Multi-Modal Competition and the Future of Mail
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Multi-Modal Competition and the Future of Mail

Edited by Michael A. Crew and Paul R. Kleindorfer

This compilation of original papers selected from the 19th Conference on Postal and Delivery Economics and authored by an international cast of economists, lawyers, regulators and industry practitioners addresses perhaps the most significant problem that has ever faced the postal sector – electronic competition from information and communication technologies. This has increased significantly over the last few years with a consequent serious drop in mail volume.
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Chapter 13: Allocating Cost between Universal Services and Services Outside the Scope of Universal Service

Heikki Nikali, Kari Elkelä, Pekka Leskinen, Peter Karlsson and Paivi Rokkanen


13. Allocating costs between universal services and services outside the scope of universal service* Heikki Nikali†, Kari Elkelä‡, Pekka Leskinen§, Päivi Rokkanen¶ and Peter Karlsson†† 28 29 30 31 32** 1 INTRODUCTION Allocation of costs between universal services and services outside the scope of universal services is not clear. Different practices exist for cost allocation among European Union member states. There is a need to set clear rules for cost allocation. The objective of this chapter is to analyze theory and practices for allocating costs between universal services and services outside the scope of universal service. This chapter proceeds as follows. Section 2 describes some background to cost allocation in the postal sector by presenting what has been included in the Postal Directive, the guidelines of the Committee of European Postal Regulators (CERP) and the role of the European Regulators Group for Post (ERGP). In Section 3, cost allocation in Finland is presented, and the dispute between the Finnish Communications Regulation Authority (Ficora) and Itella along with the ‘Deutsche Post’ example are discussed. In Section 4, econometric models of the postal delivery function are presented and discussed in the context of allocation of fixed and volume-based costs to Universal Service Obligation (USO) and non-USO services. In addition, Section 5 discusses how USO costs vary according to different theoretical USO ‘definitions’. Conclusions are presented in Section 6. 2 BACKGROUND TO COST ALLOCATION REGULATION The Postal Directive1 aims to achieve an internal market for postal services and at the same time...

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