Opinion of the Economic and Social Committee on the "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"

(2001/C 116/22)

On 25 September 2000 the Council decided to consult the Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Transport, Energy, Infrastructure and the Information Society, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 9 November 2000. The rapporteur was Mr Morgan.

At its 377th plenary session (meeting of 29 November 2000) the Economic and Social Committee adopted the following opinion by 101 votes to 10, with 11 abstentions.

1. Introduction

1.1. The ESC welcomes the opportunity to prepare an opinion on the initiative of the Commission to propose a Parliament and Council Directive with regard to the further opening to competition of Community Postal Services(1).

1.2. While the ESC recognises the inevitability of further liberalisation, it is concerned that the process should be managed on a controlled basis with full regard to the interests of the various stakeholders. In addition, the Committee has a very real concern regarding the co-lateral social impacts.

1.3. Chapter 2 contains a synopsis of the Commission's rationale for the liberalisation measures proposed.

1.4. In further chapters the Opinion examines issues relating to Universal Service, the impact on employment, the economy and co-lateral social issues.

1.5. In summary, the ESC views further liberalisation as a very complex process subject at each step to the law of unintended consequences. The status quo has served Europe well. Departure from the present position should be undertaken with great care. The liberalisation should take full advantage of the length of the proposed timetable for change.

2. Key provisions of the draft directive

2.1. "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. This will allow the benefits of greater competition to improve the service levels, in terms of both quality and the 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".

2.2. Following the market opening proposed for 2003, an additional step towards the completion of the Internal Market should be proposed by December 2004, be agreed by December 2005 and be effective on 1 January 2007.

2.3. The changes proposed for January 2003 are:

a) Reduction of maximum limits to be reserved to the extent necessary to ensure universal service from 350 grams to 50 grams for ordinary domestic correspondence, incoming cross-border correspondence and direct mail.

b) Reduction of the maximum limits to zero grams for outgoing cross-border correspondence.

c) Introduction of a definition for "special services" and liberalisation thereof, regardless of their weight and price.

d) In respect of outgoing cross-border correspondence and express mail, the current price limit shall be abolished.

2.4. In the view of the Commission, this is a very gradual step because the rationale for the 50 grams limit is that it only represents 16 % of the revenues derived by universal service providers and much of this revenue will not easily or quickly be addressed by competition. The further reduction of employment (beyond the ongoing modernisation process) is estimated by the Commission at 2,5 %.

2.5. It is expected that direct mail volume growth in excess of 5 % p.a. over the next several years will allow incumbents and new competitors room to grow. The 50 gram limit is proposed so that all Member States can undertake liberalisation of direct mail to this maximum (many have not yet begun).

2.6. With respect to incoming cross-border mail, the volumes and the difficulty of determining its origins have led the Commission to postpone action until further liberalisation beyond 2003.

2.7. The overall impact of these proposals is that 50 % of the universal service providers' total Postal Service revenues will remain within the maximum area which can be reserved, compared with 70 % at present, i.e. a 20 % additional market opening. Based on the experience of postal markets already in a more competitive environment, the Commission expects over the medium term the incumbent would retain 80 to 90 percent of the market open to competition.

2.8. The Commission's proposal involves a commitment to a further stage of market opening in 2007, the scope of which is to be decided by December 2005. This intention to continue market opening is meant to stimulate incumbents to prepare for full competition. Considerations include:

a) to permit development of future arrangements, both at an operational and at a regulatory level, so as to ensure that the long-term financial viability of the universal service provider is preserved through improved competitiveness;

b) to stimulate investment, especially towards full integration into the Information Society, so that a competitive market share can be achieved by the present incumbents in the wider communications and logistics markets;

c) to achieve a level playing field in the Internal Market, by subjecting all incumbents to the same levels of competition and transparent accounting;

d) to enhance the competitiveness of postal services vis-à-vis electronic competition;

e) to avoid the exploitation of dominant monopolistic positions by incumbents. Complementary business opportunities can only be pursued in a competitive environment;

f) to facilitate transnational partnerships between Postal Service suppliers and major customers.

3. Universal service

3.1. Definition

3.1.1. The following definition of universal service is extracted from the 1997 Directive on postal services(2):

" "

3.1.2. The Committee supports this definition as still being valid. The ESC considers the universal postal service to be a basic element in the infrastructure of European democracy.

3.2. Analysis of Traffic and Trends

3.2.1. The general pattern of delivery volumes in the EU, as confirmed by the Commission, is as follows:

- business to business 25 %;

- business to household 65 %;

- household to business 5 %;

- household to household 5 %.

3.2.2. Business to business traffic is a surprisingly small percentage of the total. This certainly reflects the impact of competitive carriers (DHL etc.), messenger services, and the widespread adoption of electronic communications - phone, fax and Internet.

3.2.3. Business to household is by far the biggest component of postal traffic. The businesses involved are therefore the most important customers of the postal services, however the mail is produced (either in a traditional way or in an electronic way). Most of the traffic will be direct mail, billing or account statements. Not all of this traffic is time critical, with the particular exception of newspapers and magazines, but much of it is price-sensitive.

The above comments exclude packages and parcels, which represent the delivery of goods or products from business to household. These may use standard or value added services, according to business need.

3.2.4. Only 5 % of this traffic flows in the reverse direction - household to business. Newspapers and journals are read, accounts are filed, direct mail is thrown away and not all bills are paid by post. Alternatives include bank giro, direct debit, telephone banking, as well as the emerging Internet banks. There is also some return mail order traffic.

3.2.5. Household to household at 5 % seems low at first sight, but letter writing is a dying art, replaced by phone (mostly), fax and e-mail to some small extent. Most household to household traffic is formal greeting - births, deaths, marriage; Christmas and birthday; invitations, acceptances and thanks; holiday postcards. Time critical correspondence is normally handled on the phone.

3.2.6. From the above analysis it emerges that business generates 90 % of postal traffic and some of the traffic directed to and from households is not time critical. Time critical deliveries are available as an express service. In this arena messenger services dominate business mail in many cities.

3.2.7. Looking forward, it seems that most person to person communication, whether business or private, will be conducted by telephone, with the postal service used for formal communications. Mobile phones are transforming and promoting patterns of telephone use.

3.2.8. The Committee is especially concerned by the condition of older people of the current generation. There is concern about their ability to adapt to newer forms of electronic communication. There is also a great deal of sympathy for the comfort the elderly people receive from behaving in familiar ways. However, the telephone does provide a powerful alternative, especially for those for whom reading and writing has become difficult.

3.2.9. E-mail will continue to replace formal business correspondence as well as making some inroads into the personal correspondence market. In this regard, formal business correspondence is increasingly being produced by electronic means.

3.2.10. Order fulfilment of e-mail retail services will provide a new parcels service opportunity in the business to household arena. Different commodities will be more or less time critical. The extent of demand for a coverage by such services could be significant in the context of universal coverage in the longer term.

3.2.11. It is possible that as these trends develop our thinking about the nature and structure of the universal services will change.

3.2.12. There is universal access to stamp purchase in all Member States and also universal access to post boxes. The more demanding access requirements relate to parcels and other services. These need to be made physically available within reasonable reach of households and businesses.

3.2.13. For the postal service to be competitive, the management of postal services needs to be given commercial freedom in the way in which it provides universal access.

3.2.14. Part of the commercial freedom accorded to post office management should be the decision as to where and how to provide universal access to postal services. Clearly the core function of postal service access can be provided in outlets of any kind, including mobile outlets.

3.3. Financing for the Universal Service

3.3.1. The Commission argues that the reduction of the reserved limit to 50 grams affects 16 % of mail. In the Commission's view, any reservation greater than 50 grams will open up too small a fraction of the market to make it attractive for competition to enter. Even at the 50 gram level the Commission expects incumbents to compete effectively for the business.

Incumbent postal regimes are arguing that all their profit is made in the 16 % band and that should the reservation limit be reduced to 50 grams, the universal service will be put in jeopardy, because there will be not enough profit to pay for it. As a consequence, they argue that the economic equilibrium of the universal service provider and the employment level will be put a risk.

3.3.2. The Committee is well aware that differences in the geographical and population density of member States and other regions mean that the economics of the universal service will be constrained in different ways in each Member State. As it has already said previously, the Committee believes that liberalisation must be gradual and controlled.

Therefore, it may be wiser to consider a midway stage between the current limits and those proposed by the Commission and to conduct a detailed study on the implications of the limits for universal service and its quality, in order objectively to assess their social and economic impact, e.g. on employment and cohesion, prior to any new measures being taken.

3.3.3. The viability of the universal service will be enhanced if the economic integrity of the universal service can be maintained. It is essential that economic value is not drained out of the universal service by the development of spurious "special" services. Similarly "hybrid" services should not be excluded from the universal service in the reserved area, unless they are express. The ESC believes that the definition of special services included in the draft directive needs to be tightened up, so that the economic content of the universal service is protected. Indeed, the proposed definition is so broad that any competitor defining its services as "special" may be able to circumvent the reserved area, thus jeopardising the economic viability of the universal service.

3.3.4. The viability of the new service will also be improved by an examination of the cost and price structures of the present services. The cost of quality will also need to be considered. After the liberalisation of telecommunications the imbalance between local and long line pricing became apparent. Similar imbalances are likely to exist in the postal services. Improving profitability via cost control and pricing will make the incumbents less vulnerable to "cherry picking".

3.3.5. Another exposure to the integrity of the universal service is the liberalisation of outgoing x-border mail. This could facilitate "remailing" practices, involving domestic bulk mail in particular. To the extent that it is necessary for the provision of the universal service, outgoing cross-border mail could continue to be reserved within the set weight and price limits.

3.3.6. On the other hand, the ESC is concerned about the potential abuse of any dominant market positions. Accounting must be transparent and cross-subsidy avoided by any market participant.

3.3.7. The ESC notes that it is the view of the Commission that a compensation fund would be an effective means to offset any residual costs related to the universal service provision.

3.4. Universal Service and Liberalisation

3.4.1. The ESC supports the objective of completing the single market for postal services while safeguarding the universal service in accordance with the Postal Directive and the conclusions of the Lisbon summit.

3.4.2. The Committee stresses that the functioning of the universal service is a priority and underlines the need to ensure that liberalisation does not happen too suddenly, thus upsetting the financial balance of the universal service provider, and undermining the interests of the community, which include universality, continuity and full access to the service by the users. One should also take into account the needs of all customers, including SMEs for high quality postal services, available throughout the Community at affordable prices.

3.4.3. In principle, the Committee supports liberalisation. Therefore, the Committee accepts the Commission's decision on further market opening. However, the later phases must be dependent on experience in this first phase and an assessment of the delivery of the universal service and its adaptation to technological developments and changing consumer demands.

4. Employment and Economic Growth

4.1. The macro-level case for liberalisation is conceptually attractive. There is an analogy with the liberalisation of the telecommunications industry. While "mother" telcos have seen a decline in employment, they have seen a surge in business; customers have hugely benefited from new technologies and services, while a plethora of start-up companies at every stage of the industry value chain have generated many new jobs. Yet even such developments have been disruptive to many former telco employees.

4.2. In the case of postal services, the technological opportunity is complementary to existing services. The transition is therefore more difficult to make, both for incumbent regimes and their employees. Accordingly, the process of liberalisation must be more carefully handled and controlled.

4.3. Postal Service Employment

4.3.1. Experts representing trades unions and the postal unions have questioned the statistical bases from which the Commission has derived the employment data used in support of the draft directive. It would help the discussion of these proposals if the Commission's data could be published.

4.3.2. According to the data provided by the Commission, universal service providers currently employ about 1,3 m persons while about 400000 are employed by private postal operators. It has been estimated that there will be a reduction of about 8,4 % in the sector in total between 1997 and 2007, independent of further liberalisation.

4.3.3. Of the five drivers of change - demand, electronic substitution, organisational change, automation/new technologies and liberalisation - the Commission believes that the introduction of competition is likely to have less impact on employment than the other factors.

4.3.4. The ESC accepts the Commission's view that:

a) the workforces of the incumbents need to be restructured and retrained for the Information Society;

b) the gradual opening of the market allows this to be done progressively.

4.3.5. Even so, the ESC urges caution. Member states must plan for liberalisation so that the next phase is used constructively to manage postal business development and the associated manpower dynamics.

4.4. Employment and Economic Growth

4.4.1. The economic challenge - and the economic opportunity - now facing Europe was outlined in the ESC Opinion for the Lisbon Summit - "Towards a Europe of Innovation and Knowledge"(3). The ESC has urged the Commission and the Member States to move quickly to adapt to the New Paradigm and accelerate the advent of the New Economy. In this respect, the ESC shares the view expressed by the Commission in its Communication on "Services of General Interests in Europe"(4), whereby ... the evolutive character of universal service will allow access to all users of those services.

4.4.2. Postal Services have a central role to play in the revolution taking place. Postal Services provided the sinews for the Old Economy from the Industrial Revolution onwards. They must now provide the nervous system for the New Economy. The Postal Sector, which offers a key communications infrastructure with high economic and social importance, needs to develop in parallel with the major changes taking place, otherwise it will be left behind and be seen to be dealing increasingly with the technology of yesterday.

4.4.3. Postal Services are at the crossroads of three markets which are vital to the European economy: communication, advertising and transportation/logistics. These markets are largely open to competition already and are experiencing rapid development driven by market demands, technological change and the convergence of media, IT and telecommunications industries. In particular, e-commerce creates a totally new opportunity for transportation and logistics as goods, even groceries are delivered directly to customers. This changes the pattern of physical distribution. Postal Services should be well positioned to compete, but can only be allowed to do so when the Internal Market in postal services is open to competition.

4.4.4. 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 not be fully realised if the EU's postal services are not first class. The ESC is concerned that in the process of liberalising postal services full account is taken of the economic and employment impacts on all market sectors.

5. Co-lateral Social Issues

5.1. As the first public utility, the extent of the postal service activity in all regions of Member States has created a presence of considerable political and social importance.

5.2. The presence of post-men and -women make an important contribution to social cohesion and community life for rural and sparsely populated areas, while local post offices can have a political and social importance far beyond the simple function of providing points of access to the postal system.

5.3. In effect, the operation of the chain of retail outlets known as post offices has become a business unit separate from the mail business. Post offices have, over time, become outlets for a whole range of government services, including savings banks, social security, licence issuance, etc.

5.4. In general, the present trend is for such services to decline as electronic facilities and funds transfer arrangements move transactions out of post offices.

5.5. On the other hand, many communities feel that the loss of a post office presence could be terminal, often having already lost banks to ATMs, shops to supermarkets, pubs and bars to drink/driving laws and churches to the devil. In some respects, this withdrawal of retail outlets from small towns and villages creates a real danger of "social exclusion".

5.6. Situations differ in each Member State, depending on factors such as geography, population concentration and retail patterns. In most cases, where there are "withdrawal" problems, they will also be aggravated by limited access to public transport.

5.7. These social issues need urgent action. Local and national initiatives are needed and unconventional solutions may be called for. In particular, there is scope for collaboration in both retail outlets and transport and delivery systems, and the postal service has a part to play.

5.8. In giving its support to the liberalisation of postal services, the ESC calls the attention of the Commission, the Council and Parliament to these co-lateral social issues. It is vital to address them in parallel with the liberalisation of postal services.

6. Conclusion

6.1. The main issues were highlighted in Chapter 1 - Introduction. The ESC recognises that liberalisation of postal services should proceed cautiously and that the long-term goal should be a Single Market in postal services taking into consideration the following aspects:

- the integrity, maintenance and continuing development of the universal service, to which the ESC gives priority;

- employment considerations, in general, and for postal workers in particular;

- nature and scale of postal service involvement in the new economy;

- resolution of the social issues attached to historic presence of post offices and postal workers in rural and sparsely populated areas.

6.2. Consequently, the ESC urges the Commission, the Council and the Parliament to give full consideration to the issues identified and to make management and control of these issues part of the liberalisation process.

6.3. The Committee is particularly insistent that the priority should be to maintain and develop the universal service, bearing in mind the development of social and economic needs and technologies, and that postal services should make an active contribution to economic and social cohesion. This is why it may be wise to consider a midway stage between the current limits and those proposed by the Commission.

6.4. The ESC recognises that these adjustments need time. Therefore, we accept the Commission's proposal that plans for the next stage of liberalisation should come forward in 2005, following a review of the impact of the measures to be implemented in 2003.

6.5. The ESC has highlighted the concern expressed by many stakeholders regarding the Commission's data. It encourages the Commission to be more transparent in respect of this issue.

Brussels, 29 November 2000.

The President

of the Economic and Social Committee

Göke Frerichs

(1) See ESC previous opinions on the liberalisation of Postal Services: OJ C 129 of 10.5.1993 (Rapporteur: Mr Pompen); OJ C 174 of 17.6.1996 (Rapporteur: Mr Farnleitner).

(2) OJ L 15 of 21.1.1998 Directive 97/67/EC on common rules for the development of the internal market of community postal services.

(3) OJ C 117 of 26.4.2000.

(4) See COM(2000) 580 final (Annex 1).