Why Royal Mail Is Totally F****d

Tories plan to sell off all of strike-hit Royal Mail

The Tories will sell off Royal Mail not because it fits their privatising instincts but because they have to. Three EU postal directives compel it.

The Universal Service Obligation, which is to protect the basic system, will also disappear in the form that we know it. So, whatever the politicians say in public and whatever the ignorant wankers in the media parrot, the 6 day delivery is on the way out.

Read it for yourself:

* The Universal Service Obligation (USO):

The USO means that, under EU law, all citizens must have their mail collected and delivered at least once a day, five days a week. But, universal service providers are concerned that it will be impossible to do this under full competition.

Providing such a frequent and ubiquitous service to all citizens – whether they live in the city centre, up a mountain or on a small island – is expensive and, up till now, the “reserved area” was the main mechanism that allowed incumbent operators to finance the cost.

Indeed, the reserved area enabled incumbents to maintain a lucrative monopoly over the delivery of letters weighing less than 50 grammes, thereby allowing them to offset losses made on high-cost customers with profits made on low-cost ones.

Once this monopoly is abolished, the fear is that new market entrants will grab hold of the most profitable activities – such as business-to-business deliveries in cities – while neglecting more isolated customers. This would cause incumbent operators to lose the necessary resources for servicing the more vulnerable.

The final directive however identifyies a number of flanking measures that countries can use in order to ensure that the provision of universal service remains financially viable in a competitive market.

Such measures could include funding mechanisms, such as direct state subsidies, cross-subsidisation from profit-making to loss-making activities or the creation of a compensation fund through the introduction of fees on new service providers or users.

* Flexible funding for USO:

The new Directive would allow governments to finance the cost of providing a universal service in the way that best suits their particular situation, so long as it does not distort the market. The Commission is even open to allowing state aid.

But traditional operators are wary of this option because, in the long term, national budgets are always under pressure. Instead, they favour a “competitor-pays” system, where market entrants would be charged fees, in exchange for market or infrastructure access. Such a ‘compensation fund’ is not endorsed by private companies.

Following a request from Parliament, the Directive includes an amendment requiring the Commission to issue 'detailed guidance' on how to calculate the net cost of the universal service in order to create legal certainty, ensure a level playing field among operators and avoid violations of competition law.

For more information on the various funding alternatives, see our LinksDossier on Financing Universal Service.

All talk about state subsidies is misleading because these, of course, are regulated by the EU.