IMPORTANT LEGAL NOTICE - The information on this site is subject to a disclaimer and a copyright notice.

European FlagEuropa
The European Commission

Competition
en

Competition

Brussels, 12th June 1998

 

 

H. Ungerer
DIRECTORATE-GENERAL IV - COMPETITION
Information, communication and multimedia

 

The Commission Notice On Postal Services


Postal Services, Liberalisation and
EC Competition Law

Preparing for a new era in postal services

 


THE COMMISSION NOTICE ON
POSTAL SERVICES

After a number of speakers have given their position on essential issues of competition problems in the postal sector during the morning session, I believe it is my role to give a general view from our perspective.

I would like to make some remarks on :

  • the context of the Postal Notice and its role in the postal liberalisation process ;
  • the structure of current case lines ;
  • the expected major competition issues.

You will find many of the issues raised during the morning session again.

Let me first mention :

The Commission Notice on Postal Services must be seen against the background of the complex situation of the postal sector in the European Union. It is well known that the postal sector is not one of the easiest sectors for the application of EC competition law.

After the compromise achieved on postal liberalisation at the end of last year, with the final adoption of the postal policy package  - the Postal Directive and the Postal Notice  - the sector will continue to live under a legal monopoly regime in its core market segments (letter mail) for a number of years to come. However the situation is not as stable as it may seem. The incumbents have started to expand further into competitive sectors and we will be increasingly faced with the complex problems resulting from the combination of legal monopolies and the use of market power  - as they are legally circumscribed in the interplay of Articles 90, 86, 85, and more and more the Merger Regulation.

The postal sector is therefore characterised by a dual regime of regulation, defined by the Postal Directive (Directive 97/67/EC of the European Parliament and of the Council of 15th December 1997 on Common Rules for the Development of the Internal Market for Community Postal Services and the Improvement of Quality of Service") and the Postal Notice ("Notice from the Commission on the application of the Competition Rules to the postal sector and on the assessment of certain State measures relating to Postal Services", 98/C/39/02).

The basic policy package is well known:

The Postal Directive

  • defines a postal universal service, harmonised across Member States ;
  • A "reservable" area which Member States may reserve to ensure the financing of this task ;

This is a concept based on the balance, as it has emerged out of a series of Court Rulings, such as the famous "Corbeau Ruling", and an interpretation of Art. 90, as it has evolved since the late eighties in a number of fields of Community policies, last summarised in the Commission communication of September 1996 ("Services of general interest in Europe", Com (96)443 ).

In more detail, the Directive defines a set of requirements for the universal service in the postal area :

  • At least one clearance per working day ;
  • One delivery to the home or premises per working day ,

as well as a number of minimum facilities :

  • the clearance, sorting, transport and distribution of postal items up to two kgrs ,
  • the clearance, sorting, transport and distribution of postal packages up to ten kgrs ,
  • services for registered and ensured items.

Further, the Postal Directive gives some latitude to National Regulatory Authorities to increase the weight limit for postal packages up to 20 kgrs.

The reservable area

is defined in the Postal Directive as the clearing, sorting, transport and delivery of items of domestic correspondence, the price of which is less than 5 times the public tariff for an item of correspondence in the first weight step of the fastest standard category where such category exists, provided that they weigh less than 350 gr. This area can be reserved by Member States for the universal service provider(s) "to the extent necessary to ensure the maintenance of universal service". Also can be reserved "to the extent necessary to ensure the maintenance of universal service" : cross-border mail and direct mail within the same price and weight limits.

However, the Directive also sets up a detailed time schedule for further liberalisation. According to the Directive the "European Parliament and the Council shall decide not later than 1st January 2000" and "without prejudice to the competence of the Commission" on the further gradual and controlled liberalisation of the postal market, in particular with a view to the liberalisation of cross-border and direct mail as well as on a further review of the price and weight limits, with effect from 1st January 2003, taking into account the developments, in particular economic, social and technological developments".

The Directive sets therefore the basic regulatory framework for the sector  - similarly as does the ONP for the telecoms sector  - with the obvious substantial difference that it defines a core area (letter service) where exclusive and special rights can be maintained by Member States for the time being, therefore perpetuating market power and market position of the incumbent.

It should be noted that the immediate liberalisation effect is limited. According to estimates, the Directive will generally across the European Union only liberalise an additional 3% of the market which currently has been kept under monopoly regime. However, important to note, the provisions foresee a precise time schedule for further proposals for liberalisation.

The fact remains however that the regulatory scheme created by the Postal Directive is focused on maintenance of a monopoly in the core area of letter service. It should nevertheless not be overlooked that the postal sector comprises substantial areas which are subject to competition. Parcel services are almost fully liberalised in all European Member States. A major part of the sector are express courier services which are subject to competition.

Summarising, the definition of reserved areas in the Postal Directive means that out of the total postal market  - public and private  - of now some 75 billion Euro some 50%   -   essentially the basic letter service - will continue to operate under a legal monopoly regime. About half of the sector - mainly parcel services and express courier services - will work under competitive conditions. This hides however substantial differences between Member States, reaching from fully liberalised postal markets in Sweden via the German market for which the new legislation provides a more narrow definition of the reserved area (200 gr. weight limit for letters and 50 grs for Info post (Direct Mail)) than the one foreseen in the Directive, to countries which still have to implement the liberalisation requirements of the Postal Directive.

Given this market structure, it is clear that the sector will live for the years to come with a mixed system of legal monopoly / competition. This explains why the rest of the Postal Directive foresees a number of provisions which should allow to regulate the co-existence of a monopoly sector and their competitive parts of the postal sector.

This concerns the fundamentals of a regulatory framework,

as we have learnt in particular from the liberalisation process in telecoms. The Postal Directive foresees in particular :

  • Member States may introduce licensing or authorisation regimes for the sectors which are opened to competition ("non-reserved services") ;
  • Some provisions ensuring access to the public postal networks under conditions which are to be transparent and non-discriminatory. However, the Directive specifies only that the European Parliament and the Council shall act to specify harmonisation measures in this area, remaining far behind the detail and sophistication of the Open Network Provision (ONP) approach in telecommunications ;
  • It establishes the principle of independent regulators.

Summarising,

the fact remains that the Postal Directive is mainly focused on the provision of service by the universal service provider. The Postal Directive therefore also includes extensive provisions concerning the achievement of service quality through regulation of the postal incumbent, instead of relying on competition to reach this aim. However, one should not overlook that the Directive contains important sign-posts for a future regime. It establishes basic principles :

  • A schedule for a phased further liberalisation of the sector ;
  • The accounting separation between services operated under a monopoly regime and services operated in the competitive sector ;
  • The principle of an independent regulator, as just mentioned.

I believe, it is important at this point to emphasise the in-built dynamics of the Directive which will be further accelerated by underlying market trends which seem to gain speed :

  • According to estimates by incumbents themselves, the erosion of the core letter business through substitution by electronic and other means over the next five years could concern up to 10% of current volume ;
  • Therefore, all of the postal incumbents will see the necessity of extending their activities into new market segments which are already under competitive regime. Just look at the economic pages of our newspapers to find confirmation ;
  • This need for relocating activities will however imply a temptation for the incumbents to abuse their market power allocated in the core sectors under monopoly regime, in order to extend into new areas to the detriment of competitors. A growing number of complaints which reach the Commission from competitors in this area testify to this.

This translates into clusters of cases in the postal sector :

  • One cluster concerns the so-called "physical" and "non-physical" remail cases. In particular in the "non-physical" remail cases (where companies generally combine electronic transmission, computer printing and cross-border mailing) companies try to optimise their market operations in the given market structure which is characterised by a mixed competitive / monopoly and a commercial / administrative regime. The monopoly holders will be tempted to keep the situation under control by using their monopoly powers.
  • A second "cluster" concerns cross subsidies. Given that postal incumbents will try to enter or expand their activities in areas already under competitive regime, such as parcel or express courier operations, they will be tempted to use profits from the monopoly area to subsidise the new ventures. Inevitably this will lead to complaints by competitors in those areas.
  • Thirdly, quite generally, extension of the monopoly holders into newly emerging "grey" areas, with an inevitable uncertainty concerning the areas on which monopoly rights can be claimed.

This then leads to the very purpose of the Postal Notice.

The publication of the Postal Notice was a necessary step to clarify the application of Competition Rules in a sector which will be characterised in the immediate future by the co-existence of a monopoly situation and the competitive sector. The objective of the Notice therefore is :

  • to clarify the application of Competition Rules for both postal incumbents and new entrants ;
  • while, on the one hand, respecting the recognition of reserved areas according to the Directive ;
  • and, on the other hand, defining the obligations which result for the holders of the legal monopoly for minimising the distortion of competition which monopoly areas will inevitably entail.

This then explains the most important points which are treated in the Notice :

  • Application of the Competition Rules to the incumbents which hold monopoly rights, within the framework given by Article 90(para 1 and 2).
  • Non-discriminatory access to the postal network, in order to reduce the impact of the maintenance of monopolies on competitors in the liberalised areas, allowing them economic operations under given conditions.
  • Dealing with the problem of unjustified cross-subsidies.
  • Closely related to this, dealing with the application of State Aid rules in the sector.

You will note that these issues relate closely to the subjects of discussion during this Conference.

The concrete categories of cases are well known :

  • Remail, as mentioned.
  • Cross-subsidies.
  • Extension by the holders of monopoly rights into new areas.
  • Agreements between the holders of monopoly rights, such as the REIMS agreement on which the Commission has published a Carlsberg Notice in February (Renewed Notifications of an Agreement on Terminal Dues (Reims II) between Postal Operators - Case IV/36.748 - Reims II  - 98/C 53/03).

Let me then use the rest of my time to look more closely at issues raised in the Notice which are likely to dominate our actions and the debate.

The issues, in my view, will be :

  • The more precise determination of the concept of proportionality in the context of Art. 90 in the concrete environment of the postal markets ;
  • The issue of access for competitors to the monopoly sector ;
  • the issue of cross-subsidy.

First , proportionality :

The principle of proportionality is fundamental to accepting monopoly rights in the context of Art. 90 para 1 and 2). The Postal Notice states very clearly that "Member States should ..... ensure that the scope of any special or exclusive rights granted is in proportion to the general economic interest which is pursued through those rights ..................... " " Member States must also adjust the scope of those special or exclusive rights according to changes in the needs and the conditions under which postal services are provided and taking account of any state aid granted".

These statements are based on an interpretation of Art. 90 which has resulted from a number of Court Rulings, but which is also based largely on the interpretation developed in the context of the Art. 90 Telecommunications Liberalisation Directives. Article 90 allows the granting of special or exclusive rights to undertakings in certain circumstances but only to the extent that the particular tasks of general economic interest assigned to these undertakings cannot be attained by less restrictive means, and anyway under the condition that Community trade is not affected to an extent contrary to Community interests.

As you will know, the Postal Notice sets forth in substantial detail the conditions for the application of Article 90(2) for the maintenance of legal monopolies in the Postal Sector.

It is also interesting to note that the Postal Directive foresees the possibility of establishing a compensation fund for the financing of universal service obligations - a concept used in telecommunications liberalisation. The Directive therefore seems to suggest a way forward to the gradual replacement of the concept of a legal monopoly as the core means for financing the universal service tasks in the sector.

It is the logical continuation of this line of thinking that the Postal Directive sets forth the requirement for proposals for new liberalisation measures, as mentioned. In preparation of these proposals  - due according to the Directive before the end of 1998 - the Commission has launched a number of studies concerning the impact of further liberalisation in the postal sector.

The terms of reference for these studies have been published in the Official Journal in mid-September of last year.

They concern :

  • Liberalisation of Direct Mail ;
  • Liberalisation of incoming and outgoing cross-border mail ;
  • Liberalisation by lowering the weight and price thresholds ;
  • Liberalisation of clearance, sorting, and transport ; i.e. reservation of delivery only
  •  
  • Modelling the results of the sectorial studies mentioned above, to enable the Commission to test any liberalisation scenario it may wish to evaluate and to quantify the interrelationships and interdependency between liberalisation options ;
  • And, as very fundamental, a study on costing and financing of the universal service obligations in the Postal Sector.

There seems to be a growing number of voices who accept that, with the convergence of postal and electronic delivery means, current concepts will have to be reviewed. Let me just refer to the recent report by the French Senate's "Commission des Affaires economiques / Groupe d'Útudes sur l'avenir de la Poste et des TÚlÚcommunications" which expects a continuous phased contraction of the monopoly area.

Given the convergence with other means of transport and the diversification of means of access to the postal network and its distribution and processing points, including telecommunications, it is indeed difficult to see that in the long run a monopoly going substantially beyond delivery could be stable and sustainable.


Let me then move to my second point : access.

Once the principle of a continuing monopoly is admitted, the principle of access to the monopoly’s network becomes the more fundamental both for customers, and competitors operating in already liberalised markets, be it in the same Member State or from other Member States.

As I have mentioned, the Directive stipulates principles of access, however mainly focused on access by universal service providers and users, and not substantially developed.

The Notice considers access as a necessary consequence of the maintenance of a monopoly area and required to dampen the anti-competitive effect of the maintenance of such monopolies. The provision of non-discriminatory access therefore should be seen as one of the most important points of the Notice.

The Notice states on non-discriminatory access to the postal network :

"The Operators should provide the universal postal service by affording non-discriminatory access to customers or intermediaries (empphasis added) at appropriate public points of access, in accordance with the needs of those users. Access conditions including contracts (when offered) should be transparent, published in an appropriate manner and offered on a non-discriminatory basis ". The explicit reference to intermediaries in this context seems particularly important, in order to avoid that the postal incumbents centre price concessions and enhancement of service quality on big accounts clients, to the disadvantage of smaller customers. The preface of the Notice very clearly states that "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".

The Notice goes on to say that "the Commission will also ensure that postal monopolies granted in the area of cross-border services are not used for creating or maintaining illicit price cartels harming the interests of companies and consumers in the European Union". As regards preferential tariffs, the Notice is more specific "Member States should monitor the access conditions to the network with a view to ensuring that there is no discrimination either in the conditions of use or in the charges payable". It should in particular "be ensured that intermediaries including operators from other Member States can choose from amongst available access points to the public postal network and obtain access within a reasonable period at price conditions based on costs, that take into account the actual services required".

One should however note that the Notice does not foresee access rights as far reaching as they have been mandated in the telecoms sector at this stage. However it ensures that where incumbents have big account markets and are offering services, such as special discounts in fields of collection, sorting, and transport, other operators operating in liberalised market segments should have similar competitive opportunities.

One can therefore safely assume that downstream access will become a recurrent issue across a number of competition cases in the near future.


Finally, cross-subsidies.

It is well known that the Commission has currently before it major cases in the sector concerning alleged attempts by postal incumbents to cross-subsidise their expansion into the competitive sector from their monopoly revenues.

You will, of course, understand that it is not possible during my intervention to address such on-going cases.

The issue of cross-subsidy has been the subject of contributions at this conference. Cross-subsidies is a complex problem and it can associate Art. 86 and State Aid aspects. I believe it is a safe assumption that ultimate clarity will only come on the basis of Decisions on cases.

The Notice goes into some detail on cross-subsidisation. It defines cross-subsidisation as meaning "an undertaking [that] allocates all or part of the costs of its activity in one geographical or product market to its activity in another geographical or product market". It goes on to say that "under certain circumstances cross-subsidisation in the postal sector where nearly all operators provide reserved and non-reserved services can distort competition and lead to competitors being beaten by offers which are made possible, not by efficiency (including economies of scope) and performance but by cross-subsidies. Avoiding cross-subsidisation leading to unfair competition is crucial for the development of the postal sector ".

The principal issue at stake is the subsidising by incumbents of activities open to competition by allocation of costs to reserved services. The Notice states that this is likely to distort competition in breach of Article 86. The Notice also states that the universal service provider should not use the income from the reserved areas to cross-subsidise activities in areas open to competition. Such a practice "could prevent, restrict, or distort competition in the non-reserved area". The Notice states clearly "if services were offered systematically and selectively at a price below average total cost, the Commission would, on a case-by-case basis, investigate the matter under Article 86, or under Article 86 and Article 90 (1), or under Article 92.

The latter statement leads to the state aid aspects of cross-subsidies in the postal sector which is gaining importance in current cases. Again, this has been subject of substantial debate at this conference. In this regard the Postal Notice recalls that direct financial support in the form of subsidies or indirect support such as tax exemption is being given to some postal services even if the actual amounts are often not transparent.

Without going into more detail into the individual measures which could be considered as state aid in the sector  - many here will know that the Notice sets out a list of those measures  -, let me here focus on the issue of transparency, beyond the requirements of Directive 80/723/EEC amended by Directive 93/84/EC on the transparency of financial measures between Member States and public undertakings. The provisions on accounting separation in the Postal Directive are here of major relevance.

The Postal Directive states that "universal providers shall keep separate accounts within their internal accounting system at least for each of the services within the reserved sector on the one hand, for the non-reserved services on the other".

It seems to me that with the growing importance of the issue and the extension of postal operators into the competitive area, it is likely that in certain circumstances one will have to go beyond this requirement for accounting separation, and go as far as, in some instances, requiring a degree of structural separation, in order to ensure the necessary means for the Commission to survey the area.

Let me then conclude

with a summary of the basic issues. The real issues of the sector are just now emerging and the agenda is becoming clearer :

  • How to open expansion into future markets for both, the postal incumbents and competitors;
  • While securing universal service  
  • But maintaining a pro-competitive market structure

Very soon  many of the postal incumbents will review their position as they will have to undergo substantial transformation, prompted by the market place. It will not be acceptable to use market power derived from monopoly areas, the legal justification of which was securing universal service, to justify market expansion to the detriment of other competitors. Such an approach will lead to a series of complaints and we see this process starting.

We will have to open the doors to a more competitive market development also in the postal sector. I believe that the forthcoming second stage liberalisation proposals for the postal sector will have to keep this goal carefully in mind.

Top

SPEECH ] - [ Previous ] 

What's New ?

Mail-Box

Search