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EU Fines Deutsche Post $540 Million

The European Union's European Commission ordered Deutsche Post yesterday to pay more than 572 million euro ($540 million) for offering door-to-door parcel delivery services at below cost during the 1990s.

The German government, which retains a majority stake in Deutsche Post, has two months to notify the EC how it intends to recover the money, commission spokesman Michael Tscherny said.

The commission, which is the EU's executive arm, charged that from 1994 to 1998 Deutsche Post offered door-to-door package delivery services to businesses at “dumping prices,” undercutting private competitors and racking up “substantial losses.” After a three-year probe, regulators concluded that Deutsche Post was covering the deficit with revenue from areas where it still has a monopoly, such as letter deliveries, or other state resources.

The probe was sparked by complaints from competitors, including United Parcel Service.

“Today's decision is a further reminder that beneficiaries of state support for public interest services must not use this support to finance sectors open to competition,” EU competition commissioner Mario Monti said in a statement.

The commission put the amount of the deficit at 572 million euro, plus interest. Deutsche Post said the total would be 850 million euros, or one-third of its annual profit.

Bonn-based Deutsche Post chairman Klaus Zumwinkel denied any wrongdoing in a statement and said it would take the matter to the European Court of Justice in Luxembourg. It also accused the EU Commission of applying double standards in eaching its decision and said it stands in blatant contradiction to the commission's decision on state aid in Italy as well as in Ireland earlier this year.

“In contrast, Deutsche Post, which has successfully restructured and is therefore profitable, is being punished by a totally incomprehensible repayment decision,” Zumwinkel said. “We demand the same legal and political treatment as other European postal companies and intend to pursue this by filing a suit in the European Court of Justice.”

Deutsche Post began an ambitious effort a decade ago to expand into the express mail and parcel business, building dozens of ultramodern parcel centers in Germany and acquiring dozens of delivery companies around Europe, including DHL International.

In a related case, EU antitrust regulators fined Deutsche Post 24 million euro in March 2001 for abusing its dominant position in Germany by offering special rates to companies in exchange for sending all parcels of a certain size with them, and shipping packages for special customers at below-cost prices.

Deutsche Post agreed then to set up a new company to handle business parcel operations to avoid cross-subsidization from monopoly areas.

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