Pressure on Brussels to probe Nordic postal merger

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Pressure is mounting on Brussels to open a full probe into a proposed €3bn merger of the Swedish and Danish postal services in the next few days because of implications for postal market liberalisation across the 27-country European Union bloc.

The deal is the first big postal merger to be announced since EU lawmakers passed legislation requiring countries to open their postal markets, and get rid of remaining state monopolies, by 2011.

But the deal has run into trenchant opposition from other Nordic postal operators who worry that the merger could set precedents and that, unless strict conditions are attached, it will be increasingly difficult for competitors to function in Scandinavia.

“This is the first time that big ‘monopolistic’ postal companies are merging in Europe and is a very important landmark for the future,” says Jukka Alho, chief executive of Itella, the state-owned Finnish postal company.

“If the European Commission lets this go without very strict scrutiny it will be very difficult in the future to take a different attitude”.

“We’re concerned that the merger of two state-owned incumbents in Sweden and Denmark will strengthen their already super-dominant positions,” concurs Norway’s Posten Norgen, together with its CityMail subsidiary which operates a private delivery service in Sweden and Denmark.

Independent observers agree that the merger is likely to be the first of several in the sector as markets adjust to the new liberalised environment - already Sweden’s Posten AB has been tipped as a possible bidder for the UK’s Royal Mail - and could set markers for the future.

“We will see more consolidation, just as we’ve seen in other markets which have been liberalised, such as telecoms,” predicts Miriam Gonzales, partner at the DLA Piper law firm, for example.

Under the deal, Posten AB and Post Danmark - which are both state-controlled - would combine to create a group with revenues of about Skr46bn, 50,000 employees, and, the governments claim, enjoy cost synergies of Skr1bn a year.

Richard Reinius, senior investment manager for the Swedish Enterprise Ministry, says state-owned postal operators in smaller countries need to obtain economies of scale if they are to fulfil their obligation to serve the whole country after the market is liberalised.

This is even more necessary in the Nordic region where substitution by electronic mail has proceeded particularly quickly, he argues: ”That is one of the rationales for strengthening the efficiency of the Nordic postal business.”

But opponents claim that Scandinavia postal market is increasingly “pan-Nordic” in structure, with many business-users seeking arrangements that cover several countries. Accordingly, they say, the merger will give the Swedish/Danish companies scope to bundle or even cross-subsidise services - particularly since the Posten AB also has a significant print company operation.

They point out, too, that Post Danmark enjoys a value added tax exemption because of its “public service” commitments, whereas competitors do not. This is a thorny issue across Europe - and the terms under which VAT exemptions can be granted as postal markets liberalise are currently being sorted out at the European Court of Justice.

Neither Posten Norgen nor CityMail are asking for the merger to be blocked. But they do argue that Post Danmark should be obliged to give up its letter monopoly ahead of the final end-2010 date; that surveillance or transparency safeguards should be introduced to guard against anti-competitive bundling; and that measures should be taken to ensure that the VAT situation is ”competition neutral” in, for example, key business markets.

The Danish and Swedish governments, by contrast, counter that the deal will not increase existing market positions in the letter markets, since there is little overlap, and that there is already very tough competition in the parcels business.

Officials in Brussels have until April 2 to make a decision on whether to allow the deal or whether to move to a longer, in-depth probe. Complicating their decision will be the general concern that EU states are moving only very slowly towards the goal of opening their postal markets by 2011 - and even backsliding in a few cases.

EU competition officials, for example, are already locked in battle with Slovakia, for example, which they accuse of re-monopolising the previously-liberalised “hybrid mail” segment of its postal market.