Liberalization and the Universal Service Obligation in Postal Service

Abstract

The purpose of this paper is to examine the apparently conflicting objectives of liberalization,1 which we define as allowing competitive entry into traditionally monopoly postal markets, and retaining the Universal Service Obligation (USO) in unmodified or even enhanced scope. Specifically, we are attempting to answer the question of whether it is possible to allow entry while retaining the USO and at the same time provide the efficiency benefits that stem from competition. Our approach is concerned with the feasibility and efficiency of liberalization. Thus, our approach differs significantly from most of the work currently being undertaken which is concerned primarily with the costs or burden of the USO.2 Furthermore, the issue is highly topical with the European Union currently in the process of considering its policy on liberalization of delivery markets including mail, and with similar issues under consideration in the United States.3 The move toward liberalization, however, does not free the national postal administration from the USO. In the United States the proposed reform (H.R. 22) reduces the monopoly limit but retains the USO unchanged. The EU goes further in making the USO more onerous in the sense that it aims to apply standards of uniformity in service throughout the EU, which on average results in an increase in service quality. It is against this background of liberalization with a continuing USO that this paper is written.