Tag: Mail Services

We are now 10 years after the first European postal directive and 2 years after the creation of an independent regulator in France, and there seems to be clear evidence that competition in the French postal market remains negligible.

An overview of the European scene reveals that the move towards competition is generally slow and painful. I observe however with concern that the gap widens between the situation in several other European countries and in the French market, which remains particularly static.

“Progressive market opening” was meant to facilitate business adaptation and to avoid disruptive changes in the market structure. It is crucial that the short time (three years) from now on to 2011 is used to: 1° favour the emergence of competitors 2° and at the same time, drive the adaptation of the incumbent.

1/First, I would like to remind the objectives of the postal market liberalization

Two questions:
– What is the ultimate goal of this policy ?
– How can we guarantee an effective and accessible mail service in this context?

Objectives :

At the very origin of the liberalization process, in the eighties, one finds basically a critical view on the quality and effectiveness of postal services in Europe. Policy makers pushed for the realization of a European single market in order to boost productivity and innovation.

Economic effectiveness is the principal motivation for postal markets opening. This motivation was stronger for the liberalization of the telecommunications sector, where the abolition of monopolies also resulted from intense technological innovation which, at the same time, justified and facilitated the opening to competition. Opening the postal markets to competition was primarily seen as a way to reduce the imperfections which the economic theory associates with a monopoly. In the French case, an official report by senator Larcher in 1997 perfectly illustrated these imperfections :

– Rather vague obligations on the incumbent, whose cost and financing were all but transparent ;
– Tariffs unrelated to costs, leading to potential waste of resources;
– No incentives to economic efficiency, resulting in outdated industrial processes ;
– And finally, poor quality performances.

Theoretically, efficiency could also be obtained by the way of efficient regulatory pressure on the monopoly USO supplier. This is the American model of a USPS under tight control of the “postal rate commission”. However, accommodating this model in Europe seemed difficult. For example, USPS is a company whose activity is almost entirely restricted to the monopoly segment. On the contrary, European operators have grown into diversified companies, in which the regulated activity coexists with other commercial operations of all sorts (notably banking services).

Regulating a monopoly is difficult in this context, and I shall add, but it is a personal comment that market pressures will generally prove, in the long run, to be more effective than the pressures from the regulator.

My following point is related to the links between competition and the universal service obligation and its financing

Market liberalization, is also politically justified by the argument that USO are sustainable in a competitive context. This subject was at the center of the last year’s European negotiations and I’d like to elaborate a little more on it.

We can observe that approximately half of the postal market is “captive”: it consists of “single piece mail” traffic, which is hardly affected by competition. Single piece mail is expensive to collect and to process industrially. The challenge for the USO operator is to obtain costcovering tariffs for this traffic; these tariffs can remain geographically averaged, because single piece mail will remain out of reach for competitors (it is not a contestable market). If the USO operator is able to rebalance his tariffs in order to recover its costs, it can then provide t