority mail |
8.28% |
|
|
Standard registered mail |
5.67% |
|
|
Registered mail delivered by hand |
7.94% |
|
|
Registered personal mail |
4.48% |
|
|
Easy mail |
6.40% |
|
|
Variation rate for the Occasional Segment |
8.97% |
|
|
Contractual |
Standard mail |
2.77% |
|
Priority mail |
2.85% |
|
|
Registered mail delivered by hand |
2.79% |
|
|
Standard registered mail |
1.94% |
|
|
Registered personal mail |
2.97% |
|
|
Easy mail |
6.54% |
|
|
Variation rate for the Contractual Segment |
2.71% |
|
|
MAIL SERVICE |
INTERNATIONAL SERVICE |
|
|
Occasional |
Standard mail |
1.74% |
|
Priority mail |
2.31% |
|
|
Registered mail delivered by hand |
2.87% |
|
|
Registered personal mail |
5.33% |
|
|
Prime express mail |
2.87% |
|
|
Economic mail (Especial regime) |
10.61% (b) |
|
|
Easy mail |
7.06% |
|
|
Variation rate for the Occasional Segment |
2.35% |
|
|
Contractual |
Standard mail |
-0.49% |
|
Priority mail |
-3.37% |
|
|
Registered mail delivered by hand |
-3.50% |
|
|
Registered personal mail |
-0.86% |
|
|
Prime express mail |
-0.24% |
|
|
Economic mail (Especial regime) |
1.05% (c) |
|
|
Easy mail |
11.76% |
|
|
Business Mail |
3.10% |
|
|
Variation rate for the Contractual Segment |
-0.94% |
|
|
INSURED MAIL (IM) |
3.63% |
|
|
PARCELS |
NATIONAL SERVICE |
|
|
National by land |
14.56% |
|
|
National by air |
8.17% |
|
|
INTERNATIONAL SERVICE |
0.00% |
|
|
TOTAL |
~3.7% (d) |
|
(a) There is on 01.11.2013 an additional variation by 7.2%, resulting from the increase in the price of postal items weighing 20g.
(b) There is on 01.11.2013 an additional variation by 8.4%, resulting from the increase in the price of postal items weighing 20g.
(c) There is on 01.11.2013 an additional variation by 0.02%, resulting from the increase in the price of postal items weighing 20g.
(d) There is on 01.11.2013 a variation by around 0.5%, resulting from changes introduced on this date.
Taking into account:
- the 2012 margin of the basket of services concerned by the price proposal, corrected as described for the values of holiday and Christmas bonuses concerning the work performed in 2012 and for the value of cuts in that year in wages above 1500€;
- The price proposal presented by CTT;
- The anticipated traffic and costs for 2013 submitted by CTT3, which in the case of costs include the replacement of the Christmas and holiday bonuses for 2013, the latter through the specialisation of the cost to be paid in 2014, to be replaced in view of the company's privatization in 2013 and due for the work performed in 2013;
The margin for 2013 is estimated to be positive, but lower than that estimated for 2012, both in relative and absolute terms, amounting to [SCI] [ECI], and corresponding in relative terms to a margin by [SCI] [ECI] % (see Table 2).
|
|
2011 |
2012 |
2013 |
|
Revenues (M€) |
(SCI) |
|
|
|
Costs (M€) |
|
|
|
|
Margin (M€) |
|
|
|
|
Margin (%) |
|
|
|
|
Traffic (million objects) |
|
|
(ECI) |
Note: M€ - million euro.
Source: Results of CTT's cost accounting system for 2011 and CTT estimates for 2012 and 2013. Costs and margin for 2012 have been corrected for the value of the referred SB measures as regards staff costs. Costs estimated for 2013 include the replacement of Christmas and holiday bonuses for 2013, the latter through the specialisation of the cost to be paid in 2014.
As such, it is deemed that the price proposal presented by CTT complies with the principle of (progressive) cost orientation of prices, as it is estimated that it results in the decrease of the relative margin (in %), as well as in a decrease in absolute terms, of services under consideration.
An overall service-by-service analysis also shows a gradual cost-orientation of prices (see Table 3). Notwithstanding, it should be referred that:
- The margin of the national priority mail, which in 2012 was negative, is estimated to deteriorate both in value and percentage (around 6%) in 2013, however CTT present a proposal increasing significantly the average nominal amount of prices, namely for the occasional segment. It must be taken into consideration that, although CTT present a price increase, this service has shown a drastic traffic fall over the last few years, and its margin evolution depends on the evolution of traffic, which is estimated to fall further in 2013, and which is to a large extent responsible for the referred margin deterioration. Nevertheless, its evolution will receive special attention as far as future alterations of prices are concerned;
- The margin of the international prime priority mail, which was negative in 2012, is also estimated to deteriorate slightly both in value and percentage (around 2%), remaining however very close to zero both in absolute and relative terms;
- The positive margin of the international parcel service is estimated to increase very slightly (by 0.1%), CTT proposing the maintenance of prices.
It should be referred that these service have a negligible weight, less than 10%, (amounting to [SCI] [ECI]), in the total revenues of the basket of services concerned by this price proposal.
|
|
Margin (million €) |
Margin (%) |
||||
|
2011 |
2012 |
2013 |
2011 |
2012 |
2013 |
|
|
National S. Mail |
(SCI) |
|||||
|
Standard Mail |
||||||
|
Priority Mail |
||||||
|
Registered Mail |
||||||
|
Easy Mail |
||||||
|
International S. Mail |
||||||
|
Standard + Economic Mail |
||||||
|
Standard Mail |
||||||
|
Priority Mail |
||||||
|
Registered Mail |
||||||
|
Prime Priority Mail |
||||||
|
Easy Mail |
||||||
|
Business Mail |
||||||
|
Economic Mail - Special Regime |
||||||
|
Total Mail |
||||||
|
Parcels |
||||||
|
National Service |
||||||
|
International Service |
||||||
|
Insured Mail |
||||||
|
National and International Service |
||||||
|
Total |
(ECI) |
|||||
Notes: Margins in million Euros and in % compared to revenues.
Source: Results of CTT's cost accounting system for 2011. CTT estimates for 2012 and 2013.
Price differentiation between contractual and occasional segments
As referred above, CTT presents different tariffs according to whether the occasional segment and contractual segment are concerned, for the provision of mail services/ products4. CTT proposes the application of higher prices for mail of the occasional segment, both as regards the national and international scope, except for the following services and provisions, for which identical prices are proposed for both segments: easy mail, international economic mail for the special regime, and mail in pre-paid envelopes for any other service (standard mail, priority mail and registered mail).
Bearing in mind the available information on costs5, CTT's proposal reflects lower unit costs in prices of contractual segment provisions compared to the corresponding provisions in the occasional segment, namely at the level of acceptance costs.
According to available information6 on national items of correspondence, incumbent operators present different basic tariffs (first weight step tariffs) for the occasional and contractual segments, except for Spain, which applies the same basic tariff for both segments.
Specifically as regards the price proposal in the occasional segment for standard and priority mail items up to 20g, of a national scope, the most significant provisions in this segment (over [SCI] [ECI] %) in terms of traffic for each of these services (Table 4):
a) The price of national standard mail increases from 32 euro cents to 36 euro cents on 01.04.2013 (increase by 12.5%) and to 40 euro cents on 01.11.2013 (variation by 11.1%). In cumulative terms, this corresponds to a variation by 25%;
b) The price of national priority mail increases to 50 euro cents, which represents a one-off variation by 8.2% (with an average increase by 6.4% in the case of stamps and of up to 8.7% in the case of pre-paid envelopes, the price of which is now equivalent to the price of a stamp).
|
Provision (Occasional segment, |
Weight on |
2012 price |
Proposed price |
One-off |
|
Standard mail |
|
|
|
|
|
0 - 20g (stamps and postcards) |
(SCI) |
0.32 € |
0.36 € on 01.04.2013 0.40 € on 01.11.2013 |
+12.5 + 11.1 |
|
Priority mail |
|
|
|
|
|
0 - 20g (stamps) |
|
0.47 € |
0.50 € |
+6.4 |
|
0 - 20g (pre-paid envelopes) |
(ECI) |
0.46 € |
0.50 € |
+8.7 |
Source: CTT price proposal and results of CTT's cost accounting system.
The margins for the mail items have been significantly negative, according to data of CTT's cost accounting system and its estimates for 20127 (see Table 5).
|
|
Provision |
Unit cost |
Average price |
Unit margin |
|
2010 |
Standard |
(SCI) |
|
|
|
Priority |
|
|
|
|
|
2011 |
Standard |
|
|
|
|
Priority |
|
|
|
|
|
2012 |
Standard |
|
|
|
|
Priority |
|
|
(ECI) |
Source: 2010 and 2011 costs - 2010 and 2011 cost accounting system; 2012 costs - CTT estimates in the letter of November 2012, yet to be corrected for the SB measures concerning staff costs.
Based on information collected in May 2012 on prices applied by incumbent operators in various EU countries, it should be stressed that:
- The price for a 20g national priority mail item, which CTT proposes to increase from 0.47€ to 0.50€, remains below the European Union average, which was 0.52€ with Purchasing Power Standards (PPS) and of 0.54€ without PPS;
- The price for a 20g national standard mail item, which CTT proposes to increase from 0.32€ to 0.40€ (on 01.11.2013), remains significantly below the European Union average, respectively 0.50€ and 0.48€ with and without PPS.
It should be noted that, according to the 2010/2011 Enquiry to Family Expenses pursued by INE (the National Statistical Institute), postal services have but a negligible weight in the shopping basket of Portuguese families (around 3€ in a total of 20 thousand euro per year, that is, they represent in average 0.015% of total annual expenses; on the contrary, expenses with communication services amount in average to around 662€ per year).
For the contractual segment, CTT proposes, for standard and priority mail8 up to 20g:
a) For national standard mail up to 20g, a one-off price increase of 8.2%, from 0.305€ to 0.33€, the difference relatively to the occasional segment price increasing to 3 cents on 01-04-2013 and to 7 cents on 01.11.2013;
b) For national priority mail up to 20g, a one-off price increase of 2.2% (from 0.46€ to 0.47€), which entails a difference of 3 cents relatively to the occasional segment price.
This means that for the referred standard and priority mail up to 20g, of a national scope, the tariff proposal presented by CTT widens the gap between prices of the occasional and contractual segment, which takes into account the difference of costs involved (see Table 6). Consequently, there seem to be no reasons for opposing the price table proposed by CTT for the analysed provisions.
|
|
Provision |
Contractual unit cost |
Occasional unit cost |
|
2011 |
Standard |
(SCI) |
|
|
Priority |
|
|
|
|
2012 |
Standard |
|
|
|
Priority |
|
(ECI) |
Source: 2011 Costs - 2011 cost accounting system, 2012 costs - CTT estimates in the letter of November 2012.
Geographic tariff differentiation according to the distribution area
Moreover, in the scope of the contractual segment, CTT proposes the application of geographically different prices for national standard bulk mail up to 50g9, where national mail for the geographic ''A'' area (corresponding to the cities of Lisbon and Oporto and respective urban circles) is charged a price, a higher price being charged for mail to other areas of the country (''B'' Area)10.
Figure 1. A and B price application areas
Source: CTT.
Taking into account the available information on costs, concerning unit cost estimates presented by CTT11, the weighted average cost for bulk mail is lower than that for other types of standard mail, and the average cost of distribution operations in Zone A is lower in around [SCI] [ECI] % compared to the national average, the average cost in Zone B being higher in around [SCI] [ECI] % compared to the national average.
Prices proposed by CTT for this bulk mail, which compared to the current tariff reflect an increase in the price difference relatively to provisions other than bulk mail12, take into account lower unit costs, mainly at the level of acceptance.
|
Weight steps |
Proposed price |
Difference to the |
Difference to the |
|
Standard bulk mail |
|||
|
From 10.000 to 200.000 obj/month |
|||
|
[0 - 20g] - Zone A |
€ 0.280 |
- € 0.050 |
- € 0.120 |
|
[20 - 50g] - Zone A |
€ 0.470 |
- € 0.080 |
- € 0.100 |
|
[0 - 20g] - Zone B |
€ 0.330 |
€ 0.000 |
- € 0.070 |
|
[20 - 50g] - Zone B |
€ 0.545 |
- € 0.005 |
- € 0.025 |
|
Over 200.000 obj/month |
|||
|
[0 - 20g] - Zone A |
€ 0.260 |
- € 0.070 |
- € 0.140 |
|
[20 - 50g] - Zone A |
€ 0.450 |
- € 0.100 |
- € 0.120 |
|
[0 - 20g] - Zone B |
€ 0.320 |
- € 0.010 |
- € 0.080 |
|
[20 - 50g] - Zone B |
€ 0.535 |
- € 0.015 |
- € 0.035 |
* Difference, in deliveries up to 20gr, compared to the price proposed for 01.11.2013. Compared to the price proposed for 01.04.2013, the difference is 4 cents less to that presented in the table.
Source: CTT data.
Tariff uniformity is an exception provided for in the Postal Law, which lays down (article 14, paragraph 8a)) that ICP-ANACOM is entitled to determine, for duly substantiated reasons relating to the public interest, compliance of the price of postal items weighting less than 50g with the uniform tariff principle, a uniform tariff being applied throughout the national territory, without prejudice to the right of universal service providers to conclude with users individual agreements on special prices. At this point, ICP-ANACOM considers that the imposition of the referred uniform tariff obligation seems not to be justified, and no reasons for rejecting CTT's proposal have been identified.
Elimination of the international economic mail service
CTT proposes to eliminate the international mail delivery service through the economic mail provision, except for the Special Regime service: deliveries with destination in Guinea-Bissau, São Tomé and Príncipe and East Timor. CTT claims that this proposal is due to the general use of the air mail service and to the weak demand for economic mail, which exists mainly for services that are used in a higher degree, such as editorial mail13.
The economic mail service represents, in the scope of the universal service and according to data of CTT's cost accounting system for 2011, merely [SCI] [ECI] % of total traffic of outgoing international mail and [SCI] [ECI] % considering only traffic of outgoing international standard mail, priority mail, prime priority mail and economic mail, amounting to [SCI] [ECI] thousand mail items delivered in 2011, a decrease by 19% compared to 2010 (during which this service registered a traffic of [SCI] [ECI] thousand mail items).
According to the cost accounting system results for 2010 and 2011, the provisions CTT proposes to eliminate presented in 2011 a positive margin by [SCI] [ECI] thousand Euro, which were however 77% lower than the figure for 2010 ([SCI] [ECI] thousand Euro). This fall may also be noted in relative terms, from [SCI] [ECI] % to [SCI] [ECI] %.
This service has the following service patterns, according to CTT's provision:
- Mail items to Europe: delivery by D+10;
- Mail items to the rest of the world: delivery by D+20.
Given its lower quality patters, its price is also lower (between around 1% and 30%) than the standard price of the international service.
It is likely that further to the elimination of this provision, current users turn to the standard international mail (both in the occasional and contractual segment), except in the case of the scope of the special regime, for which the economic mail is maintained. Based on this service's use estimates for 2012, according to weight step and destination14, as well as on prices proposed by CTT for the standard international mail, it is estimated that this shift leads to an annual average price increase by around 5% for these users, most provisions being subject to an increase of prices.
It should be noted that the Universal Postal Service Convention does not impose on (incumbent) operators the simultaneous provision of priority and non-priority services.
It is deemed that the elimination of this service does not hinder the guarantee of the universal service provision, namely in the light of the very low use of this offer (around 1% of international traffic) and the existence of alternatives, in the scope of offers that integrate the universal service.
Parcel services
As far as the parcel service is concerned, CTT's price proposal takes into account the need to rebalance prices. CTT propose an average increase by 14.6% for the national land service and by 8.2% for the national air service, the margins of which are negative, while maintaining prices for the international service, with positive margins.
On the basis of data collected in May 2012 on prices practised by incumbent operators in several EU countries, it should be stressed that the price of a national parcel weighing 2Kg delivered by land, zone T2, which CTT propose to increase from 4.05€ to 4.65€, still remains below the European Union average without PPS (5.07€) and slightly higher than the EU average with PPS (4.50€).
There seem to be no reasons to oppose CTT's proposal.
Discounts
CTT propose to apply discounts and special prices on prices of services covered by the Price Convention, where justified by economic reasons, namely those related to economies of scale. Such discounts and special prices apply in compliance with the principles of cost orientation, transparency and non-discrimination.
The discounts proposed by CTT are directly or indirectly associated to the amounts sent, and/or preparatory activities and/or the addressing quality, which may possibly indicate economies of scale and savings on operational costs.
It should be referred that the postal summonses or notifications service cease to be eligible to determine the discounts that apply to the national registered mail service. This change meets a concern expressed by ICP-ANACOM, after the postal summonses or notifications service became one of CTT's reserved services, under Law No 17/2012 of 26 April. As such, revenues of reserved services may no longer be used to calculate discounts of services provided under competition.
1 Results calculated according to cost allocation criteria used in the cost accounting system of 2004. Results yet to be audited, the respective audit being under way.
2 Estimates notified by CTT by letters of 28.01.2013 and 14.02.2013.
3 By letters sent by CTT on 28.01.2013 and 14.02.2013.
4 This differentiation already exists in CTT tariffs for national standard mail up to 50g, priority mail up to 20g and international standard mail up to 20g.
5 Namely CTT letters of 16.11.2012, 28.01.2013 and 14.02.2013.
6 Data collected in April 2012 from the website of incumbent operators of the following countries: Austria, Belgium, the Czech Republic, Finland, France, Germany, Ireland, the Netherlands, Spain, Sweden, United Kingdom, Switzerland and Norway.
7 Estimates in CTT's letter of November 2012. Considering the 2012 margin correction, which implies an increase of costs, the margin is even more negative.
8 The most significant provisions in terms of traffic in each of these services, disregarding bulk mail, representing more than [SCI] [ECI] % of the total for each standard and priority service.
9 Prices apply to deliveries exceeding 10 thousand objects per month, accepted at the business mail centres located in Lisbon (Pinheiro de Fora, Cabo Ruivo), Oporto (Maia) and Coimbra (Taveiro).
10 CTT's current tariff already presents a specific price for national standard bulk mail up to 50g, which is geographically uniform.
11 By letter of 19.12.2012.
12 In the current tariff, the highest difference amounts to 0.04€, for national standard mail up to 20g.
13 Service which is not concerned by this price proposal.
14 Notified by CTT letter of November 2012.
