Competitive Strategies under FMO and Intermodal Competition

Abstract

Over the past decade Universal Service Providers (USPs) have become increasingly regulated as their reserved areas have been reduced or eliminated. Indeed, some USPs have already seen their reserved area completely eliminated, and all of the USPs in the EU are scheduled to lose their reserved areas as postal markets are opened up to competition (FMO) in 2011 and 2013. USPs will continue to be required to provide universal service as FMO envisages the retention of the Universal Service Obligation (USO). In addition, there is no sign of reduced regulation to accompany FMO. The situation is clearly paradoxical in that, as postal markets are opened up to competition, regulation is not on the wane but continues to thrive, which is more than can be said for the postal sector. The paradox is usually justified on the grounds that regulation is needed to protect nascent entry from the USP, which is thought to have considerable residual market power. Another justification for regulation is the need to safeguard the USO, thereby offering some protection for small customers. There are inherent tensions between maintaining a USO combined with FMO, which are exacerbated in the face of serious intermodal competition. Despite such tensions, abandoning the current path and eliminating regulation entirely seems highly unlikely. So, this paper will assume FMO along with a USO. The primary focus will be to examine the implications for regulation and strategies for USPs when faced with declining demand for traditional mail products arising from intermodal competition.