Australia Post

Australia Post wants to lift the price of stamps by 10c. Photo: Jessica Shapiro

Australia Post will lob a hot potato into the Abbott government's lap on Friday when it tells the Australian Competition and Consumer Commission that it wants to bump up the basic postage rate by almost 17 per cent, from 60¢ to 70¢.

Chief executive Ahmed Fahour wants to put the price of a standard stamp up at the end of March, and is sugar-coating the proposal by committing to hold the new price for three years, pointing out that earnings pressure on small locally run postal agencies will ease – and by offering shelter to 5.7 million Australians who hold Commonwealth government concession cards.

Concession card holders, including senior citizens who rely more on traditional mail, would register with Australia Post to qualify for postage at the existing 60¢ rate. The number of letters covered by the concession would, however, be limited to about 50 a year.

Businesses and governments that account for over 80 per cent of regulated "snail mail" such as customer statements and bills are exposed, and there is added spice because Australia Post is an outside privatisation chance as the Abbott government looks at ways to rein in budget deficits and finance new infrastructure.

Still, requests for rate increases have not been vetoed before, and Fahour has a solid case to make.

The basic price of a stamp has only increased three times in the past 22 years, from 45¢ to 60¢. The last increase from 55¢ was not so long ago, in June 2010, but the 22-year, 33 per cent price rise compares with a 70 per cent increase for Australia's consumer price index over the same time.

Australia's basic postage rate is now the second-lowest in the OECD, which averages $1 a letter, and even if it gets the 10¢ increase, Australia Post will continue to lose money on snail mail that must be delivered nationwide under its charter.

Losses on snail mail have been mounting as Australians switch to digital forms of communication including smartphones and tablets, and as the high fixed cost of delivering letters rises along with Australia's population.

Australia Post says the signs are the retreat is accelerating in its proposal to the ACCC, which will make a recommendation to the government and the responsible ministers, Communications Minister Malcolm Turnbull and Finance Minister Mathias Cormann.

Mail volumes are 23 per cent below their peak here, but are down by 30 per cent in the US, even though the US Postal Service has a monopoly on mailbox access. They are down by 40 per cent or more in countries including Britain, the Netherlands, New Zealand, Denmark, and Korea (the only OECD country that still charges less than Australia Post).

The government-owned group's total profit has been rising. Earnings rose by 20.8 per cent to $311.9 million in the year to June 2013 as Fahour grew unregulated areas of the business fast enough to offset the losses the old postal service is generating.

The internet is both a deadweight and a source of new revenue as the process unfolds. Fahour is, for example, chasing digital mail revenue with its Australia Post Digital MailBox service: higher snail mail costs won't hurt that plan.

The internet is also not only destroying the economics of snail mail, but supporting the development of an online shopping industry that is supercharging unregulated package delivery businesses, including the ones Australia Post operates.

Fahour took the group to 100 per cent ownership of the leading parcel and express freight service, StarTrack, in November 2012 by buying joint venture partner Qantas out for about $400 million. In 2012-13 Australia Post's parcel and express delivery services including StarTrack boosted earnings by 29 per cent to $355 million in 2012-13, making them the focus of any privatisation attempt.

Australia Post broke even on snail mail in 2007-08 when letter volume peaked at 4.6 billion. It lost $550 million over the next five years, however, as letter volumes fell by 23 per cent to 3.6 million, and as the number of delivery points rose 7 per cent to 11.2 million.

Stamp price rises are always politically sensitive, but every 1 per cent letter volume decline is now costing Australia Post $20 million: Fahour must fancy his chances.

mmaiden@fairfaxmedia.com.au