Australia Post says Japan Post arrival will hurt vital services

By Byron Kaye

SYDNEY, Feb 24 (Reuters) - Australia Post on Tuesday warned that Japan Post Holdings Co Ltd (IPO-JAPP.T) will "cherry-pick" profitable services if it entered the country, and said it may have to cut services for the first time in 30 years due to intensifying competition.

Australia Post Chief Executive Officer Ahmed Fahour told a Senate inquiry that unless he received permission to raise stamp prices for next-day delivery the 206-year-old state-owned firm would have to consider cuts to vital services.

"If these competitors are allowed to cherry-pick the most profitable parts of our business with no obligations to regional or rural Australia, who's going to take care of regional and rural Australia if Australia Post is not around?" Fahour said.

"This is the last year that we're going to be able to do it on our own. If reform doesn't come in, we're going to need money from somebody or we're going to need to reduce services."

Postal services around the world are facing dramatic declines in their core letter-delivery business as customers turn to the internet for all forms of correspondence from billing to greeting cards.

While some like the United Kingdom's Royal Mail Plc (LSE: RMG.L - news) and Germany's Deutsche Post AG (LSE: 0H3Q.L - news) have been deregulated and privatised, enabling them to slash costs and set their own prices, Australia has resisted calls to sell its postal service.

That has left Australia Post relying on a pickup in retail freight linked to the online shopping explosion, the service Australia Post expects Japan Post will target if its A$6.5 billion ($5.05 billion) takeover of Australian freight firm Toll Holdings Ltd succeeds, as expected.

Fahour said Toll would become a "commercial player ... who does not care about community services" if it came under the control of Japan Post, one of the world's largest companies. It would "try and use the balance sheet of Japan Post Holdings to increase the level of competition", he added.

A day earlier, Australia Post warned that in 2015 it would post its first annual loss since being established as a registered company in 1989, after an 8.2 percent decline in letter volumes led to a 56 percent slump in net profit for the six months to Dec (Shanghai: 600875.SS - news) . 31.

The slide in letter volumes - the result mainly of competition from email and other electronic messaging services - was double the rate of decline in the same period a year earlier, Fahour said.

($1 = 1.2872 Australian dollars) (Editing by Stephen Coates)