EU may accept horse trade

Germany's postal regulator has ordered monopolist Deutsche Post to lower its postage rates next year. The move will send the EU's recent Post edict to the dead-letter file if the EU Commission allows the exchange-listed mail and logistics company to cut its stamp prices rather than repay to the German government 572 million ($566 million) in subsidies that were illegally diverted to its parcel delivery unit in the mid-1990s.
The subsidies in question took the form of overpriced postal rates, supposedly granted to help Post fulfill its public mission of countrywide letter delivery. But these profits were diverted to its parcel business, the Commission said, allowing it to offer its service at dumping prices without showing losses.
In contrast to Post's letter division, its parcel unit is purely commercial. With an “aggressive rebate policy“ for certain commercial customers, Post was able to gain market share from such big rivals as United Parcel Service, which lodged the complaint.
Post has described the Commission's June ruling as ludicrous, arguing that postage rates are not too high. It plans to appeal the issue to the European Court of Justice. But its regulator's decision amounts to an admission that Germany's captive mail customers are paying too much. Chief postal regulator Matthias Kurth said: “The planned decision will bring Deutsche Post's prices closer to its costs.“
The EU Competition Commission, which is headed by the liberal Italian Mario Monti, said it would not speculate on rumors that Post may lower its letter carrying fees in lieu of repaying the subsidies.
But Monti's spokesman Michael Tscherny did say that the EU “is willing to negotiate with the German government once it has come up with a proposal. The principle is that Deutsche Post has to relinquish an amount of that figure [572 million]. We don't usually accept payment in installments. But I can't completely exclude it,“ he told F.A.Z. Weekly.
Deutsche Post, which has until July 27 to comment on its regulator's ruling, said the rate reduction would amount to losses of around ¦300 million a year. That would allow Post to work off its debt to the government in just under two years. But mail customer lobby group Verband der Post und Telekomkunden called such a deal eyewash: “Germany has the second-highest postage rates in Europe, so a rate cut is long overdue.“
In response to having to cut its standard-letter rate by one cent to ¦0.55, Post has threatened to cut 10,000 jobs and close branch offices throughout the nation if it is forced to cut its postage rates. It also said it will take the regulator to court. But Linda Giers-Lambert from the regulatory agency said: “The decision can't come as a surprise to Deutsche Post. It [the decision] is based on extensive talks with Post and thorough examinations.“ The final decision will be made after Deutsche Post has commented at the end of the month. Regulatory head Würth said that there is little chance his agency will change its mind.
Post's share, which did not budge in late June when the Commission's ruling was made public, fell to a record low of just over 12 after the recent decision. The government, still with 47 percent of the letter carrier, would like to float more of the company to keep its debt under control.
The Commission's decision refers to dumping prices offered by Post's parcel unit between 1994 and 1998. United Parcel Service took its suspicion to the Commission immediately in 1994. Four years later, Post aligned its parcel prices with the uniform rates deemed affordable to all other users. However, it did not lower its stamp prices. Instead, the company embarked on a shopping spree, gobbling up internationally prominent logistics companies such as Danzas and DHL.
If Post follows EU law and repays the subsidies in one lump sum while the court case is pending, it would have to put on the back burner its ambitious expansion plans. But the company just announced that it would acquire a Dutch letter carrier for an undisclosed price.