Controversial postal notice to be deferred

European Commission officials have opted to delay the publication of a controversial notice specifying how the EU's rules of competition should apply to postal operators.

To avoid conflict with the European Parliament and anti-liberalising member states, Competition Commissioner Karel van Miert wants the notice to be adopted only after a market-opening directive has been formally agreed by ministers.

Since the final text of the directive is still being refined, it will not be ready for a meeting of communications ministers this week and is instead expected to be adopted by foreign ministers on 24 March.

The directive maintains post offices' monopolies on the transport, sorting and delivery of mail which costs less than five times the standard postal rate and weighs less than 350 grammes. Standard letter post will remain a so-called 'reserved area' for the post offices.

Three years from now, ministers will decide whether to open up the market for cross-border post and direct commercial mail or reduce the mail weight and tariff thresholds with effect from 2003.

This minimal opening of the postal market came as a great disappointment to the Commission and liberal member states (in this case, the Nordic countries and the Netherlands), but most of all to express delivery services, which want freedom to compete with post offices.

Acknowledging they have lost the battle for a more ambitious directive, these liberal forces have been pressing for tough competition guidelines. Since the post office monopolies are likely to remain dominant in their markets for at least the next five years, express firms want to be sure that existing competition rules are applied strictly and uniformly.

The latest draft of the notice, which is currently being circulated for discussion among European Commissioners' private offices, tries to take account of these fears without unravelling the hard-won directive.

The Commission opens the text with a warning to post offices not to cross-subsidise units which compete with the private sector - such as parcel delivery - with monopoly profits from letter post. At the same time, it says, postal monopolies should not emulate the practices employed by telecommunications operators as they approached liberalisation of favouring big business users.

'By applying the competition rules to the sector on a case-by-case basis, the Commission will ensure that monopoly power is not used for extending a protected dominant position into liberalised activities or for unjustified discrimination in favour of big accounts at the expense of small users,' says the draft notice.

Express delivery companies, such as DHL, Federal Express and United Parcel Service, are hopeful that the wording of the notice will be tightened up in the wake of the Commission's recent moves on a three-year-old complaint by UPS against Deutsche Post AG.

Last month, the Directorate-General for competition (DGIV) wrote to Deutsche Post formally warning that it might uphold UPS' claim that the post office had been practising predatory pricing in the package delivery market over the past 12 years.

This, it said, 'indicated an intention' by the post office to eliminate its rivals from the market. DGIV intends to send a formal statement of objections to Deutsche Post's activities next month.

The private firms hope the notice will specify that post offices should ensure a 'proportionate' distribution of costs between monopoly and free-market services, including the costs of research and development, operating facilities and overheads.

The latest draft is not as strict as they would like, although it is tougher than the original notice put out to consultation a year ago.

It states that operators should not use income from 'reserved' services to subsidise activities in competitive areas unless this is justified by specified universal service obligations. In 'all other cases', the price of competitive services should include 'an appropriate proportion of the overall costs of the operator,' it declares.

Once the notice is adopted following approval of the directive, DGIV will be free to act on a series of complaints it has received from private-sector postal operators regarding payments of state aids, cross-subsidies and alleged abuses of dominant positions.

Although ministers realise that publication of the notice is inevitable, it may still run into difficulties with Parliament. MEPs are implacably opposed to the application of normal competition rules to the sector and have passed a resolution calling for the notice to be withdrawn.