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Business

Deutsche Post Threatens Job and Service Cuts

In preparing to privatize the postage industry, German regulators tell the monopoly to reduce postage costs beginning next year. But the company cries foul.

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Deutsche Post employs 320,000 people at 13,000 branches throughout Germany.

The German postal services company Deutsche Post AG may cut 10,000 jobs and close up to 1,000 branches nationwide in the wake of a demand by German telecommunications regulators that the company cut postage costs starting in 2003.

The decision from the Regulatory Office for Telecommunications and Post, or RTP, came as an attempt to phase out the Deutsche Post’s monopoly position in letter deliveries by the end of 2007.

The regulators’ decision to ask Deutsche Post to lower prices by up to 7.2 percent on letters and some other products could ultimately save consumers 300 million euros ($297 million).

Earnings Drop Forecast

Deutsche Post Chief Executive Klaus Zumwinkel called the decision "economically incomprehensible" and said it would cut some 1.5 billion euros ($1.48 billion) off its earnings by 2007.

For consumers, this would mean stamps for first-class letters within Germany or the European Union would drop from 56 cents to 55 cents (55 to 54 US cents).

The German federation of chambers of commerce, meanwhile, welcomed the postage reduction – calling it "long overdue" and calling for further steps toward privatizing the postal market. The German government still owns 69 percent of the Deutsche Post, which has 320,000 employees at 13,000 branches.

Stamp Costs in the EU

Postage costs in Germany are higher than many other EU countries. In France, a letter sent within the country or within the EU costs 46 cents; while from Spain, first-class letters cost 25 cents within the country and 50 cents within the EU.

A first-class letter sent from the Netherlands to other EU countries costs 54 cents. Italy is one of the most expensive places in the EU for sending first-class mail: stamps for letters sent within the country or the EU cost 62 cents.

In England, which has retained its own currency instead of joining the euro-world, domestic first-class stamps cost 27 pence (42 euro cents) while stamps for EU delivery cost 37 pence (58 euro cents).

Klaus Barthel, chairman of the Bundestag subcommittee on postal services said the regulatory price cuts are not as drastic as the Deutsche Post claims.

Decision Follows Hit from EU

For Deutsche Post, the decision’s timing plays a role in Zumwinkel’s reaction. It came just a month after the European Union Commission announced that Deutsche Post must repay some 572 million euro ($565 million) in state funding for illegally subsidizing its package delivery service.

After the Wednesday announcement from the RTP, Deutsche Post’s stock tumbled to a record low. By the end of the day, prices were at 12.10 euro ($11.97) – nearly half of what they were at market introduction in late 2000. The slide continued on Thursday: in late afternoon trading the stock was selling at 11.86 euro.

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