Advances in Regulatory Economics series
Edited by Michael A. Crew and Timothy J. J. Brennan
Chapter 14: The net cost of the USO under the profitability cost approach: implications of labor market conditions for the net cost calculation
The cost of meeting the Universal Service Obligation (USO) and its funding became important following postal market liberalization in the late 1990s. More recently, there has been renewed interest in the appropriate approach to assessing those costs as reductions in demand for mail could reduce the ability of USPs to fund the USO. Another impetus in Europe is that Directive 2008/06/EC allows financing of the cost of the USO through either compensation from public funds or cost sharing between providers of services and/or users. In a recent study for the European Commission on the principles used for estimating the net cost of the USO (Frontier Economics, 2013), the current state of play in relation to the calculation of the USO cost was assessed throughout the European Union. Out of the 28 countries surveyed, the net cost of the USO has been calculated in at least 13 countries (Belgium, Norway, Spain, Italy, Ireland, Estonia, the Netherlands, Bulgaria, Slovakia, Denmark, the UK and in two other European countries (confidential)). In most of these cases, the calculation has been undertaken by the universal service providers (USPs). A survey as part of this study suggests that following the full liberalization of the market achieved in all countries by the end of 2012, more USPs and/or national regulatory authorities (NRAs) might start considering calculating the net cost of the USO.
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