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3. The Cost of EU Competition and Market Rules Abuses for Postal Users

1. Acute Market Distortions
2. The Cost for Postal Users, Consumers and Taxpayers
3. Some Important Principles Recently Established
4. An Incomplete Jigsaw Puzzle (State-aid, implementation of decisions taken)

1. Acute Market Distortions

The FFPI in September 2001 initiated an on-going study of pending cases in the EU regarding breaches of competition and market rules. The study revealed that more than 20 competition and infringement cases are pending in the postal sector.

These pending cases concern alleged abuses of dominant position by postal operators, illegal state aid or infringement proceedings against Member States for non-compliance with the postal directive. Time will determine in which cases the initial complaints were justified or not. However, if one takes a look at the Commission’s recent track record for decisions regarding the postal sector, postal operators have in most cases been found guilty for all or some of the alleged breaches. All these cases have a negative impact on taxpayers, consumers and users of postal services who are the ultimate victims of the distortions of competition.

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2. The Cost for Postal Users, Consumers and Taxpayers

When postal incumbents abuse their dominant positions, illegally exploit the resources of their monopolies, or use state aid to eliminate competitors providing services in areas that are open to competition, this works against the interests of postal users and taxpayers for several reasons, including:

• Postal users and consumers are faced with a limited choice for basic postal services covered by the legal monopolies (the reserved area)
  
• Postal users and consumers are faced with a limited choice in markets open to competition due to the market power of the postal operators in those markets. This has a negative impact on the quality, choice and price of services offered to consumers.
  
• Postal users and taxpayers’ money is used to limit competition, hence to harm the interests of those the legal monopolies set out to protect.
  
• When postal operators are found guilty of abusing their dominant positions or have to reimburse illegal state aid, it is tempting for them to raise prices to pay off debt or to cut down on traditional mail services. In such a scenarios, postal users are faced with the bill.
  

Similarly, when Member States do not implement the 1997 Postal Directive correctly, postal users are denied the right to benefit from the minimum certainty established by this EU legal framework. The failure by several Member States to appoint independent regulators as required by the 1997 Directive is a typical example of the type of infringement cases that are currently pending with the Commission. Independent regulators offer certain guarantees to users and consumers as to the enforcement of the market rules in the postal sector. Without independent regulators, the incumbents can more freely abuse their monopoly positions on the market.

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3. Some Important Principles Recently Established

After years of silence, the Commission has recently started to take decisions on complaints concerning the postal sector. This new development is encouraging. As discussed above, the last 5 decisions taken by DG Competition lead to results where postal operators were either found guilty of abusing their dominant positions, or where Member States were found guilty of failing to correctly implement the 1997 Postal Directive. Several important principles have now been established which were long-overdue:

• Revenues from the legal monopolies should not be used to finance below cost or unprofitable pricing policies in markets open to competition (illegal cross-subsidisation)
  
• Structural, physical, separation of competitive services from monopoly services must be executed in some cases. By doing so, it becomes easier to ensure that no illegal cross-subsidisation occurs.
  
• Tying practices (making a preferential tariff in the general letter mail service subject to the acceptance of a supplementary contract) and fidelity rebates are forbidden when they lead to results that distort competition.
  
• Innovative new services, like time-certain hybrid electronic mail services, cannot be included in the legal monopoly
  
• The full domestic tariff cannot be levied on all forms of incoming cross-border mail

4. An Incomplete Jigsaw Puzzle (State-aid, implementation of decisions taken)

In an open letter addressed to the Commission in September 2001, the FFPI asked the Commission to acknowledge the urgency with which distortions of competition in the postal sector need to be addressed. The Commission’s caseload must be brought down. Postal users call on the Commission to better police the market in order to ensure that their interests are safeguarded. In that regard, important principles and guidelines remain to be defined, in particular with regard to:

• State aid
  
  State aid remains the major unresolved issue in the postal sector. There are currently, according to information gathered by the FFPI, at least 5 pending complaints before the European Commission relating to alleged unlawful state aid. In addition, Commission officials have indicated that several new cases of state aid in the postal sector will occur in 2002. Some of the pending cases have remained unresolved before the Commission for a very long time: more than 7 years in the complaint relating to unlawful state aid to Deutsche Post World Net. The complaint relating to unlawful state aid to Chronopost, the express services vehicle of La Poste of France, remains unresolved 10 years after the initial complaint after the EC Court recently quashed the Commission’s decision that there was no state aid involved. The case is now before the Commission, again.
  
  The matter of state aid is of considerable importance to the sector as a whole and to postal users in particular, in particular also because of the amount of the state aid that is allegedly involved. The Commission has over and over again recognised the high distortive impact of state aid on key EU markets. The Commission should therefore urgently take decisions and then also issue new guidelines on what is and what is not possible in the postal sector. Postal users consider that this should be a priority.

• The implementation of decisions taken by the Commission
  
  The Commission’s recent decisions in the postal sector serve as long-awaited guidelines to all stakeholders. However, these decisions were taken on a case-by-case basis and, therefore, only apply to the postal operators that were under investigation. The other postal operators who might also be abusing their dominant position in the same manner can freely continue to ignore competition rules until somebody challenges them.
  
  Another point of interest for the FFPI is the practical implementation of decisions taken by the Commission. Once a decision is taken, what are the means available to the Commission to monitor the correct implementation of decisions. At the present time, such means do not exist. The structural remedies agreed to by Deutsche World Net in the 2001 landmark decision regarding the company’s abuse of its dominant position may serve as reference point. The structural remedies in the decision constitute the central sanction in the decision. It is however unclear if the Commission will be in a position to oversee the practical implementation of the decision.
  
  Postal users consider that the current case-by-case approach and the absence of follow-up and monitoring procedures to ensure an effective implementation of Commission decisions do not provide sufficient guarantees to prevent further competitive distortions. As a result, postal users risk suffering from these distortions for a long time to come.

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