Posts or telecom: Sri Lanka’s dysfunctional communications family

Oct 08, 2007 (LBO) – It’s a strange question.  It has always been Posts AND Telecom, even back in the bad old days when it was an inconsequential Ministry given to a junior/marginal Minister.   It has been one of the few constants in the ever-changing kaleidoscope of Ministry nomenclature.

But it is a choice.  A choice, not for the public, but for the Minister.  Is he going to preside over a sector that walks on two legs and contributes strongly to the economy and society; or is he going to preside over a dysfunctional family where one child is growing at an extraordinary pace and the other is not?

The growing child is not only growing, but it is eating the weakling’s lunch.  He has a choice:  let the status quo continue and see the weakling atrophy and die; or put the weakling on the regimen that caused the growth spurt in the healthy child.

Telecom or posts?

Performance

How does one measure performance in the postal sector?   People who have been to a post office recently or had letters delivered months after the mailing date may see no need for formal indicators.  But let us be systematic.

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Figure 1:  Output indicators of the postal sector comprising 4,043 public and 684 private post offices, 2004-06

Source:  Central Bank of Sri Lanka, Annual Report, 2007

In terms of convenience to the user, the smaller the area served by a post office, the better it is.   For many years, Sri Lanka has had the highest performance measure on area served by a post office in Asia (leaving aside the city states); it is actually equal to that of Italy.   One can therefore rest content with the flat performance on this indicator.

Letters delivered per inhabitant is another standard indicator.   As the population grows and the economy grows, one would expect this to increase.   But this too is flat.   Not a good sign.

The Post Master General is making noises about monopoly rights (of which more will be said below).  Not at all a good sign.

No one is keeping track of letters lost and delayed.   The media have stopped reporting quality problems with the posts.   That letters and telegrams get delayed or lost is not news any more.

Contrast this with the performance indicators for the telecom sector for the same period.

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Figure 2:  Output indicators for the telecom sector, 3 private fixed operators and 4 private mobile operators, 2004–06

Source:   Telecom Regulatory Commission, www.trc.gov.lk

Sri Lanka Telecom PLC is included among the three private fixed operators because the government holds less than 50 per cent of the shares (though it has an inordinate ability, still, to interfere in the management through its acolytes on the Board).  SLT PLC’s fully owned subsidiary Mobitel is also counted as a private mobile operator for the same reason.

Clearly, the telecom sector is healthy and growing.  It added 640,082 new fixed connections and activated 2,050,721 mobile SIMs in 2006 only.   Further testimony to its good health is the JHU inspired levy that was recently imposed on mobile users.   No one talks of taxing the postal sector.

In 2006, the posts and telecom sub-sector of the economy contributed to 20.1 per cent of national economic growth.  This was the largest contribution made by a single sub-sector.

The financial services sub-sector (9.7 per cent of the entire GDP) contributed only 13.5 per cent and the entire manufacturing sub-sector (16 per cent of the GDP), only 11.8 per cent.  A larger contribution to growth was made by the posts and telecom sector which constituted just 7.4 per cent of the economy.

It is obvious that the sub-sector’s performance is driven by telecom, not by the moribund Department of Posts.

Growth elixir

Recall that Ministry is called Posts and Telecom; not Telecom and Posts.  Recall that up to 1980, Telecom was under the Post Master General.   How did the runt become the wonder child?

Reform that started with the bifurcation in 1980.

First, the two sectors were on a parallel track: private sector was allowed to resell services, in Posts, through agency post offices and in telecom, through communication bureaus.

Then competition was introduced on the margins, with operators like Lanka Com (SingTel) and Electroteks being licensed in 1991 to provide niche services in telecom and couriers allowed to function in posts.

In 1995-96, the paths diverged.  The fourth mobile operator, Dialog, was licensed and the mobile sector took off.   The licensing of Suntel and Lanka Bell lit a fire under Sri Lanka Telecom.   Sri Lanka Telecom was partially privatized with management being given to NTT.  The regulatory agency was strengthened and actually started regulating.

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Figure 3:  Fixed and mobile telecom growth, 1992-2006

Source:  Telecom Regulatory Commission

Sickness

In 1998-99, the then Minister was working with experts trying to get reforms implemented in the postal sector as well.   But the unions were recalcitrant and he ran out of time.   The runt became the giant and Department of Posts continued to waste away.

It’s not that good money was not thrown after bad.   The new postal head quarters and the various “Piyasas” that gave opportunities for politicians to cut ribbons and light oil lamps all over the country bear testimony.

But performance did not improve.   All that happened was that the unions and the successive ministers got locked into a dysfunctional dance of salary demands being made, strikes being threatened, and more money being thrown at the festering sore.  In name of saving the Department the workers embarked on the path of collective slow suicide.

In the words of the Central Bank:  “In 2005, the total operating expenditure of the Department of Posts (DOP) grew slightly to Rs 4,298 million. Its revenue collection was Rs. 2,644 million. Consequently, its operating loss amounted to Rs.1,654 million in 2005.”

Just to make it clear:  an operational loss of Rupees 1,654,ooo,ooo a year; a loss of Rupees 4,531,507 every single day.

Symptoms

How did the economy function in the face of the sick postal sector?   Every company employs messengers and couriers.   Leave aside companies: when I was in charge of the Telecom Regulatory Commission (then under the Ministry of Posts and Telecom), we never trusted our important letters to the Department of Posts.

With the approval of the Chief Accounting Officer (Secretary) of the Ministry, the TRC even bought a three wheeler to reduce the costs of delivering letters.  The irony was that our Chief Accounting Officer was also the Chief Accounting Officer of the Department of Posts.

In conditions of chronic under supply and unacceptable quality, bypass is the natural response.   Under various pretexts, customers try to get their needs satisfied.   The courier industry raises its head.  It’s a lot more efficient than everyone employing messengers.

Now, the Post Master General, a good and innovation-friendly individual, is making threatening noises about courier services.   He is wrong.  He should be talking reform; not trying to hold back the tide.

Cure

Bypass is a symptom of an underlying disease.  The disease must be treated, not the symptom.   The treatment is not a mystery.   Telecom was sick; it has been cured.  The cure is known.

The choice for the Minister is:  make posts like telecom, or watch it die.