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This Postal Service Plans To Put Its Stamp On The World (Int'l Edition)


International -- European Business: NETHERLANDS

THIS POSTAL SERVICE PLANS TO PUT ITS STAMP ON THE WORLD (int'l edition)

Holland's private, profitable KPN takes on UPS and FedEx

Forget your old image of a post office. In the drab working-class neighborhood of the Dutch city Den Bosch, the building housing the local post office is brightened by a hot red decor. Inside, counters full of books, magazines, stationery, and candies lure customers. The mail desk is set off in the back corner. "We're a bookshop first and post office only second," says owner Bernard Sleeuwen. "Only about a quarter of our sales come from stamps."

In a Europe filled with stodgy, state-run postal monopolies, the Royal PTT Nederland (KPN) is an anomaly, to say the least. The company, which brings together the Netherlands' national telephone and postal operators, is Europe's only private postal service--and the only one that is earning money. Nimble and innovative, KPN reported in mid-March that its 1996 net income rose 9.1%, to $1.3 billion, on $11.2 billion in sales. Postal revenue surged a record 31%. And while the telephone unit will lose its local monopoly in July, analysts predict the long-overlooked postal division will power KPN's growth in the years ahead.

That's because KPN now is pushing postal frontiers even further. After acquiring Australia's international transport group TNT Ltd. for $1.6 billion late last year, the Dutch company is taking on giants such as Federal Express Corp. and United Parcel Service Inc. in the global courier business. "Before we were a strong Dutch company," declares Ad Scheepbouwer, PTT Post president. "Now we're a strong global competitor."

A BREAKUP AHEAD? KPN has prospered by experimenting freely with traditional postal services. Years ago, the company pioneered remailing, picking up U.S. companies' overseas mail and shipping it in bulk for delivery around Europe. More recently, it has opened shops around the Netherlands devoted to direct mail campaigns. To slash costs, the company has franchised 1,600 of its smaller post offices, keeping ownership of only big center-city outlets. And KPN is building 10 high-tech sorting centers, which are expected to save $350 million every year by 1999.

But the acquisition of TNT is KPN's boldest move so far. Europe's courier business is littered with casualties. Both ups and FedEx have run up big losses on the Continent. Back in 1992, FedEx shut down its internal European services, while ups admits losing almost $500 million in Europe in 1994 and 1995. Since the TNT takeover, client Deutsche Bundespost has canceled its contract because it sees KPN as a dangerous competitor. "This is a fast-changing business, far different than running a post office in Europe," warns Steven Vrolijk, senior equity analyst of ing Barings Research Amsterdam.

Competitors such as ups already are throwing nasty counterpunches. The U.S. company, which is investing $1.1 billion in European expansion through the end of the century, filed an antitrust complaint last year with the European Commission about the TNT takeover, alleging that KPN illegally subsidizes its parcel and express mail activities with its domestic letter monopoly. "KPN has the best of both worlds: a legal monopoly and commercial freedom," complains ups Vice-President Anton van der Lande. Retorts Scheepbouwer: "I would love to give up our monopoly if other post offices would do the same." Brussels has rejected the cross-subsidy charge and approved the merger with TNT, he adds.

After a strategic review, Scheepbouwer says that he plans to sell TNT's money-losing domestic Australian transport operations. And he plans to merge KPN's 12 international express mail offices in Europe with the 140 outlets operated by TNT. "By combining, we will get a better market presence," he says.

Many analysts applaud that logic. But others argue that KPN should split itself in two now that it has merged with TNT. As a result of the acquisition, KPN's postal and telephone revenues are now about equal--close to $5.5 billion each. A breakup could "unlock shareholder value," says James Downie, telecommunications analyst at abn Ambro Hoare Govett in London. KPN shares, which currently trade at $35, have lagged behind the Amsterdam market index by 26% in the past 12 months, he says.

Until recently, KPN's management has resisted any talk of a breakup of the company. But now Scheepbouwer says he will give it "serious consideration" and decide "by the end of the year."

If the spin-off goes ahead, it would free Scheepbouwer from worries about KPN's telephone monopoly, and leave his pioneering postal services group to take on global rivals alone.By William Echikson in The Hague


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