Friday, August 11, 2017

Is Mandatory Access to the Postal Network Desirable and If So at What Terms?

Damien Geradin, Tilburg Law & Economics Center (TILEC); University College London - Faculty of Laws asks Is Mandatory Access to the Postal Network Desirable and If So at What Terms?

ABSTRACT: Access to the network is one of the key tools used by regulators to stimulate competition in network industries. For instance, incumbents in the telecommunications sector, in the European Union and elsewhere, are typically mandated to grant access to their network to their rivals. Third-party access to the network requirements can also be found in the energy (gas and electricity) and rail sectors. The questions this paper seeks to address are (i) whether postal incumbents should be mandated to give access to their network and, if that is the case, (ii) at what terms. These questions are addressed by reference to the specific features of the postal sector. 

Mandatory access to the postal network is generally not necessary since the postal network is not a monopolistic bottleneck and end-to-end competition is generally possible. However, should public authorities decide to mandate access, the regulator should allow the incumbent to set the prices for access to its network. This will not amount to laissez faire considering that, with respect to the setting of its access prices, the incumbent is typically subject to tight regulatory and competition law constraints. If the regulator nevertheless wants to set the access prices, it should calculate these prices on the basis of the ECPR methodology. This methodology presents the advantages that it promotes efficient entry, and has no impact on the profits of the incumbent and its ability to perform its missions of universal service. The regulator should, however, be concerned by the cream-skimming risks that may occur when rivals use a mixed by-pass strategy whereby they provide an end-to-end service in low cost areas and rely on the network of the incumbent to deliver mail destined to high cost areas. In such cases, the regulator should vary access prices depending on the incremental costs of the incumbent to deliver mail in different areas (“zonal pricing”). 

Given the transaction costs that are generated by the adoption of a mandatory access regime at regulated prices and the risks it presents for universal service, it is questionable whether such a regime is worth it. That is especially the case considering that access-based policies only expose a relatively small amount of costs to competition (competition at the margin) and therefore the price reductions it will trigger will generally be small and only profit to large postal users.

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