‘Safeguarding universal service requires sustainable financing solution’

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As rules on liberalising Europe’s postal markets look set to be adopted in the New Year, Pál Szabó, CEO of Hungary’s Magyar Posta, points to a number of “bad experiences” in countries that have already opened up their postal markets to competition and stresses the need for a “sustainable financing solution” to allow incumbent operators to continue providing citizens with quality services.


To read a shortened version of this interview, please click here.

What degree of liberalisation has already taken place in Hungary and what impact has it had? 

Hungary fully follows all European regulations in the field of postal services. The Hungarian market was opened gradually, as the first and the second postal directives required. 

Today the letter market segment, including direct mail above 50 grammes, is fully opened to competition. Within the scope of universal services, the degree of market change is not significant so far, however in the courier and express market, all big international competitors have already entered the Hungarian market. 

Both the European Parliament and the Council have voted in favour of delaying liberalisation until 2011. Do you agree that the original 2009 deadline was too early? 

Magyar Posta always had the opinion that full market opening can take place if safeguarding measures are achieved. 

On the one hand, the provision of universal service and especially the sustainable funding of the net cost of universal service obligations have to be guaranteed. On the other hand, the level of readiness of member states is quite different, as a study commissioned by the European Commission stated clearly in May 2006. 

We asked the European Commission to act in a very cautious and careful way when they were drawing up the draft of the third postal directive. In Hungary, the government has the same opinion and shares our view that the Hungarian postal market would not have been in a situation of ‘well-preparedness’ by 2009. 

With respect to these circumstances, I personally think that the European Parliament and the Council managed to find a balance when they decided to postpone the date of full liberalisation. 

A number of countries, including Hungary and eight other new member states, have been granted the possibility of delaying liberalisation for a further two years. Do you think it was necessary to make this distinction? Are the new member states less well prepared than others? 

First, it is important to stress that not just new member states received this option of delaying full liberalisation in order to get well prepared, some “old” member states with special characteristics can also use this possibility if they consider it essential in order to ensure the provision of universal services. 

And, on the other hand, there are three new member states that considered their postal markets to be ready for full market opening by the end of 2010. 

Therefore I would not make this kind of distinction, “new and old member states”. However, concerning the differentiation between the level of preparedness of EU member countries, as I mentioned earlier – referring to the Commission study – it is a realistic statement at the moment. We are fully aware of it and that is why we launched our wide-ranging modernisation programme in 2004. 

We think that the extra time given to us will let us get well prepared for full competition by 31 December 2012. 

Could different implementation dates lead to distortions of competition among operators? What do you think of the proposed ‘reciprocity clause’? 

We do not think this kind of market opening will lead to market distortions of competition. Within the European Union, there are several markets where such derogations and exemptions exist. 

On the contrary, I am sure that this extra possibility, which affects not more than 10% of the European postal market and will last for just two years, will guarantee that the European postal market will evolve in a balanced and fruitful manner in the future. 

Concerning the reciprocity clause, we see the political sense behind it and we respect it. Meanwhile, we hope and suggest that those market segments (e.g. outgoing cross-border mail, direct mail market) which are fully opened at the moment in member states should continue to be liberalised at the same level as they are now during this transitional period. 

What impact do you think full liberalisation will have in terms of increased competitive pressure and employment in the postal sector, in Hungary and other new EU members?

In the bulk mail segment, it is sure that the level of competition will significantly increase by the date of full market opening, therefore prices applied in this segment will decrease; this will happen not just in new member states, but in every postal market in Europe. 

Regarding the terms of employment, public postal operators are traditionally among the biggest employers in their country. We have seen some bad experiences in countries with fully opened postal markets or in those countries where full liberalisation is planned for before 31 December 2010. 

At Magyar Posta, we are trying to improve social conditions, including wages and other benefits, also under terms of market competition. 

Do you think it will still be possible for you to provide a comprehensive and high-quality universal service once the reserved area is abolished? 

It is not only a possibility, but also an obligation. 

The third postal directive will clearly define the set of obligations designated universal service providers will have to fulfil. All customers, including SMEs and individuals, have to enjoy the same quality universal services in the whole territory of Hungary. 

The reserved area in the European postal market in the last decades proved to be a simple, transparent way to fund the net cost of universal service obligations, which was also a “state-budget friendly” solution. However, due to the European postal liberalisation process, this mechanism will disappear in member states by 2011 and 2013. 

The most important task at the moment is to find another appropriate and sustainable financing solution in order to have the same high-quality universal services in the future. 

Do you have a preference for any of the funding mechanisms suggested by the Commission as a means of replacing the reserved area? (Access pricing? Compensation fund? State subsidies? Pay or play?) Why? 

The state subsidy in Hungary is unlikely in the present situation. The system of a compensation fund is a good idea in theory, but, so far, in practice, it has not proved its viability. 

Among the suggested solutions, the pay or play mechanism might be the best possible solution. 

Magyar Posta thinks that safeguarding the universal service is only probable with an appropriate licensing system. It should be stated clearly in the directive what kind of obligations a member state can impose on designated universal service providers and on other actors in the market, with the aim of creating a level playing field between competitors and to safeguard the universal service. 

Are you considering extending your business to other member states? Will the directive open new opportunities for you? 

In the time of globalisation, cross-border expansions are becoming ordinary and we can see already examples in the postal market as well. 

To be realistic, Magyar Posta at first has the obligation to provide high-quality services in Hungary in the long-term. If we manage to do this, then we can think about foreign extension of our services. 

As Europe is becoming more and more united, we, postal operators have to also consider “foreign” expansions within the European single market. 

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