Ceska Posta starting to feel the heat of competition

With the liberalization of the postal services market and companies struggling to cut costs by using the Internet more than traditional post, the monopoly era of the domestic mail delivery company Ceska Posta will be over within a few years, Aad Weening, the secretary general of the European Mail Order and Distance Selling Trade Association (EMOTA), told PBJ last week. Already facing serious competition on delivery of parcels and express mail, Ceska Posta now has a monopoly for delivery of light mail, not heavier than 350 grams. But following a decision of the Cabinet in September, the monopoly on light mail will be restricted to letters weighing up to 100 grams as of May 2004. The decision is aimed at liberalizing the Czech postal market in line with European Union requirements. In September, the Ministry of Informatics, which regulates the postal services market, launched a tender for the license of delivering light mail. Although all the mail distributors were invited, only Ceska Posta bid for it. The ministry awards only one license for delivery of light mail in the country. The applicant for the license has to prove financial, technical, organizational, and staff capacity to deliver postal services in the entire country. "Only Ceska Posta bid for the license because it's the only company having a network covering the entire country," said Klara Volna, the ministry's spokeswoman. Besides light mail, contractual obligations include collection of public television and radio fees and delivery of payments to retirees in the entire country.

The liberalization of the postal services market will boost competition in the industry, said Weening, who participated in the industry conference organized by the Czech Direct Mail and Mail Order Trade Association (ADMAZ) in Prague last Thursday. Domestic mail deliverers already face tough competition in countries like Sweden, where the domestic Posten lost its monopoly in the market a few years ago, he added. "The liberalization will have another effect," Weening said. "We'll definitely see mergers and companies buying their competitors. The Belgian post office, for example, is for sale." Fully owned by the Czech state, Ceska Posta operates 3,400 outlets and employs 39,000 people in the country. In the enlarged EU, companies will look for more opportunities and try to penetrate more and more markets, Weening said. Customers will benefit because postal service companies will have to continuously improve their services. "Now, in markets where post delivery industry hasn't yet been liberalized, postal services operators are constantly increasing prices. That's their only strategy," Weening said. In early October, the management of Ceska Posta discussed a possible change in tariffs with the Ministry of Finance, which regulates postal services fees in the country. It's not clear yet whether Ceska Posta will increase its tariffs as of 2004. Ceska Posta raised its tariffs for sending a letter or a postcard by 6 percent (or Kc 1) to Kc 6.4 in Oct. 2002. The postal service said the revenue was needed to pay for modernization of Ceska Posta's offices. The company's annual investment in modernization is roughly Kc 1 billion. On-line, off-post Weening said the Internet had steadily eroded the sales of direct mail and parcel-delivery companies. "That's partly because banks, for example, have reduced their mail volume a lot by replacing it with electronic mail," he said. "But not only the Internet is to blame. The decrease in delivery of mail is due also to companies' cost-cutting strategies. They want and need to become more and more efficient." Ceska Posta delivered 613 million letters and postcards in 2002, an increase of more than 16 million compared to the previous year. However, it posted a net profit of Kc 392 million in 2002, 30 percent less than in 2001. In the first half of 2003, it delivered only 292 million letters and postcards, a 9 percent year-on-year drop. The press distribution company MediaServis delivered another blow to Ceska Posta's monopoly on light mail last summer when it ran a direct mail campaign for a large bank in Prague, delivering thousands of letters to individual addresses of potential customers containing information about the new bank service. Ceska Posta complained to the Ministry of Informatics, saying that MediaServis' campaign infringed its protected monopoly area. But the ministry rejected Ceska Posta's complaint. It argued that it's legal to send addressed, light letters if their content is the same. MediaServis general manager Michal Koliandr said that the ministry's decision created a major precedent in the Czech market and that more companies were likely to begin choosing other mail distributors over Ceska Posta. Last year, MediaServis controlled 5 percent of the mail service market. It wants to finish 2003 with an 8 to 10 percent market share, Koliandr said (see, 'Ministry of Informatics decision,' PBJ, Sept. 29 – Oct. 5, 2003). A Ceska Posta spokesman said the company wouldn't change its marketing strategy to respond to the changing market. But EMOTA's Weening said that Ceska Posta should pay more attention to the competition coming from the EU. "They [Ceska Posta] should simply offer better quality and prices and not ask judges to solve their problems," he said.