Koninklijke PTT Nederland NV

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Koninklijke PTT Nederland NV

P.O. Box 15000
9700 CD Groningen
The Netherlands
(70) 343 4343
Fax: (70) 343 4321

State-Owned Company
Incorporated: 1989
Employees: 96,254
Sales: Dfl 13.56 billion (US$7.94 billion)

Koninklijke PTT Nederland NV (NVPTT) is wholly owned by the Dutch government. It offers a complete range of products and services used to transmit data, goods, and various forms of currency within the Netherlands and abroad to large companies and to individuals, both as an exclusive license holder and on the open market. As exclusive license holder, it is answerable to the Ministry of Transport and Public Works concerning its obligations to provide a basic telephone and postal service nationwide. It also leases and sells the technical equipment and additional services needed to send and transform data. To achieve these ends it uses technology from fiber optics to satellite links. NVPTT is the holding company for two independent subsidiaries that share the above-mentioned tasks between them. PTT Telecom BV conveys electronic and optical data based on telephone, telex, and data networks, while PTT Post BV handles material goods.

The story of NVPTT can be read as that of a large establishment struggling to become a company, or as the triumph of commerce over politics. More than adapting to new technology and expanding public services, NVPTT’s greatest struggle has been coping with growing demand while being run on the budget of a government department.

National postal management dates from 1803, during the Napoleonic era. Even after the departure of the French in 1813, it was run as an independent service by the Commis-sarissen der Bataafse Posterijen, until annexed in 1819 by the Ministry of Finance. A single administrator from the relevant department ran the postal service part time until it began to grow more rapidly beginning in the 1850s. In 1852 telegraph services, a luxury used primarily by wealthy people, became an operation independent of the postal services and was managed by the Ministry of the Interior. The telephone first made its entry in 1881 with the Netherlands Bell Telephone Company, operating under license in Amsterdam. Other private companies followed suit, and it was not until the German occupation in 1941 that these were all brought under the single management of the already-formed Staats Bedrijf der Posterijen, Télégraphie & Telephony (PTT), whereas postal and telegraph services had been unified on January 1, 1886 in order to share premises and an administration. In 1877 they ended up under the control of the newly formed Ministry for Water, Commerce, and Industry (WCI).

The first move toward the creation of a PTT came under the management of J. P. Hofstede when the section of the WCI responsible for postal services became the independent Administration of Postal Services and Telegraphy (P&T) in 1893. Its Hoofdbestuur, or central management, was in The Hague and run by a director general, not unlike the postmaster general of Great Britain or the United States. From the start, executive independence was not matched by financial autonomy. P&T made large investments in telephony following the introduction of a central exchange soon after 1900. The WCI realized P&T could best serve the national interest when run on a purely independent commercial basis. At the same time, however, many felt that important financial decisions concerning that national interest could not be allowed to pass from the hands of the States General, the Dutch parliament. These competing views of how the P&T should be run influenced the company until its 1989 restructuring.

A temporary compromise was effected in January 1915, during World War I, when the P&T became the State Company of Post and Telegraphy; its most lucrative component, telephony, was still not reflected in the name. It was a company in name only. Moreover, the state did not hesitate to finance part of its war expenditure by raising rates for mail, telegraphy, and telephony independent of commercial considerations. A spate of complaints followed in the 1920s when tariffs kept rising at the same time as the government forced the P&T to cut back on many services due to adverse economic conditions. Problems were compounded by the fact that P&T continued to run at a yearly loss of Dfl 8 million. This led to staff cuts and to labor disputes, which in turn resulted in further deterioration of service.

On the whole, investment, especially in telephony, kept rising. The first local exchange went up in 1911, and ten years later automation of telephone traffic handling was begun. In 1928 telephony was incorporated into the name of the company, which became the State Company of PTT. A great success during both the 1920s and 1930s was the design of a corporate image. The architect H.P. Berlage and the proponent of the De Stijl movement Gerrit Rietveld became involved with buildings and furniture, while the PTT General Secretary J.F. van Royen, who was to lose his life during the German occupation of 1941, ensured that the corporate identity was carried out and evident in every aspect of the business, from typography to office cutlery and stamps.

In 1925 the new director general, M.H. Damme, led an efficiency drive that made the PTT profitable, offering more services while decreasing its work force. Expanded postal traffic led to new branch postal facilities in remote areas, an idea that has returned to popularity. A night service was established in 1929, and the airplane improved international delivery in 1930. That same year a decision was taken to automate the whole telephone network, local as well as trunk traffic, and the country was divided into 13 districts and smaller sectors, each with its own exchange.

The PTT did not escape the consequences of the Great Depression. Demand for services fell and the government, whose main task was to finance the growing budget deficit, extracted maximum profit by setting a minimum percentage in its budget. The PTT, forced to economize, cut down on building programs and personnel. Between 1932 and 1936 it lowered salaries and introduced part-time work. The PTT moved to the Ministry of the Interior in 1933, but its request to build a reserve fund from surplus profit to preserve continuity of investment in lean years was refused because the States General felt its budget rights would be affected. M.H. Damme continued to strive for financial independence and in 1940 pressed for the whole PTT to become a corporate body with corporate rights. He wanted the director general to have the authority to set tariffs independent of the Ministry of the Interior, while profit accruing to the state was no longer to vary according to fiscal needs. It was the high command of the German occupying forces who approved the scheme, and the PTT was incorporated on March 31, 1941.

Independence, however, remained a dream. The occupying forces used the PTT for their own ends and maintained total control. After liberation, the government reharnessed the PTT in the drive for national reconstruction. As reconstruction involved thorough industrialization, the PTT expanded rapidly on the basis of generous government investments.

Although the government did not oppose retaining the PTT as a corporation, the Second Chamber of the States General still would not surrender control. The government withdrew its initial proposal in the face of Second Chamber criticism, and when the PTT was made a state company for the second time, in 1955, it had gained only a marginal amount of room to maneuver. The old Hoofdbestuur was rebaptized as the Central Directorate.

A telex network was introduced in 1956 and became one of the most used networks in the world, but other plans hit the wall of new governmental spending restrictions and shrinking investment, which led to complaints from manufacturers when the PTT canceled some orders. Management still believed the only solution lay in access to loans on the capital market and formulated yet another proposal for incorporation as a public company attempting to accommodate the expected complaints from the States General. The PTT wanted the ability to draw up investment plans covering more than a single year; instead, it received permission to finance investment partly from its own profits. New tariffs reflected this.

Boom years followed, beginning in the late 1950s. The PTT achieved a fully automated telephone network on May 22, 1962, second only to the United Kingdom. New problems arose at the same time; the PTT began losing personnel to the growing and better-paid private sector, and its investment plans were thwarted by the government’s “conjuncture politics,” in which levels of investment stood in inverse proportion to growth in other sectors in the economy so that a spread might be achieved. Thus a brake has put on growth at the moment of greatest demand.

These problems provoked the formation of the Goedhart Commission, the first of a series of government commissions. It advised in 1963 that the PTT might be allowed to make decisions autonomously on large-scale investments, although independent company status was still deemed to infringe on the right of the Second Chamber to control the PTT. The proposals resulted in great confusion as several cabinet members disagreed with the Second Chamber and with each other. This stalemate had serious consequences in the early 1970s. Rising prices and high wages dented the PTT’s profitability, and in 1971 profits were halved. In 1973 the Minister of Finance extracted Dfl 87 million from the PTT to finance his budget and was less willing than ever to contribute to the PTT’s investment needs. Rates rose steeply, and by 1974 everybody was tired of the fruitless debates over autonomy. Even though the state siphoned off increasing amounts from the PTT, exceeding Dfl 1 billion in 1982, the PTT managed to fund its investments internally, while continuing to grow. The PTT started Viditel in 1981, a videotex system supplied by Britain’s General Electric Company, using Prestel (U.K.) standards. In March 1982 the new backbone of data transport, a packet switched data network (PSDN), Datanet 1, was introduced and was fully connected to other PSDNs and the Dutch network by 1984. The PTT’s activities extended further, into the installation of broadcasting stations for Dutch television. The PTT set up a subsidiary, Caserna, to install and maintain cable television systems. Another subsidiary, Nepostel, acts as a consultant to Third World countries. The PTT was one of the tightest monopolies in the European Economic Community (EEC) and could not escape criticism, which became increasingly loud during the 1980s. Users complained about the deficient supply of leased lines, the prices of available terminal equipment, the high tariffs, and the uncertainty of the PTT’s long-term policy. In 1986, in response to violent criticism over congestion, the PTT had to embark on a crash Dfl 12 billion program to install digital switches between Rotterdam and Amsterdam. The postal division had been running at a loss for a while—its losses reached Dfl 14 million in 1984—and only two-thirds of 400 technical posts could be filled in 1984.

The government knew, too, that change was inevitable, and two influential commissions, the Swarttouw Commission in 1981 and the Steenbergen Commission in 1984, helped the government accept that the PTT would be privatized. The Steenbergen Commission laid down the conditions for the PTT’s privatization of 1989. Many factors made a new structure imperative. The immense advances in technology affected the whole infrastructure of the telecommunications industry and required unheard-of levels of investment, which the state did not want to take upon itself given the prevailing high interest rates. At the same time demand was higher than ever. In addition, a new ideological climate favored rolling back the power of the state while favoring free competition, and the need to attract skilled personnel required market-based salaries.

The main structures of the new PTT were approved by a Cabinet decision on November 22, 1985. Prime Minister Ruud Lubbers justified the 100% government stake in the limited liability company by pointing out that it was not a question of privatization so much as giving more flexibility to the PTT. The new holding company would contain two main subsidiaries, PTT Telecom BV, to deal with electronic and optical data transmission, and PTT Post BV, to transport physical data. This split reflected the fact that telegraphy had virtually disappeared, and postal and telephone services no longer shared the same physical location. They also differed completely in character, telecommunications being capital-intensive and postal services being labor-intensive. Another service, the Rijkspost Spaarbank (Statepost Savings Bank) and the Giro Bank were hived off in 1986. The third main function of the old PTT, the regulatory and franchise functions, would be transferred to a new office in the Ministry of Transport and Public Works, as Regelgeving and Vergunning voor PTT (Regulations and Licenses of PTT). Both PTT Telecom and PTT Post would be run by one five-member executive committee, itself supervised by a board of at least seven directors, of which three are directly nominated by the Ministry of Transport and Public Works. Further restrictions comprise a rates structure linked to indices of the Central Planning Office and several conditions attached to the running of basic telephone and postal services under exclusive license. The PTT would now be required to pay the government corporate tax as well as shareholder dividends.

A further split recommended by the Steenbergen Commission provoked a lot of argument: to separate the licensed monopoly functions—the provision of telephone lines—from the services open to competition—selling telephone equipment— by creating two telecommunications companies. There were two reasons: to protect the public interest from the commercial risks of the open market with respect to rates and to prevent the PTT from cross-subsidizing its private and public ventures and thus prejudicing fair competition. The PTT was vigorously opposed to this, on the grounds that it would prevent the company from exploiting economies of scale between the provision of basic and extra services. The final result was a strict separation between the money flow and accounting systems of each activity rather than a split, although there is a proviso for such a separation to occur by 1994.

On January 1, 1989, after a century and a half of struggle, NVPTT was incorporated. Every household in the Netherlands received a letter from Director General W. Dik promising better service. NVPTT did not escape censure in the press when it allegedly saturated the private automatic branch exchange market, a large and very restricted one until then, with price reductions of 30% to 50% a month before privatization.

The new status of the PTT coincided with an EEC paper on liberalization in the telecommunications industry suggesting a very different market. As Ben Verwaayen, president of PTT Telecom BV since 1988, said in January 1990: “There is no single market anymore. There is no consumer and business market. There is only a services market in which business clients and consumers, basing themselves on their own logic, decide to consumer or not. … Market decisions are even more difficult than the new technology.”

The PTT’s way of redefining the nature of its business during the 1980s has been a policy of total client responsiveness, achieved by renewing and expanding processes and capacity in two areas: first, connecting the client to the infrastructure, and second, enhancing his user capacity. Hence there was a strategy of relentless modernization; digitalization was on course for completion in the year 2000. A five-year plan, started in 1988, aimed to standardize language and procedures within the company. Staff, no longer civil servants, yet still working for the nation’s largest employer, were encouraged to take responsibility at the lowest level and work as small independent units, a modular approach that is more market responsive. Research, on which NVPTT spends on average more than Dfl 100 million per annum, is still carried out by a wholly owned subsidiary with a staff of 480, the Dr. Neher Laboratories at Leidschendam.

PTT Telecom BV is well positioned for the largest-growth telecommunications industry, mobile telephones, where the differences between cellular and cordless varieties are becoming ever smaller. It already had an effective monopoly on car phones since 1988. There were 100,000 such customers in 1990, and numbers were expected to rise to 500,000 by the end of the 20th century. The most important task, however, was the completion of an integrated services digital network (ISDN), which would allow users to transmit speech, text, data, and images simultaneously. Trials with a link-up to Germany were started in 1989 in Rotterdam, and ISDN had to be more widely available after 1991. With national borders becoming less relevant, European and worldwide standards for the new technology were to be consolidated with the utmost urgency before greater exploitation. NVPTT has realized, however, that the field needs a market leader, even if in research only. PTT Telecom BV aims to offer complete “tele-information” packages, both at home and abroad. All these are open to competition, yet were so highly restricted prior to 1989 that they were poorly developed. Viditel does not have many users. One new facility, electronic data interchange, standardized by the United Nations, is widely advertised by PTT Telecom BV and used by customs, ports, banks, and doctors.

PTT Post BV has benefited from a similar drive toward rationalization and product diversification. New services like guaranteed 48-hour delivery for large users and extended business hours have proven effective. The most important step forward was the creation in September 1990 of a new entity in the fast-mail market: express mail service (EMS), or PTT POST EMS, which uses advanced computer techniques for the tracking and tracing of items. Both companies are being groomed for a more challenging race in the international market. With some of the lowest tariffs and highest standards in Europe, despite the relatively easy run in the past, NVPTT is off to a good start in the new market for individualized services.