Development of competition in the European postal sector MARKT/2004/03/C Final study The authors take full responsibility for the contents of this report. The opinions expressed do not necessarily reflect the view of the European Commission Client: European Commission, Internal Market DG ECORYS Macro & Sector Policies Dr. Nick van der Lijn Arno Meijer Patrick de Bas Dr. Bjørn Volkerink In cooperation with Business Consult Hans Kok Rotterdam, July 2005 ECORYS-NEI P.O. Box 4175 3006 AD Rotterdam Watermanweg 44 3067 GG Rotterdam The Netherlands T +31 10 453 88 00 F +31 10 453 07 68 E [email protected] W www.ecorys.nl Registration no. 24316726 NvdL/SMi/AR11944_Final report Table of contents Preface 11 Executive summary 13 1 Introduction 33 1.1 Objective of the study 33 1.2 Policy context 33 1.3 Sources of information and activities undertaken 34 1.4 Research method and outline of the report 35 2 Description of the postal market 39 2.1 Introduction 39 2.2 Segmentation of the postal market 39 2.2.1 Market segmentation along postal products 39 2.2.2 Market segmentation using other criteria 40 2.3 The postal value chain 41 2.3.1 Traditional postal supply chain 41 2.3.2 Modern postal value chain 42 2.3.3 The supply chain of express and courier services 43 2.4 Regulation of the postal sector in the Member States 44 2.4.1 Postal directives 97/67/EC and 2002/39/EC 44 2.4.2 Provision of universal services 45 2.4.3 Liberalisation of postal markets in the Member States 45 2.5 Mail volumes in the Member States 48 2.6 Summary and conclusion 53 3 Potential for competition in the postal sector 55 3.1 Introduction 55 3.2 The five forces model of Porter 55 3.2.1 Risk of new competitors entering the industry 56 3.2.2 Threat of potential substitutes 57 3.2.3 Bargaining power of buyers 58 3.2.4 Bargaining power of suppliers 59 3.2.5 Degree of rivalry between existing competitors 59 3.2.6 Government regulations 59 3.3 Preliminary assessment of contestability of market segments 61 3.3.1 Introduction: barriers to entry and contestability 61 3.3.2 Which market segments are contestable? 61 3.3.3 Natural barriers to entry 63 3.4 Network access: justification and economic rationale 68 3.5 Summary and conclusion 72 4 Development of competition in the EU Member States 75 4.1 Introduction 75 4.2 Development of competition in the Member States 75 4.2.1 Overview of the development of competition in the Member States 75 4.2.2 Some country examples 81 4.3 Factors that influence the development of effective competition 87 4.3.1 Legal barriers to entry 87 4.3.2 Strategic barriers to entry 90 4.3.3 Level playing field 92 4.4 Effects of competition on the market 94 4.5 Summary and conclusion 94 4.5.1 Development of competition in the Member States 94 4.5.2 Key factors influencing the development of competition 96 4.5.3 Disputes and role of a postal sector regulator 96 5 Strategies of competitor and national postal operators 99 5.1 Introduction 99 5.2 Considerations of customers of postal operators 99 5.3 Strategies of competitor postal operators 105 5.3.1 Case study 1: new entrants in the advertising mail segment 105 5.3.2 Case study 2: new entrants in the domestic addressed mail market segments 107 5.3.3 Case study 3: developments in countries with network access 110 5.3.4 Summary of strategies and business models of competitor postal operators 113 5.3.5 When do competitor postal operators break even? 114 5.4 Strategies of national postal operators 115 5.4.1 Facts and figures for national postal operators 115 5.4.2 Strategic orientation of the national postal operator 117 5.4.3 Economies of scope between mail, express and logistics 119 5.4.4 Legal status of the national postal operators - searching for outside investors 119 5.5 Summary and conclusion 123 6 Likely development of competition in a liberalised environment 127 6.1 Introduction 127 6.2 Expected market developments 128 6.2.1 Expected volume developments per mail segment 128 6.2.2 Expected technological developments 129 6.3 Likely business models of competitor postal operators 130 6.3.1 The development of a full service concept 130 6.3.2 The development of a low cost model 131 6.3.3 The development of activities in part of the value chain 132 6.3.4 The development of niche markets 132 6.3.5 Technology of the production process and value added services 133 6.4 Expected strategic behaviour of national postal operators 133 6.4.1 Strategic behaviour of national postal operators on domestic markets 133 6.4.2 Strategic behaviour of national postal operators on markets of other EU Member States 134 6.5 Expected competitive entry in a liberalised environment 134 6.5.1 Pattern of competitive entry 134 6.5.2 Scale of competitive entry 136 6.5.3 Expected competitive entry under alternative scenario’s 141 6.6 Likely effect on the postal sector in the Member States 143 6.6.1 Entry, contestability, and type of postal operators active on the market 143 6.6.2 Expected effect on market structure 145 6.6.3 Expected effect on services 146 6.6.4 Expected effect on prices 146 6.6.5 Expected effect on the universal service provision 148 6.7 Summary and conclusion 149 6.7.1 Pattern and scale of competitive entry 149 6.7.2 Entry, contestability and effect of liberalisation on market structure 151 6.7.3 Expected effect on market performance 153 7 Conclusion 155 7.1 Introduction 155 7.2 Summary of main findings and conclusions 155 7.2.1 Postal products and market segmentation 155 7.2.2 Liberalisation of postal markets until date 156 7.2.3 General development of internal competition until date 156 7.2.4 Strategies of postal operators 157 7.2.5 Key factors influencing the development of competition until date 159 7.2.6 Expected pattern of competitive entry in a liberalised environment 162 7.2.7 Expected scale of competitive entry in a liberalised environment 163 7.2.8 Entry, contestability and effect of liberalisation on market structure 164 7.2.9 Likely effect of liberalisation on market performance 166 7.3 Overall conclusion and recommendations 167 7.3.1 Overall conclusion 167 7.3.2 Recommendations 168 Annex I Appendix 1: Mail volumes by sender/receiver Appendix 2: Indicators for the five disciplinary forces of Porter Appendix 3: Authorisation and licensing Appendix 4: Regulation of network access Appendix 5: Opinion survey report Appendix 6: Overview of population density and urbanisation Appendix 7: Direct mail volumes Appendix 8: Market shares in the (liberalised) market for addressed mail Appendix 9: List of interviewed people and organisations Appendix 10: List of organisations that responded to the questionnaire Annex II (separate document) Country information sheets for the 25 EU Member States Preface The project team would like to thank all postal operators, policy makers, postal sector regulators and other organisations and experts that contributed to this study through completing our questionnaires, responding to specific questions and providing us with relevant documents and information. We are also grateful for the constructive cooperation with the European Commission, DG Internal Market, and others within the Commission. In particular we wish to thank Mr. Jörg Reinbothe (Head of Unit), Mr. Hughes de la Motte, Mr. Jonathan Read, and Ms. Dominique Scheerens from the Postal Unit, DG Internal Market, for their comments and support. We want to stress that the authors take full responsibility for the contents of this report and that the opinions expressed do not necessarily reflect the view of the European Commission. Development of competition in the European postal sector 11 Executive summary Objective of the study This report is the result of a study that has been carried out for the European Commission, DG Internal Market, by ECORYS Nederland BV in cooperation with Business Consult BV from November 2004 to July 2005. The aim of the current study is on the one hand to describe the development of competition in the postal market and on the other hand to consider the possible future evolution of competition in a liberalised environment and provide documented and substantiated conclusions and recommendations. The study concentrates on developments in the letter mail market with a particular emphasis on the addressed mail market segment, acknowledging the fact that other segments have by and large already been liberalised and that a further liberalisation of the postal market concerns in particular the addressed mail market segment. Policy context The postal sector has undergone a significant transformation during the last decade. Many of the former traditional postal administrations have changed into corporations and in some cases have even been privatised or there are plans to do so. The business approaches of the national postal operators are changing and more explicit attention than before is given to cost efficiency and customer responsiveness. Technological developments influence the provision of postal services as well as the developments in adjacent markets, such as the communication market, the advertising market, and the express market. The above developments are reflected in the regulatory policy that has been set out by the European Commission through the directives 97/67/EC and 2002/39/EC.