1. Workshop on Postal Communication Systems – Armenia 46798 Presentation by: Martin.Balzer and Jens Meyerding Assessor in the Ruling Chamber 5 for Postal Affairs Federal Network Agency for electricity, gas, telecommunications, post and railways (martin.balzer@bnetza.de)

2. Introduction Full market opening and new regulatroy challenges Fundamental structural changes –General decline of mail volumes as a result of substitution of physical mail by electronical mail (intermodal competition) –Upcoming Competition of new entrants –Strategic challenges for the NRA

3. Starting Point Rationale approach for sector-specific regulation Pushing postal services in a competitive environment requires a sector-specific framework Establishing an independent regulator Main idea behind this approach is that even with the abolition of monopolies competition does not develop automatically due to economies of scale and scope and to improve the performance of public operator

4. Consumers interest Competetion issues Goals of Regulation Universal isues

5. Goals The aims of regulation shall be: 1.to safeguard the interests of customers; 2.to ensure equal-opportunity, workable and sustainable competition, in rural as well as urban areas, in postal markets; 3.to ensure provision throughout the national territory of basic postal services (universal service) at affordable prices

6. 3rd Postal Directive (2008/6/EC) Article 11 The European Parliament and the Council, acting on a proposal from the Commission and......shall adopt such harmonisation measures as are necessary to ensure that users and the postal service provider(s) have access to the postal network under conditions which are transparent and non-discriminatory.

7. Postal Directive and third party access Article 12: (…) - Whenever universal service providers apply special tariffs, for example for services for business, bulk mailers or consolidators of mail from different customers, they shall apply the principles of transparency and non-discrimination with regard both to the tariffs and to the associated conditions................

8. Strategy for Regulation Postal Act should be neutral and not based on a specific regulatory strategy Strategic Options: –Option I (end-to-end-competition) –Option II (work sharing concept (downstream- access) flexibility to decide on their business models

9. Economies of Scale PO-ShareIncumbent-Share Incumbent = Public Operator in liberalized market PO-Private operator

10. Option I end-to-end-competition –High investments in sorting and delivery facilities –small potential market for new entrants in a liberalized postal market or as a result of reservation –implications: no business case for competitors higher unit-cost for delivery because of small processed items (existence of economies of scale)  No business activities and no competition

11. Option II –Worksharing-Modell No investment in sorting facilities/ delivery network Win-Win-Situation:  Competitor: Profiting of using postal infrastructure of public operator Preparation for the situation after abolition of reservation  Public Operator: All items remain in its own network ( optimizing network utilization and network efficiency) Financial basis for investments faciltating network reconfiguration

12. Option II –Worksharing-Modell  Short-term impacts: enabling business activities for private operators in the universal service segment  Long-term impacts: facilitating workable and sustainable competition after abolition of reservation  Downstream Access is the only option for private operator during the period of reservation

13. Structure of Postal Network The Value Chain Clearance Transport outward sorting Transportinward sorting Transport and Fine-Sorting Delivery Letter Boxes or Post Offices Sorting Center BZE Consolidation Points Sorting Center BZA Addressee Delivery Base BZA: Letter Mail Center for outbound mail BZE: Letter Mail Center for inbound mail

14. Basic Principles Transparency with regard to access- conditions –Publication of Terms and Conditions of the public operator –Submission of concluded contract Non-Disrimination between different operators –Bulk-mailers vs. private operators –Consolidators vs. private operators

15. Intensity of Access-Regulation

16. Regulatory measures Sector Specific Access Regulation –Ex-Ante regulation procedures –Ex-Post regulation procedures Special Control of Anti-Competitive Practices

17. Ex-Ante-Regulation Option I –Standard Offer Procedure: Prior to negotation with private operators the incumenbent shall submitt draft of contracts with regard to access Intervention of NRA –Approval of drafted contract/ agreement –Decision on access issues –Imposing the obligation of granting access to postal network –Monitoring and eventually enforcing (penalties...)

18. Ex-Ante-Regulation Option I –Advantages: Ensuring transparency Fulfillment of non-discrimation approach –Disadvantages: Heavy Intervention of the NRA Inflexibility for market players (public and private operator)

19. Ex-Post-Regulation Option II Dispute Resolution Procedure –Scenario: Preceding negotiation: An agreement on access between public and private operator fails Intervention of NRA after request of private operator Decision on access conditions including tariffs Imposing the obligation of granting access to postal network Monitoring and eventually enforcing (penalties...)

20. Ex-Post-Regulation Option II Dispute Resolution Procedure –Conditions in question: Technical requirements fulfilled by the access seeking undertakings Points of access Timing of access Presorting Machine-readabiltiy Volumes Numbering

21. Ex-Post-Regulation Option II Dispute Resolution Procedure –Conditions in question: Use of indicia Use of conumerables Technical billing procedures Defintion and limitation of liability and indemnity Tariffs and tariff structure; price scheme

22. The problem in access pricing The network owner (incumbent) wants high charge for rivals to use network Rivals want low charge based on marginal costs If the incumbent will not recover full costs this would ultimately lead to losses and incumbent will argue that Government would need to find other ways to fund the network  Regulator shall determine a price that provides a win-win situation (cost-oriented price; establishing a CA-system based ABC-model)

23. The quantity scale for bigger seized and higher weighted letter post items went down from the beginning of year 2008 Provision of partial services: Rebate structure before 01.01.2008 BZA: Rebate: Amount of postal items: 3 %minimum of 5.000 to 10.000 6 % 10.001 to 15.000 10% 15.001 to 20.000 14 % 20.001 to 25.000 18 % more than 25.000 BZE: 21 % minimum of 500 since 01.01.2008 BZA: Rebate: Amount of postal items: 8% minimum of 5.000 to 10.000 11% 10.001 to 15.000 15% 15.001 to 20.000 19 % 20.001 to 25.000 23 % more than 25.000 BZE: 26 % minimum of 250

24. Activity Based Costing Post offices Letter BoxesAddressee Customers Consolidators Mail Centre Sorting (BZE, BZA) Liberalized Clearance, Sorting, Transport and Delivery Delivery base = Liberalized area = Reserved area Clearance Transport Delivery

25. Component 2 – Cost Allocation 25 Value chain costs  Cost of collection  Cost of sorting outward  Cost of transportation: long distance – short distance  Cost of sorting inward  Cost of delivery

26. Component 2 – Cost Allocation 26 Cost structure within the universal service providers` value chain EU average Lowesthighest (1) Cost for collection 12 %6 %20 % (2) Cost for sorting 24 %14 %37 % (3) Costs for transport 9 %3 %14 % (4) Costs for delivery 55 %43 %69 %

27. Evaluation The regulatory policy and measures shall be evaluated under their effectiveness to foster competition and to improve quality standard as crucial regulatory aims As a result of this evaluation the NRA should either continue its behaviour or change s the intensity of regulation

28. Evaluation continuing market failures with lack of competition despite regulatory interventions requires change of regulation towards ex-ante regulation (access/ price) In case of successful market development with high intensity of competition  reducing the regulatory intervention  maintaining the current regulatroy policy (deregulation.........)