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Brussels, 11 June 1999

Annual Conference
IBC Brussels

Postal Services, Liberalisation, and EC Competition Law

Herbert Ungerer


in the postal sector is not the easiest field for the application of competition rules in the European Union  - but everybody in this room knows this, of course, and the slow progress of cases testifies to this. For myself, this Conference offers an opportunity to draw a balance - two months before I will leave for a one year stay of reflection at Harvard University.

The EU's approach to the postal sector has been fraught with misunderstandings and with misconceptions  - sometimes going as far as seeing the introduction of competition as antagonistic to good service for the consumer, and not as a profound promise for better service which it should, of course, bring. Article 86, paragraph 2 - the former Article 90 (2) - must be seen as the ultimate safeguard when competition should fail to provide such a service. It is the exception, not the rule for operating an economic sector under the EU Treaty. While the European Commission has recognised in its 1996 Communication on services of general economic interests the basic safeguards which should be provided via application of Article 86 (2) to those services where required, it has also emphasised the beneficial effects which liberalisation and competition will generally bring to any sector - to posts as to other utility sectors.

However, the basic attitudes in the postal sector are now dramatically changing across Europe  - and I will return to this and concentrate on this change.

Let us first re-visit the main elements which set the scene in the European Union for the postal sector.


These main elements are :

  • the Postal Directive 97/67/EC, as published in the Official Journal in January of last year, with obligation on the Member States to implement by February of this year ;
  • The Postal Notice 98/C 39/02, published shortly after, in February 1998;
  • The "New Postal Directive" - the proposals for further liberalisation required in principle according to article 7(2) of the Postal Directive by the start of this year, a focus of debate during the whole of last year ;

and then, of course,

  • The evolution of the sector
  • and related competition law issues,

which now have become the most determining facts for the future deregulation of the sector.

The starting point are the Postal Directive and the Postal Notice.


The Postal Directive has entered into force since February of this year. The implementation of the Directive is still uneven across Member States.

The Postal Directive

  • establishes a clear maximum scope for the reserved area (350 grams if less than 5 times 1st class tariff)
  • only to the extent necessary to maintain universal service, i.e. passing the test under Article 86(2) EC Treaty, the former Article 90(2).

Let us quote this Article in full  : "Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in this Treaty, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Community "Art 86(2) (emphasis added).

This implies a strict test, objective justification, and application of the principle of proportionality of measures.

The Postal Directive establishes :

  • minimum universal service and quality standards
    but also
  • the principle of independent regulation in the postal sector (as in other utility sectors)
  • a timetable for the next stage of liberalisation.

The Directive therefore sets a basic trend towards more liberalisation, and a framework to drive that process forward.

The fact is that the Directive in its current form introduces only very limited liberalisation in the reserved core markets. Even when fully implemented, it concerns only some 3% of the near Euro 50 billion core letter market which can still be reserved for the incumbents in the EU.

A study carried out for the Commission (by the Nera consultancy) has estimated universal service costs at only 5% of the Postal Operators total turnover in that area, i.e. a maximum of some 3.5 billion Euros.

One must recall that the cost of universal service is the sole justification for reservation of the core letter service.

Universal service is defined in the Directive as the core letter service, associated with :

  • affordable prices for that service
  • adequate contact and access points
  • one clearance / one delivery five days a week for letters / packages up to 2 / 20 kgs
  • services for registered / insured items
  • domestic and cross - border service

As I have mentioned the Postal Directive foresaw a clear programme for further liberalisation proposals to be submitted by the Commission before the end of 1998. As is well known :

  • the Commission's proposals were delayed
  • the current Directive nevertheless contains the obligation to make proposals in the areas of cross-border and direct mail and for the weight / price limits of the reservable area for 'further gradual and controlled liberalisation"

The Commission has carried out across EU studies for informing the debate about the consequences of further liberalisation steps. It will fall upon the new Commission to draw conclusions, in order to break the current deadlock.

In the meantime the implementation of the Postal Directive in its current form of very limited liberalisation will require substantial attention. At the time of this Conference :

  • only four Member States had submitted notifications to the Commission which claim on their face to represent comprehensive implementation
  • a further four Member States had notified adopted measures which represent partial implementation of the Directive
  • another group of four Member States had notified measures which had not yet been definitively adopted by their national authorities
  • a last group of Member States had not submitted any notification as yet.

However, it should also be said that a number of Member States, such as Germany, have gone forward with legislation in the national framework, which foresees liberalisation substantially wider than the reserved area allowed by the Directive . To this one must add the Member States which had already introduced substantial liberalisation on their own account before, such as the Scandinavian countries and Spain.

It is against this background of uneven progress on liberalisation in the European Union that the Postal Notice should be read.


The Postal Notice, published by the Commission in February 1998 was to define the application of competition rules to the sector, while accomodating the continuous existence of monopoly rights in the reserved area of the core letter service, the maximum range of which was harmonised by the Postal Directive.

Therefore, the Postal Notice explains likely application of competition rules to incumbents with continuing monopoly rights.

This is the more important in an environment where dominant positions are maintained by legal monopoly and where thereby competitive conditions are naturally severely restricted by the maintenance of those monopolies.

The Notice stipulates in particular

  • non-discriminatory access to the postal network
  • deals with problems of unjustified cross-subsidies
  • deals with the application of State Aid rules

all of them top of the agenda during these very days.

The Postal Notice also states that "it is appropriate that after a certain period of development, possibly by the year 2000, the Commission should carry out an evaluation of the postal sector with regard to the Treaty rules, to establish whether modifications of the view set out in this notice are required on the basis of social, economic or technological considerations and on the basis of experience with cases in the postal sector ". It goes on to state "In due time the Commission will carry out a global evaluation of the situation in the postal sector in the lights of the aims of this notice."

It is exactly with regard to the latter, the development of the sector itself, that we now face new facts which introduce a new dynamic.


Indeed, we are faced with a new situation.

While we had during this year relative stagnation on the regulatory front - even if progress on the implementation of the current Directive, though slow, has been steady - , facts are changing radically in the marketplace :

  • the postal incumbents themselves have started to move
  • market developments outrun regulation

Look at the market potentials in the EU :

  • postal incumbent operators : 70 billion Euros
  • express courrier  : 25 billion
  • logistics : some 130 billion (out of which 31 billion are currently outsourced)

The latter segment is to be watched with particular care, because :

ahead is the Internet which will give a completely new dimension to the underlying delivery systems which will be the backbone of e-commerce.

This new dimension starts to translate into an acquisition and merger activity on an a scale unimagined in the EU's postal sector. Over the last 12 months, acquisitions and mergers reviewed under the Merger Regulation have transformed into an ever longer list:

  • Deutsche Post / DHL (express) July 98
  • TNT / Jet Service (express) Feb 99
  • Deutsche Post / Danzas (freight / logistics) Feb99
  • Deutsche Post / Securicor (express / parcels) Feb99
  • La Poste / Denkhaus (parcel) Feb99
  • Deutsche Post / trans-o-flex (parcels / logistics) withdrawn
  • TPG / Tecnologistica (logistics) May99
  • Chronopost / Correos (parcels / express) May99

the latter examined not only under the traditional Merger provisions but also under the Merger Regulation's new Article 2(4), to check potential coordination effects between the parents.

This major merger and acquisition wave by the incumbents has resulted in fundamentally transforming market facts in the EU's postal market over the last few months. Market share of the incumbent postal operators in the growing segments in the EU is now estimated at :

  • express delivery : 40 - 50% (35% of which via recent acquisitions)
  • express freight : 30 -40% (25% of which via recent acquisitions)
  • parcels : 45 -50% (25% of which via recent acquisitions)

One major postal operator (Deutsche Post) alone is estimated to have spent some 10 billion Euros on acquisitions over the last two years. Other postal operators are said to have assembled ready cash in the billion Euro range for acquisitions.

The targets of this frantic "shopping spree", as some have called the recent acquisition wave, are well known - and in the headlines :

  • parcel / express courrier
  • logistics
  • international

We are faced with a situation where

  • the bottleneck position of the postal incumbents for letter mail protected by a legal monopoly continues for the time being
  • we face at the same time announced intentions by the same actors to dominate the international mail / parcel / logistics markets

Inevitably , this combination of legal monopoly and strategic expansion implies a high risk for the consumer, as any lack of competition combined with market dominance does. It shows the importance which competition law must take in the current situation.


This then leads to the new issues which we are facing and which are high up on the agenda .

  1. Cross-subsidies

    When analysing the wave of recent acquisitions in competitive postal markets, this gives inevitably rise to questions :

    • how financed
    • potential abuse of dominant positions , protected by legal monopolies
    • issue of state aid,

    with the latter a major issue, on top of the Commission's agenda in general.

  2. Scope of postal monopolies

    The question is re-opened if current scope of the postal monopolies is still justified :

    • as recalled, the postal monopolies must pass the Corbeau test of whether a monopoly is necessary for the service of general interest provided.
    • there are issues arising in certain Member States of even extending de iure or de facto monopolies. Some Member States seem to be tempted, in the wake of the implementation of the Postal Directive, to take back effective national liberalisation already in place.
    • large acquisitions in competitive markets by postal incumbents suggest monopolies given to them in domestic markets may no longer pass the Articel 86(2) (former Article 90(2)) test.

  3. Extension by monopoly holders into new areas

    The sector is increasingly characterised

    • by new value added services (express products, electronic hybrid mail, financial services )
    • a cross subsidy issue inevitably ensues.
    • the argument to question the current scope of the reserved area is re-inforced.

  4. Agreements between holders of monopoly rights : the Reims agreement

    At the same time we are faced with major agreements between current monopoly holders aiming at stabilising current market conditions. A major agreement in point is the Reims agreement aiming at an international agreement between postal operators on mutually paid access (compensation) charges for delivery and termination of international mail in their respective monopoly areas ("terminal dues"). The stated aim of the Reims agreement is :

    • to align terminal dues on costs
      however :
    • agreements between monopolies in non-liberalised areas require sharp scrutiny
    • ultimate aim must be checking of price effects by opening to competition


Let me make some more comments on the Reims agreement because this will be the most important EU Decision in the postal sector for this year. The details of the agreement were published on 1 December of last year in an Article 19 (3) Notice under EC Regulation 17. The agreement is crucial for the development of international mail in the European Union.

As published in the Notice, the major features of the agreement are a progressive increase of termination fees ("terminal dues") by postal operators to a "cost level" measured in percentage terms of final domestic delivery prices, linked to quality increases in the delivery of international mail in the EU - the latter mainly on insistence by the Commission in the course of the screening process of the notification of the agreement under Regulation 17, by which the postal operators requested an exemption of the agreement according to Article 81(3), EC Treaty (renumbered).

In more detail, the agreement as notified as "Reims 2", foresaw the following schedule for a coordinated increase of terminal dues :

  • 1997 : original "CEPT rates" plus 15 %
  • 1998 : increase up to 55% of final delivery price
  • 1999 : 65%
  • 2000 : 70%
  • 2001 : 80%

The stages were to be linked to improvements in the quality of service.

In reaction to the publication of the agreement in the 19(3) Notice by the Commission, the comments by third parties were in majority critical :

  • 33 comments with substantial reservations
  • criticism focused on short duration of transitional period leading to potential negative effects for customers
  • alleged insufficient evidence on costs / customer benefits to justify increase to 80% of final delivery price.

Other comments were :

  • quality of Service commitments were not "end-to-end"
  • provisions for late, lost and damaged mail were considered inadequate
  • "Level 3" (terminal dues for bulk mail) arrangements were unsatisfactory
  • agreement did not integrate sufficient incentives to keep costs down
  • not all EU Postal Operators were signatories (the Dutch PO considered the agreement as unsatisfactory and announced its intention not to sign)

At this stage, it is worthwhile to recall that Article 81(3) imposes strict requirements for application of the exemption from the prohibition of agreements under Article 81(1) :

An agreement must "contribute to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit ",

and it must not

  • "impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives,
  • afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question"

One may add that in the continuous practice of the Commission and the Court price agreements between undertakings require particularly severe scrutiny, the more so when the undertakings concerned are in a dominant market position.

At the time of this Conference, the procedure is still in progress. But the Commission has made it clear that comments have confirmed the belief that strict safeguards have to be imposed to satisfy the requirements of Article 81(3). The safeguards must ensure that, in the given monopoly situation, such an agreement will generate sufficient technical progress and consumer benefits to justify an exemption, and that it does not eliminate competition, and its restrictions are in effect indispensable.

Remedies which could be considered on the basis of the comments, are :

  • Implementation of the agreement effective at a later date, such as terminal dues increases only from 1 April 1999 onwards.
  • Time of exemption limited to a shorter period, to allow a review of the effects of the agreement, as the situation in the European postal market evolves.
  • Stronger link to increases in the Quality of
  • Tightened commitments concerning access for bulk mail ("Level 3")
  • Final increase (to 80%) only against new cost information

The stage of the procedure at the time of this Conference does not allow to go into further detail. Suffice it to say that the Reims agreement and its (lengthy) clearance process under Regulation 17 demonstrates the problems in allowing progress to go forward in a phase of very limited liberalisation.


This then leads back to the general problem faced by the postal sector in the European Union. As is shown by the developments underlying and surrounding the Reims agreement, but even more so by the rapid restructuring of the postal market through mergers and acquisitions, market developments are outrunning outdated regulatory concepts and systems. Taking account of the fact that funds applied by postal operators across the EU for expansion into competitive areas now seem to surpass by far the total cost of universal service, it seems to become clear that only competitive markets can accommodate forward oriented strategies of the postal operators. Otherwise we will end up in a competition law nightmare.

Inevitably, the Commission will be prompted to examine how far current reserved areas still pass the Article 86(2) test, as provided for by the Postal Directive and required under competition law - and these tests may be applied to those operators first who are driving expansion most rapidly forward. And of course, Article 12 of Regulation 17 gives a further powerful instrument into the hands of the Commission : Sector Inquiries, where required.

In order to avoid a series of difficult and complex cases which would have to be resolved under competition law, the European Union needs a rapid re-start of the political process and the debate in the European Parliament and Council on updating the regulatory postal framework in the European Union to the new aspirations of the postal sector actors, to the benefit of the consumer and to the advance of European markets in general.


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