EU FINES DEUTSCHE POST $21.6 MILLION FOLLOWING INVESTIGATION
The European Commission on Tuesday fined Deutsche Post AG 24 million euro ($21.6 million), finding that the German postal carrier 'abused its dominant position' by granting rebates, in addition to engaging in predatory pricing for its parcel services.
As a result of the EC 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. Also, Deutsche Post must provide those same prices and conditions to the new entity's competitors.
The commission began investigating Deutche 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 Tuesday.
'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.
