DHL 1999 Annual Report Download - page 32

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Regulation of individual services
The so-called regulation of individual services regulates
our competitors’ use of Deutsche Post’s value-added
chain. The extent to which we will be opening parts of
our networks to our competitors and which costs they
have to reimburse for this use are currently being clarified
at the political level. Generally speaking, removing in-
dividual elements from the value-added chain could
trigger a fall in the price of the remaining services.We are
counteracting this risk with greater customer-orienta-
tion and measures to increase customer loyalty vis-à-vis
our entire range of products and services.
Competition for city mail delivery
Competition for city mail delivery can be expected to
grow even tougher as a consequence of the Regulatory
Authority’s granting of licenses. We are responding to
this situation with a customer-oriented price and prod-
uct strategy and local solutions that are tailored to local
needs.
State aid proceedings
In August 1999, the European Commission initiated
proceedings against the Federal Republic of Germany
under Article 88, Paragraph 2 of the EC Treaty in re-
sponse to complaints lodged by United Parcel Service
(UPS) and the Federal Association of International
Express and Courier Services. In their complaints, our
competitors maintain that Deutsche Post World Net
received a sizable amount of illegal state subsidies from
the Federal Republic of Germany. According to the
complaints,these subsidies consisted primarily of:
• Coverage of the losses generated over years in the par-
cel service area and cross-subsidization using funds
from the revenues generated through the monopoly
business in the letter mail segment.
• Financing the acquisition of express and logistics
companies using revenues from business activities
in the monopoly area and through the sale of real
estate which the German government transferred
to Deutsche Post AG when it was founded in 1995.
• The government’s assumption of the shortfalls in the
Postal Retirement Fund for civil servants.
The European Commission has informed the German
government that under Article 14 of Council Ordinance
No. 659 from 1999, recipients (in this case, Deutsche
Post World Net) must return all illegal subsidies.
In an extensive statement to the European Commission,
the German government rejected these accusations and
explained why this was not a case of illegal subsidies.We
expect the proceedings to be abandoned with the find-
ing that there were no illegal subsidies and that
Deutsche Post World Net is not obliged to return these
funds. The European Commission is expected to issue
its decision this summer.
Price authorization
The Regulatory Authority for Telecommunications and
Post has to authorize the prices we charge for services
falling under the exclusive license area. The authoriza-
tion for our current prices expires on August 31, 2000.
The Federal Ministry of Economics – to which the
Regulatory Authority reports – recently stipulated that
the current prices will apply through the year 2002.
Discontinuation of the exclusive license
New competitors will be able to enter the market when the
exclusive license is discontinued on December 31, 2002
and Germany’s postal market consequently opens up for
further liberalization. Revenue could come under pres-
sure from lower prices and smaller market shares if we are
not able to compensate with greater market growth.
An examination of the current risk situation indicates
the absence of any risks which posed a threat to the
Group’s existence during the 1999 business year and
that no such risks are discernible for the future.
Management Report