The development of postal legislation and regulation Istanbul March 13, 2018 EU and US

EU and US: current legislative and regulatory framework EU Postal Reform and current situation 1992 Green Paper: defining the long term objectives 1997-2007 Directives: putting legislation in place Main definitions and concepts Postal vs Courier, Express and Parcel legal cases and jurisprudence Compensation fund: its complicated USO and compensation fund in practice 2011-2017: current legislative framework Future developments US Postal Framework The marketplace The regulatory framework

EU Postal Directives 1992 Green Paper: defining long term objectives 1992 Green Paper: Single Market for Postal Services as part of 4 EU freedoms Work towards a market based solution for the provision of delivery services – letters and parcels Application of Competition Rules Lex Specialis to manage the exception: monopoly and USO Harmonize national markets, align the various practices in different EU Member States Reduce and ultimately eliminate the reserved area (letter mail monopoly) and rely on competition and markets Provide for basic postal service: if market fails, rely on Universal Service Obligation (USO) EU standards for access, tariff regulation, accounting methods, quality of service for USO

EU Postal Directives: 1997-2007 Directives putting legislation in place Delivery Services Market 1997-2002-2007 Directives lead to gradual elimination of reserved area USO for letter mail (items of correspondence) and basic parcel services: 5x week, affordable, access, quality USO excludes added value express and transportation services Gradual reduction of letter mail monopoly: weight and price element – exclude business mail, direct mail, bulk mail Postal Sector subject to competition rules and policy Reserved Area provides scale and scope necessary to support USO Introduction of regulatory framework: USO cost allocation, transparency of accounts, financing of USO burden, licenses and authorizations Express/Added Value Non-USO value 1997: 350 USO Parcel Services 2002: 100 2008: 50 2011: no reserved area weight

EU Postal Directives: Main Definitions with reserved area– 1997/2008 Postal Services: clearance, sorting, transport and delivery of postal items Postal Items: item in the final form carried by the universal service provider Universal Service: permanent provision of a postal services for users at affordable rates, easy to access, daily delivery and clearance for letters up to 2kgs and parcels up to 10/20 kgs Universal Service Obligation (USO): the Member State (Government) has the obligation to ensure provision of this service (not the operator – it is not a “monopoly”) Universal Service Provider (USP): the public of private entity – operator – that provides the universal service Reserved Services (monopoly): to the extent necessary to ensure maintenance of the universal service, services reserved for the universal service provider covering the collection, sorting, transportation, delivery of items of domestic correspondence (letters) up to 350 grams priced at 5x public tariff for the first weight step of the standard service

EU Postal Directive: impact of non-USO providers With services converging, regulators look for funding from non-USO service providers Universal Service Obligation Individual License (art 9.2 EU PSD) Price Regulation Affordability check Separate Accounts Obligation to ensure basic service Compensation for service obligation Contribution to cost of regulation Services outside scope of USO Authorization (art 9.1 EU PSD) No Price Regulation No Affordability check No Separate Accounts No obligation No Compensation for service obligation Administrative fee for regulation

EU Postal Directives: Key Features – Licensing and Authorizations Licences and general authorisations Only general authorisations Only licences For these countries, normally only providers of US need a licence

EU Postal Directives: Main Definitions without reserved area– after 2008 The 2008 directive calls for elimination of the reserved area (monopoly). The directive provides for two financing mechanisms for covering the cost of USO: direct funding or sharing the net cost of the universal service obligation (compensation fund) as alternative to the monopoly. Direct funding: government will directly compensate the USP for any proven net cost related to the provision of the universal service. Cost calculation is subject to the rules identified in the directive and application of Annex 1. Compensation fund: contributors can be other operators that are also involved in the provision of the Universal Service and comply with the provisions related to the US. Commercial carriers are not included because they are not involved in the permanent provision of the service and also provide added value services. Contributions are only needed if there is a clear net cost burden for the USP Role of the regulator: the principle role of the regulator is control the USP’s accounts and ensure correct cost allocation of activities related to the provision of the Universal Service. Annex 1 of the directive provides guidance on the USO cost calculation

EU Postal Directives: Postal vs Courier, Express and Parcel How to make a legal distinction between postal services and other CEP services? 1997 Directive: recital 18 – value added character of express services result in a market price that is usually higher than 5x basic postal tariff 1997 Directive: recital 21 – new services are not part of the universal service and cannot be reserved Corbeau Case (1991): services with features (collection, time and day definite delivery) that are not part of the reserved area With full market opening the thinking has evolved: Post provides parcel or express services in addition to being the USP Are CEP services part of the Universal Service or Universal Service Obligation? The universal service is not a service definition as such. It is a public service objective to ensure that citizens have access to a basic letter mail and parcel service at affordable rates and with certain quality standards. Government can decide to license an operator to fulfil these service requirements – at a cost. This does not exclude other operators from providing delivery services for items that have the same weight/size characteristics as the universal service. CEP services are therefor not part of Universal Service or Universal Service Obligation

EU Postal Directives: legal cases - State Aid Chronopost Case (1991-2007): A complaint filed by the French Express Association against Chronopost/La Poste France in 1991 The issue: Chronopost Services compete with express delivery service but use La Poste’s infrastructure: road transport, offices and other facilities without having to pay the real cost The use of La Poste Infrastructure below cost creates indirect State Funding (State Aid) and give Chronopost a competitive advantage Complaint went to the EU level but finally died due to the lack of a clear decision on the issue. Today Chronopost and DPD are the main pillars of Geopost, the European express and parcel delivery network of the La Poste Group

EU Postal Directives: legal cases - postal operator status and regulatory fees Austrian Case (2016): A complaint filed against the Austrian Regulator (RTR) on the application of article 9 of the EU Postal Directive: postal operator status The issue: RTR charged a revenue based fee to all express companies in Austria to fund the cost of regulation. The legal basis for this was the fact that express companies are involved in providing postal services outside the scope of universal service. Certain express delivery operators argued that they are not a postal operator and went to court to challenge the fee. Austrian and European Courts concluded that express operators can be considered as postal operators involved in the provision of services outside the scope of universal service and: That these service providers can be required to contribute to the cost of regulation (not to be confused with a compensation fund).

EU Postal Directives: legal cases - postal operator and compensation fund Italy – ongoing: a new Italian regulation provided the regulator with the possibility to require “authorized operators” to contribute to the compensation fund. Express operators challenged the regulation as being incompatible with EU law. The issue: The regulation used a broad definition of authorized operators and did not make the distinction between those involved in universal service and others. This created a risk for express operators re compensation fund contributions, they decided to challenge the Italian regulation The European Court’s opinion did not provide further clarity and did not state that the Italian regulation was wrong: it only stated that a general authorization system can be used for register operators. Legal uncertainty remains and we continue to challenge requests for contributions to the compensation fund.

EU Postal Directives: Compensation Fund – its complicated In reality: not activated, does not work and source of legal conflict National rules indicate that express carriers could be required to pay in: AT, CY, GR, IT, MT All postal providers Only providers of US services No compensation fund EE: US fund applies only to licensed providers BUT: CJEU (DHL case) says only providers of services within scope of US can be required to contribute But: first the net burden needs to be established conform rules DK, FI, FR: Express carriers considered to be outside scope of regulation LU CY MT

EU Postal Directives: USO and compensation in practice – efficient operators Country Germany France Netherlands Italy UK Poland Monopoly No Compensation fund included in legislation? Yes – only USO Yes Does compensation fund cover burden USP Has the compensation fund been activated? Annual evaluation Are CEP companies required to contribute to the comp fund Within scope of US Courier services excluded Does the post receive direct state funding for universal service Profitable Commercial Operator

Practical example: Poland Courier shipments excluded from USO Definition: courier shipment must fulfil all below characteristics: Direct pickup Direct delivery (to addressee or authorized person) Tracking Guaranteed delivery time Collection of signature, in written or electronic forum, upon delivery Requirements 1 & 2 bring parcel lockers solutions into USO

EU Postal Directives: current legislative and regulatory framework 2011: Full Market Opening (some Member States to follow in 2013) Provision of services relies on the market and competition principles Government has obligation to ensure universal service: mostly through license/contract/concession for postal operators Eventual cost burden USO to be financed by government (Annex 1 - PSD) if burden has been approved Regulatory framework: focus on Universal Service provision Individual License for Universal Service Provider Accounting standards: transparency, separate accounts and correct cost allocation Universal Service Affordability: price cap mechanism – indexation linked Compensation USO burden subject to regulatory control and State Aid rules Avoid competitive distortion resulting from market dominance General Regulatory tasks: market surveillance Other operators – register Market trends – general data

EU Postal Directives: future developments? Main trend: decline in letter mail and growing parcel volumes Government role to ensure provision of letter mail – lack of market justifies Universal Service Obligation Market to provide affordable parcel delivery solutions – no need for USO style approach Competition to ensure quality, consumer satisfaction and competitive pricing for parcel delivery Letter Mail and Parcel volumes are predominantly commercial Postal Services: Communication or Transport Letter Mail: traditional communication service being substituted by digital solutions – email and social media Parcels: goods are relying on efficient transportation solutions – benefit from increased digitalization of commerce Rethink regulatory framework to address two separate issues Ecommerce and Digital Agenda: Shape requirements to support ecommerce growth: payment services, internet access, consumer protection Rely on market and competition principles to ensure provision of parcel delivery EU cross border parcel regulation

US Postal Regulatory Framework The United States Postal Service’s (USPS) function is to provide postal services to bind the Nation together through personal, educational, literary, and business correspondence The Postal Service has two monopolies: Monopoly on First Class Letter mail delivery (primarily letters containing personal information) Exclusive access to deliver mail into mailboxes (parcels are not likely included) Postal law allows the Postal Service to compete in the parcel market, but requires that it prioritize letter mail delivery over all other products (including parcels) As a regulated monopoly, the Postal Service is overseen by the Postal Regulatory Commission (PRC), an independent government agency appointed by the President and confirmed by the Senate Other Federal Agencies oversee portions of the Postal/package supply chain, but they focus on activities and are not Postal-specific Occupational Safety and Health Administration (OSHA) – regulates safety in the workplace Department of Transportation – regulates highway and vehicle safety

US Postal Marketplace Letter mail is declining steadily, but the U.S. Postal Service still delivers 150 billion letters and 5 billion parcels annually Postal law is designed to protect monopoly-bound letter mailers and parcel delivery competitors from monopoly abuse Authorizes the PRC to regulate letter mail delivery Allows the Postal Service flexibility to compete in the parcel market space It is illegal to use letter mail revenues to pay for parcel deliveries The U.S. Government keeps the package delivery market open to competition and without regulation to foster innovation and maintain low delivery costs There is no government regulator for parcel deliveries Universal Service Obligation exists primarily for letter mail Allows competition for parcel deliveries to drive market innovation, maintain high service levels, and low prices No USO fees paid by parcel delivery companies as it will promote inefficiencies, slow competitive innovation, and result in higher parcel delivery costs

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EU Postal Directives: how are some regulatory provisions currently applied? Licensing and authorizations: different application of licensing and authorization requirements across Member States obligation to register for non postal operators is limited or non-existent in most markets National regulators limit requests to annual market survey Compensation for universal service provider Compensation replaces Monopoly/Reserved Area as financing mechanism EU State Aid Mechanism – direct funding by the State is possible Compensation fund mechanism might be included in legislation but is not activated Results in competitive distortion Smaller operators cannot fund incumbents financial need Lack of correct market test and accounting principles Market monitoring: Annual collection of general market data Limited to relevant market