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38631-105 |
Analysis of the postal and courier market for
the Communications Commission of Kenya
Presentation for Industry Stakeholders
18 March 2014 Ian Streule, Philip Bates, Graeme Lee, Richard Lyall, Juan Ianni,
Steve Hannon, Andrew Daly and Declan Clancy
38631-105 |
Contents
2
Introduction E-commerce
Universal
service
obligations
Legal and
regulatory
challenges Exclusivity
security
Inter-
connection
Next
steps
Markets
and
competition
Introduction
38631-105 |
Objectives of the project
▪CCK has commissioned Analysys Mason to review the postal and
courier market in Kenya
–market development, competition, reserved services,
universal service obligations (USO), licensing, interconnection
and security
–our team has included experts from Sunflower Associates and
PLCWW
▪This workshop will discuss our analysis of the sector and our
recommendations to CCK
3 Introduction
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We have undertaken a range of activities
▪ In December and January, information gathering meetings with:
–CCK, CIAK, PCK, a number of other industry players including
bus companies and courier firms
–other key stakeholders involved in the industry, including users
(utility companies, banks), financial providers and government
agencies (MoICT, Land Registry)
▪We have worked closely with CCK to understand market
statistics, licensing activities and regulatory developments such
as the universal service fund
▪We would like to thank those of you in the industry who took the
time to meet with our team and contributed insight and
information to our fact-finding activities
4 Our activities
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Our team
5
Ian Streule Partner, Analysys Mason Project Director
Philip Bates Principal, Analysys Mason Project Manager
Graeme Lee Senior Partner, Sunflower Associates USO & exclusivity inputs
Juan Ianni Sunflower Associates Legal & regulatory inputs
Richard Lyall PLCWW Security review
Steve Hannon PLCWW Strategy inputs
Declan Clancy Associate Consultant, Analysys Mason Research
Andrew Daly Manager, Analysys Mason Markets & competition inputs
38631-105 |
Contents
6
Introduction E-commerce
Universal
service
obligations
Legal and
regulatory
challenges Exclusivity
security
Inter-
connection
Next
steps
Markets
and
competition
Markets and competition
38631-105 |
The postal market in Kenya has developed a distinct set of characteristics
7 Markets and competition
Rapid transport
PCK post
office
PCK pillar
box
Kiosk/
concession
Normal
sorting
International
PO box
Household Courier
only
DX
Other
countries
Unlicensed
Unlicensed
Customs
Air or ground transport
Bus counter
Collection of
originators’
mail items
Outward hub Inward hub (Inter)national
sortation
Delivery to
urban
recipients
Delivery to
rural
recipients
Household
Business
Hub Hub
Business
Bus
counter
PO box
A vibrant and
competitive
courier
market exists
The
PO box market in
Kenya is an
important
reserved area Bus companies are playing an
increasing role in the market
Rural
hub
Business
38631-105 |
We believe that two weight categories are of interest in the post and courier market
8 Markets and competition
Under 100g
• Vast majority of letters fall into this category
• Can use standard sorting techniques such as sorting
frames and bundles of pre-sorted letters
• Items fit into standard PO box
• Most items have no monetary value
100g-20kg
• Postal items handled via lower-volume processes
• Packets and parcels guided by form factor
• Many items do not fit into standard PO box
• And these tend to have monetary value
Above 20kg • Above the universal service weight
• Considered to be freight
38631-105 |
The level of competition varies across these economic markets
9 Markets and competition
Market Comments
A Domestic bulk
letters Delivered through the PO Box network where PCK is
the monopoly provider, but threatened by e-substitution
B Domestic slow
single-piece
letters
PCK is the only provider of multi-day (slow) single-
piece (unsorted) letter items
C Domestic fast
single-piece
letters
Highly competitive with large number of local and
national providers
D Domestic fast
packets and
parcels
Growing and competitive with numerous substitution
options
E Domestic slow
packets and
parcels
PCK is the only provider of multi-day (slow) packets
and parcels to PO boxes
38631-105 |
We have extrapolated current volume trends, guided by regional benchmarks
10
Courier and parcels Letters
Markets and competition
* Our report also includes a parcels benchmark
0
20
40
60
80
100
120
140
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Lett
er
ite
ms p
er
ann
um
(m
illio
n)
0
2
4
6
8
10
12
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
Co
uri
er
an
d p
arc
el ite
ms
pe
r a
nn
um
(m
illio
n)
0123456789
Tunis
ia
Sw
azila
nd
Gabon
Zim
bab
we
Ke
nya
201
3
Leso
tho
Eg
ypt
Tan
zan
ia
Ma
law
i
Ke
nya
202
0
Se
ne
ga
l
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mo
ros
Djib
ou
ti
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nin
Lib
ya
Ma
da
ga
scar
Ma
urita
nia
Lett
er
ite
ms p
er
pers
on p
er
annum
Letter items per head Express items per head*
0.000.020.040.060.080.100.120.140.160.180.20
Ke
nya
20
20
Tu
nis
ia
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uri
tius
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nya
20
13
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mb
ia
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ypt
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yche
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e
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rkin
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aso
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To
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and
a
Ma
da
gascar
Co
uri
er
ite
ms p
er
pe
rso
n p
er
an
nu
m
38631-105 |
Contents
11
Introduction E-commerce
Universal
service
obligations
Legal and
regulatory
challenges Exclusivity
security
Inter-
connection
Next
steps
Markets
and
competition
E-commerce
38631-105 |
2G and 3G connections
Internet access and familiarity with e-payment provide a solid base for e-commerce in Kenya
12
0%
25%
50%
75%
100%
0
20
40
60
80
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Co
nn
ectio
n (
mill
ion)
2G 3G
SIM penetration Subscriber penetration
Mobile finance in Kenya
E-commerce
Source: Central Bank of Kenya, 2014
0
25
50
75
100
125
0
5
10
15
20
25
30
2008
2009
2010
2011
2012
2013
Ag
ents
(th
ou
san
d)
Cu
sto
me
rs (
miil
ion)
0
20
40
60
80
100
0
40
80
120
160
200
2008
2009
2010
2011
2012
2013
Tra
nsa
ction
s (
mill
ion)
KS
H (
bill
ion)
38631-105 |
E-commerce is being held back by barriers to effective fulfilment and cybersecurity issues
13 E-commerce
Rapid transport
PCK post
office
PCK pillar
box
Kiosk/
concession
Business
Normal
sorting
International
PO box
Household
Courier
only
Other
countries
Unlicensed
Customs
Air or ground transport
Bus counter
Collection of
originators’
mail items
Outward hub Inward hub (Inter)national
sortation
Delivery to
urban
recipients
Delivery to
rural
recipients
Household
Business
Hub Hub
Business
Bus
counter
Barrier 1: physical
logistics for retailers
Barrier 3:
addressing system
Barrier 2: customs
duties and taxes
PO box
Rural
hub
Barrier 4: security required for e-commerce
38631-105 |
Many e-commerce deliveries do not require the express services that couriers currently provide
▪Delivery-related issues are main inhibitor of e-commerce in
Europe, and few national postal operators in Africa can deliver
significant volumes of packages to homes
▪Several large e-retailers in Africa have developed their own
logistics networks – but this is not possible for smaller companies
▪Delivery within 2-5 days would be acceptable for some e-
commerce deliveries
–however, quality of service for multi-day delivery should meet
the expectations of senders and recipients
▪Real-time track-and-trace and SMS notification of deliveries are
two key services that would improve customer experience
14 E-commerce
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Delays and costs when importing items are commonly cited as barriers to e-commerce
▪Duty and tax on incoming international items amount to ~50% of
their value – a significant inhibitor to international trade, which
is rising in Kenya
▪Duty and tax are payable regardless of value of the item – for
many items cost of administering tax and duty exceed the
amount collected
▪Despite a customs declaration itemising the contents, each item is
opened to assess contents – items can take over a week to be
released
▪Delivery issues for recipients: in Nairobi recipients must go to
the GPO and have their packages opened publicly, and outside
Nairobi customs opens packages and charges duty to be paid by
the recipient at their local post office
15 E-commerce
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The development of a national addressing system is not a short-term solution for the industry
▪Firms have cited the lack of a national addressing system as a
major barrier to e-commerce
▪The development of a national addressing system requires the
input of many stakeholders
–postal operators are not best-placed to lead its development
– there is a requirement for detailed mapping input which is not
currently available
– this is a long-term project with high costs
▪ In the meantime, postal and courier operators will need to find
their own solutions, individually or collaboratively
– these can be effective – e.g. GPS, smartphone technology, SMS
notifications and universal SIM registration
16 E-commerce
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Both consumers and merchants are concerned about fraud and security of payments
▪Merchants are concerned about levels of fraud due to identity theft
–CCK can protect merchants by supporting the development of a
comprehensive cybersecurity framework
– there are already some cybersecurity programmes in development
▪Consumers are wary about the security of paying in advance for
goods
–delivery companies and merchants could allow customers to pay
on delivery (a common feature of e-commerce in India)
–mobile money services in Kenya may be able to develop supporting
trusted payment methods
▪However, this market is still emerging, and customer confidence and
trust will improve with experience, and as suppliers gain maturity in
their processes and systems
17 E-commerce
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Recommendations on e-commerce
▪A minimum threshold should be introduced on imports, below
which no import duty, taxes, insurance or levies will be charged
▪The project to establish the national addressing system, and the
stakeholders involved, need to be reviewed
▪CCK should continue to support initiatives for consumer identity
verification and consider introducing a trust mark to identify
reputable merchants
18 E-commerce
38631-105 |
Contents
19
Introduction E-commerce
Universal
service
obligations
Legal and
regulatory
challenges Exclusivity
security
Inter-
connection
Next
steps
Markets
and
competition
Legal and regulatory challenges
38631-105 |
Kenya has adopted some, but not all, of the principles of international best practice
20 Legal and regulatory challenges
Principle Kenya adoption
Clear, holistic, long-term
government policy for postal sector
MoICT has not yet developed a
standalone sector policy for post
Separation of roles and
responsibilities in postal market
CCK has sufficient legislative power
and regulatory expertise
Co-existence of public and private
interests
Further ‘postalisation’ of regulations
will improve market oversight
‘Two-tiered’ licensing systems There are six categories of licence
with different minimum fees
Stimulating competition CCK telecoms experience enables
it to focus on increasing competition
Consumer representation There are not well-developed
channels for consumer input
Could benefit from improvement
38631-105 |
There are too many types of licence. Some licence provisions are unnecessary
21 Legal and regulatory challenges
▪ Quarterly reporting requirements for
licensed operators are onerous
▪ Duration of courier licence is too long,
given rapidly changing nature of the
market
▪ Application form is complex and
lengthy; any information already
submitted to authorities should not
have to be submitted again
▪ The 27-pages postal courier licence is
too detailed. CCK has confirmed that
some licence conditions are not
relevant for particular licensees. Some
conditions are relevant only to the
public postal operator
Categories Responsibility
Public postal
operator Responsible for USO
International
operators
Operate international
networks
International
in-bound only
Receive items for
domestic delivery
Regional
operators East African network
Intra-country
operators
Major operator
domestically
Intra-city
operators
Operate within city
boundary
Document
Exchange
Exchange documents
between members
38631-105 |
Some of our proposals may encourage more unlicensed operators to become licensed
Licensed operators are concerned that unlicensed operators:
– do not follow pricing regulations on reserved areas and may
price below cost
– are problematic for law enforcement agencies and are not
accountable to CCK
Unlicensed operators may be resistant to licensing because:
– they are reluctant to adhere to CCK tariff requirements and pay
licence fees
– their activities are ad-hoc, or for conveyance of contraband
22 Legal and regulatory challenges
Unlicensed operators may be more willing to become licenced if
CCK simplifies the licence regime, reduces reporting obligations,
and lowers the licence fees
38631-105 |
Recommendations on legal and regulatory challenges
▪MoICT should develop a standalone sector policy for post, based
on issues specifically relevant to Kenya, reflect Vision 2030 and
the 2010 Constitution, and use input from all postal stakeholders
▪CCK should ‘postalise’ regulations in the ICT Act
▪Number of licence categories should be reduced, and licence
durations should be reduced to five years
▪ Licences and application form for private companies need to be
simplified, and frequency of reporting reduced
▪CCK should expand channels for consumer engagement
▪CCK should set up a licensing and market forum
23 Legal and regulatory challenges
38631-105 |
Contents
24
Introduction E-commerce
Universal
service
obligations
Legal and
regulatory
challenges Exclusivity
security
Inter-
connection
Next
steps
Markets
and
competition
Universal service obligations
38631-105 |
The Kenyan USO is based on the UPU’s definition, which does not specify access standards
25 Universal service obligations
▪ UPU definitions do not address
access to postal services, quality
of service or pricing
▪ UPU defines the items which
make up ‘basic postal services’,
and advises members on basic
US issues
▪ In Kenya, using UPU’s template
results in a strong definition of
products, and a weak definition
of access arrangements and
quality-of-service standards
USO
standard
Definition in Kenya
Scope Slow and fast letters to
2kg, parcels to 20kg
Frequency
of delivery
6x per week to post
offices, at least 2x to sub
Number of
post offices
Not defined
Density of
post offices
Not defined
Street letter
boxes
Not defined
Quality of
service
CCK and PCK publish
different targets
Area of concern
38631-105 |
▪ There are a very low number of
access points in some regions of
Kenya
▪ In the Northern region, each post
office serves 178 000 people and
10 000 km2, whereas in Nairobi each
post office serves 26 000 people and
6km2
▪ In Nairobi there is insufficient supply
of PO boxes to meet demand
▪ CCK’s role is to ensure an adequate
network is in place to guarantee
access to post services
26 Universal service obligations
Source: Access Gap Study for CCK, 2010
Number of government post offices
3 - 5
6 - 10
11 - 20
21 - 36
The density of access points varies between regions
38631-105 |
The net cost of the USO must be calculated in order to determine how it can be funded
▪At present, USO is funded through granting a reserved area to
PCK
▪There is no data on cost of USO, and it is not possible to say
whether PCK’s net profit from the reserved area is sufficient to
fund the USO
▪ In Europe, several methods have been used to calculate USO
cost – but these may not be applicable to developing countries
▪One approach suitable for a developing market would be a
access network cost model, which determines costs and
revenues of each post office in order to understand cost of
providing US access
27 Universal service obligations
38631-105 |
Recommendations on USO
▪CCK and PCK should establish US access conditions, and
develop five-year roadmap for how access will be improved. Until
these measures are in place, PCK should not be permitted to
close post offices without CCK’s permission
▪CCK and PCK should agree common set of quality of service
targets and expected levels of achievement. CCK should
undertake regular, independent, third-party performance tests to
ensure standards are met
▪The net cost of providing US should be established. CCK should
also set up a US and access forum
▪CCK should make USF operational as soon as possible to
expand access
28 Universal service obligations
38631-105 |
Contents
29
Introduction E-commerce
Universal
service
obligations
Legal and
regulatory
challenges Exclusivity
security
Inter-
connection
Next
steps
Markets
and
competition
Exclusivity
38631-105 |
PCK’s reserved access to PO boxes is more important than the minimum weight exclusivity
The model broadly follows an old
British system:
▪ To deliver all postal items up to
350g: other operators can deliver
items within this limit if they
charge at least five times the
standard tariff
▪ Access to the PO box network:
no other delivery company can
access the PO box network, nor
can they implement their own PO
box network
▪ Right to issue postage stamps
30
▪ Most European countries had a
similar reserved weight and tariff
model to Kenya
▪ In January 2010, full liberalisation
– without restriction on weight or
pricing – was introduced to all EU
postal markets
▪ Countries have flexibility to
license and regulate their postal
sector
– in UK there is only licensing in
the former reserved area of
50g. Outside this, companies
do not need a licence
PCK’s current exclusivity
Exclusivity
Exclusivity in Europe
38631-105 |
Recommendations on exclusivity
▪For the moment, PCK’s exclusive right to provide PO boxes
should be retained
▪CCK should engage with PCK to discuss and agree a
development programme for PO Boxes
▪Exclusive right of PCK to carry standard mail under 350g (subject
to the five-times-tariff rule) should be phased out
▪PCK should retain exclusive right to issue postage stamps
▪ It is not recommended that more than one US provider be
designated
31 Exclusivity
38631-105 |
Contents
32
Introduction E-commerce
Universal
service
obligations
Legal and
regulatory
challenges Exclusivity
security
Inter-
connection
Next
steps
Markets
and
competition
Interconnection
38631-105 |
There are many ways of regulating interconnection, including light-touch and more intrusive methods
▪ In parts of the market where a dominant provider exists,
interconnection obligations may be warranted
▪Ex-post competition law may not be effective due to the
complexity and timescales of dealing with disputes in the evolving
Kenyan market
▪Ex-ante regulations can vary from simple obligations to price-
controlled downstream access, but can be intrusive. The
dominant operator could be obliged to:
–consider and willingly negotiate fair and reasonable requests
–set up non-discriminatory, transparent agreements
–adhere to a price control or other price regulation
33 Interconnection
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Recommendations on interconnection
▪A proportionate measure is to oblige PCK to consider
interconnection requests for ‘fair and reasonable’ wholesale
access to its slow- and courier-speed pipelines
34 Interconnection
38631-105 |
Contents
35
Introduction E-commerce
Universal
service
obligations
Legal and
regulatory
challenges Exclusivity
security
Inter-
connection
Next
steps
Markets
and
competition
Mail security
38631-105 |
A best-practice document would encourage a consistent level of security across operators
The postal market in Kenya is highly diverse – it would be
inappropriate to require all licensees to meet the best standards. A
basic set of security standards for postal and courier operators
should include:
– Mail should not be left unattended or insecure at any time
– All staff should have an appropriate level of security
awareness
– Unauthorised access to operational sites should be prevented
– High-risk mails should be afforded appropriate protection
– Supervisory checks to safeguard mail should be effectively
deployed
– Equipment used to convey mail should afford appropriate level
of security at all times
36 Mail security
38631-105 |
Recommendations on security
▪To enable efficient monitoring of security performance of
operators, CCK should ask for regular data on security issues
▪CCK and CIAK should develop a mail integrity document for all
operators to sign up to
– this will provide basic and best-practice recommendations on
operational security, physical security, staff awareness, mail-
handling procedures, dealing with undelivered items, and
employee protection
▪CCK should set up a security forum to exchange information on
best practice and new risks
37 Mail security
38631-105 |
Contents
38
Introduction E-commerce
Universal
service
obligations
Legal and
regulatory
challenges Exclusivity
security
Inter-
connection
Next
steps
Markets
and
competition
Next steps
38631-105 |
After this workshop we will be finalising our report
▪This workshop, and other meetings this week, are intended to
gather feedback on our draft report and recommendations
▪We will finalise our report in the next 1-2 weeks based on the
inputs that we receive this week and also in discussion with CCK
▪We will also be providing a proposed implementation plan to CCK
for our recommendations
39 Next steps
38631-105 |
Contact details
40
Ian Streule
Partner
St Giles Court
24 Castle St,
Cambridge
CB3 0AJ
Philip Bates
Principal
North West Wing,
Bush House,
Aldwych,
London
WC2B 4PJ
Graeme Lee
Senior Partner
13 Wildspur Mills
New Mill
Huddersfield
HD9 7BA
