France seeks financing solution for universal mail service


With new EU rules requiring national postal operators to give up lucrative lingering monopolies by 2011, France is looking for new funding mechanisms to ensure that even citizens in its remotest areas continue to receive an affordable, six-days-a-week service, reports.

By signing a new public service contract for 2008-2012 with the French state on 22 July, La Poste aimed to reaffirm its attachment to the universal postal service.

Four public missions

The aim of the contract is to redefine the missions of the postal operator before it is partially opened up to private capital in 2009. The four missions – as defined in the contract – include mail delivery (83% of mail to be distributed within 24 hours of being sent), newspaper distribution (six days per week throughout the territory), post office availability (“not more than 10% of the population of a department may be further than 5 kilometres and 20 minutes drive away”) and banking accessibility. 

No promises on universal service funding

But questions related to the actual financing of the universal service once the French postal sector is fully opened up to competition on 1 January 2011 remained unanswered. 

It is estimated that the above commitments will cost the postal operator a total of €816 million after public compensation. In the contract, the government pledges to “implement a mechanism allowing it to guarantee a financing of the universal service that is long-lasting and economically efficient,” but it gives no concrete proposals. 

France’s Universal Service Obligation (USO) is more demanding than EU law obliges. Rather than a five-days-per-week collect and delivery requirement for all letters and parcels weighing less than 10kg, the French USP is asked to fulfill a six-days-per-week service for letters and packages up to 20kg. French law also foresees a minimum number of postal contact points throughout its highly diverse territory. 

To finance this service, La Poste has relied heavily on income from its “reserved area”, cross-financing distribution in rural or mountainous areas, which are much more expensive to serve, with revenues made in the more lucrative, densely-populated zones. But things are about to change. And although opening the sector to competition should attract a number of new players that will take on some of the workload, most of these are likely to focus on the more profitable city-centres, leaving the costly service to the remotest areas to La Poste. 

A number of financing options 

“For the moment, nothing is decided and work is only just starting,” explained UMP Senator and President of the postal presence observatory Pierre Hérisson. The transposition process of the EU directive into French law should begin early 2009 and a number of options are under consideration. 

  • A compensation fund – Paris’ preferred option:  Already established by a 20 May 2005 law, the scheme has never been used by the regulator. Concretely, each new market entrant would be required to pay into the fund in exchange for acceding to the national market. The money would then be used to finance the USO burden. But it is difficult to implement in practice: What level should the tax be set at? Should it be applied to revenues, profits or should it be a fixed amount? Should all operators be required to participate or only those with a minimal level of activity? “The compensation fund solution is looked upon rather badly by private operators,” says Sylvie Pittaro Menesson, who works on European issues at the French institute for postal research (Irepp). 
  • Access pricing – Brussels’ favoured approach: Private operators would be made to pay a fee to the incumbent in return for using its network. This is how it works in the UK, where the market has been fully liberalised since 1st January 2006.
  • Government subsidies – 
    possible, but expensive: The EU Directive says it will allow the use of public monies to finance the USO but, this option, though largely favoured by new member states, is unlikely to work in France within the current budgetary context. 
  • The generalisation of the USO – unrealistic: This would entail obliging all operators to serve the totality of the territory. But, given France’s geography, this would likely effectively prevent any new operators from entering the market. Indeed, in Finland, where this principle is applied, there is still only one market operator even though the market is supposed to be totally open. 

"La Poste will remain a public enterprise and its public service missions are non negotiable," reassured French Economy Minister Christine Lagarde.

Hubert Falco, French secretary of state for development of the territory added: "We will ensure that all of these commitments are lived up to on the entire territory." 

But the public contract has been strongly criticised by trade unions, which are threatening more strikes against postal liberalisation in September. According to them, the text "guarantees nothing at all" and "fragilises the public service missions". 

In February 2008, the EU pushed through plans to open up postal markets across the continent by 1 Jaunary 2011, or two years later for most countries that joined the bloc after 2004, as well as for Luxembourg and Greece (EURACTIV 01/02/08). 

The central element of the new directive is the elimination of the so-called "reserved area", which gives incumbents the right to maintain a lucrative monopoly over the delivery of letters weighing less than 50 grammes (roughly 72% of the postal volume) in return for providing an affordable, five-days-a-week delivery service to all citizens – the so-called "Universal Service Obligation" (USO). 

The directive identifies a number of flanking measures – such as state subsidies or the establishment of compensation funds – which countries may adopt to ensure the financial viability of providing a universal service. But it leaves it up to national governments to designate their Universal Service Providers (USP), calculate the cost of their universal service and decide on the most appropriate funding mechanism to cover this cost. 

  • Early 2009: Parliamentary work expected to begin in France on transposing the third EU postal directive into French law.
  • 1 Jan. 2011: Full liberalisation of postal services in the majority of EU countries.

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