Copyright © 2006 Howard Publications, Inc.
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Copyright © 2006 Howard Publications, Inc. |
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EU fines Deutsche Post $21.6 million Ruling on rebates, predatory pricing requires postal giant to create separate entity for parcel business. |
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BRUSSELS As a result of the EC’s March 20 ruling, Deutsche Post, which holds a monopoly over German postal service, will create a separate entity for business parcel services. The new entity can procure services from Deutsche Post, competitors or provide the services itself. However, Deutsche Post services and goods provided to the new entity must be at market price; and the same prices and conditions must be provided to the new entity’s competitors. The commission began investigating Deutsche Post following a complaint by United Parcel Service in 1994, in which the Atlanta-based integrated carrier accused Deutsche Post of using revenues from its profitable letter-mail monopoly to finance offering below-cost business parcel services. Deutsche Post has assembled a 30-billion-euro network of parcel, logistics and finance businesses in about three years, including Swiss forwarder Danzas AG, American forwarder Air Express International and two German banks. The EC’s investigation was believed to have dampered Deutche Post’s initial public offering last November, though the IPO netted about $6 billion. The EC said its investigation found that for five years Deutsche Post did not cover the costs incremental to providing the business parcel services, which violated Article 82 of the EC Treaty. Deutsche Post did not receive additional fines for this violation, the commission said, because "economic cost concepts use to identify predation were not sufficiently developed at the time this abuse occurred. Furthermore, DPAG has now tackled the issue in a satisfactory way." The commission also condemned Deutsche Post’s "long-standing scheme of fidelity rebates in mail order parcel deliveries." The EC found that from 1974 through October 2000, the German carrier gave substantial discounts to large mail order customers on the condition that they commit a large portion or their entire mail-order parcel business to Deutsche Post. "The fidelity rebate scheme has "essentially precluded any private competitor from reaching the ‘critical mass’ (estimated at 100 million parcels annually) to enter the German mail-order delivery market," the EC said. From 1990 to 1999, Deutsche Post’s share of the mail-order parcel market topped 85 percent. Deutsche Post admitted to the unlawful practice and said it has taken steps to avoid such conduct. "The 24-million-euro fine, which the commission has imposed corresponds with the provisions already made and published in Deutsche Post’s accounts," the German post office said. The commission said its ruling sets a standard for measuring those "cross-subsidies" between the monopoly area and those competitive activities where predatory prices result. "Today’s decision establishes clear rules on the issue of ‘cross subsidies’ that postal monopolies who are engaged in activities open to competition must respect," said Mario Monti, competition commissioner. "Pricing below cost must be paid by somebody and that ‘somebody’ is the monopoly’s customers. Moreover, pricing below cost forecloses market entry by efficient competitors and therefore prevents a wider offer at better prices and service conditions." Deutsche Post "welcomed the decision" in a statement. "We think this is a generally positive result which will give our customers and the capital markets planning security," said Klaus Zumwinkel, chief executive officer of Deutsche Post World Net. UPS cheered the EC ruling and renewed its call to the U.S. Department of Transportation to revoke a foreign air freight forwarder license granted to DHL Worldwide Express, which is owned and controlled by Deutsche Post. UPS said the restructuring of Deutsche Post won’t occur for at least the rest of the year, giving the German post office time to funnel monopoly profits into DHL for its U.S. operations." "Allowing DHL to retain this license effectively imports the unfair competitive practices of the Deutsche Post from Europe," said Mike Eskew, UPS vice chairman. Earnings Soar. Deutsche Post World Net set new records for profits and revenue in 2000, with net earnings rising 48 percent to euro 1.53 billion ($1.4 billion). Revenue rose 46 percent to euro 32.7 billion ($29.2 billion), while profit from operating activities jumped 158 percent to euro 2.38 billion.($2.1 billion). "These record levels, as well as the increase in foreign revenue from 2 percent in 1998 to 29 percent last year, show that we are on track to become the number one global player in the logistics industry," Zumwinkel said. The increase in revenue was mainly due to recent acquisitions, he said. Profits in the mail corporate division practically doubled, to euro 2 billion ($1.8 billion) from euro 1.01 billion in 1999. Revenue rose slightly to euro 11.7 billion ($10.4 billion). In the express segment, profit rose 27 percent to euro 76 million ($67.8 million), on revenue of euro 6.02 billion ($5.4 billion), up 26 percent. Danzas AG, the Swiss forwarder acquired by the group, has been fully integrated into the logistics segment, which contributed euro 113 million ($100.9 million) in profit, on revenue of euro 8.3 billion ($7.4 billion), up 86 percent. The financial services corporate division saw profit soar 771 percent to euro 505 million ($450.8 million) on revenue of euro 8 billion ($7.1 billion), up about 178 percent. While mail has been the heart of Deutsche Post’s business, it’s role in earnings has softened as DP has expanded its express, logistics and financial services divisions. Despite strong growth in earnings last year, the mail division has gone from accounting for half of the company’s revenue and 90 percent of its profit in 1999 to about one-third of earnings and 74 percent of profit in 2000. |
Klaus Zumwinkel
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"We
think this is a generally positive result which will give our customers
and the capital markets planning security."