THE BEESLEY LECTURES: LECTURES ON REGULATION SERIES XI 2001 Liberalising Postal Services

1. INTRODUCTION: PRESSURES FOR LIBERALISATION
The title of this lecture is “liberalising postal services”, and my aim is to review the arguments about liberalisation, for and against, assess progress so far in the UK, and identify major issues and concerns for the future.
Postal markets have so far been protected against competition because of the arguments surrounding the Universal Service Obligation, but pressures for liberalisation have been increasing. In the UK they have come from two sources, the European Commission, and the 2000 Postal Services Act and the new regulator, the Postal Service Commission – Postcomm.
First of all, pressure from the Commission. The Postal Directive (97/67/EC) of 15th December 1997 defined minimum standards for universal service provision in postal markets in EU Member States, and set out a timetable for completion of the internal market in postal services. The European Parliament and the Council were to decide no later than January 1st 2000 on moves towards 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 a further review of the price and weight limits with effect from January 1st 2003. These decisions were to be based on proposals from the Commission to be tabled before the end of 1998. Although progress has been slow, on October 15th 2001 EU Ministers agreed that the current limit of 350 grams set out in the 1997 Directive on Member States’ postal monopolies will be reduced to 100 grams from 2003, and to 50 grams from 2006. There will be a review before 2006 before the European Commission proposes a final stage of liberalisation consistent with maintenance of the universal service. Meantime, the Commission has become very active in the area of competition policy investigations and rulings in the competed part of the postal business in the last couple of years (Baker and Dodgson, 2001, contains a survey).
Second, domestic pressure. The 2000 Postal Services Act defines the universal postal service as the provision (except under exceptional circumstances) of at least one postal delivery every working day to all homes and business premises in the United Kingdom, and the collection of mail at least once every working day from each access point. Postal services for the collection, sorting, transport and delivery of relevant postal packets must be provided at affordable prices determined in accordance with a public tariff which is uniform throughout the UK. The primary aim of the regulator, Postcomm, is to exercise its functions in a manner which it considers is best calculated to ensure the provision of this universal postal service. In addition, subject to this primary objective, the Commission shall exercise its functions in the manner which it considers is best calculated to further the interests of users of postal services, wherever appropriate by promoting effective competition between postal operators (my italics). There is therefore a presumption in favour of competition. The Postal Services Commission has the power to issue licences to postal operators (as well as to Consignia), and has already started to do so. Postcomm issued a Consultation Document on promoting effective competition in UK postal services in June 2001 (Postcomm, 2001a).
Government aims, and Postcomm’s views, were reiterated in a published exchange of letters in October. From the DTI: “It is my aim to secure an outcome within an acceptable legal framework that provides for a process of phased liberalisation consistent with maintaining the universal service at a uniform tariff and compatible with our domestic regime.” In reply the Chairman of Postcomm, Graham Corbett, noted that “whilst Postcomm has not yet reached a final decision on the approach to competition we doubt that simply reducing the licensed area in the UK (through a reduction in the weight/price threshold) would be an attractive option for providing effective competition. Distribution of mail volumes and revenues tends to be concentrated towards the lower end of the weight and price range and on this basis a reduction to 100 grams would only result in a limited opening – 13% of the market by volume – which would make it hard for competitors to offer a service that would be of interest to mailers.”