A version of this article was published in the EU Voice on April 26, 2007.
In these days of correspondence by email and wireless communication, most European governments still hold a statutory monopoly on a significant part of the postal service market. This monopoly which dates back several centuries in some countries is more and more thrown back into question.
In these days of correspondence by email and wireless communication, most European governments still hold a statutory monopoly on a significant part of the postal service market.
Outside the European Union (EU), Switzerland maintains a monopoly on the delivery of letters weighing less than 100 grams. Several countries of the EU share also this policy. In France, for example, regulations still shield the incumbent operator (La Poste) from competition for the delivery of regular mail.
This monopoly which dates back several centuries in some countries is more and more thrown back into question. A first challenge comes from the emergence of new means of communication. Faxes opened the possibility of a partial escape from postal monopoly. Nowadays, electronic mails allow us in their turn to communicate easily while avoiding government monopolies that are sometimes prone to strikes.
An additional challenge emanates from European authorities. Since 2003, it is possible to compete with incumbent operators in the member states for the delivery of letters weighing more than 100 grams. Since the start of 2006, this possibility has been extended to letters weighing more than 50 grams. Finally, a recent proposal put forward by the European Commission advocates that member states should open their postal market to full competition by 2009.
Like France, several countries are reluctant to relinquish their monopoly over regular mail. In all likelihood, they will thus oppose this proposal which must still be ratified by member states and approved by the European Parliament.
In some countries – like in the UK for example – post offices, especially in rural areas, are fulfilling different social roles and are considered as central to communities presumably giving people independence or providing them with a meeting place. But a true opening to competition just give incentives to entrepreneurs through flexible market prices to respond better to consumers’ needs for post services. Such opening doesn’t indeed at all preclude the possibility for community authorities to continue financing one way or another for these other “social roles” of rural post offices and to hand them over to other institutions or organizations, if they decide to.
But the main justificatory argument put forward is an economic one. According to it, a monopoly is essential in order to secure a universal postal service, especially in the same remoter rural areas of a country. Presently, with the uniform tariff that prevails in France, for example, some customers of La Poste are forced to pay the delivery of their mail at a price that exceeds its costs to the monopoly, and they thus subsidize in fine the delivery of the mail of other customers who enjoy a tariff lower than the delivery costs incurred by it.
Opening this system to competition would supposedly lead to heightened competition in economically profitable “niches,” and only “unprofitable” sectors would thus be left to the incumbent operator. This mode of competition would deny to the latter the possibility of resorting to crossed subsidies, and would, at the same time, place the universal postal service in jeopardy.
The very concept of a uniform tariff nationwide for postal services certainly deserves to be called into question, in and of itself. After all, when you travel by train, the cost of your ticket usually varies according to the distance and the cost of serving your destination. Why should it be different when it is your mail, rather than you, that travels?
Furthermore, it is never economically sound to conceal the real cost of a service to some customers as this leads to a waste in the use of scarce resources. Neither is it sound to artificially raise the price paid by some customers, especially business customers, as this puts many firms – their mail constituting roughly 90% of dispatched postal mail – at a disadvantage. This undeniably erodes their competitiveness with respect to rival firms which can enjoy postal competition, services that are better tailored to their needs, and lower prices.
But, in reality, even if one wants to maintain universal postal service, it does not provide a straightforward justification for retaining a government monopoly. Countries like Finland, Sweden, or the United Kingdom – while maintaining universal service – have abolished their postal monopoly.
There remains the obvious possibility of financing remote rural delivery routes by direct government subsidies – if this is deemed indispensable – in order to cover part of the costs incurred by operators providing this service. In order to have mail delivered in such areas, public authorities can also proceed through competitive tendering among different postal operators in competition against each other, instead of being forced to come to terms with a single postal monopoly.
Finally, it is of course possible even to give up on uniform tariff policy, while providing direct financial aid, if necessary, to customers living in remote rural areas. All things considered, it is not only postal services which cost more in these areas, but also the transport of many other goods, including food products. Yet, no one claims that a monopoly must be established in order to deliver these products. Why would the situation be fundamentally different in the case of mail delivery?
But, beyond issues pertaining to the universal service, we should not overlook the benefits of opening the postal market to competition.
Indeed, competition urges postal operators to innovate further in sorting and delivering mail, in being responsive to the needs of their customers, and in providing services at the lowest cost.
New and more flexible networks – such as food retail chains, filling stations or tobacco shops – can thus receive and dispatch mail with extended opening hours that favor consumers. Increased frequency of mail collection can also be implemented for business customers who request such a service. In short, in this area like in many others, competition urges suppliers to provide the best value to consumers.
The examples of those European countries which have relinquished their postal monopoly, “show that the efficiency and reliability of postal services have been improved and meet the needs of citizens and businesses” in the words of the European Commission.
In the last analysis, it is consumers who stand most of all to gain from full market opening. But, this opening will in all likelihood also allow the postal service to adapt and expand itself in the face of modern means of communication. As in telephony, it is conceivable that entrepreneurial freedom will spur entrepreneurial innovation in this area also.
Valentin Petkantchin, directeur de la recherche, Institut économique Molinari