Article published in The Free and Fair Post Initiative Newsletter on October 1st, 2010.
Further to the recent EU reforms, the postal market is expected to become competitive in most Member States at the end of the year. According to European law, it will no longer be forbidden to compete with public postal monopolies. However, instead of letting competition develop freely, it seems that Member States overwhelm the postal sector with new series of regulations that risk killing the emerging postal competition.
EU Member States have developed price controls even though they seem to be incompatible with a truly competitive system. This includes a single postal tariff throughout the national territory despite the fact that the economic costs of transport differ. This has the effect of limiting competition, as prices fixed at too low levels make postal services in some remote areas unprofitable and thus prevent private competitors to enter the market. Their true costs are hidden to users and former postal monopolies continue to provide them even if they do not represent an economic interest.
Therefore, despite their economic deficits and debt, some countries―like France―have decided to inject billions of Euros in the form of capital and financial aid, etc., in order to help the national postal operators. This support inevitably creates additional distortions vis-a-vis private operators and could create further obstacles to competition.
It is also interesting to note that, according to Eurostat, only about 0.1% of consumer spending in the EU―i.e. about 10 cents out of 100 Euros spent―is currently devoted to postal services. This represents less than 25 Euros per household on average in the EU. The question could be asked whether the money spent by Member States to finance national postal providers could not be better used, especially in the current economic context.
Moreover, many efforts to re-regulate the postal sector in the EU prevent competition to properly play its role and ends up causing further inefficiencies. The following are just a few examples of how competition is distorted by excessive regulation in EU Member States:
First, the entry of new competitors is subject to requirements that are difficult to meet. For instance, fixing taxes of up to 20% of the turnover in case of partial coverage of the national territory by new competitors, like in Finland, clearly limits the development of competition. Estonia and Belgium seem to follow the same path.
Secondly, in some Member States―like Italy or France―the new postal competitors are subject to mandatory contributions, financing the incumbent public operator, which is their main rival. Those contributions are applicable even if they do not use its postal network.
Thirdly, in Germany―where the postal sector has already been open to competition―a postal minimum wage was imposed, thus increasing artificially new competitors. labour costs by 23% and their total costs by 12%. As consequence, staff employed by them had to be cut by almost 40% and a major competitor went bankrupt.
Finally, the ex-monopolies sometimes benefit from exemptions of VAT (like in the United Kingdom) while that is not the case with their private competitors.
The opening of the EU’s postal market is expected at the end of the year. However, new layers of different regulation by the Member States could kill the emerging competition. In this time of crisis, it is key that public aid is forbidden to allow competition to develop freely in this important market and fully play its role in the European economy.
In order to ensure a free and fair postal market, it is key that all interested operators can enter the market. Barriers to entry should be abolished, and licensing conditions, when they exist, need to be appropriate.
The adoption of the European Directive was a good step in order to ensure postal liberalisation; however, it remains key that barriers to entry disappear. These barriers can be legislative or non-legislative. The first ones are the results of existing or new national legislation, and the other ones are consequences of current practices or bad accessibility to the existing network, etc.
In opening up their postal markets, Member States have developed different legislations which transpose the provisions of the Third Postal Directive into national laws. However, differences remain among the Member States. access to the market. In several Member States, operators which would like to enter the market need to get authorisation or a licence. Conditions to obtain the licence are very strict in some Member States and constitute obstacles in penetrating the market.
These conditions are clear barriers to entry of the postal market and do not respect the provisions of the Third Postal Directive.
Belgium is a good example of these kinds of barriers. In its new postal bill, the Belgian government states that new entrants will have to meet several obligations to obtain their license such as:
• covering 80% of the national territory after 5 years of activity;
• distributing mail at least two days per week after 2 years of activity;
• applying uniform tariffs to the entire covered territory, etc.
These conditions are very restrictive and not appropriate. They clearly limit the development of competition in the Belgian postal market and are not necessary to fulfil the obligations of the Third Postal Directive. They could therefore be considered as barriers at the entry and do clearly not respect the provisions of the Third Postal Directive.
In Finland, a version of pay-or-play is being used in the postal sector. Under the scheme, the ‘pay’ element entails postal service providers without USO being liable to pay a fee to the tax office. The fee applies to new entrants with a restricted licence that provide postal services in areas where the average population density is above a given threshold. If the operator decides to play, meaning to offer universal service, it will not be obliged to pay a fee, and will be entitled to receive government funds. However, the fee collected from operators is not directly used to subsidise the costs of providing universal services in remote areas; instead, the fee enters the government. s budget as tax revenue.
With the new Postal Directive, the licence requirements are inconsistent with postal legislation, as competing postal companies other than the universal service provider cannot be required to deliver mail five days per week, which has been required by law in Finland until now and has strongly limited the development of competition in the addressed mail sector.
The licensing criteria are not as strict in the other analysed countries as they are in Belgium or Finland. However, other barriers remain. In Austria for instance, not all of the postal providers have access to the post boxes in residential houses. The majority of these boxes are only accessible for the Austrian Post. Although discussions are currently taking place regarding this issue, and although there seems to be an agreement as to the legal assessment of the situation (Directive 2008/6/EG stipulates that access to these postal infrastructure elements needs to be granted without discrimination), the issue has still not been solved at Austrian level.
It is key for any postal providers to have access to the post boxes, in order to be able to distribute letters properly therefore competing with the national incumbent. Limiting the access to only one provider would not allow competition to develop in this area and would preserve the monopoly of the national incumbent. The introduction of the obligation to open up the postal market should therefore be accompanied by clear rules to ensure that no technical non-legislative barriers remain, in order to ensure the development of postal competition.
The Commission thus plays an important role in denouncing and addressing these kinds of barriers and ensuring that conditions are favourable to the development of competition.
Valentin Petkantchin is Associate Researcher at the Institut économique Molinari.