UPDATE 2-Minimum wage plan scuppers Deutsche Post rivals

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By Nicola Leske

FRANKFURT, Dec 4 (Reuters) - German government plans for a minimum wage in the postal sector have made rivals rethink their challenges to Deutsche Post (DPWGn.DE) when its monopoly on domestic letters drops away next year.

One of Deutsche Post's main rivals, mail delivery company PIN Group, said on Tuesday it will have to cut more than 1,000 of its 9,000 jobs in Germany due to Berlin's plans to put a floor under wages in the sector.

The government last week agreed to set minimum pay rates of up to 9.80 euros ($14.45) per hour, depending on an employee's level of responsibility. The law will apply from Jan 1, 2008.

The sum is far more than competitors to former state monopoly Deutsche Post now pay their staff.

Contrary to other European countries, Germany does not have a nationwide minimum wage. Instead, the government can set minimum wages for individual industry sectors.

German Chancellor Angela Merkel opposes a blanket minimum wage, reasoning that a statutory minimum wage would create new problems and could put jobs at risk.

So far, only builders, electricians and industrial cleaners are covered by a statutory minimum wage.

Merkel told German TV channel N24 on Tuesday that the government would keep a close eye on developments in the postal market and draw lessons from it for other sectors.

Rivals argue that 20,000 to 60,000 jobs will be lost as a result of minimum pay and criticise the legislation as an attempt to protect Deutsche Post from competion, industry association DVPT said.

"Only TNT and PIN would have been able to offer nationwide letter delivery next to Deutsche Post," the association said.

It also said it expects small, local companies to pull out of the market because they cannot deliver enough letters to offset higher labour costs.

PIN Group, which is majority owned by German publisher Axel Springer (SPRGn.DE), said it will now sound out options for its future with the help of a consulting firm.

The news comes a day after Dutch mail and logistics company TNT (TNT.AS) said it had put on hold a cooperation deal with Hermes, the logistics arm of German mail order house Otto's.

Higher wages would make it harder for TNT to compete and be profitable in Germany, where Deutsche Post's market share is more than 90 percent for letters, TNT argued.