It should not close any post offices if possible. She should get along without tax money. It should not compete with the private sector. Politics demands a lot from Swiss Post – too much.
Politicians’ demands on Swiss Post are characterized by wishful thinking.
It’s going to be serious soon. The Federal Council is expected to present its plans for the future of Swiss Post this summer. It will be the starting point for a monster debate.
In Parliament, when deliberating on the postal law, wishes will collide: a majority will want to reduce basic services to a maximum of homeopathic doses. The bourgeois camp is likely to insist that the postal service continues to provide basic services without subsidies.
In addition, Swiss Post has been criticized for various company acquisitions. The demand that Swiss Post not compete with the private sector outside of its core business is booming.
The best of all worlds
Thanks to the profits from Postfinance and the proceeds from the letter monopoly, the post office was something of a jack of all trades for a long time. In recent years, Parliament has not relaxed the requirements for basic services, but tightened them up. Nevertheless, contrary to a popular misconception, Swiss Post does not receive any tax money. Rather, it distributes dividends to the federal government.
However, the supposed perpetuum mobile no longer works. E-mail and apps are displacing letter post. Postfinance suffers from the low interest rates. The company’s financial prospects are bleak.
The post trilemma
Politics is stuck in a trilemma: self-sufficiency, the preservation of today’s basic service and competitive neutrality cannot be reconciled. The Federal Council and Parliament cannot avoid making compromises somewhere.
If Swiss Post is to continue to finance the basic service from its own resources and not “poach” outside of its core business, the public service must be significantly reduced. If politicians want to freeze the basic service more or less at the current level, new sources of financing are needed: Either the post office has to receive state compensation. Or it is forced to finance the cost of basic services through risky expansion.
Swiss Post is expanding
With the “Swiss Post of Tomorrow” strategy, the Group has, to a certain extent, anticipated the political decision. The number of post offices is to be stabilized at around 800. This means that there is no longer any room below; as of March, the post office operated 792 of its own branches.
At the same time, Post boss Roberto Cirillo emphasizes at every opportunity that the company does not want to hollow its hands with the federal government. Instead, the basic service should be cross-financed by new business activities in the medium term. The focus is on the Communication Services division, which was founded in 2021. Several Swiss Post company takeovers can be attributed to him.
Above all, the purchase of the software company Klara is controversial. Due to a complaint by Klara’s competitor Abacus, the Postcom supervisory authority is dealing with the question of whether Klara is being cross-subsidised with income from the basic service. According to Postcom’s annual report presented on Tuesday, the “detailed investigations” are still ongoing.
What is allowed – and what is not
In principle, Swiss Post may cross-finance the basic service with all of its income. That is politically desirable. In this way, up to 50 grams of holes in the loss-making post office network can be plugged with income from the monopoly for letters.
At the same time, however, the legislator wanted to avoid distortions of competition. No money may flow from the letter monopoly into competitive areas. Abacus fears that the Post is violating this ban. Whatever conclusion Postcom comes to, there will be no consequences.
Losses with stationery items
Whether Swiss Post violates the ban on cross-subsidization is checked in three steps. First of all, it is examined whether Swiss Post is making losses outside of the basic service. This would indicate that revenues from the basic service flow into the competitive area – instead of the desired in the opposite direction. Swiss Post has not been able to provide this so-called flat-rate proof since 2019. Outside of basic care, she was in the red.
In a second step, Postcom therefore checked whether individual products could benefit from cross-subsidization. This is the case when the revenues do not cover the costs. In the years before 2021, Swiss Post was in the red with individual products that it sold in its branches.
According to Andreas Herren, Postcom’s communications officer, these included gift cards and stationery items. Swiss Post has now removed most of the loss-making items from its range. Economic considerations are likely to have played the main role. In any case, Postcom could not have forced Swiss Post to do so.
Devil is in stand-alone costs
According to the Postal Ordinance, it is not prohibited for the group to make a loss in the competitive area and individual products or services are in deficit. A potential target of prohibited cross-subsidization has thus been identified – but not yet a source.
A third criterion must be met before Postcom can intervene: in the letter monopoly, the revenues must exceed the so-called stand-alone costs. This is fundamentally obvious. Only if profits are made in the monopoly can this be considered as a source of cross-subsidisation.
That has never been the case in the last four years. In 2021, Swiss Post achieved a “deficit” of 283 million francs in the letter monopoly. The quotation marks are no coincidence. The devil is in the word stand-alone expense. These are hypothetical costs. The calculation is carried out as if Swiss Post were exclusively active in the letter monopoly.
This is good news for Swiss Post. The theoretical stand-alone costs are naturally higher than the actual costs. In reality, there are considerable synergies with the delivery of letters over 50 grams (outside the monopoly) and parcels. These are deducted from the stand-alone costs relevant to Postcom.
Wishful thinking doesn’t help
This means that Swiss Post hardly runs the risk of being accused of illegal cross-subsidization. Until recently, this was not particularly problematic. The fact that the post offices looked like general stores at times may have caused irritation. However, the resulting distortion of competition was negligible.
Things are different with the new Swiss Post strategy. If the management has its way, Swiss Post will develop into a major player in digital markets. There is no guarantee that funds from the letter monopoly will not be used to set up the communications services division. Postcom’s hands are tied because of the applicable regulation.
The ball is in politics. When the postal law is revised, this will have to prove whether there is more to the complaints about distortions of competition by the postal service than political theatre. If so, the requirements for basic services would have to be lowered or state compensation introduced. The trilemma mentioned at the beginning cannot be conjured away with wishful thinking.