Social Costs and Benefits of the Universal Service Obligation in the Postal Market

Abstract

The universal service obligation (USO) is a cornerstone of regulatory policy in the postal sector. In the EU, where the sector is headed towards full liberalization, the USO is the major argument used to advocate some residual regulation. In the postal sector, like in many other network industries, universal service was historically provided by a monopolistic public or regulated operator. While the need for monopoly protection has been increasingly disputed, the very idea of universal service has remained relatively uncontested during the early stages of the liberalization process. The debate was not that much about the appropriate extent of the USO but about the most efficient (or least costly) way to make it competitively neutral, or at least as compatible as possible with competition. This in itself is a challenging question. More recently, however, the USO in itself has increasingly been questioned. The question is whether the social benefits associated with the USO are significant enough to justify its cost and in particular the impediment to competition it often implies. The spectacular development of electronic communications is likely to further fuel this debate. To ensure a sound design of the future regulatory context in the postal sector, it is important not to restrict this debate to political or ideological considerations. The underlying economic aspects are of crucial importance and have to be given thorough consideration. While there are some papers in the literature that deal with this issue, it appears fair to say that most of the contributions on USO have concentrated on the “how” (to implement) rather than on the “why” (to impose it and to what extent). This is true to some extent for all network industries but even more so for the postal sector.