France set for battle over postal liberalisation

France is heading for a showdown with Brussels over plans to open up postal services to competition from 2009, setting the scene for a fresh battle over the completion of the European Union's single market.

Paris aims to water down the postal plans by proposing measures to compensate incumbent mail operators, including La Poste, the French state-owned post office, for loss of their monopoly.

But Deutsche Post, Germany's privatised post office, is backing the European Commission's plan to sweep away the last remnants of an era in which postal services are still dominated by state-owned monopolies. Europe's postal market is worth more than Euros 90bn (Dollars 115bn, Pounds 60bn) a year and employs 5m people.

With the Commission due to unveil its proposals later this month, the looming battle is widely seen as the next test case for Europe's ability to push through economic reforms and complete the union's prized internal market for goods and services.

In France the debate risks becoming a political football. As the country heads into a packed political calendar, Paris wants to avoid any threats to its fiercely guarded postal system before presidential, parliamentary and local elections next year.

Jean-Paul Forceville, director of European and international affairs at La Poste, said full postal liberalisation would undermine its universal service obligation, which requires it to maintain adistribution network across the whole country, evenin thinly populated rural areas.

La Poste wants a "pay or play" system, forcing new market arrivals either to spread their operations evenly between profitable urban areas and costly rural areas, or to pay a fee to the incumbent operator.

Mr Forceville said a similar system was being tested in Austria. However, critics claim the French proposal is an attempt to put barriers in the way of rivals trying to break into new markets.

La Poste's plan, due to be presented next month in Brussels, is certain to be rejected by the Commission and postal groups suchas Deutsche Post, which are eager to pick up business outside their home markets.

One person close to Deutsche Post said La Poste's idea would allow "one operator to enrich itself at the expense of its competitors". He added: "Liberalisation is all about allowing free market entry. But this scheme would mean charging a fee for entering the market."

The person warned the scheme would allow governments to impose service obligations on incumbent operators, safe in the knowledge that the costs will fall solely on the private sector.

But Mr Forceville told the Financial Times: "It is politically impossible to open the market totally and reduce drastically the universal service obligation."

"We have told our German friends this," he said, referring to Deutsche Post. "But they will not listen."

La Poste claims to have the backing of several European countries, mostly southern states around the Mediterranean basin, in its push to get more financial compensation for incumbent operators.

Mr Forceville argued liberalisation would let rivals "cherry-pick" the most profitable customers from a market, undermining the incumbent's ability to maintain its universal service obligation.

French people are strongly attached to their 17,000 post offices, as shown by last year's protest marches over rumours that La Poste was preparing to close some branches.

"This is the first time Europe has opened up a market in structural decline," said Mr Forceville. "This was not the case for telecoms or energy, which are growing, so we need more safeguards."

Deutsche Post and its counterparts in the Netherlands, Sweden and Finland say they are happy for their monopoly to disappear at home – but only if others, such as France and Italy, follow suit.

According to the Commission proposal, countries will be able to force new market entrants to bear some of the costs of universal service obligation.

However, their contribution would flow into a compensation fund that would also receive funding from the incumbent operator and other groups bound by the universal service obligation.

This would make it much less attractive to groups such as La Poste, since they would themselves contribute most to the fund.

La Poste is France's second-largest employer after the state, with 300,000 staff, of whom two-thirds are civil servants. I

t has spent Euros 3.4bn on modernising its sorting operations in preparation for market liberalisation.

While it stopped hiring civil servants four years ago, it is still saddled with a Euros 70bn pension deficit. This year it launched a postal bank to diversify into the growing financial services sector and offset its declining mail activity. Yesterday it reported a 3.3 per cent rise in first-half revenues to Euros 10.1bn, as net profits rose 3 per cent to Euros 567m.

With France in a charged political climate and already on the defensive as the Commission investigates La Poste's state guarantee and other privileges, the post office looks bound to become the latest in a long line of economic spats between Paris and Brussels