A Method to Assess the Impact of the Universal Postal Service Obligation

The notion of unfairness of the financial burden resulting from the universal service obligation (‘USO’) finds its application in a number of contexts, among which the postal sector. Although the notion of the unfairness of the burden of the USO is embedded in the European postal regulatory framework since it was first introduced in 1997 by the first European postal directive, we observe a lack of a rigorous and robust methodology to assess unfairness by national regulators. Similarly, academic research on this subject matter has not yet developed a methodological framework to assess unfairness. Methodologies that rely exclusively on arbitrary thresholds based on ratios of revenues and costs of the USP, while easy to apply, are not supported by a clear economic rationale. This paper aims to fill the gap by developing a methodology to identify the difference in profitability between USPs that bear the USO and their comparators. We show that this method can be applied by means of a traditional non-parametric comparator approach, and by means of a regression analysis. We also describe how one can apply this profitability benchmarking approach to USPs that do not offer exclusively (or mainly) postal services, but operate across different sectors (e.g. financial services).