EU'S POSTAL PLANS

EU'S POSTAL PLANS

t's taken 15 years, but the European Union is finally poised to storm the last bastion of monopoly: postal services.

The European Commission, the EU's executive arm, will shortly publish proposals to open the $75 billion-a-year postal market to competition, setting the stage for a fierce battle between the free traders and protectionists in the 15-nation bloc.Private-sector parcel and express delivery companies such as UPS, FedEx and DHL and scores of smaller firms are closely tracking the debate to see how much new business they stand to gain. The larger postal services are eyeing cross-border opportunities in a liberalized market. And the smaller post offices fear for their survival.

At present, most national post offices have a monopoly over the delivery of letters up to a weight of 350 grams (12.5 ounces), or some 97 percent of the market. Britain's Royal Mail has a monopoly over all letters costing up to 1 pound, and Sweden and Finland have opened up their markets.

Full-scale deregulation will bring lower bills and improved service for consumers and corporations alike. It will greatly improve logistics within the EU as private delivery companies gain access to the monopolies' dense domestic networks.

But Europe isn't going to get sweeping deregulation. Frits Bolkestein, the single-market commissioner, is widely expected to propose cutting the monopoly threshold to 50 grams in 2003. That looks a dramatic step, but in fact it will expose only 23 percent of the monopolies' revenue to competition. And even so, it's a step too far for most governments.

The commission also wants to liberalize direct mail and outgoing cross-border mail, which are relatively small in volume but of great importance to business. In the unlikely event that Bolkestein's proposals survive intact, a third of Europe's postal market will be open to competition.

Unfortunately, Bolkestein, in a concession to the postal monopolies, is said to have rejected setting a deadline for total deregulation. The private sector rightly complains that this will sow uncertainty and inhibit long-term investment decisions.

It's not too late for a breakthrough. After all, European governments adopted a robustly pro-market stance at their self-styled dot-com summit in Lisbon, calling for a greater effort to complete liberalization of electricity, gas and transport. But do they have the courage to confront the postal monopoly?

Sadly, few appear to have the stomach for taking on a behemoth that provides around 1.5 million jobs - all unionized and many with civil-service status - and is legally obliged to provide a universal service.

That includes no less a pro-market force than the British government, which is protective of the Royal Mail. It might even join France, the arch-protectionist, in watering down the Bolkestein proposals.

Private companies fear governments will compromise at a monopoly threshold of 150 grams that has been proposed by several national post offices, including the Royal Mail. That would open up just 6 percent of the market.

The monopolies are counting on their key argument to win the day: Monopoly profit is required to subsidize money-losing universal postal service. Sweden protected universal service when it opened its market in 1994, but that doesn't impress politicians in France or Italy.

Unfortunately, the Bolkestein proposals will be debated by governments in the second half of the year, when France holds the EU's rotating presidency. French officials have already given a thumbs down to the leaked proposals, saying they represent a threat to the country's 17,000 post offices.

And with Britain distinctly lukewarm to sweeping liberalization, and Germany and the Netherlands priming their markets for unilateral deregulation, prospects for EU-wide reform don't look good.

The debate in Brussels, however, is being overtaken by events. With Germany, the Netherlands, the Nordic countries and to a lesser extent Britain all opening up their markets and privatizing their postal monopolies, the laggards will have to fall in line or face marginalization - France included.

And while politicians and bureaucrats engage in sterile, over-rehearsed debates, the postal industry is changing. Germany's Deutsche Post has become a global transport and distribution company competing head-to-head with UPS and FedEx; it is preparing for an initial public offering in the fall. And a recent financial report from TPG of the Netherlands highlighted two logistics contracts with Volkswagen and Compaq.

Meanwhile, smaller post offices are forging alliances with leading private-sector companies like DHL and other post offices in Europe and Asia to tap the business market.

This in-house reform testifies to the monopolists' survival instincts. E-mail could kill off conventional mail within a couple of decades - but it will also underpin the e-commerce revolution. And nobody is better placed to exploit this emerging market than the monopolies, with their dense distribution networks.