Directorate Seminar: “NEW Government Business Case Guide”

1. Directorate Seminar: “NEW Government Business Case Guide” Hongkong Post Business Cases Mr. TAM Wing-pong Postmaster General 30 May 2008

2. 167 Years of Service Established in 1841 Trading Fund operation since August 1995 Over 7,000 staff 127 Post Offices Handles 4 million mail items per day 2

3. Post Office Trading Fund Objectives • Viability • Maintaining a profitable business operation in a competitive market • Generating a return of 8.4% on ANFA • 3 Categories of services • Universal obligation • Semi-commercial services (e.g. PayThruPost) • Commercial services

4. Post Office Trading Fund Difficulties • Having to operate as a government department on a commercial basis, and to compete with operators in the private sector without the essential flexibilities available in the commercial arena • Making profit without overall control over the costs of operation or the freedom to price our products and services

5. Profitability of Post Offices (extract)

6. Closing down under-utilized Post Offices Background - In 2006-07, only 22 out of a large network of 133 post offices are profitable, all other offices are operating at a loss

7. Closing down under-utilized Post Offices Situation Audit In 2006-07, post office counters incurred an operating loss of around $13 million There has been considerable resistance to closing down a post office as people are used to paying bills at post offices Considered that closing of four loss-making and under-utilized post offices i.e. Garden Road, Harbour Building, Canton Road and North Point would cause a low level of impact to local community Wong Chuk Hang and Causeway Bay were also closed owing to re-development and lease termination respectively

8. Closing down under-utilized Post Offices Implementation HKP followed a strategy of proactive communication with the District Councils to obtain their understanding and assured them that HKP remained committed to providing counter services generally in line with ‘Hong Kong Planning Standards and Guidelines’

9. Closing down under-utilized Post Offices Implementation Review Closure of the four post offices results in an annual savings of $14 million in staff, accommodation and overhead costs Traffic was diverted to other post offices in the vicinity Resources are better utilized Post offices are more reasonably distributed

10. e-Cert Policies and Departmental drivers To support Government’s Digital 21 Strategy To support the development of electronic commerce in Hong Kong To offer the Certification Authority services as a new business initiative under the POTF operations 10

11. e-Cert Hongkong Post Certification Authority (CA) Risks of launching new services The government’s technology-neutral approach does not mandate the use of e-Certs Review concluded not commercially viable CA operation outsourced to private sector operator from April 2007 11

12. e-Post Service The Business - One-stop-shop service from data printing to mail delivery

13. e-Post Service Analysis of Requirements Policies and Departmental drivers Explore new business stream for revenue generation Grow and sustain postal business

14. e-Post Service Analysis of Requirements Objectives To capture a market share $46.55 million per annum by service enhancement To log on bulk mail users

15. e-Post Service Analysis of Requirements Gap analysis Existing service – government services, technical and security requirement is low Future requirements – financial sector, hi-tech in data management and machine capabilities, high security requirement in data transmission and physical environment, development of Business Continuity Plan

16. Options Selection and Evaluation Short term – strategic cooperation approach Long Term – self-investment approach Risk Analysis investment by phases to minimize the risk of the business Leverage the expertise of market players/partners to improve the chance of success e-Post Service

17. e-Post Service Implementation A dedicated driving team to steer the e-Post business development Setting up of a clear roadmap for business pursuit Careful appraisal on the performance of business at each stage of development and investment

18. e-Post Service Latest Achievements Secured a contract from a multi-international bank Started to provide service for OGCIO Commenced business negotiations with leading insurance companies

19. Post Office Box Background Provided historically for public with inconvenience in receiving mail There are currently 53,000 P.O. Boxes Situation Audit The urbanization of Hong Kong renders the delivery service more convenient than in the past

20. Post Office Box Situation Audit (cont’d) There is a vacancy rate of over 15% (i.e. over 9,000 vacant boxes) Rigid fee revision mechanism The box rental fee is far below the accommodation cost and the associated service costs There is an operating deficit of $3.98 million in 2007-08

21. Post Office Box Decisions Cease the provision of P.O. Box service in new offices Withdraw P.O. Box service when there is office closing down

22. Cease Accepting Mail 30 minutes after Post Office Closing Background With the growth of Internet business, there is an increasing trend of home office operations for such business and postings at some small scale branch offices continue to increase The tendency to make postings at late hours corresponds to the movement of merchandises from the Mainland in late afternoon

23. Cease Accepting Mail 30 minutes after Post Office Closing Background (cont’d) Late office closing means staff will be working on extended hours on OT basis Late postings also affect subsequent mail collection and processing schedules

24. Cease Accepting Mail 30 minutes after Post Office Closing Actions Effective 19 May 2008, new arrangements introduced to cease accepting all postings 30 minutes after office closing time Provide alternatives for late postings at General Post Office, Tsim Sha Tsui Post Office and Tsuen Wan Post Office up to 7.00pm

25. Cease Accepting Mail 30 minutes after Post Office Closing Implementation review Postings were observed to be advanced Transport network and downstream management are under better control OT work are better managed with an expected reduction of a total of at least 50 OT hours per day at all counter offices, equivalent to about HK$2 million a year

26. Cease Accepting Payment by Credit Card at Post Offices Background Credit card was accepted as means of payment since 1997 Situation Audit Commission amounted to $6 million was paid to credit card company annually Since May 2007, ceased to accept credit card for purchase of postage stamps

27. Future of Post Office Trading Fund • Corporate governance needs to be strengthened • Trading Fund operation can only be an interim arrangement • Trading Fund operation is not conducive to a sustainable and profitable operation • To be more competitive, it is necessary to introduce bold and profound corporate reforms

28. THANK YOU