Proposal for a EUROPEAN PARLIAMENT AND COUNCIL DIRECTIVE amending Directive 97/67/EC with regard to the further opening to competition of Community postal services

(presented by the Commission)

EXPLANATORY MEMORANDUM

1 Background

1.1 Regulatory framework

Directive 97/67/EC of the European Parliament and Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service [1] (the "Postal Directive") comprises the following main elements:

[1] OJ L 15, 21.1.1998, p. 14.

- It establishes a harmonised regulatory framework for the Community postal sector;

- It defines a decision-making process regarding further opening of the postal market to competition.

The main elements of this framework define:

- the minimum characteristics of the universal postal service which is to be guaranteed by all Member States; the quality standards for cross-border services; tariff principles and principles governing transparency of accounts;

- common maximum limits for those services which may be reserved by a Member State to its universal service provider(s) to the extent necessary to ensure the maintenance of the universal service (effectively 350 grams and five times the standard tariff for an item in the first weight step);

- the principles to govern the authorisation/licensing of the provision of non-reserved postal services and the separation of regulatory powers and operational functions in the postal sector.

The transposition of this Postal Directive, which was required by February 1999, is almost complete in Member States. Nevertheless, certain problems remain. They chiefly concern the adequacy of the arrangements for ensuring that the required regulatory authorities are legally separate from and operationally independent of the postal operators and the extension of domestic postal monopolies to value-added services. The Commission is acting to resolve such problems. The Commission is also working to resolve separate specific competition complaints in accordance with the principles in its Postal Notice 98/C 39/02 [2].

[2] OJ C 39, 6.2.1998, Notice from the Commission on the application of the competition rules to the postal sector and on the assessment of certain State measures relating to postal services.

The Postal Directive provides for the continuation of the process of gradual and controlled opening to competition of the postal markets foreseen by the Council in its Resolution of 7 February 1994 on the development of Community postal services [3]. The timetable foreseen envisaged that:

[3] OJ C 48, 16.2.1994, p. 3.

- the Commission should present a proposal by 31 December 1998 for the further gradual and controlled opening of the postal market, in particular with a view to the opening of cross-border and direct mail to competition as well as on a further review of the price and weight limits;

- the Council and Parliament should decide on this proposal by 1 January 2000; and

- the measures should take effect from 1 January 2003.

The Commission proposal was delayed mainly by the resignation of the previous Commission on 15 March 1999 and by the need for the new Commission to re-examine the issue.

The question of the further opening of the postal market was given particular importance by the European Council of the Heads of State and Government in March of this year as is set out in the Presidency Conclusions. First, at a broad level, the Union set itself a new strategic goal for the next decade: to become the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion. Second, with regard to postal services in particular, the Heads of State and Government called upon the Commission, the Council and the Member States to act in accordance with their respective powers to achieve the following objectives:

- to set out by the end of 2000 a strategy for the removal of barriers to postal services;

- to speed up liberalisation in areas such as...postal services, with the aim of achieving a fully operational internal market in this areas.

This proposal takes account of these Conclusions. It follows a thorough review of the sector which, in addition to previous studies on employment trends and the impact of electronic mail, included studies on the costs and financing of the universal service and the impact of the different options for enlarged access to the postal market, on which interested parties were consulted and invited to provide data. [4]

[4] These studies can be found on the following internet website: http://www.ispo.cec.be/infosoc/telecompolicy/post/en.

The measures contained in this proposal provide for further and continuing opening of the Community postal markets in a step by step approach contemplated by Article 7 of the Postal Directive, by amending that Directive accordingly.

1.2 Postal industry status and evolution

1.2.1 A key community infrastructure for the EU's cohesion

The postal sector is at the crossroads of three markets which are vital to the European economy: communications, advertising and transportation/logistics.

These markets are largely already open to competition and experiencing rapid development, driven by market demands and technological change (particularly in the case of telecommunications).

The postal sector, which offers a key communications infrastructure with high economic and social importance, needs to develop in harmony with the major changes taking place in these markets or it will be left behind and be seen increasingly to be dealing with the technology of yesterday.

Overall in the EU, postal services are estimated to handle 135 billion items per year, generating a turnover of about EUR 80 billion or about 1.4% of GDP. About two-thirds of this turnover is generated by mail services, including the reservable area. The remainder is generated by parcels and express services which are already in the competitive area.

1.2.2 A key element for the internal market

If the EU's postal services are inefficient, goods and services will not flow optimally throughout the Union - damaging economic growth and jobs. The benefits of electronic commerce will also not be fully realised if the EU's postal services - at the heart of business to business and home delivery in Europe - are not top class. There are therefore strong consumer and business interests in ensuring that a wide range of high quality postal services and products are available. Moreover, the postal market does not exist in isolation but interfaces and competes with other forms of communication, making it doubly important that it keeps pace with modernisation and technological advances, attracting investment and innovation.

1.2.3 A high social importance

Overall in the EU, postal services are estimated to employ directly approximately 1.7 million people of whom 1.3 million are employed by the universal service postal operators. This employment, although currently broadly stable in most Member States, has reduced in some and is projected to reduce by around 0.8% per year over the next seven years because of increased productivity and competition by other means of communication. This will occur whatever the decisions on additional market access.

In addition, the social role of postal services, whose reach extends also to remote rural areas, is of vital importance to the social cohesion of the Community. Postal services have a prominent role as symbols and agents of solidarity, connectivity, and appartenance - particularly in communes, villages, towns, and regions and in peripheral areas of the Union. This social dimension in the letters market takes the form of a daily universal collection and delivery service to every address.

It is worth noting in this respect that the current proposal does not change the obligations on universal service, which are in Chapter 2 of the Postal Directive, where Articles 3 to 6 state the definition of this universal service, ensure that its provision is guaranteed, develop the requirements to be met and the detailed and updated information to be provided regarding the features offered. Furthermore, no Member State has notified to the Commission any exception or derogation to the universal service granted to its universal service provider due to circumstances or geographical conditions deemed exceptional.

The employment in the postal sector is a very important factor. It should be recognised that the long-term future of these jobs can best be assured in a climate where competition is stimulating new attractively priced products and services which increase the demand for mail services and allow them to share in the growth of the communications market. This is also what is needed to allow the postal operators to expand in other areas so as to benefit from economies of scope. If postal services lag behind the communications market as a whole, they risk losing the very basis on which the social role is built.

1.2.4 Enhanced quality of service

All but one of the universal service providers have now achieved the cross-border mail delivery target in the Postal Directive of three days after the day of posting for 85% of priority mail and five days after posting for 97% of priority mail items (although there are still wide differences between different operators and routes). The improvement of the quality of service for cross-border mail is partly due to the signature of the REIMS II terminal dues agreement [5] signed by most European universal service providers, which makes the payment of higher terminal dues dependent on proven improvements in quality of service.

[5] International convention on the payment of terminal dues, i.e. the remuneration for the final delivery of mail.

With regard to domestic mail, progress is more difficult to track due to the current lack of harmonised and independently monitored quality measurement systems. Here, the Postal Directive requires incumbent operators to publish quality of service standards and information on whether they have been achieved. It appears that there has also been some (less dramatic) progress in domestic mail quality since the adoption of the Postal Directive.

The significant improvements made in respect of quality of service and productivity to date will enable the incumbent operators to be better prepared to meet competition.

1.2.5 Restructuring within the postal sector

Technology is becoming a major driver for the postal industry's evolution

Current technological evolution such as the fast development of the telecommunications market, the exponential development of the Internet or the fast-emerging e-commerce market have a significant potential impact on the postal industry, creating threats and opportunities. Technology is therefore becoming a major driver for the postal industry's evolution. In addition, there is a significant trend in the development of special or tailor-made services which go far beyond the standard letters services and which sometimes combine the new electronic communications technologies with added value elements of postal services.

The emerging e-commerce market, based on the global Internet infrastructure, creates the need for ubiquitous and state of the art physical delivery networks and logistics services. This radical development will change the transportation and logistics industries significantly, creating substantial business potential. Postal operators urgently need to define and establish their market positioning in this new economy if they want to take advantage of this emerging market.

Regardless of regulatory change, the letters market already faces increased competition. With regard to their basic letter service (usually provided under exclusive rights), competition is coming from alternative methods of communication (such as fax, e-mail, broadcasting and now the Internet) as a result of which substitution could accelerate strongly in the future. This has already happened in Canada and the United States where a significant proportion of financial mail has been substituted by internet-based transactions as Internet penetration reached a critical mass.

In particular, since traditional letters services already have to adapt to increasing pressure from technological developments, a new more adapted regulatory environment is necessary to strengthen these services to become more efficient and responsive. In this way, it will be possible to maintain and improve the universal services relied on particularly by citizens in more isolated geographic areas, and so reinforce social cohesion.

In recent years, many postal operators have engaged in extensive restructuring and modernisation programmes. These have seen the extended use of new information and communication technologies to improve the efficiency of existing postal services as well as the launch of new types of service. Such new services have included facilities for tracking and tracing items, hybrid mail services and the offer of added value elements to customers at different levels in the postal chain (such as address databases, printing and preparation of mail and treatment of business reply cards). Developments within the e-commerce market have been initiated by leading postal operators.

Different developments in Member States

At the same time the process of modernisation described above has not been uniform throughout the Community. In respect of market-opening, seven Member States have gone further in certain respects than the maximum reservation allowed in the Postal Directive. In Sweden and Finland, there is no postal monopoly. In Germany, the Netherlands, Spain, Italy and Denmark, the reserved area is already lower than the maximum permitted in the Directive; in Germany, the current limit is 200 grams for ordinary mail and 50 grams for direct mail; in the Netherlands, direct mail (within a tight definition) is outside the monopoly and the weight/price limit (planned for June 2000) will be 100 grams; in Spain, all local mail and all direct mail items are outside the monopoly; and in Italy, direct mail items are also outside the monopoly.

Such differences of approach carry the danger of distorting and destabilising the internal market. It is thus necessary to ensure further harmonisation towards market-opening, which is the trend implemented by a substantial number of Member States.

Direct competition remains limited in the letters market

The Postal Directive has required only a very limited market-opening (letters over 350 grams or five times the fastest basic tariff). It did not create real competition in the letters market, since it only opened 3% on average of the postal revenues of the public operators. A significant step was thereby postponed to the subsequent stage set out in the timetable agreed in the Directive. The maintenance of differing national regulations regarding the reserved area leads to a situation where the internal market still has to be completed as regards the freedom to provide services and freedom of establishment.

In fact, developments since the publication of the Postal Directive have shown that there remain significant disparities between different universal service providers and between Member States. These differences occur in three main areas:

- The levels of monopoly which have been granted which in many Member States are significantly below the 350-gram maximum permitted by the Directive (i.e. Denmark, Germany, Spain, the Netherlands, Italy, Sweden and Finland);

- The operational freedom of the universal service providers to conclude alliances with private operators;

- Quality of service differences, particularly with regard to ordinary domestic mail and bulk mail products.

Increasing direct and indirect competition and industry consolidation

Certain operators have moved significantly to make acquisitions and to expand internationally. They already behave as market-oriented players. Here, such differences may increase further due to consolidation by the main actors in the express parcels, transport and logistics markets. The smaller operators may however form regional or other kinds of strategic alliance. These divergent developments lead to increasing distortions of the internal market and make it imperative to adopt further regulatory changes harmonising the conditions of providing postal services.

In particular, since the Postal Directive, there has been a wave of cross-border acquisitions by the more active universal service providers in the sector in adjacent competitive markets. This is because such (mainly public) operators have increasingly sought to acquire companies with the business, expertise and international networks in the express, parcels and logistics markets in order to fulfil increasing customer demand for pan-European services and to meet the challenge of direct competition from private operators.

Some universal service providers have also used the asset of their national network and high market recognition to expand their activities in markets ancillary to the basic postal market, into areas such as added value services for electronic mail (such as secure electronic transmission of encrypted documents), financial services and mailroom management services.

Significantly for this proposal, several universal service providers are also already directly positioning themselves for a more open domestic and international letters market through acquisitions and alliances (for example, the joint venture between TNT Post Group, the UK Post Office and Singapore Post). Such developments show that, since the Directive, the industry has anticipated the future evolution of the letters market and that the prospect of future market-opening has already served as one of the key criteria for business decisions by some universal service providers.

Increased competition concerns

Increased commercial activities by universal service providers, when combined with the continued existence of large domestic monopolies, have given rise to increased competition concerns, including concerns over alleged cross-subsidies from reserved to competitive areas. There has been an increasing number of complaints from private operators and universal service providers themselves over alleged uncompetitive practices or unjustified state aid measures. The continued protection of a substantial share of universal service providers' domestic markets is not sustainable in the medium term because it relies on the less dynamic part of the market and regulation based on the historical extent of the postal monopolies. In addition, universal service providers are in any case increasingly preparing for a competitive future in their domestic and European markets.

Employment evolution

The ongoing restructuring of the postal industry is leading to adjustments regarding employment. Overall, in most Member States, employment levels in universal service operators have remained broadly constant in recent years with individual increases or decreases of 0.4% per annum on average over the period 1995 to 1998. In two cases, there were marked decreases in employment by the universal service providers - in Germany, there was a reduction by way of voluntary redundancies of 45 000 full time employment equivalents (17%) between 1995 and 1998 and in Sweden a reduction of 4 000 full time employment equivalents (9%) over the same period. In one case, that of the Netherlands, there was a marked increase of 41 088 full time employment equivalents due mainly to the acquisition by the incumbent of the TNT group.

While adoption of technology and competitive pressures have induced employment reductions in relation to traditional services for these universal service providers, new jobs are being created in relation to new services as well as in the private sector. For example in Germany, in 1999 alone, 5 000 full and part-time jobs and 11 000 other part time jobs with special contractual conditions were created by private operators setting up new services as a result of a more open market. While the incumbent lost a similar number of jobs, these losses were related to productivity gains and restructuring.

1.3. The need for further market-opening to competition

Foreseen developments

The effects of the further development of electronic mail and electronic commerce will be four-fold. First, these developments will lead to a reduction in letter volumes particularly as electronic banking and electronic direct mail develop as Internet penetration reaches a critical mass. Second, there will be a growth in cross-border hybrid electronic mail concentrated in certain points - however, the recent Citicorp judgment [6] may limit this to some extent. Third, these developments will lead to increased delivery volumes of packages and parcels arising from the development of electronic commerce. Fourth, there will be an increased demand for added value services, tailored to certain types of customers.

[6] The judgment of the European Court of Justice of 10 February 2000 in Joined Cases C-147/97 and C-148/97 required payment of the domestic tariff when mail is transmitted electronically across borders and re-enters the domestic market to be distributed, provided a cost-covering payment system does not exist.

This is a further argument for improving the basic letter and package service, to limit encroachment by electronic mail onto letter mail volumes and for clarifying the distinction between ordinary letter services and value added services (see Section 2.9.2).

No contradiction between market-opening and universal service

There are significant economies of scale and scope to be found in delivery services. Experience of deregulation of postal markets shows that there is no contradiction between the maintenance and improvement of this service and the gradual introduction of competition, provided the universal service provider has the necessary commercial and pricing flexibility to respond within the bounds of competition law. In particular, the improving financial position of universal service operators, their advantage in experience and know-how and the fact that large parts of the universal service are already profitable make it possible to absorb a large proportion of the costs of providing universal service. In addition, allowance is made in the Postal Directive for a compensation fund to meet any residual costs of universal service not covered by the newly defined reserved area, which is a key safeguard for the proposal. This safeguard is already in place in the current Directive.

Moreover, certain consumers' organisations have been calling for an opening of the letters market to competition for some time [7]. In particular, the BEUC has clearly stated that it favours a complete disappearance of postal monopolies in 2005 in order to give consumers the possibility to choose between different service providers and to encourage them to improve their quality. The proposal takes account both of their view and of the need to allow a reasonable and proportionate adaptation period to universal service providers, including a review phase. As several public operators move to a status which is more at a distance from direct interference in operational and commercial matters by governments, incumbents will benefit from increased commercial freedoms and prepare for direct competition while safeguarding and enhancing their social role.

[7] For example, the BEUC position (Bureau Européen des Unions des Consommateurs) of 6 January 1999.

Only if the universal service operators become more efficient and able to compete with alternative means of communication and free to diversify and expand into adjacent markets, will they be able to serve users and ensure the long term viability of the sector in general and the universal service in particular.

A window of opportunity

Future regulatory developments have to take account of rapid change in technology and the overall structure of the industry. If this were not the case, current employment in the sector would erode increasingly and new employment would not by itself materialise to fill the gap.

Universal service providers have already begun, and need to continue at an increased pace, an irreversible process of change which will enable them to benefit from the dynamics of the internal market as it evolves.

At the present time, and for the foreseeable future, the letter mail market is growing (at an estimated rate of 2-3% per year) but this growth is likely to be affected at some unforeseeable stage by technological substitution. In the meantime, new business opportunities are arising (for example those resulting from the development of electronic commerce), there is a window of opportunity to open substantially the internal market as regards postal services. Such a measure will allow universal service operators to take advantage of market growth to implement the necessary steps to face competition.

With this in mind, the proposal aims at being feasible and reasonable, including allowing the necessary time for adaptation.

2 The Commission's Proposal

2.1 Objectives and Scope of Proposed Measures

The objective of the Commission's proposal is to move towards the completion of the internal market for postal services while ensuring the maintenance of universal service in line with the Directive and the Lisbon Summit conclusions. This will allow the benefits of greater competition to improve the service levels, in terms of both quality and prices available to posting customers and to strengthen the European economy as a result. This can best be done by agreeing a substantial step on 1 January 2003 while also providing a timetable for decisions on further market opening.

The Commission believes that the step in 2003 should be clearly achievable for Member States and that it should focus in particular on markets where opening has already occurred and on the fastest growing segments where the impact of competition on universal service providers can be offset by market growth. The step should also be significant enough to create actual competition.

The Commission similarly believes that in line with the requirement from the Lisbon Summit the decision on further market-opening in 2003 should be followed by an additional step towards the completion of the internal market, to be proposed before the end of December 2004 following a review earlier that year.

Against the background and objectives described above, the Commission believes it is essential to establish through this proposal a roadmap for continuing the process of modernisation of the postal sector launched by the Postal Directive. Such an approach is in line with the objectives of an open and competitive internal market, supported by the Lisbon Summit conclusions. It is also a necessary and proportionate response to the needs both of users and of the broader European economy.

This proposal amends the Postal Directive to set a clear course and timetable towards the further opening of the Community postal sector, but in an orderly manner that will allow sufficient time for the market as a whole, and the universal service providers in particular, to complete the modernisation process and adapt to the conditions of greater competition in a stable and predictable regulatory environment.

This proposal therefore provides for the continuation of the process of gradual and controlled opening of the internal market for postal services to take place in two further stages. The next stage, to be given effect by 1 January 2003, consists of a general reduction in the current weight and price limits for certain services which may continue to be reserved with a corresponding elimination of all weight and price limits for outgoing cross-border mail and express mail.

A subsequent stage of market-opening will take effect by 1 January 2007. It will provide for a further reduction of remaining exclusive rights granted to universal service providers in accordance with Article 7 of the Directive, subject only to the need to maintain universal service. The scope of the further step should be decided by the European Parliament and Council no later 31 December 2005 based on a proposal from the Commission to be tabled by 31 December 2004, following a review of the sector. The Commission's review should focus on the maintenance of universal service in a competitive environment.

2.2 The first step to be implemented in 2003; reductions in the price/weight limit

It is proposed that with effect from 1 January 2003 the maximum limits in the Postal Directive for the postal services which Member States may reserve to their universal service provider(s) solely to the extent necessary to finance the provision of universal service shall be reduced from the current level of 350 grams and five times the basic standard tariff: to 50 grams and 2 ½ (two and a half) times respectively for ordinary domestic correspondence, incoming cross-border correspondence and direct mail; and to 0 grams in respect of outgoing cross-border correspondence. In respect of outgoing cross-border mail and express mail, the current price limit shall be abolished.

The reasons for the choice of the 50-gram weight limit is as follows:

The current maximum area which can be reserved to the universal service providers under the Postal Directive represents on average in the Community 70% of the universal service providers' total postal revenues. Items weighing between 50 grams and 350 grams account on average in the Community for 16% of the revenues which the universal service providers derive from postal services. Such a step is therefore consistent with a gradual and controlled approach to reducing the limits for weight and price. But the step is still enough to encourage the public operators to adapt to the new market conditions.

Only a small part of the 16% opened to competition will be accessible to new entrants because of the cost and time needed to establish a parallel distribution network. Over the medium term it can be estimated that the incumbent would retain 80 to 90% of the market which has been opened to competition, based on the experience of postal markets already in a more competitive environment;

The one off impact of the market-opening envisaged by this proposal on employment reduction would be an additional 2.5% to the ongoing public operator employment reduction due to the on-going modernisation process. A very limited approach, as would be represented by the choice of a 100 gram limit, would represent a mere 9% of market-opening but would account for half of this employment reduction. This difference in employment impacts on the public operators would not justify the choice of the 100 gram limit; as it would be insufficient from the point of view of providing real benefits from competition and ensuring better employment prospects in both the private and the public operators in the medium term (see also Section 2.8).

50 grams is a standard weight step used in most Member States and should therefore not involve major technical adjustment at an operational level. It is sufficiently high not to present practical problems of circumvention of the reserved area by an artificial increase in the weight of individual items of correspondence.

2.3 Areas to eliminate weight/price limits:

Article 7 of the Postal Directive provided that the review of the postal sector to be undertaken by the Commission in preparation for this proposal should also consider the options of opening the cross-border mail and direct mail to competition with effect from 1 January 2003.

- Direct Mail

With regard to direct mail, the following points are relevant:

Direct Mail items weighing between 0 grams and 50 grams [8] account on average in the Community for 8% of the revenues which the universal service providers derive from postal services, making such a proposal in line with gradual and controlled market-opening.

[8] Direct mail items between 50 grams and 350 grams are already opened to competition by the 50-gram limit.

Direct Mail is a fast-growing, profitable segment (around 5% volume and revenue growth per annum) which already competes with alternative communications media. Six Member States have already opened this segment fully or partially to competition. The actual and predicted growth of direct mail (+5% per annum in volume and value terms over the next seven years) reflects the fact that direct mail volumes in Europe, per capita, are less than half the volumes per capita in the United States. There is thus already ample room for competitors to take a share of a growing market without prejudicing provision of universal service through deflection of significant revenues. This step would further boost direct mail volumes and quality, enabling the direct mail industry as a whole to be strengthened competitively against alternative media.

Nevertheless, the Commission recognises that a reduction to 50 grams proposed elsewhere is already a significant step. Moroever, around a third of the 16% of universal service provider postal revenues which the 50-gram limit opens up to competition is made up of direct mail. The Commission recognises that certain Member States who have not already opened this market may wish to continue to reserve direct mail below the proposed weight limit to the extent necessary to ensure the provision of universal service. Therefore, to ensure that the step for 2003 is "gradual and controlled", the Commission does not propose at this stage to open up the remainder of the direct mail market to competition.

- Outgoing cross-border mail

With regard to outgoing cross-border mail, the Commission believes that this service, which is "de facto" liberalised in most Member States, would allow existing and new postal operators to form partnerships with other operators abroad to deliver cross-border mail services to Member States in particular to take advantage of any national market-opening below the 50-gram limit. The Commission therefore proposes to include all outward cross-border liberalisation (representing around 3% of the total postal revenues of the universal service providers) as part of the next phase of market-opening in 2003.

- Incoming cross-border mail

With regard to incoming cross-border mail, the Commission has taken account of the arguments that, firstly, inward cross-border liberalisation could be more difficult to regulate due to problems of verifying the actual origins of items of correspondence and secondly, that it could, over time, result in the relocation of a proportion of the posting of bulk domestic mail (which represents around 30% of domestic mail volumes), making its effects more unpredictable. In addition, higher than average levels of incoming cross-border mail in certain Member States (particularly in Luxembourg, Ireland and Greece) could make the effects of such an opening disproportionately large at this stage on the universal service providers in those Member States. Therefore, the Commission does not propose inward cross-border market-opening for the next step in 2003.

- Express mail services

Experience has shown that the value added criteria applied to the limit for express mail services outside the reserved area is open to challenge. The Commission has been confronted with a number of cases where this point caused problems. It has also appeared that such services can be provided in a limited number of cases below the price limit. The Commission therefore proposes to remove the price limit for express mail services. The impact of this measure is estimated at less than 1% of the postal revenues of the universal service providers.

2.4 Estimated impacts of the proposed market-opening

These measures, taken together, will continue the process of market-opening as envisaged in the Postal Directive, and will preserve a large proportion of the current maximum reservable revenues. On average in the Community, after adoption of the new 50-gram weight limit and complete market-opening, outgoing cross-border mail and express mail segments, 50% of the universal service providers' total postal services revenues will remain within the maximum area which can be reserved, compared with 70% at present.

This means that the proposed measures are equivalent to a 20% additional market-opening (in revenue terms) compared with the previous Directive and that they represent a reasonable, proportionate and enforceable intermediate step which will allow all universal service providers sufficient time (five years) to prepare for a further major step towards the realisation of the internal market in postal services. They will therefore not, on the basis of existing economic data, jeopardise the financial equilibrium of the universal service providers.

2.5 Need to continue the process of market-opening

Further stage of market-opening on 1 January 2007:

Setting a timetable now for further steps towards the completion of the postal market is important for both the long-term viability of the universal postal service and the continued growth and development of the postal sector as a whole. This objective of ensuring a fully operational and competitive internal market in postal services at Community level will:

- provide the necessary dynamics in all parts of the Community for the continuous development of modern and efficient Posts through innovation and dynamic impact of competition on evolving services. As has already been seen in recent developments in the market, the prospect of market-opening can itself act as an incentive towards change, provided that this prospect is a real and convincing one. It is essential that preparations are put under way by all universal service providers to adapt to a more commercial and competitive environment;

- allow any residual universal service costs which cannot be covered by greater service and pricing flexibility to be covered by a compensation fund and/or a licensing system which would provide a total guarantee for the future of universal service;

- stimulate new investment and the development of new services in the sector, both by existing postal operators and by new entrants to the market which would not take place in the absence of a defined timetable;

- provide the best conditions for promoting the interaction of postal services with other services in the future, leading to the full integration of the postal sector into the Information Society and the maintenance of its share of the wider communications and logistics markets;

- help to ensure that postal operators in different parts of the Community, whether publicly or privately owned, can offer their services under equivalent conditions of access, so that operators based in Member States which have opened their domestic postal markets to competition do not suffer the competitive disadvantage of having to compete in those markets with operators from other parts of the Community whose domestic markets remain protected by a reserved area;

- stimulate universal service providers to enhance the competitiveness of their core services in the face of the growing challenge from alternative, non-physical (i.e. electronic) methods of delivery;

- reduce the risk of competition problems arising from the extension of universal service providers' dominant position derived from their national postal monopolies into ancillary markets such as financial services or services combining physical delivery with other non-postal functions, such as logistics and warehousing services or hybrid mail services;

- satisfy the demand from companies which operate on a European-wide basis for a single postal partner to deal with all their mailing requirements;

- ensure the completion of the internal market for Community postal services within a reasonable timeframe, so that all citizens and businesses have access to a universal postal service of a consistently high quality under comparable conditions no matter where they reside within the Community.

The process of market-opening will therefore have a positive effect on the overall level of economic activity as well as contributing to the economic integration and the social cohesion of the Community.

For these reasons, this proposal provides that a further step in the process of market-opening should take place by 1 January 2007. The scope of the further step should be decided by the European Parliament and Council no later 31 December 2005 based on a proposal from the Commission to be tabled by 31 December 2004, following a review of the sector. The Commission's review should focus on the maintenance of universal service in a competitive environment.

2.6 Projected impact of further market-opening on the activities of the universal service providers

On the assumption that no further regulatory change takes place, universal service providers' main areas of postal activity in the currently reservable area are projected to grow, both in terms of volumes and revenues, by an average of 2.2% a year over the period 2000 to 2007.

Even if regulatory developments occurring in the meantime were to include full market-opening in 2007, as well as a 50-gram limit in 2003, it is projected that there would still be a growth of universal service provider revenues of 2.3% a year over the same period.

These projections show that, even with the prospect of full market-opening in 2007, a positive level of growth in the global activities of the universal service providers would still occur. Such predictions can be compared to an overall growth in the mail market in the past three years of around 3% a year.

2.7 Durable guarantee of the provision of universal service.

With regard to universal service costs, namely the extra burden of providing service in areas which are not commercially appealing, the costs related to this burden are estimated to be equivalent on average to 5% of the postal revenues of the universal service providers. It is not correct to assume that a substantial part of the costs associated with providing the universal service can not be provided in a commercial context. Any additional costs of providing universal service which are not covered by the reserved area, can be covered by a compensation fund.

The financial performance of the universal service providers has improved significantly over recent years. All but one are now breaking even and some are making substantial profits, even allowing them to make important acquisitions in other Member States. This development will continue in the future as they improve productivity and service quality as foreseen by the existing directive. The steady growth of the market for postal services and the improved financial performance of the universal service providers flowing from productivity gains will continue to provide at least a substantial part of the universal service on a commercial basis.

Moreover, it is important not to overlook the incumbents' advantages in areas such as experience, network, scale and scope economies, know-how, brand image and customer loyalty which are difficult for any competitor to build up quickly. In particular, a universal postal network constitutes a major competitive asset, particularly since it is difficult to replicate and therefore constitutes an additional threshold which new entrants have to overcome in order to gain more substantial volumes.

The degree of market-opening required by 1 January 2003 would still allow Member States, should they so wish, to reserve to their universal service provider(s) a substantial area which can compensate for any cost imposed by their universal service obligations over and above what can be provided commercially, allowing them to prepare for further market-opening.

Experience in Member States which have already advanced further in the creation of a competitive letters market indicates that a modern and efficient Post can on its own provide a universal service to the level required by the Postal Directive in a competitive environment, relying on the inherent advantages offered by its universal postal network and high profile nationally. There is furthermore no evidence that a substantial market-opening would compromise the requirement in the Postal Directive for "affordable tariffs". Uniform tariffs in some cases can easily evolve into a "uniform structure of tariffs" to take account of different categories of users as is usually already the case for business customers.

In any case, the current Postal Directive obliges Member States to consider rebalancing their tariffs in such a way so they are more closely geared to costs, which is one of the stated requirements of the Directive. The experience of Sweden (whose postal market was fully opened to competition in 1994) and Spain (which historically has liberalised local mail) shows that to date the uniform tariff for individual customers has not been abandoned by the universal service providers despite full or substantial market-opening. A rigidly imposed uniform tariff for all customers is not a compulsory part of the Postal Directive framework and this proposal reflects that fact. It has to be stressed that the majority of postal revenues in the mail segment derives from business customers who benefit from substantial rebates.

All but one of the EU universal service providers recently concluded an agreement on remuneration for the delivery of cross-border mail, exempted last year by the Commission under Article 86(3) of the Treaty, the effect of which has been or will be in certain cases to break a hitherto uniform tariff for both domestic and cross-border mail in the EU. In this way, certain operators are applying the principle of gearing tariffs to costs within the internal market area. It would therefore not be logical to follow a different principle in the domestic reserved area.

Moreover, Member States do not necessarily have to apply the most constraining limits on the universal service. A lower and less costly limit can be contemplated, on condition that it is at or above the agreed guaranteed service set out in the Postal Directive. For example, a Member State might currently have a higher universal service weight limit than the minimum required or more than one delivery per day.

Posting customers (consumers as well as businesses) are increasingly looking to have more reliable basic services or more tailored, value added services better suited to their needs. The further development of such value-added services, for example tracking and tracing of letter items or certainty of date/time limit for delivery would result in increased volumes and revenues for universal service providers, and could cover part of any additional residual costs arising from universal service obligations.

The Postal Directive already allows for alternative methods for safeguarding the universal service which are less restrictive of competition than a reserved area and which will continue to remain available where they are fully justified. These include in particular, as mentioned, the possibility for Member States to establish a compensation fund, in cases where they believe that the universal service obligations represent an unfair financial burden on their universal service provider(s), or to make postal operators' authorisations subject to universal service obligations. Ultimately, this ability for Member States to have recourse to a universal service compensation fund, to which other licensed operators may be asked to contribute, is a key safeguard for the continued provision of universal service, irrespective of what may happen to the universal service providers' market shares.

In this case, and in order that compensation funds or licensing obligations do not impede or even prevent competitive entry altogether, this proposal includes a clause which will require the Commission to examine the empirical cost data on the basis of which the contributions to any established or proposed compensation fund have been required and decide whether to approve them or whether to seek modifications.

Within the timeframe for further market-opening provided by this proposal, there is ample time for any necessary changes to be effected within Member States, both at operational and at regulatory level, so as to ensure that the long-term financial viability of the universal service provider is preserved through its improved competitiveness.

2.8 Social and employment issues

The universal service providers currently employ in the region of 1.3 million persons, while approximately a further 400,000 are employed by private postal operators.

It is likely that the gradual reduction in the overall employment levels seen in the sector in recent years will continue in the period up to 2007, as a result of efficiency gains outweighing the effects of market growth. It has been estimated that there will be a reduction of approximately 8.4% in employment in the sector as a whole in the period between 1997 and 2007, independently of any further opening of the market.

Out of the five drivers for change (demand, electronic substitution, organisational change, automation/new technologies and liberalisation), the introduction of competition is likely to have less impact on employment levels than the other factors. The gains arising from modernisation, in terms of sustained employment, need to be compared with the costs of doing little or nothing, which would be continued stagnation and ultimately irreversible decline.

This is partly because the other drivers for change in the sector have already played a major role in the restructuring of the postal sector and will continue to do so whether or not further market-opening takes place.

In particular, when one examines the recent histories of universal service providers such as TNT Post Group and Deutsche Post AG, both of whom have restructured and modernised extensively in recent years, one finds that in the first case there was an increase in employment and in the second, despite decreases, there were no compulsory job losses.

The timetable for gradual market-opening established by this proposal, providing as it does for an intermediate step of controlled and moderate market-opening from 1 January 2003 and for further market-opening in 2007, will give universal service providers the additional time they may need to prepare their workforces for the new competitive environment, including comprehensive programmes for the retraining and reallocation of staff to supply the future needs of the market in the different areas of postal and ancillary activity in which postal operators are active.

It has to be stressed that, if no further modernisation and restructuring were to take place in the public sector under pressure from market-opening, there would be a serious risk of a substantial, sudden and irreversible decline in customer demand for traditional mail services at a time that it is not possible now easily to predict. This demand would migrate to other means of communication and would mainly concern the growing advertising market, business mail and bank correspondence. The consequence of doing nothing, or too little, now would thus be to create the climate for an accelerated decline of employment in the traditional mail services.

In the medium to long-term it is only the evolution of a dynamic, flexible and cost-effective postal service which can guarantee the survival and flourishing of the sector faced with the emerging technological challenges. Such continued adaptation, stimulated by competition, will ensure that modern and efficient postal services play their full part in the information society and create new jobs, as well as preserving established jobs.

2.9 Related issues

2.9.1 Freedom of Member States to open their markets more quickly

It should be borne in mind that the phased timetable for market-opening established by this proposal constitutes the maximum intended timeframe for action by Member States to open up their postal markets in response to the increasing competition from alternative methods of communication. It is clear from the structure of the Postal Directive (and Article 26(1) in particular), as well as from the Treaty itself, that Member States may advance the process of market-opening further and faster than required by the Community regulatory framework, as indeed has already been the case in many Member States. The timetable provided in this proposal should therefore be understood as the longest possible timeframe within which market-opening should take place, for those who require more time to adapt.

2.9.2 Special Services

Over recent years, various special services have developed which are distinct from the standard letters service and which serve specific customer needs (for example express services or other special services which offer different added-value features not offered by the traditional postal service)). Such services have sometimes developed at low prices, made possible by the highly focused and specialised nature of such services. These examples show that the unit price of a particular service may no longer be a true indicator or whether that service carries added value.

Special services, meaning any service which is quite distinct from the standard universal letter mail service, which meets special customer needs and which offers additional service features not offered in the universal service cannot be considered as "universal" and may not therefore be reserved under the current Directive, whatever the price and weight limits. In accordance with the developments in the market, it is therefore desirable to reinforce this distinction by introducing a definition of such special (non-conventional) services into the new Directive, including express mail services. An amendment is therefore proposed to Article 2 of the Directive, which is reflected in the proposed new wording of Article 7 of the Directive.

2.9.3 Compensation fund

The Postal Directive enables a Member State to set up a compensation fund where it determines that the universal service obligations in Article 3 represent an unfair financial burden for the universal service provider. Since such a fund or any other state resource for this purpose might contain state aid elements, this Directive includes a recital which recalls the notification requirements for such aid under Articles 87(1) and 88(3) of the Treaty.

2.9.4 Special tariffs

Given the special tariffs offered to many bulk or business customers and intermediaries related to avoided costs by the universal service provider, and given that certain complaints have arisen in this area against certain incumbent operators, there is a need to make clear that the principles of transparency and non-discrimination must always be respected with regard to the application of these special tariffs and all associated conditions. These principles should naturally apply equally strictly to any services of universal service providers which benefit from such tariffs. The Directive therefore includes an explicit requirement that such principles are respected. It also requires that any special tariffs be available to residential customers who post under similar conditions.

2.9.5 Cross-subsidisation

As universal service providers expand further into competitive areas of activity, in particular through acquisitions and alliances, as the reserved area is reduced and in view of the fact that complaints have occurred against certain incumbent operators in recent years, it is necessary to maintain a strict separation of accounts between reserved and non-reserved services and to establish the additional costs involved in providing the universal service.

A universal service provider must cover its costs for its competitive postal services and cross-subsidy from the reserved area to services in the competitive area which are outside the universal service is forbidden. Cross-subsidy to services in the competitive area which are the subject of a universal service requirement must be no more than necessary to cover the additional costs of universal service. Such a rule in the Directive, consistent with the Postal Notice, can help in eliminating future competition concerns highlighted in several recent complaints to the Commission. The Commission therefore proposes to include an amendment to Article 12 of the Directive to reflect this and to require national postal regulatory authorities to adopt rules to this effect and to inform the Commission of these measures.

2.9.6 Customer Complaints Procedures

This proposal provides, in the amended Article 19, for complaints procedures for users of universal services to apply equally to users of postal services outside the universal service.

2.9.7 Lapsing of the Postal Directive in the absence of a decision on the subsequent step of market-opening

This proposal provides, in the amended Article 27 that the Postal Directive shall cease to apply on 31 December 2006 if there is no decision to the contrary in accordance with the procedure in Article 7 as replaced. In view of this, it is appropriate to update the existing provisions in the Postal Directive.

2.9.8 Review and report on the application of the Postal Directive in the year 2000

Article 23 of the Postal Directive provides that the Commission shall submit a report to the European Parliament and the Council no later than 31 December 2000 on the application of the initial directive, including the appropriate information about developments in the sector, particularly concerning economic, social, employment and technological aspects, as well as about quality of service. This review will offer the opportunity to assess the experience of the practical application of the Postal Directive as it now stands and to address any further regulatory issues which need to be addressed at Community level in order to ensure the effective operation of the internal market.

3 Summary of the Contents of the Proposal

Article 1 amends the Postal Directive as follows:

(a) Article 2 is amended to include a definition for special services which are not part of the basic mail service and are therefore outside the reservable area.

(b) Article 7 is replaced by a new article, which establishes the new weight and price limits and the services to which they may continue to apply and which also provides for a two-stage approach to further market-opening in accordance with which:

(i) with effect from 1 January 2003, the maximum price and weight limits of the postal services which Member States may continue to reserve to their universal service provider(s) shall be reduced from their present levels (essentially five times the basic tariff for an item of correspondence in the first weight step of the fastest standard category and 350 grams), to two and a half times the basis tariff and 50 grams for ordinary items of correspondence and direct mail and shall be abolished completely for all outward cross border items of correspondence and all express mail services; and

(ii) a decision on a further step towards opening of the postal market with effect from 1 January 2007 will be taken by the European Parliament and Council by 31 December 2005, on a proposal from the Commission to be tabled before the end of 2004 following a review of the sector which will focus on maintaining universal service in a competitive environment. Failing such a decision, the amended Postal Directive will cease to apply on 31 December 2006.

(c) Article 9 is amended by adding a new paragraph 6 establishing that whenever universal service providers apply special tariffs, for example for services for businesses, bulk mailers or consolidators of mail from different customers, they shall apply the principles of transparency and non-discrimination with regard both to the tariffs and to the associated conditions. The amendment further provides that such tariffs should take account of the avoided costs and, together with the associated conditions, should apply equally to equivalent services of the universal service providers themselves. Finally, the new paragraph provides that any such tariffs shall also be available to residential customers who post under similar conditions.

(d) Article 12 is amended by adding a tiret which provides that national postal regulatory authorities shall adopt rules to ensure that universal service providers, within the universal service area, do not cross-subsidise from the reserved to the non-reserved area except to the extent that such cross-subsidisation is shown to be strictly necessary to fulfil specific universal service obligations imposed in the competitive area. The Article requires that these rules be notified to the Commission.

(e) Article 19 is amended by adding a sentence to the first paragraph establishing that the required complaints procedures should also apply to beneficiaries of postal services which do not fall within the universal service.

Article 2 contains standard provisions on the transposition of the Directive into Member States' national law, providing for this to be accomplished by 1 January 2003.

Article 3 governs the entry into force of the Directive.

Article 4 states that the Directive is addressed to the Member States.

2000/0139(COD)

Proposal for a EUROPEAN PARLIAMENT AND COUNCIL DIRECTIVE amending Directive 97/67/EC with regard to the further opening to competition of Community postal services

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Articles 47(2), 55 and 95 thereof,

Having regard to the proposal from the Commission [9],

[9] OJ C

Having regard to the opinion of the Economic and Social Committee [10],

[10] OJ C

Having regard to the opinion of the Committee of the Regions [11],

[11] OJ C

Acting in accordance with the procedure laid down in Article 251 of the Treaty [12],

[12] OJ C

Whereas:

(1) The Council in its resolution of 7 February 1994 on the development of Community postal services [13], identified as one of the main objectives of Community postal policy the reconciling of the furtherance of the gradual, controlled opening to competition of the postal market and a durable guarantee of the provision of the universal service.

[13] OJ C 48, 16.2.1994, p. 3.

(2) Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service [14] established a regulatory framework for the postal sector at Community level, including measures to guarantee a universal service, the setting of maximum limits for the postal services which Member States may reserve to their universal service provider(s) with a view to the maintenance of the universal service, and a timetable for decision-making on the further opening of the market to competition, for the purposes of creating a single market in postal services.

[14] OJ L 15, 21.1.1998, p. 14.

(3) Article 16 of the Treaty highlights the place occupied by services of general interest in the shared values of the Union as well as their role in promoting social and territorial cohesion; the same Article further states that care should be taken that such services operate on the basis of principles and conditions which enable them to fulfil their missions.

(4) The European Parliament's Resolutions of 14 January 1999 on European postal services [15] and its further Resolution of 18 February 2000, also on European postal services [16], highlight the social and economic importance of postal services and the need to maintain a high quality of universal service.

[15] OJ C 104, 14.4.1999, p. 134.

[16] Resolution B5-0116/2000; not yet published in the Official Journal.

(5) The European Council, meeting in Lisbon, on 23 and 24 March 2000, set out in its Presidency conclusions two decisions applying to postal services, whereby action was requested of the Commission, the Council and the Member States in accordance with their respective powers. The requested actions are: first, to set out by the end of 2000 a strategy for the removal of barriers to services, namely postal services, and secondly, to speed up liberalisation in areas such as postal services, the stated aim being to achieve a fully operational market in postal services.

(6) The Commission has undertaken a thorough review of the Community postal sector, including the commissioning of studies on the economic, social and technological developments in the sector, and has consulted extensively with interested parties.

(7) The Community postal sector requires a modern regulatory framework which aims at enhancing the internal market for postal services in order to enable the sector to compete with alternative methods of communication and to satisfy the changing and increased demands of users.

(8) The basic aim of ensuring the durable provision of a universal service matching the standard of quality required by Directive 97/67/EC on a consistent basis throughout the Community can be secured under conditions of high efficiency ensured by the freedom to provide services in this area.

(9) The competitive advantages provided by a universal postal network which is efficient and responsive to customer demand can help to offset any additional costs incurred by reason of the obligation to provide a universal service which cannot be self-financing.

(10) Experience has shown that referring only to the price limit as a means of determining the added value of express services is no longer a practical proposition due to the development of added value express services below the price limit.

(11) It is therefore appropriate to define a category comprising "special services" fulfilling special customer needs, this category should include all services with the required added features. Such services should not be reserved, regardless of the weight or the price of such items. Sending mail electronically for distant printing only will not be sufficient to take it outside the reserved area.

(12) The increase in demand within the postal sector as a whole, predicted for the medium term, will help to offset the loss of market share that the universal service providers may incur as a result of further market-opening and will thereby further safeguard the universal service.

(13) Amongst the factors which bring about change affecting employment in the postal sector, technological development and market pressure for efficiency gains are the most important; of the remaining factors for change, market-opening will play a less prominent part. Market-opening will help to expand the overall size of the postal markets, and any reductions in staff levels among the universal service providers due to such measures (or their anticipation) are likely to be offset by the resulting growth in employment among private operators and new market entrants.

(14) It is appropriate to provide at Community level a timetable for a gradual and controlled opening of the letters market to competition which allows all universal service providers sufficient time to put in place the further measures of modernisation and restructuring required to ensure their long-term viability under the new market conditions. An appropriate period of time is also needed to enable Member States to adapt their regulatory systems to a more open environment. It is therefore appropriate to provide for a step-by-step approach to further market-opening, consisting of an intermediate step representing a significant but controlled opening of the market, followed by a review and proposal for a further step.

(15) It is appropriate to ensure that the next phase of market-opening is both substantial in nature and achievable in practice for the Member States.

(16) A general reduction to 50 grams in the weight limit of the services which may be reserved to the universal service providers, combined with opening outgoing cross-border mail and express mail fully to competition, represents a relatively simple and controlled further phase which is nevertheless significant.

(17) In the Community, items of ordinary correspondence weighing between 50 grams and 350 grams represent on average approximately 16% of the total postal revenues of the universal service providers, whilst items of outward cross-border correspondence and express services below the price limit represent a further 4% or so, on average, of the total postal revenues of the universal service providers.

(18) A price limit for the services capable of being reserved, of two and a half times the public tariff for an item of correspondence in the first weight step of the fastest standard category, is appropriate in combination with a 50-gram weight limit where applicable.

(19) A 50-gram weight limit for items of ordinary domestic correspondence is practical, since it does not present a risk of its circumvention by way of an artificial increase in the weight of individual items of correspondence, most items of correspondence being below 20 grams in weight.

(20) Direct mail already represents in most Member States a dynamic and growing market with substantial growth prospects while in the remaining Member States there is considerable potential for growth. Direct mail is already largely open to competition in six Member States. The improvements in service flexibility and pricing resultant from competition would improve the position of direct mail versus alternative communications media, which, in turn, would be likely to lead to new postal items as an additional spin-off and strengthen the position of the postal industry as a whole. Nevertheless, to the extent necessary to ensure the provision of universal service, it should be provided that direct mail may continue to be reserved within the above weight and price limits of 50 grams and two and a half times the basic public tariff.

(21) Outgoing cross-border mail is already de facto open to competition in most Member States; its reservation is not needed to ensure universal service representing on average 3% of total postal revenues. Opening this part of the market de jure would allow different postal operators to collect, sort and transport all outgoing cross-border mail and to deliver it in Member States, but only where the domestic regulation in a particular Member State permits this.

(22) Opening incoming cross-border mail to competition would allow circumvention of the 50-gram limit through relocation of the posting of a proportion of bulk domestic mail, thereby making its effects unpredictable. Identifying the origins of items of correspondence could present additional enforcement difficulties. A 50-gram weight limit for items of ordinary incoming cross-border correspondence and direct mail, as for ordinary domestic correspondence, is practical as it does not present a risk of circumvention either in this way or through an artificial increase in the weight of individual items of correspondence.

(23) Setting a timetable now, aimed at a further step towards the completion of the internal market in postal services, is important for both the long-term viability of the universal service and the continued development of modern and efficient posts.

(24) It is appropriate to provide for a further period within which Member States may continue to reserve certain postal services to their universal service provider(s). This additional period will enable the universal service providers to complete the process of adapting their operations and human resources to conditions of greater competition without upsetting their financial equilibrium and thus without jeopardising the provision of universal service.

(25) It is appropriate both to define the new weight and price limits and the services to which they may apply and to provide for a further review and decision on further market-opening.

(26) Measures adopted by a Member State, including the establishment of a compensation fund or any change in its operation or any implementation of or payment from it, may involve aid granted by a Member State or through State resources in any form whatsoever within the meaning of Article 87(1) of the Treaty necessitating prior notification to the Commission pursuant to Article 88(3) thereof.

(27) The concept of licensing competitors in the universal service area can be combined with requirements obliging such licensees to contribute to the provision of universal service.

(28) It is appropriate for national regulatory authorities to link the introduction of all such licenses to requirements that consumers of their services are to have transparent, simple and inexpensive procedures available to them for dealing with their complaints, regardless of whether they relate to the services of the universal service provider(s) or to those of operators holding authorisations, including individual license-holders. It is further appropriate for these procedures to be available to users of all postal services, whether or not they are universal services.

(29) The universal service providers normally provide services, for example to business customers, consolidators of mail for different customers and bulk mailers, enabling them to enter the mail stream at different points and under different conditions by comparison with the standard letters service. In doing this, the universal service providers should comply with the principles of transparency and non-discrimination, both as between different third parties and as between third parties and universal service providers supplying equivalent services. It is also necessary for such services to be available to residential customers who post in similar conditions, given the need for non-discrimination in the provision of services.

(30) It is appropriate in the light of the complaints which have been raised against certain incumbent operators in recent years to provide for Member States to adopt rules to ensure that universal service providers do not cross-subsidise services outside the reserved area by means of revenues from services in the reserved area, except where it is shown to be strictly necessary to fulfil specific universal service obligations. It is therefore appropriate for national regulatory authorities to adopt rules to this effect and for them to communicate these rules to the Commission.

(31) In view of the amendments, it is appropriate to postpone until 31 December 2006 the date for the expiry of Directive 97/67/EC.

(32) Directive 97/67/EC should therefore be amended accordingly.

(33) This Directive is without prejudice to the application of the Treaty rules on competition and on the freedom to provide services, as explained in particular in the Notice from the Commission on the application of the competition rules to the postal sector and on the assessment of certain State measures relating to postal services [17],

[17] OJ C 39, 6.2.1998, p. 2.

HAVE ADOPTED THIS DIRECTIVE:

Article 1

Directive 97/67/EC is hereby amended as follows:

(1) In Article 2, the following point is added:

"20. Special services: services clearly distinct from the universal service, which meet particular customer requirements and which offer additional service features with added-value not offered by the standard postal service. Additional added-value service features are, for example, delivery on appointment, the option to effect a change of destination or of addressee in course of transit or if delivery to the primary destination fails, tracking and tracing, guaranteed time of delivery, more than one attempt at delivery, delivery according to the priority or sequence specified by the customer.

Home collection without any such features is not a special service.

Electronic transmission to and/or electronic receipt by the operator for sorting, printing and/or preparation of mail shall not be regarded as an additional service feature within the meaning of the first subparagraph.

Express mail is a special service, which, in addition to faster and more reliable collection, transportation and delivery, is characterised by the provision of some or all of the following additional service features: collection from the sender's address, delivery to the addressee in person or to his authorised representative, guarantee of delivery by a given date, possibility of a change of destination and addressee in transit, confirmation to the sender of delivery, tracking and tracing, personalised treatment for customers and the offer of a range of services according to requirements."

(2) Article 7 is replaced by the following:

"Article 7

1. To the extent necessary to ensure the provision of universal service, Member States may continue to reserve certain standard mail services to the universal service provider(s). Those services shall be limited to the clearance, sorting, transport and delivery of ordinary items of domestic correspondence and incoming cross border correspondence within both of the following weight and price limits. The weight limit shall be 50 grams. This weight limit does not apply if the price is equal or more than two and a half times the public tariff for an item of correspondence in the first weight step of the fastest category.

In the case of the free postal service for blind and partially sighted persons, exceptions to the weight and price restrictions may be permitted.

To the extent necessary to ensure the provision of universal service, direct mail may continue to be reserved within the weight and price limits referred to in the first subparagraph.

2. Items of outgoing cross-border correspondence, document exchange and special services (including express mail) may not be reserved.

For special services, the sending of mail electronically for distant printing only shall not be sufficient to avoid the monopoly on incoming cross-border mail.

3. As a further step towards the completion of the internal market in postal services, the European Parliament and the Council shall decide, not later than 31 December 2005, on a further opening of the postal market with effect from 1 January 2007.

To that end, the Commission shall present a proposal by 31 December 2004, following a review of the sector which shall focus on the need to ensure the provision of universal service in an appropriate manner in a competitive market environment.

Upon request by the Commission, Member States shall provide all the information necessary for completion of this review."

(3) In Article 9, the following paragraph is added:

"6. Whenever universal service providers apply special tariffs, for example for services for businesses, bulk mailers or consolidators of mail from different customers, they shall apply the principles of transparency and non-discrimination with regard both to the tariffs and to the associated conditions. The tariffs shall take account of the avoided costs, as compared to the standard service covering the complete range of features offered for the clearance, transport, sorting and delivery of individual postal items and, together with the associated conditions, shall apply equally both as between different third parties and as between third parties and universal service providers supplying equivalent services.

Any such tariffs shall also be available to residential customers who post under similar conditions. "

(4) In Article 12, the following indent is added:

"- cross-subsidisation of universal services outside the reserved area out of revenues from services in the reserved area shall be prohibited except to the extent to which it is shown to be strictly necessary to fulfil specific universal service obligations imposed in the competitive area; rules shall be adopted to this effect by the national regulatory authorities who shall inform the Commission of such measures."

(5) In Article 19, the following sentence is added to the first paragraph:

"Member States shall ensure that this principle is also applied to beneficiaries of postal services which do not fall within the universal service."

(6) In Article 27, the date "31 December 2004" is replaced by the date "31 December 2006".

Article 2

1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive no later than 31 December 2002. They shall forthwith inform the Commission thereof.

When Member States adopt those provisions, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made.

2. Member States shall communicate to the Commission the texts of the main provisions of national law which they adopt in the field covered by this Directive.

Article 3

This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Communities.

Article 4

This Directive is addressed to the Member States.

Done at Brussels,

For the European Parliament For the Council

The President The President

FINANCIAL STATEMENT

1. TITLE OF OPERATION

Proposal for a European Parliament and Council Directive on amending Directive 97/67 EC with regard to the further opening to competition of Community postal services.

2. BUDGET HEADINGS INVOLVED

None, administrative expenditures only.

3. LEGAL BASIS

Articles 47(2), 55 and 95 of the Treaty establishing the European Community as amended by the Treaty of Amsterdam.

4. DESCRIPTION OF THE OPERATION

4.1 General objective

The Postal Directive 97/67 EC, adopted by the Council, Parliament and Commission on 15 December 1997 established in Article 7 a timetable for the further gradual and controlled opening to competition of postal services particularly with a view to the opening of cross-border and direct mail as well as on a further review of the price and weight limits, to take effect from 1 January 2003.

The European Council of the Heads of Government and the French President in Lisbon in March of this year set out two objectives applying to postal services where action was requested by the Commission, the Council and the Member States in accordance with their respective powers. These objectives were first "to set out by the end of 2000 a strategy for the removal of barriers to services" (including postal services) and second, "to speed up liberalisation in areas such as...postal services...". The aim is to achieve a fully operational internal market in these areas..."

Market developments in recent months and years have made more apparent the pressing need for decisions on further market-opening due to the further extension of the universal service providers' activities into competitive markets through acquisitions and alliances which have raised serious concerns in the market-place due to continuing monopoly power. The universal service providers are also undergoing a process of modernisation which needs to be supported by pro-competitive actions.

Significant market-opening is needed to move further towards the goal of moving towards a completion of the internal market in postal services, in line with the Lisbon Summit conclusions referred to above. This will improve the service levels, quality and prices available to posting customers across the Union and in a way that ensures universal service through not jeopardising the financial equilibrium of universal service providers.

The draft proposal comprises a two step approach. The first step, to be implemented by 1 January 2003, comprises a maximum reservable area of 50 grams or two-and-a-half times the basic first class letter tariff for all ordinary items of correspondence except a) outgoing cross-border mail and b) express services which are to be opened fully to competition. This opens up on average 20% of the postal revenues of the universal service providers and leaves 50% of such revenues in the reservable area (compared with 70% at present).

The second step in the proposal is that the Parliament and Council shall decide in 2005 on what the subsequent step should be on a proposal from the Commission in 2004. This proposal shall follow a review of the sector which will focus on maintaining universal service in a competitive environment.

In addition, the proposal includes several accompanying measures to respond to market and competitive developments since the last Directive. Such measures are considered to be a precondition for effective and fairly implemented market-opening in 2003. These concern the definition of special services which are distinct from standard customer services and which serve specific customer needs (for example express services) which are always outside the reserved area; the monitoring of any compensation fund arrangements reflecting requirements under the state aid rules to ensure that such funds are not disproportionate to the costs of ensuring universal service; the application of special tariffs in a non-discriminatory manner, including to any services of the universal service providers, and the maintenance of strict rules on cross-subsidisation.

The proposal would allow for the whole Postal Directive (as amended) to continue beyond 31 December 2004 (when it would expire in the absence of a decision under Article 7(3) until 31 December 2006 if a further proposal has not been agreed by that date.

The above proposal will lead to a more open and adapted postal sector which will better serve the needs of all users and strengthen the Union economically while ensuring that essential social aims are safeguarded, most importantly the provision of universal service.

4.2 Period covered and arrangements for renewal

1 January 2001 to 31 December 2006

5. CLASSIFICATION OF EXPENDITURE

6. TYPE OF EXPENDITURE

7. FINANCIAL IMPACT (on Part B)

None

8. FRAUD PREVENTION MEASURES9. ELEMENTS OF COST-EFFECTIVENESS ANALYSIS

9.1 Specific and quantifiable objectives; target population

The aim of the proposed Directive is to facilitate the functioning of the internal market in postal services in the Community. The impact of market-opening is likely to be increased postal volumes and revenues and further improvements in quality of service together with innovation and provision of increasingly tailored services. Such a development will strengthen the postal sector against the challenge from new technologies and enable the main actors to take advantage of the opportunities presented by the development of electronic commerce and pan-European economic activity, particularly involving large senders of mail such as financial institutions, utilities and mail order companies.

9.2 Grounds for the operation

The Directive takes account of the fact that postal services have a very important social, regional and employment dimension. Therefore the directive continues with the "gradual and controlled" approach to market-opening and focuses on parts of the market that are growing strongly or open already to some extent so that loss of market share by the universal service providers can be offset by overall growth in the market. It establishes a path for further progress on completing the internal market while not establishing any preconditions as to the nature of the subsequent step. This pragmatic approach will enable the experience of the step in 2003 to be assessed when new proposals are framed in 2004. The proposed Directive further provides for the continuation of a Committee to assist the Commission whose consultations will be compulsory (Article 21).

9.3 Monitoring and evaluation of the operation

Article 7 of the proposed Directive with regard to the further opening to competition of Community postal services provides for the Commission shall table a further proposal before the end of 2004, following a review of the sector which will focus on the need to provide universal service in a competitive market environment. The Commission will report to the Parliament and Council before the end of 2004.

10. ADMINISTRATIVE EXPENDITURE (PART A OF SECTION III OF THE GENERAL BUDGET)

Actual mobilisation of the necessary administrative resources will depend on the Commission's annual decision on the allocation of resources, taking into account the number of staff and additional amounts authorised by the budget authority.

10.1 Impact on the number of posts

>TABLE POSITION>

* END = experts nationaux détachés/detached national experts

10.2 Overall impact of human resources

3.5 x EUR 108 000 (unit cost) x 6 years ; titles A1, A2, A4,A 5 and A7.

10.3 Increase in other administrative expenditure arising from the operation.

(In EUR thousand)

>TABLE POSITION>

The expenditure set out in the above table under Heading A-7 will be covered by credits within the DG MARKT global envelope.

(In EUR thousand)

>TABLE POSITION>

IMPACT ASSESSMENT FORM

The Impact of the Proposal on Business with special reference to small and medium-sized enterprises

Title of Proposal : Commission proposal for a European Parliament and Council Directive amending Directive 97/67/EC with regard to the further opening to competition of Community postal services

Reference number (Répertoire) : 99004

The proposal

1. Necessity for the proposed Community legislation

The proposal amends Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service (the "Postal Directive"), as required by Article 7 of that Directive, so as to establish a timetable and minimum requirements for the further gradual and controlled opening of Community postal markets, involving a specified intermediate step in 2003 and a timetable for a subsequent step in 2007.

Coordination of market-opening process at Community level is necessary in order to move towards completion of the internal market for Community postal services, to give enterprises, whose postal activities often represent an important element of their business, access to good quality postal services under equivalent conditions throughout the Community (particularly when offering their goods and services across its internal borders), to ensure equality of opportunity to postal operators in the Community and to contribute to social and economic cohesion by guaranteeing all citizens a universal postal service under similar conditions wherever they live.

The impact on business

2. Who will be affected by the proposal-

All postal users, particularly business users, will be affected by the market-opening measures contained in the proposal, in as much as they will have access to more competitive services and a wider range of postal service providers.

Both existing and new postal operators, including small and medium-sized enterprises, will also have increased opportunities to develop their services or to enter new areas of the market as a result of the opening proposed. In particular, small and medium-sized enterprises may be able to provide services on a local or regional basis.

The universal service providers, which currently benefit from the reservation of services which are to be opened to competition pursuant to this proposal, will need to prepare their organisational and business strategies for operating in a competitive market, but in reality, they have already been preparing for several years.

3. What will business have to do to comply with the proposal-

Postal operators will need to adapt to the more competitive conditions in the postal sector that will exist as a result of the market-opening measures proposed. The Postal Directive already provides that Member States may establish authorisation procedures for postal operators and these procedures are likely also to cover operations in the market segments newly liberalised as a result of this proposal. These may include, under certain conditions, contributions to a compensation fund established for the purposes of guaranteeing the provision of a universal service if the reserved area is considered insufficient for this purpose.

4. What economic effects is the proposal likely to have-

The market-opening measures proposed will enhance both the offer and demand for postal services, will reinforce the freedom of enterprises to enter postal markets, will provide an incentive to plan future investment and, by virtue of the anticipated market growth arising from market-opening, will help to guarantee the lasting provision of the universal service and to sustain employment in the sector, by strengthening traditional postal services as they face the challenges of adapting to new technologies.

Postal users, including small and medium-sized enterprises, will benefit from increased quality of service, lower tariffs and more customer-oriented postal services.

5. Does the proposal contain measures to take account of the specific situation of small and medium-sized firms (reduced or different requirements etc.)-

Since the measures contained in the proposal will benefit small and medium-sized enterprises by offering them the opportunity for further involvement in the postal markets, no specific measures are necessary. Small and medium -sized enterprises will also benefit from the increased focus by new entrants on their "market niche" needs.

Consultation

6. The origin of this proposal is the mandate contained in the Postal Directive, which was the result of wide consultations. The preparatory work for this action has mainly consisted of a series of studies reviewing the situation in the postal sector and the potential impact of the market-opening measures proposed. Interested parties have been consulted extensively.

Monitoring and Review

7. The measures for market-opening effected by this proposal will become part of the regulatory framework for the postal sector established by the Postal Directive. This framework will be subject to ongoing review by the Commission and any additional measures which may be required as a result of the adoption and implementation of this proposal may be the subject of further proposals by the Commission.

Contact Point

8. For enquiries, comments and to receive further information, please contact Mr Fernando Toledano, DG MARKT, Unit D 3, Tel: 32 (0) 2 296.81.77.