Risks arising from the political and regulatory environment

Risks associated with the general business environment primarily arise from the fact that both the Group and its subsidiaries provide some of their services in a regulated market. Our statutory exclusive licence was abolished in Germany on 1 January 2008. However, the Postgesetz (German postal act) has allowed exceptions enabling competitors to operate within the weight and price ceilings laid down in our exclusive licence from January 1998 onwards. By the end of the year, the regulatory authority (Bundesnetzagentur – German federal network agency) had issued licences to around 1,500 competitors, around 840 of which operate in the market.

On 7 November 2007, the regulatory authority announced a benchmark decision specifying the conditions that would apply from 2008 until the end of 2011 to regulation under the price-cap procedure for mail prices requiring approval. This stipulates the general rate of inflation and the expected productivity growth rate for Deutsche Post AG as the key factors applicable to mail prices subject to approval. Prices have to be lowered if the inflation rate in the reference period is less than the productivity growth rate specified by the regulatory authority. Mail prices requiring approval will remain largely unchanged in 2010. The regulatory authority accepted an application from Deutsche Post AG to this effect on 17 November 2009.

The third EU Postal Directive came into force on 27 February 2008. The Directive requires most EU member states to open up their markets by 2011, although the nine most recent members plus Greece and Luxembourg have the option to defer the opening of their markets until 2013. Until then, the previous limits continue to apply across the EU, with reservable services restricted to a maximum of 50g or two-and-a-half times the standard letter price. It is now possible to plan with certainty for the future regarding the date by which all national monopolies in Europe must fall.

Whilst liberalisation of postal markets entails risks for Deutsche Post AG due to increased competition in Germany, it also opens up new opportunities in other European postal markets. In 2009, cross-border mail in Europe between Deutsche Post AG and 13 other western European postal operators was governed by the REIMS III agreement and with another nine Eastern European postal companies by the REIMS EAST agreement. REIMS IV came into force on 1 January 2010 as the successor to these two agreements.

Discussions continue regarding the extent to which postal services should be exempt from value added tax (VAT). An amendment to the Umsatzsteuergesetz (German value added tax act) currently in preparation will reduce the VAT exemption for Deutsche Post AG. A bill to this effect was adopted by the German cabinet on 16 December 2009 and is set to become law on 1 July 2010. Under the new rules, the VAT exemption will only apply to specific universal services pursuant to the EU Postal Directive that are not subject to individually negotiated agreements or provided on special terms (discounts etc.). Any enterprise that offers some or all of these services nationwide in Germany will qualify for the VAT exemption.