 |
New Zealand. New Zealand is noteworthy for having completely abolished its postal monopoly. In 1986, New Zealand's government transformed the national post office into New Zealand Post, a government-owned corporation. That reform was somewhat similar to the creation of the U.S. Postal Service in 1970, with the new entity government-owned and headed by a board of directors.
Unlike the 1970 U.S. reform, however, New Zealand undertook a comprehensive evaluation of its monopoly statutes and subsequently introduced full competition. New Zealand initially limited its postal monopoly to NZ$1.75 (at the time, about 4.5 times the stamp price) with a weight limit of 500 grams (1.1 pounds) in 1987, pending additional study. That meant that a private competitor could carry a letter only if it charged more than NZ$1.75 or weighed more than 500 grams. The limit had the effect of creating a clearly defined reserved (or "protected") service for the government's postal monopoly. It made the scope of the government's monopoly transparent and subject to reduction as policymakers saw fit. A similar style of postal monopoly limitation would be used in numerous other countries.
In 1988, the New Zealand government's review resulted in a recommendation to completely repeal the postal monopoly by gradually reducing the reserved area of service. The monopoly's price limit was reduced in stages over several years.
New Zealand Post opposed the elimination of its monopoly. It marshaled three familiar arguments. First, private competitors would "skim the cream" from highly profitable rural routes, leaving only unprofitable routes for New Zealand Post. That would constitute a threat to uniform rates, and result in the closure of rural post offices. Second, New Zealand Post suggested that recent service improvements, and its relatively low postage rates, meant that reform was unnecessary. Third, it noted that postal services already faced competition from a large number of substitutes, including electronic mail, telephones, and facsimiles, so that de-monopolization was unnecessary.
The New Zealand government did not accept those arguments. The Postal Service Amendment of 1990 changed the postal law so that, over a two-year period, the price limit would be reduced further to NZ$0.80 and the weight limit to 200 grams. It also required New Zealand Post to increase public disclosure about the quality and cost of its services.
Because New Zealand Post anticipated increased competition, it closed one-third of its post offices and increased its charge for home delivery to rural areas in February 1988. Owing to a change in government and public complaint about the rural service charge, full deregulation did not come until 1998. The Postal Services Act of 1998 removed New Zealand Post's letter monopoly, permitting full competition. In a "deed of understanding" between the government and New Zealand Post, the price of a standard letter is capped at NZ$0.45 for three years. There is an agreed-upon frequency of deliveries to a specified number of points, with no rural delivery fee. The government requires that New Zealand Post continue to provide universal service, but it is not required to charge uniform rates.
New Zealand Post can invest in and acquire other companies, but the government must approve purchases of more than 20 percent in another company. It is free to enter into joint ventures and operate subsidiary companies. It pays the same taxes as any other company and pays the government a dividend. It can raise capital and borrow through the capital markets.
The results of New Zealand's bold reforms have been positive. New Zealand Post has introduced new services and improved its efficiency, without government support. Even the U.S. Postal Service has praised its performance: "Since corporatization, NZP has modernized its technology, transportation network, and retail facilities, and invested in subsidiary businesses, all funded by retained earnings and the sale of surplus assets. By 1995, with 30 percent more mail to deliver, costs had been reduced by 30 percent, and labor productivity had doubled."[1] It reduced its workforce by 40 percent without major labor strife, mainly through the use of early retirement and incentive packages.
Importantly, New Zealand Post reduced basic postage rates in 1995 from NZ$ 0.45 to NZ$ 0.40, and the real price of a letter fell by almost 30 percent between 1987 and 1995. It has earned a profit in every year since 1986, and earned NZ$21 million in its 2000-2001 year. Although New Zealand Post remains government-owned, competition has clearly had a positive impact on the firm and its customers.
Australia. Through the Australian Postal Corporation Act of 1989, the Australian government converted its post office into a government-owned enterprise, called Australia Post. Australia Post is required to operate commercially, and to provide universal service at a uniform rate throughout Australia. The cost of providing universal service is funded by an explicit cross-subsidy, and was estimated to be A$79 million in 1999-2000. Australia Post is subject to taxes and customs duties. The price limit on the postal monopoly was reduced from ten to four times the stamp price, with the weight limit reduced from 500 to 250 grams.
In July 1998, the government announced support for legislation that would further reduce the price limit on the postal monopoly to A$0.45, the same as the stamp price at that time. That is, private competitors would have been able to compete with Australia Post as long as they did not charge less than the stamp price itself. The Australian Parliament, however, did not pass those proposals.
Although the Australian reforms were not as extensive as those in New Zealand, the effects have generally been positive. The basic postage rate has remained stable at A$0.45 for over eight years, Australia Post has earned profits in every year since 1987, and on-time delivery has increased.
Finland. Finland was the first European country to abolish its postal monopoly. Finland Post, established in 1638, was part of PT Finland Group, composed of both postal and telecommunications services. It has not held an exclusive right to convey personal messages since 1991. The Postal Services Act of 1994 mandated that Finland Post become a limited liability company and that it provide nationwide delivery of mail, defined as an addressed item with a maximum weight of two kilograms. The Post continued to operate as a government-owned enterprise. Finland Post was supportive of reform, since it viewed competition from new technologies as a greater threat than competition from liberalization.
Sweden. The reforms in Finland were rapidly overshadowed by events in its larger neighbor Sweden. Sweden repealed its postal monopoly in 1992 rather than suppress CityMail, a new entrant in Stockholm. CityMail provided twice-weekly delivery of computer-generated mail in Stockholm. The Swedish Parliament approved a motion, effective January 1, 1993, to abolish the postal monopoly. Sweden Post supported the elimination of the monopoly because it realized that without de-monopolization it would not obtain the commercial flexibility it needed to compete effectively.
The parliament then enacted the 1993 Postal Services Act, which converted Sweden Post into a government-owned stock company. Sweden Post pays value-added tax. The National Postal and Telecom Agency, a new regulator, was also established by the Act.
The Swedish postal law was amended in 1997 to enhance the regulator's ability to guarantee universal service, and to implement the 1997 EU postal directive. Competitors can enter the delivery market, but must be licensed.
The responsibility for providing universal mail service rests not with Sweden Post, but with "the government or an authority appointed by the government." The Swedish government authorized the regulator to administer a licensing scheme in accordance with the act. While it has currently contracted with Sweden Post to provide universal mail service, it presumably could contract with others.
Sweden Post reduced its workforce by 30 percent, mainly though attrition. It accomplished that downsizing without a strike.
Although there is limited evidence on the amount of entry that has taken place in countries where competition is allowed, anecdotal evidence from Sweden suggests that it is substantial:
New firms have entered at a much larger number than was expected; nobody anticipated more than a few new entrants into the postal sector. CityMail was first to enter, as already described and was accompanied by a few distributors of unaddressed items and subsequently a large number of small local operators.
Of particular interest is the wave of small local operators that followed a few years after liberalization. The first was established already in 1994, but most followed in 1997-98. These local firms specialize in overnight distribution of mail within central parts of a small or medium sized city. None has been successful in the large cities in Sweden. They compete with price; most commonly 25-30 percent lower than Sweden Post. They do this by accepting lower income as private businessmen; not by competing in a low cost segment like CityMail, not using economies of scope and not by superior technology as all sorting is manual.[2]
Although many small firms have entered the market, their aggregate market share remains small. Even though Sweden has low population density, service levels have not suffered under competition:
The service level of the Swedish postal market is very high. Together with [the] Netherlands, it is considered the most efficient in Europe, according to an international survey. Since the 1970s, the system is designed to allow overnight distribution all over Sweden. About 95 percent of first class mail is delivered on time, which is far beyond the state demands of 85 percent. Despite [the fact] that Sweden is among the least populated [countries] per area unit in Europe, only 1,150 households in the country do not have daily delivery.[3]
Norway. In Norway, the Norwegian Post and Telecommunications Authority (PT) has the responsibility for regulating the postal market. The Postal Services Act of 1996, as amended in 1997 and 1999, limited the postal monopoly to the dispatch of addressed, closed letters weighing less than 350 grams, with a maximum postage of five times the standard first-class letter postage, as long as those letters do not contain books, magazines, catalogues, or newspapers. Norway Post is subject to a licensing system administered by PT.
A large number of distribution services and messenger and transport companies offer competing services in the nonreserved area. Norway Post's license ensures that it provides universal service, that it complies with the provisions of the EU's postal directive, and that it provides equitable and nondiscriminatory access to its postal network.
Germany. Germany undertook substantial postal reform through a sophisticated three-step plan. Postreform I, in 1989, resulted in the reorganization of the Ministry for Posts and Telecommunications. It established separate departments for postal services, postal banking, and telecommunications. A new board, with members from the private sector, was created to oversee the postal services department, called Postdienst.
Postreform II, in 1994, converted Postdienst into Deutsche Post A.G., a corporation with all shares owned by the government. It also amended the German constitution to guarantee "appropriate and adequate" universal postal services.
The German parliament agreed to Postreform III in 1997 that, as in Sweden, recognizes universal service as a responsibility of the German government, not an obligation of Deutsche Post. That distinction is critical because funds to provide for universal service need not come from markups on urban delivery, implicit tax subsidies, credit guarantees, or other sources. Instead, those funds are obtained explicitly through revenues from licenses. All delivery services carrying addressed mail weighing less than 1,000 grams (2.2 pounds) must obtain a license.
Postreform III also repealed the postal monopoly as of the end of 2002. That is, Postreform III granted Deutsche Post a monopoly on the carriage of letters weighing up to 200 grams and costing not more than five times the basic stamp price until the end of 2002. Recently, however, the German government announced that it would delay the repeal of the postal monopoly until 2007, citing slow postal reform by the European Commission.
Reg TP, the telecommunications regulator, was designated also to regulate postal services. Reg TP can hold hearings and compel the production of evidence. Reg TP is responsible for ensuring universal service, and it is authorized to administer the licensing scheme and impose standards on postal operators.
Germany is one of the few countries to institute meaningful changes in ownership structure. Deutsche Post was partially privatized on November 11, 2000, in that country's largest public offering of the year. About 31 percent of the firm was offered publicly, raising $5.6 billion. Those shares were split evenly between institutional and private investors. The offering was successful, as investors applied for eight times the number of shares available. Additionally, the German government cleared the way for majority private ownership in Deutsche Post, but no date has been set. Deutsche Post began operating under the name of Deutsche Post World Net (DPWN) in early 1999.
The effects of those reforms have generally been positive. DPWN has reduced its workforce by 38 percent, mainly through attrition. It has become an aggressive competitor, offering new products and services. Some of DPWNÕs tactics have, however, raised concerns about the use of its monopoly power and other privileges to engage in anticompetitive behavior.
DPWN has been very aggressive in acquiring other firms. It holds a 72 percent stake in DHL, the world's largest courier company. It has also taken over one of the largest global logistics companies, Danzas. DPWN was able to reduce its workforce by about 38 percent, from 379,000 in 1990 to 235,500 in 1999, without layoffs.
The Netherlands. The Netherlands is unique in that a majority of its postal service is now privately owned. The Dutch government transformed the post and telecommunications administration into Royal PTT Nederland (KPN) in 1989. PTT Post is the postal subsidiary of KPN. The Dutch government sold a 30 percent stake in KPN to the public in 1994, and another 22 percent stake in 1995, reducing the government's share to 48 percent.
Regarding market structure, PTT Post retains a monopoly over the delivery of letters weighing up to 500 grams. Express mail services can compete in the reserved area as long as their prices are higher than PTT Post's. PTT Post has a universal service obligation, which is funded through its monopoly service.
Unsurprisingly, privatization in the Netherlands created an aggressive, commercially oriented firm. PTT Post, in 1991, joined with the post offices of France, Germany, the Netherlands, Canada, and Sweden to purchase 50 percent of the Australian transportation conglomerate TNT. In August 1996, PTT Post acquired complete control of the joint venture operations by purchasing TNT itself.
In June 1998, KPN spun off TNT Post Group (TPG), which is now a fusion of a national post office and a global express company. TPG, however, remains legally obligated to provide universal service and continues to enjoy a legal monopoly over the carriage of letters weighing 500 grams or less, with certain price limits. TPG has announced its support for the repeal of its monopoly provided that other large competitors, such as Deutsche Post, are similarly de-monopolized.
Switzerland. Postal reform in Switzerland has not progressed as far as in some other European countries. It appears to be about where the United States was after the passage of the Postal Reorganization Act of 1970. It is instructive to briefly examine the Swiss case, however, since Swiss postal reform was similar to U.S. reform and has produced similar results.
The Swiss post office historically was part of Swiss Post PTT, comprised of both postal services and telecommunications. The Law on Postal Services of 1924 and the PTT (post and telecommunications) Organizational Law of 1960 created the institutional structure for postal services in Switzerland. Under those laws, Swiss Post was a government-owned monopoly, and was highly constrained in its business decisions. Like the U.S. Post Office, the government made postal pricing, financing, and personnel decisions. Politics dominated postal decision-making, and Swiss Post incurred large annual deficits.
Reform began in the early 1990s. The Swiss government passed a law in May 1992 on telecommunications, which liberalized some areas of the telecommunications sector, and eliminated the large subsidies of Swiss Post by Swiss Telecom as of January 1, 1998. On December 31, 1997, Swiss PTT was split into two companies, Swiss Post and Swisscom.
The Swiss Postal Law of 1998, however, was the key organizational reform. There were five officially stated goals of the law: (1) gradual liberalization of the postal market; (2) guaranteed universal service; (3) providing the financial means for universal service; (4) increasing commercial freedom for Swiss Post; and (5) coping with EU developments in the postal sector.
At least some of those goals echo the intent of the U.S. Postal Reorganization Act of 1970. Similar to the Postal Reorganization Act, the Swiss Postal Law left Swiss Post as a government-owned monopoly, and severely restricted it in terms of financing and personnel decisions. Swiss Post itself is required to provide universal service. Neither express mail nor international parcels fall under Swiss Post's monopoly, which is limited to mail and parcels up to two kilos. Universal service is to be financed through money collected from monopolized activities. As in the case of the U.S. 1970 act, the Swiss reform sought to imitate the board structure of a private corporation and to create a more "commercially oriented" atmosphere.
Several consequences of the Swiss law are similar to the U.S. experience. First, since it remains government-owned, Swiss Post continues to be hampered by capital constraints and lacks sufficient cash to pursue meaningful research and development. It must go to the Swiss government, rather than to the capital markets, for additional capital. Second, there is confusion over the degree to which competition laws apply to Swiss Post. Third, there is controversy over the funding of pension liabilities, with negotiations under way between the government and Swiss Post over who will pay. Many personnel decisions remain in government hands, and wages are considered to be about 30 percent above market, remarkably similar to the estimate of 28 percent for the USPS. Fourth, political interventions occasionally occur, and decision-making processes are slow. Fifth, as in the United States, the norms by which rates are to be set are contradictory.
An important difference between the Swiss and the U.S. laws is that the Swiss law, as per the suggestion of the European Union, limited the monopoly in order to provide just enough revenues to guarantee universal service.
While perhaps an improvement over the old arrangements, the Swiss Postal Law reveals the same inadequacies as the Postal Reorganization Act. It underscores the importance of either undertaking meaningful ownership changes, significantly increased competition, or both.
Spain. Correos y Telegrafos is the government postal authority in Spain. Commercial freedoms were given to Correos in 1991. Correos bears examination because its monopoly power is defined in an unusual way. The reserved services in Spain are over the collection, distribution, and transportation of letters between cities and villages (i.e., inter-urban mail), while the delivery of letters within cities (i.e., intra-urban mail) is open to competition. That is similar to the original task of postal services in the United States, which was to deliver mail between cities.
The scope of the postal monopoly was further reduced in 1997 to inter-urban services up to a maximum of five times the stamp price. Interestingly, there is no uniform rate in Spain. The price of mailing a letter depends on whether it is delivered to the same urban area or to another urban area within Spain.
United Kingdom. The structure of postal services in the United Kingdom began to change in the mid 1990s. Royal Mail was obligated to pay taxes in 1995. The government relaxed limits on its capital spending, and it was allowed to enter new markets, for example, through joint ventures. Its disclosure requirements were also increased.
The Postal Services Act of 2000 radically altered U.K. postal services. The act transferred the post office's assets into a private law company with all shares owned by the government. The Post Office Group changed its name to Consignia in March of 2001. The act also created a new regulator, the Postal Services Commission, or Postcomm.
Importantly, the act created a detailed licensing scheme to replace the 340-year-old postal monopoly, which was abolished. Postcomm was granted the exclusive authority to issue licenses, and no business may deliver letters without a license, unless the price of delivery is at least £1.00, or the letter weighs at least 350 grams.
Postcomm was given broad authority to grant licenses and to set conditions for licensees subject to the observance of three goals. First, Postcomm must ensure the provision of universal service, where universal service is defined as providing delivery service to each address each working day. Service must be provided at uniform rates, and must be affordable. Second, Postcomm must promote competition between postal operators. Third, Postcomm must "promote efficiency and economy on the part of the postal operators."[4] Postcomm may also place conditions on the services provided by a licensed operator outside of the reserved area.
Postcomm issued the first postal license to Consignia on March 23, 2001. The license set out detailed conditions regarding universal service obligations, service standards, access to facilities, prohibitions against unfair commercial advantage, mergers, financial disclosure, and many others. Importantly, Postcomm itself is able to define the meaning of the universal service obligation. In other countries, the government defines it. Also, the regulator must explicitly consider the effects on competition and efficiency when granting the license.
In January 2002, Postcomm proposed a three-stage process that would result in the complete elimination of the postal monopoly. The first phase would take place between April 2002 and March 2004. It would eliminate the monopoly on bulk mail shipments of over 4,000 pieces and on other services that amount to approximately 30 percent of Consignia's market. Phase two would take place between April 2002 and March 2006. It would lower the bulk mail threshold to between 500 and 1,000 pieces per shipment. That would likely eliminate the monopoly on another 30 percent of Consignia's market. Phase three would take place no later than March 31, 2006, and would eliminate all restrictions on market entry.
The initial results of the U.K. reforms have not been positive. Consignia has recently sustained large losses and will undergo further restructuring, including a change in name. Loss of working days due to strikes has been a problem. Its privatized Dutch rival, TPG, has captured substantial market share from Consignia. Commentators have noted that Consignia's problems stem in part from its failure to privatize.
Summary data on international postal services are provided in the table below. This table facilitates rapid comparison of postal reforms and suggests the degree to which many countries have recently taken steps toward reform of their posts.
Summary of International Postal Reforms
Summary and Conclusions
This review suggests several lessons from international postal reform for the United States. First, and perhaps most importantly, substantial reform has in fact taken place in many other countries, which indicates that meaningful reform in the United States is both politically feasible and in concert with other countries' policies. Some postal services (but not all) supported the elimination of their monopolies because they realized that additional commercial flexibility would not be granted under monopoly. Ambitious postal reform may be possible in the United States also.
Second, postal reform has typically included a major change in the delivery monopoly, either through its outright elimination (as in Finland, Sweden, and New Zealand) or through price limits on the scope of reserved service, usually defined as multiples of the stamp price. Indeed, it does not appear that any country has privatized, although postal services increased commercial flexibility, or reduced privileges and immunities without also eliminating or limiting its postal monopoly.
Third, reform has frequently involved important changes in the universal service obligation. Many governments have removed the burden of providing universal delivery service from the postal service itself and shifted it to another entity, such as the regulator. Universal service has also been made a condition of licensure, as in the United Kingdom.
The experience in countries that have eliminated their monopolies, such as New Zealand and Sweden, suggests that universal service will be maintained at affordable prices without a delivery monopoly. Many reforms have included a mechanism for making the cost of providing universal service explicit, including through a universal service fund.
Fourth, postal reform in some countries has included changes from government to private ownership, as in Germany and Holland. Sales of equity to the public have been successful, and have resulted in modern, dynamic, commercially oriented postal services.
Finally, preliminary evidence suggests that international postal reform has had positive effects. There is no evidence of price spikes, and some postal services, such as New Zealand, have even lowered their basic postage rate. Although labor relations have been problematic in some countries, such as the United Kingdom, many posts were able to reduce their workforces without major layoffs, instead relying on attrition.
Notes
1. U.S. Postal Service, Transformation Plan (April 2002) at H-23.
2. Peter Andersson and Mats Bladh, "Experiences from Liberalizing the Postal Market in Sweden," (Department of Technology and Social Change, Linköping University, Sweden working paper), pp. 7-8.
3. Andersson and Bladh, p. 10.
4. U.K. Post Act, §§ 3-5, 125. See also U.S. Postal Service, Transformation Plan (April 2002) at H-11.
Rick Geddes is assistant professor in the Department of Policy Analysis and Management at Cornell University and the author of Saving the Mail: How to Solve the Problems of the U.S. Postal Service (AEI Press, 2003). He is a research fellow at the Hoover Institution and an adjunct scholar at AEI.
