Deutsche Post Set to Cut Letter Rates to Avoid Subsidy-Repayment Order

Deutsche Post AG plans to cut the rates it charges for letter delivery in several stages, a move from which it expects to lose revenue totaling 572 million euros, in a bid to avoid having to repay subsidies running into hundreds of millions of euros.

The European Union’s Competition Commissioner, Mario Monti, has accused Deutsche Post of using receipts from letter post, over which it has a monopoly, to cross subsidize cut-throat pricing in areas that have been opened up to competition. The European Union Commission is to decide on the matter on Wednesday. It’s expected that it will make its highest ever demand for the repayment of subsidies.

This will easily exceed the two previous fines that the Commission has imposed on Deutsche Post, and the repayment will fall due immediately – even if the company decides to lodge a protest. But it’s not an uncontroversial issue in Brussels. According to people familiar with the matter, two French commissioners – Pascal Lamy (trade) and Michel Barnier (structural policy) – are against the imposition of a fine. Their opposition is connected with the fact that France’s own postal service faces a similar cross-subsidization ruling.

Deutsche Post said it isn’t prepared for a major subsidy-repayment order from Brussels, and company insiders said the fate of its major investment plans lies in the balance. Martin Doypchai, a spokesman for the former monopolist, said it had not made any provisions for this eventuality. He said Deutsche Post’s auditors had rated the chances of a negative outcome from the EU subsidy investigation as low.

Doypchai was unwilling to comment on the possibility of a cut in the letter-post rate as a way out for his company. But reports from government insiders suggest that Deutsche Post has agreed this solution with the Finance Ministry and other regulatory authorities.

Reports from Brussels suggest that Deutsche Post’s proposal may win over the EU Commission. The approach of offsetting subsidy repayments with a cut in postal charges is seen as an “unconventional” one, according to Commission insiders, but it’s also seen to contain “attractive elements”.

DVPT, the association of German posts and telecoms consumers, sees the cut in postal charges as overdue anyway. According to a DVPT spokesman, only in Italy is it more expensive to post a letter than in Germany.

There are also suggestions that Brussels sees the resolution of the subsidy issue as an opportunity to exert an influence on the restructuring of Germany’s postal charges. The postal rates are up for review on 1 January 2003. This is seen in Brussels as an enormous topic in terms of its ramifications for consumer protection, according to a Commission spokesman.