Effective full postal market opening in Europe: eliminating barriers to competition

Patrick de Bas and Nick van der Lijn, Ecorys Netherlands, Mail & Express Review February 2009
Europe is heading towards full liberalisation of the postal market. The goal of this process is to establish a well functioning single European market. However, to achieve this goal, full liberalisation is not sufficient. For effective competition in European postal markets to develop, it is also necessary to eliminate existing barriers to competition that competitors are facing. In this article, we take a look at the existing barriers in the European mail market and present solutions that can be observed in practice to address and eliminate some of these barriers. We hope that the European experience is also relevant for policy makers outside Europe who are aiming for full market opening.


Barriers to competition, in academic literature more commonly known as barriers to entry, are obstacles potential new entrants face to enter the market and compete effectively with incumbents or existing market players. Barriers to competition can be subdivided into four categories:

  • 1 Natural barriers;
  • 2 Legal barriers;
  • 3 Strategic barriers; and
  • 4 Barriers related to the absence of a level playing field.

An overview of the various barriers to competition per category is given in the table below.

Category Source Examples
Natural barriers Related to the economics of the postal market Sunk costs of investmentsNetwork effects

Economies of scale, scope and density

Reputation effects

Costs of switching

Countervailing power of buyers

Legal barriers Resulting from the regulatory framework The reserved areaLicence requirements

Tariff regulation

Access to the postal infrastructure

Strategic barriers Result from strategies deployed by incumbent postal operators Cross subsidisation and predatory pricingBundling and tying

Vertical foreclosure:

– price discrimination

– refusal to deal

– access conditions

Absence of a level playing field Caused by differences in the regulatory environment for various players or by (non) enforcement of existing regulations. VAT exemptionFinancial guarantees

Interest rates on loans

For a full discussion of the individual barriers per category, see ECORYS (2005)(1)


Natural Barriers to Competition

Sunk costs of investments, network effects and economies of scale, scope and especially density do create commercial advantages for the incumbent postal operators. Unlike legal or strategic entry barriers, natural barriers to competition cannot easily be influenced or be taken away by liberalisation, regulation or decisions by the postal regulator or the competition authority. Most competitor postal operators try to overcome the disadvantage of economies of density by keeping the network small (focus on business mail, pre-sorting, less frequent delivery and/or flexible labour contracts).

With regard to demand side natural barriers, such as reputation and portfolio effects, we believe these barriers diminish over time in a liberalised market. Evidence can be found in the rising market shares of competitor postal operators in countries such as the United Kingdom (for upstream services), and Germany and the Netherlands (for end to end delivery). The decrease in demand related barriers to competition can be speeded up by concrete actions to raise awareness and address concerns of customers, as have been undertaken in some countries, such as the United Kingdom. The UK postal regulator, Postcomm, actively informs consumers regarding the possibilities of choosing an alternative mail service provider, thereby reducing the barriers resulting from reputation effects to some degree. (2)

Legal Barriers to Competition

In most European countries the existence of the reserved area is an important barrier. In addition to the foreclosure of a part of the market in itself, an implication of the reserved area is that competitor postal operators are hampered in their ability to offer a comprehensive business solution to their customers. To reduce this problem, partial liberalisation of the mail market may be considered. For example, liberalisation of (addressed) direct mail and / or intra-city mail may significantly increase the potential for competition, as witnessed in the Netherlands and Spain.

Another important legal barrier to competition may arise from  the requirements set as condition for obtaining a licence to offer postal services. Although for most European countries the licence requirements do not seem overly restrictive, a few notable exceptions exist. For example in Finland a postal operator wishing to obtain a licence is obliged to provide a full universal service or to pay a special tax which can amount to 5-20 % of its annual turnover. Other examples of licensing conditions that function as significant barriers to competition can be found in Estonia and Hungary.

The problem of restrictive licensing conditions has been addressed in the new European Postal Directive by reinforcing and clarifying the limitation to licensing requirements. (3)  Under the new Directive, requirements concerning the quality, availability and performance of services do not only need to be necessary, but also need to be justified. In addition, the new Directive does not allow Member States to impose universal service obligations on postal operators that are not designated universal service providers.

A third important category of legal barriers to competition is related to access to the postal infrastructure needed by competitor postal operators. This includes access to P.O. Boxes, the postcode address file, change of address notifications, possibilities to return mailthrough the incumbent, and access to private letterboxes. In France the issue of access regarding the first four issues was settled in the postal act, which stipulated that competitors have access rights to the network of the national postal operator La Poste. However, access to letterboxes raised several legal and technical issues, like building security and the law on private property. In order to solve this problem, the French regulator ARCEP conducted a public consultation, resulting in a compromise solution by which all licensees will be given access to the access codes (managed by La Poste) in order to reach letterboxes.

Strategic Barriers to Competition

The behaviour of the national postal operators has resulted in a variety of strategic entry barriers including (attempted) predatory pricing, vertical foreclosure, litigation, use of trade marks, patent protection, and the practical (and changing) conditions under which access can be obtained. Examples of strategic barriers can be found in most European countries. The job of the NRAs and/or the competition authorities is to assess whether (in particular) national posts are engaging in anti-competitive behaviour or are pursuing a legitimate business strategy to secure their position on the mail market.

Absence of a Level Playing Field

A major problem in Europe related to the level playing field is the issue of  VAT exemption. As a result of the European VAT Directive and decisions at national level, providers of public postal services – usually the national postal operators –  are often (partially) exempted from VAT. This results in a competitive advantage for the national postal operators in serving VAT exempt customers such as those in the financial services sector. (4)

The most obvious solution would be to eliminate the VAT exemption. However, very little progress has been made with regard to resolving the VAT issue in Europe due to political resistance. Since 2004, a proposal to amend the VAT Directive to eliminate the VAT exemption for postal services has remained blocked in the European Council. In April 2006, the European Commission launched infringement proceedings against Germany and the United Kingdom as they exempt from VAT all or most of the postal services supplied by the national postal operators. (5) A decision has not yet been reached in these cases. However, in January 2009, an advocate general at the European Court of Justice concluded in a court case brought by TNT Post UK against Royal Mail that application of the VAT exemption does not require that certain universal services be reserved to the provider(s). (6) This implies that Member States can have an important impact on the scope of the VAT exemption through their definition of the universal service obligation.


Various barriers to competition exist in the mail market. Most of these barriers can be eliminated by the policy maker and / or the regulator. This does, however, require an acknowledgement of the existence of barriers to competition and a (political) will to eliminate or reduce them. Only if this will truly exists, and the necessary actions to eliminate barriers to competition are taken, will full market opening lead to the development of effective competition in European postal markets.


ECORYS, Development of competition in the European postal sector, study for the European Commission, Rotterdam, July 2005. < http://english.ecorys.nl/dmdocuments/ecorys%202005a%20-%20main.pdf >

ECORYS, Main developments in the postal sector (2006-2008), study for the European Commission, Rotterdam, September 2008. < http://english.ecorys.nl/dmdocuments/ecorys%202008a%20-%20main.pdf >


[1] ECORYS (2005), sections 3.3.3 and 4.3.

[2] See, for example, Postcomm’s website, http://www.psc.gov.uk/competition/reviewing-you-mail-services-provider.html.

[3] Directive 2008/6/EC of the European Parliament and of the Council of 20 February 2008 amending Directive 97/67/EC with regard to the full accomplishment of the internal market of Community postal services. < http://ec.europa.eu/internal_market/post/doc/legislation/2008-06_en.pdf >

[4] For more information, see ECORYS, Barriers to competition in the German and UK postal market, December 2005, Annex 1. < http://english.ecorys.nl/dmdocuments/ecorys%202005b.pdf >

[5] An infringement procedure was also launched against Sweden, as they do not provide a VAT-exemption for any postal services.

[6] European Court of Justice, Case C‑357/07, opinion of advocate general Kokott, delivered on 15 January 2009.

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