Battle-lines about to be drawn in postal sector

Date: 04/05/2000

By Bruce Barnard

The 15-year-long struggle to dismantle Europe's postal monopolies is entering a decisive stage, with the free-market forces scenting victory over the protectionists.

But the size of that victory is still in doubt as the two sides prepare to horse trade over how much of the industry should be exposed to competition. The fact that the UK, a champion of free markets, has a soft spot for the Royal Mail and could find common ground with France, the champion of the status quo, makes the outcome hard to call.

Breaking up a monopoly generating annual revenues of €180 billion, providing hundreds of thousands of jobs - many of them with civil-service status - and legally obliged to offer universal services, was never going to be easy. What is more, the companies which stand to benefit most from liberalisation include brash outsiders such as US parcel giants UPS and Federal Express.

The battle-lines will soon be drawn as Single Market Commissioner Frits Bolkestein prepares to publish his proposals for opening up the industry in 2003. Buoyed by the pro-market sentiment at the recent Lisbon summit, he is expected to opt for a radical approach which will reduce the weight limit for competition significantly below the current 350-gramme threshold which covers 97% of the market.

Bolkestein's proposed cut-off weight is likely to be pitched close to the 50 grammes which former Industry Commissioner and fellow liberal Martin Bangemann was about to recommend when the Santer Commission resigned en masse last year. If it is, the recommendations are certain to provoke an immediate political reaction in member states and the European Parliament, unleash a barrage of conflicting statistics from opposing lobbies and probably spark labour unrest in some countries.

Reducing the letter monopoly to 50 grammes would only subject 23% of the postal authorities' revenues to competition. This, argues the private courier company lobby group European Express Association (EEA), would "in no way affect the provision of universal service".

The Commission's own figures broadly support the EEA's case, suggesting that the post offices generate more than 62% of their revenues from letters weighing 50 grammes and under. It also argues that universal service is a commercial asset which can benefit the post offices.

The industry - both the existing postal monopolies and private companies - will be too busy working on business models to exploit and survive liberalisation to be deflected by the opening skirmishes of this battle.

The business has changed beyond all recognition since the Commission began to piece together a strategy for liberalisation more than 15 years ago. In fact, the Bolkestein proposals are generating less excitement than the imminent ruling by his competition counterpart Mario Monti on the alleged misuse of state aid by Deutsche Post.

In a sense, the Commission's programme is being overtaken by events, as some countries are unilaterally opening up their domestic markets - Sweden and Finland have removed their monopolies, and some post offices are cutting deals with private-sector companies - DHL, the global delivery company, says alliances with post offices played a big role in its 15% growth in revenue last year.

The industry is also splitting up into leagues. Deutsche Post and TPG of the Netherlands are in the premier division as global transport, distribution and logistics operators, followed by France's La Poste and the UK's Post Office, which are building pan-European parcel delivery networks.

Smaller post offices cannot compete - Sweden's post office lost a bitter battle with Deutsche Post for control of Scandinavia's largest transport group ASG - and will probably form regional groupings or team up with the bigger players. Others are sub-contracting their international mail and parcel deliveries to larger operators such as TPG.

In another significant move, TPG, the Royal Mail and Singapore Post are forming a joint venture to deliver business mail around the world and are now looking for a US partner. This is the first time postal services from different countries have teamed up to deliver cross-border mail in direct competition with national authorities.

It is against this rapidly shifting backdrop that policy-makers are preparing to tackle the last bastion of protectionism in the Union.

Article forms part of a survey 'Industrial liberalisation'.