Postal policy goals after liberalisation

The preceding section has presented the existing evidence of goals and objectives of the reforms of the postal sector in 1993-94 and will be further analysed in the next section. In the new Postal Act from 1994, postal policy was entirely related to the universal service obligation, at this time called “basic postal services”. Moreover, basic financial services were considered a part of postal policy. The overall goal for postal policy was originally:

“Across the nation, there should be a nation-wide postal service meaning that letters and parcels can reach everybody regardless of address. There should be a possibility to have letters conveyed at uniform and reasonable prices. Private persons should also have the possibility to have parcels conveyed at uniform prices. In addition, there should be a nation-wide financial service meaning that everybody should be able to make and get payments at uniform prices.”²⁷

The first revision of the Postal Act, 1997²⁸

When the Social Democrats returned to power in 1994, they soon started a revision of postal legislation. The changes were modest, however. The reform contained a minor extension of the scope of universal service and a licence requirement on new operators. A compensation fund requiring all postal companies to contribute by a small fee per letter to finance the universal service was proposed. The latter proposal did not pass the political process.

26 SOU 1993:9 Postlag. Quote from English summary on p 14, in Swedish on p 123.

27 SFS 1993:1654

28 Ds 1995:76 Post- och kassaservice åt alla, Prop 1995/96:218 Ändringar i Postlagen m.m.

The second revision of the Postal Act, 1998²⁹

Before the revision, the role of the state in the postal sector was discussed in a report from the Ministry. The role should be: to guarantee the universal service; to regulate the sector in order to develop the market and protect consumers; to carry out the ownership of Sweden Post in order to give yield to the state and fulfil societal responsibilities. The second revision was intended to reach a better fulfilment of postal policy goals and an adjustment to the new EU-Directive. The goal of postal policy was reformulated, among other things a separation between the service itself and the quality of service was made. The new version of postal policy is the one that is still valid today:

There should be a postal service throughout the country, meaning that everyone must be able to send and receive items of mail weighing a maximum of 20 kg. Postal services shall be of good quality and it should be possible to have such postal items conveyed at reasonable prices. For single piece mail, prices should also be uniform.

In addition to letters, also parcels, addressed newspapers, catalogues and books were included in this definition of postal items. However, the licence condition for parcel distribution was removed in this revision. Further details of this goal were specified in the Postal Act, the Postal Ordinance and in the licence conditions for Sweden Post (before 2001 in a special contract). There should be opportunities to insure items of mail and to receive confirmation from the recipient that the item of mail has been received. The operator should guarantee reliability and the protection of the sender’s and receiver’s personal integrity. The target for reliability for the universal service provider was that 85 % of overnight mail should be delivered the next day and 97 % within three days.

In this revision, the regulator (PTS) got a more specified responsibility to monitor the postal sector and to verify that the postal market was functioning in an efficient way from the consumer’s perspective.

The third revision of the Postal Act, 1999³⁰

The goals for postal policy from 1998 remained unchanged in this revision. It was entirely targeted at clarifying the rules concerning access to common services and facilities, called the postal infrastructure. The aim was to create better conditions for a more competition-neutral and shared use of the infrastructure. There had been ongoing operational conflicts between City Mail and later local operators and Sweden Post. They concerned what City Mail had named the postal infrastructure. There were several areas of conflicts. One concerned the postal code system that was invented by the Post Office in 1968 as a means to facilitate sorting. New operators had to take the system for granted, but they had problems to obtain their own number series for their own needs, for example for postbox mail. Sweden Post had also made several changes in the numbers in the network reform in 1996, which caused a lot of complaints from addressees as well as other government authorities, insurance companies etc. who used postcodes for administrative purposes. Another problem concerned the price and access conditions to the post office boxes owned by Sweden Post. A third area was forwarding of incorrectly addressed mail. Sweden Post complained that it had to deliver mail that was paid to other operators. The ownership and administration of a national address file

29 Ds 1997:58 Statens ansvar på post- och betaltjänstområdet, Prop. 1997/98:127 Statens ansvar på postområdet

30 There is no Government Commission or report from the Ministry to prepare for this revision, but there are a couple of reports from PTS (1996, 1998). Prop. 1998/99:95 Postal infrastruktur.

company was also contested. It was originally created by City Mail, subsequently bought by Sweden Post when City Mail failed. Now, all new entrants needed to use its services, because households should only need to report to one place when they changed address.

The reforms in 1999 concerned the postal code system: the control of the system was first suggested to be shifted to PTS but it was eventually decided to remain under the control of the universal service provider (i.e. Sweden Post). It got obligations to consult other involved organisations before changes in the system and to give new operators required series of postal codes. Moreover, the access to post office boxes should be on reasonable and

non-discriminatory terms. Two other issues were discussed: the use of the address file company owned by Sweden and conditions for forwarding of mail. These two issues were solved by agreements between the operators, with the regulator PTS as mediator, and did not have to be included in legislation.

It is notable that the reform in 1999 does not treat the issue of regulation of access to the network of Sweden Post. It only concerns what is defined as the ‘postal infrastructure’.

Despite the existing theoretical foundations, access regulation in the postal sector does not appear on the agenda until after it was introduced in the telecom sector.

Later extensions of postal policy

As noted above, postal policy goals have been limited to deal only with the universal service.

In the Government’s budget bill 2001, postal services became part of the policy area “IT, electronic communication and mail”. The overall goal for this policy area was that:

“Everyone shall have access to an infrastructure and the related services that are efficient from a society’s viewpoint and long-term sustainable”

This is the first time an explicit efficiency goal was formulated for postal policy. In addition to the overall goal for the entire policy area, there was a specific goal for each area. For the postal area, the goal remained the same as in the Postal Act from 1998, quoted above.

In the latest Letter of Regulation for the regulator, PTS, the state expresses (somewhat differently) the goal for the postal area as follows:

”Everyone in the country shall, at reasonable prices, have access to efficient and reliable postal services of good quality, through well functioning national and international markets”.³¹

The Government Commission for postal and financial services, January 2005³²

The Government Commission in 2005 proposed no change in the scope of the USO or the defined quality of service. It rejected Sweden Post’s suggestion that the USO only should cover single piece mail. The internal policy of Sweden Post for its precise application should be replaced by official guidelines from PTS. The company which provides the services should, according to the Commission, use clear and non-discriminatory prices for USO services. Individual contracts for bulk mail should be allowed, but only if differences in price

31 Letter of Regulation for PTS 2006. http://www.pts.se/Archive/Documents/SE/Regleringsbrev_2006.pdf

32 SOU 2005:5 Postmarknad i förändring. As of August 2006, no government bill has been submitted to the parliament following the Commission’s report in January 2005.

are based on cost differences for different clients. Contracts should be non-discriminatory, i.e.

contracts with clients where the cost structure is equal should have the same price. Any commercial price discrimination should, according to the Commission’s proposal not be allowed. This would be a more strict application of non-discriminatory prices than today but difficult to control, because contracts with clients are business secrets. Uniform prices should continue only to be required for single piece mail. The Commission hints that the scope and cost of the USO can change in the future if postal volumes decline and the time-sensitive mail moves to other forms of communication. Some USO services could then be subject to public tendering, but the Commission estimates that this will not happen in the medium term.

Postal and financial over-the-counter services have both always been included in postal policy. This Commission presented two separate reports, one for each service; it proposed a complete separation be made and the financial services that the post offices used to provide be moved into the banking sector. Below, only the Commission’s report on the postal sector is discussed.³³

The background to the Commission was that ten years had passed since liberalisation and it was about time to study its effects, particularly since some other liberalisations in Sweden had been criticised for being unsuccessful. In the terms of reference to the Commission it was stated that the goal of removing the letter monopoly ten years ago was to open the market to free competition in order to create a more efficient postal business at reasonable prices. The outcome was already in the terms of reference said to be positive. However, it was also concluded that the effects have not fully reached the collective of consumers. This conclusion referred to the cost-adaptation of prices that will be analysed later in this report. The report also noted that Sweden Post remained the dominant actor and that the number of competitors was decreasing compared to some years before. Also, the profitability of Sweden Post was declining.

PTS had in previous reports pointed at some technical issues as well as at potential barriers to entry. Among other things, the Commission was supposed to make a study of the effects from the perspective of total welfare in society to see if the goal of liberalisation has been reached.

(see further chapter 5 in this report, here only policy issues are in focus). The Commission should propose changes in postal policy if needed, discuss the role of different authorities, the price regulation, co-distribution of mail and newspapers, entry barriers and other technical issues.

The Commission concluded that the postal market was in rapid transition, that declining volumes might contest the scope of the USO, that liberalisation had overall positive effects although actual competition was weak in many areas, that co-distribution of mail and newspapers should not be regulated and that current price regulation needed reform.

Concerning postal policy, the Commission found a need to extend the scope of postal policy to go beyond the universal service obligation. This conclusion was influenced by the new Electronic Communications Act from 2003, which took a broader perspective on that market and the scope for policy. The Commission proposed the following goal for postal policy:

Access shall be available to a broad supply of postal services at prices and quality

corresponding to customers’ demands. From an international perspective, Sweden shall be in the forefront in these respects. Postal services shall be sustainable, customer adapted and

33 The issue of financial services is treated in section 7.5.

accommodate future needs.

An important means of achieving this will be to create the preconditions for effective competition between several actors, without distortions and unwarranted³⁴ restrictions. The Government shall guarantee that everyone has access to universal postal service of high quality and at reasonable prices”.

The proposed new goal differs in a number of aspects from the current one from 1998. The range of products for which the goal is supposed to be valid is defined much broader: not only products belonging to the USO but also all parcels, unaddressed advertisements, newspapers and magazines are included. The USO, however, is basically supposed to cover the same range of products as today and the more precise definitions and quality of service to be defined separately. The Commission also opens for the possibility to readjust the extent of the USO downwards if the demand for postal services, particularly overnight mail, will continue to decline.

Customers’ demand is for the first time explicitly to be taken into account, concerning prices as well as quality. Postal services are supposed to be long-term sustainable, which is an adjustment to policy goals in general in Sweden. It means that current and future generations are to be ensured a good environment.

For the first time, postal policy is also proposed to explicitly include an efficiency goal. The policy is supposed to create preconditions for effective competition, whereas actual competition shall be left to market actors. Legislation shall be without distortions and unwarranted restrictions, meaning that terms in general shall be non-discriminatory and not restrict the market, when it is not necessary for other reasons.

Policy is given a much more precise direction than the previous general idea of “free competition”, and takes into account the fact that all postal legislation is a kind of restriction in order to safeguard from market or allocative failures. The Commission believes that this policy will raise growth and welfare in society. Large gains for society can be achieved by having efficient and flexible communications with effective competition in as many parts of the postal market as possible.