2.6 General principle of cost orientation

Prices of postal services that integrate the universal service provision must comply with the principle of cost-orientation of prices, so as to encourage an efficient provision of the universal service [point b) of paragraph 1 of article 3].

Without prejudice to the application of specific provisions provided for in articles 8, 9 and 10 of the pricing criteria, already analysed in preceding chapters, in a first analysis this Authority considers that the general principle of cost orientation of prices is not complied with where the following conditions occur:

a) Where the margin¹ is positive in 2014 and increases in 2015;
b) Where the margin is negative and 2014 and deteriorates (is even more negative) in 2015.
Furthermore, where an increase of the positive margin or a deterioration of the negative margin is estimated, this Authority considers that the principle of cost orientation of prices is complied where one of the following situations occurs:
a) The price proposal represents an increase of average annual prices for a service the margin of which deteriorates;
b) The price proposal represents a reduction of average annual prices for a service the margin of which increases;
c) The margin of the service is close to zero, a margin in the range of [-5%; 5%] being deemed to be a “close to zero margin”;
d) The margin estimated for 2015 is very close to the margin for 2014, the margin being deemed to be “close” where the margin change, in percentage points (p.p.) lies in the range of [-1 p.p.; 1 p.p.];
e) The service concerned has an irrelevant weight in the amount of total revenues of the universal postal service (weight not exceeding 0.5%).

In the light of the above, and taking into account information available on revenues, costs and traffic, concerning results of CTT’s cost accounting system for 2013², reported by CTT to ICP-ANACOM by letter received on 17.07.2014, as well as estimates and forecasts presented by CTT for 2014 and 2015³, in the scope of the price proposal under analysis, no situations of failure to comply with the principle of cost orientation of prices were identified (Table 5).

“+” means a price increase. “-“means a price reduction.
(a) Source: CTT’s letter of 06.02.2015
(b) Includes the International Economic Mail service - Special Regime (items  of correspondence for Guinea-Bissau and São Tomé and Príncipe)
(c) (BCI)    (ECI).

For the contractual segment, CTT propose to update the price of the national standard mail up to 20g to €0.363, introducing a price differentiation for the franking machines arrangement, with the definition of a price for digital franking machines (€0.36) and another for analogue franking machines (€0.37).

The results of the cost accounting system currently reported by CTT to ICP-ANACOM do not include disaggregated information that enable unit costs for the analogue franking machine arrangement from being distinguished from unit costs for the digital franking machine arrangement.

According to CTT, the analogue franking machine arrangement, compared to the provision of services on credit payment, cash and pre-active terms, entails additional significant operational costs, among which CTT highlight:

i. Maintenance of a monitoring team responsible for checking equipment;
ii. Maintenance of a dedicated computer platform;
iii. Long loading time (customer service), which could take as long as 20 minutes per operation, as this is a technology over 30 years of age.

CTT add that the use of analogue franking machines has caused significant constraints at the level of the protection of revenues, given that the customer itself introduces the price, which entails a lengthy and expensive acceptance process, associated to the verification of whether processed prices conform to prices in force. According to CTT, this is not the case for other contractual means (credit payment, cash, pre-active payment and digital franking machine).

In the light of available information and data conveyed by CTT, the price proposal indicates that it is associated to differences in costs, and there are no evidences of failure to comply with the principle of cost orientation of prices.

As regards national priority mail up to 20 g, in the occasional segment, CTT proposes a one-off increase, on 01.03.2015, by 10%, where the price for this service increases from €0.50 to €0.55. The last price increase for this service took place in 2012, when the price increased from €0.47 to €0.50. Even so, it is estimated that this service will continue to show a negative margin⁴.

As far as international priority mail is concerned, which according to CTT is based on the Exprès service of the Universal Postal Union (UPU), the proposal for update (increase) of prices takes into account additional costs associated to the introduction of the track&trace⁵ system for this type of mail in 2014.

According to CTT, the introduction of the requirement for the incorporation of the track&trace system, decided at UPU’s congress held in Doha, led to the payment of additional terminal charges, depending on the quality performance at the destination country, for international priority mail items exchanged between postal operators⁶.

Notes

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¹ Mark-up compared to revenues.
² Results the audit to which is currently under way.
³ Values presented by CTT in its letter of 06.02.2015.
⁴ According to results of CTT’s cost accounting system, the margin for this service was (BCI) (ECI) % in 2013 and (BCI) (ECI) in the first half of 2014.
⁵ Service which provides the user with information on the state and location of the postal item.
⁶ Vide, specifically, articles RL 140, 190, 218 and 219 of UPU’s Letter Post Manual (http://www.upu.int/uploads/tx_sbdownloader/actInFourVolumesLetterPostManualEn.pdf).