‘Safe’ postal option sends wrong message

Date: 11/01/01

By Tim Jones

EVEN doing nothing has its consequences.

The EU's failure during Christmas week to agree even a token deal to prise open a corner of its postal markets may have seemed a safe bet at the time but now it is starting to look politically hazardous.

Without negotiated market-opening, the post offices most Union governments are determined to protect - a reflex that unites for once the privatising British and the dirigiste French - face a double threat from the European Commission itself and a feisty new US Congress.

Deadlock between liberalisers led by Sweden, the Netherlands and Germany and Anglo-French protectionists resulted in the collapse of negotiations between EU communications ministers on 23 December.

A pared-down compromise from the French presidency that would have opened up just 13% of the market by 2003 - by removing post offices' monopolies for delivering letters weighing between 150 and 350 grams and 'direct' advertising and marketing mail heavier than 100 grams - riled free-marketers and protectionists alike.

Post liberalisation has proceeded at a snail's pace against the backdrop of breakneck commercialisation of the sector's dominant companies. Deutsche Post, which was a sleepy government service ten years ago, has via a €6-billion shopping spree turned into a logistics and financial services giant with mail delivery accounting for just 35% of annual sales revenue.

On the back of its protected home-letter-delivery market, the company has bought Swiss freight-forwarding specialist Danzas, the US's largest air freight agency Air Express International, UK parcel carrier Securicor Distribution and a majority stake in global number-three fast-shipper DHL Worldwide Express. Deutsche Post's commercialisation culminated in November with the flotation of stock worth €6.6 billion.

TNT Post Groep (TPG), the Dutch postal operator, makes no pretence at not being a business, with 115,000 employees, a presence in 200 countries and annual sales of close to €9 billion. The British Royal Mail - now marketing itself under the Consignia name - and France's La Poste are joining the game, albeit late, and this trend is starting to give the Americans pause.

In Washington, the Transportation Trades Department (TTD) of the powerful labour union federation AFL-CIO has started lobbying George W. Bush's incoming administration and Congress to take action against "allowing heavily subsidised foreign conglomerates to compete on a level playing field with US Postal Service (USPS) and private carrier employees".

The union is particularly concerned about Deutsche Post, which is expanding its US activities. The firm applied to authorities last month for permission to break up DHL Airways, in which it has a 52% stake but only 23% of the voting rights under American civil aviation law. Suspicion is growing that the de-merger is an attempt to boost Deutsche Post's stake in DHL's ground-delivery unit.

The AFL-CIO wants Congress to "examine the sufficiency of existing laws to address the problems associated with foreign posts using their unfair government-derived advantages to enter into new business ventures at the expense of US interests". Most ominously, the union is calling on the Bush administration "to carefully scrutinise any initial or renewal application for federal license, permit, authorisation or other privilege accorded by the US government to ensure that such privileges are not extended to foreign postal services that unfairly benefit from government status and state aid".

Such action would lead to a repeat performance of the short but bitter dispute among Washington, Brussels and Berlin after Senator Fritz Hollings proposed legislation that would have prevented Deutsche Telekom from taking over mobile-services provider Voicestream Wireless because the German giant was majority state-owned.

"The company we're dealing with is not the only one but it's the biggest," says Edward Wytkind, TTD's executive director. "We will make sure that our government uses its proper oversight role to prevent anti-competitive effects and ensure that the privileges they seek in the US are not got at the expense of our members."

The union was particularly incensed that the EU had failed to secure 'reciprocal' opening of domestic markets to international competition, although the USPS's letter market itself is far from open.

Internal Market Commissioner Frits Bolkestein's original plan had been to slash the threshold for national postal operators' letter-delivery monopolies from 350 grams to 50 grams and completely open up the market for direct advertising and business mail and outgoing cross-border mail. In 2004, the effects of this deal would then be assessed with a view to total liberalisation in 2007.

The European Parliament voted in favour of weakening the measure by setting the threshold at 150 grams and even then only allowing competitors into markets for letters priced at four times the base tariff, compared with Bolkestein's proposed 2.5 times. Euro-MPs dumped completely the Commissioner's target date for full liberalisation of the market.

This, plus the collapse of the ministerial talks, had immediate effects. German Economics Minister Werner Mueller shelved plans to end Deutsche Post's letter monopoly at the end of 2002 as originally planned because of slow liberalisation in the rest of the EU. TPG's plans to buy into this market to extend its advertising material and catalogues-delivery businesses in eastern Germany and northern Bavaria was put on hold.

"We see a great danger in the directive as it stands," says Anton van der Lande, who monitors EU post liberalisation for US express-delivery firm UPS, which has been aggresively pushing for access to European post and parcel-delivery markets for close to a decade. "By taking out the final date for liberalisation, this means we won't talk about this again until after enlargement when new member states will come in with weak post offices. That puts off negotiated opening of the market completely."

UPS, its allies and the Commission have more than 20 complaints outstanding against various post offices for alleged predatory pricing, cross-subsidy, and abuse of dominant marketplace positions. UPS warns that competition chief Mario Monti may step in where negotiated access appears to have failed.

The Commission issued a statement of objections to Deutsche Post in August warning that it had found evidence of overcharging for stamps; use of these 'excess' profits to cover losses in the parcels division and finance acquisitions; hindrance of incoming cross-border bulk mail deliveries and abuse of dominance in Germany to squeeze rivals out of mail-order business.

Monti has one last weapon that his predecessor Karel Van Miert threatened to use back in 1996, when France and Germany stitched up a plan to postpone market-opening in the postal sector. At the time Van Miert warned he might deploy the infamous 'crowbar' Article 90 (now Article 86) of the treaty, which allows the Commission to bypass ministers by introducing market-opening directives.

Van Miert used Article 86 seven times to prise open the telecoms market but even he never dared deploy it in the energy or postal sectors. Monti's people are not ruling it out.

The EU's recent failure to agree even a token deal to prise open a corner of its postal markets may have seemed a safe bet at the time but now it is starting to look politically hazardous.