EU Internal Market Commissioner Charlie McCreevy said that, although the financing issue is important, there is a “temptation to over-emphasise it”, adding: "Many of us tend also to forget that the universal service may in several respects be judged more an asset than a burden." He said the new Directive would give member states "the broadest possible flexibility to share out any unfair burden or organise compensation mechanisms", but warned: "We must guard against the application and accumulation of disproportionate safeguards that simply substitute one form of a monopoly for another."
The President of France's La Poste, Jean-Paul Bailly, insists that the universal service must be "correctly" financed if the current monopoly is to be abolished. Among the Commission's proposed funding options, he believes that state subsidies, taxes and compensation funds are inappropriate. "The first option suffers from budgetary weakness, the second would increase the burden for consumers and the third would mainly be filled by the historical operator. As for saying that we have to finance the universal service through productivity efforts, this is out of the question!"
Rather, Bailly favours a 'pay or play' mechanism where new market entrants would either have to take on a share of public-service missions proportional to their financing capacity and their size, or contribute to a fund.
According to a study commissioned in 2006 by 9 universal service operators to the independent consultancy Oxera, none of the financing possibilities proposed by the Commission is fully satisfactory, in particular, as regards financial security and social equity. On the other hand, it finds that the reserved area provides a stable financial source, making it less likely that the ongoing provision of the universal service be put at risk.
Derek Holt, author of the study, explained to EURACTIV: "There is a key trade-off being practicality and simplicity versus pure economic efficiency…For some member states, the most important consideration might be focusing on stimulating more innovation and efficiency...Whereas in others, the importance of preserving a universal service and avoiding a complicated financing mechanism might be the most important criteria – in which case, they are more likely to want to preserve their existing approach." (For full interview, click here)
According to Dr. Hans-Dieter Petram, member of Deutsche Post World Net's board of management, "market forces will perfectly replace universal service regulation and will most probably do a better job" for the 85 % of standard mail from business customers. Thus, he believes that the universal service should be confined to ensuring the provision of services to residential and smaller business users and that "reliable" financing mechanisms, which "have already been successfully employed in postal or electronic communications and elsewhere", are already at hand if needed. "I emphasise 'if needed'; because if we look at Sweden, we find that universal service has been provided without any subsidies for more than ten years now."
Among these mechanisms, he sees public funds as the preferable solution, "in virtue of the principle 'who orders, pays'", but stresses that they must be paid in a transparent, objective and non-discriminatory way. However, in view of the limited availability of public resources or budgetary restrictions in certain member states, he adds that compensation funds provide a good alternative "by sharing net costs proportionally among the service providers active in the relevant market".
Nigel Stapleton, chairman of UK mail regulator Postcomm rebutted the suggestion that competition and regulation were threatening the universal service in the UK. "Competition is already benefiting large mailers through better services and competitive prices, and retail mail users through significant improvements in Royal Mail’s quality of service. The Universal Service remains secure and despite some recent weakness in Royal Mail’s revenues, the company continues to make a profit from providing it," he stressed, adding that the decline in Royal Mail's profits is not due to competition from other postal operators but due to Royal Mail's "inability to control its costs and its need to finance the growing pension fund deficit".
In a report published in March 2007, the Swedish Post and Telecom Agency concluded that "there is nothing in the Swedish experience that may indicate that competition in the entire postal market should be regarded as a problem". The Agency criticises the "old but erroneous argument" that monopoly gains are needed to finance the universal service, saying that Sweden has survived perfectly well without any reserved areas whatsoever. "Swedish legislation is founded on the notion that the universal service can be provided on a strictly commercial basis, which has proved to be correct," it states.
The report underlines the need to take into account the benefits of universal delivery for the USP, saying that the possession of nation-wide collection and distribution systems and the ability to provide customers with a one-stop-shop for all kind of postal services must be considered a considerable asset. "The USP, being the only operator capable of offering this kind of complete services, had a great competitive advantage in this respect."
UNI Postal, which represents trade unions in the postal sector insists that a reserved area is the only financing mechanism proven to guarantee universal services throughout the EU, and calls for it to be maintained until a satisfactory alternative is ensured. It asks the Commission to carry out a new study and develop concrete proposals on how the universal service is to be financed in each of the 27 member states by 31 December 2009.
While Socialist, Liberal (ALDE) and Centre-right (EPP-ED) MEPs have given their backing to a report that agrees to the elimination of reserved areas, the Greens-EFA group in Parliament stresses that countries should have the right to maintain a reserved area, because even the Commission-funded study failed to bring any certainty concerning the financing of universal service and admits that some member states will have to reduce the level of universal service in order to preserve the financial equilibrium. The objective of the Postal Directives is not to open the market but to guarantee a high-quality universal service, they stress, adding: "It is not acceptable to invoke difficulties in using the particular financing means suggested by the Commission as a pretext to reduce the level of universal service in member states." They say member states that have already opened up should be encouraged to put in place either a 'pay or play' system or public-procurement procedures, and that subventions or compensation funds are not adequate as they could encourage the subsidisation of activities that are at least partly rentable or force consumers to bear the costs.
The European Postal Users Group (PUG), which represents related companies such as publishers, distance sellers, advertisers, envelope manufacturers and paper producers, stresses that an excessive USO encourages the cross-subsidisation of unprofitable services, thereby increasing the burden for postal customers. It states: "A competitive market will require a more flexible definition of the USO…The USO should evolve to guarantee just the core need for sustaining reliable, predictable and sustainable final and universal delivery networks for letter post. This will enable complete market liberalisation, the entry of new players into the market, and the provision of meaningful choice to users through effective competition in practice."
The Free & Fair Post Initiative (FFPI), which represents users and competitors of the public postal operators agrees: "In light of the on-going transformation of the postal sector, the current definition of the Universal Service Obligation is no longer appropriate for the development of the market…It should be redefined in terms of the minimum level of service that is to be guaranteed to consumers." It adds: "The necessity of maintaining a reserved area to finance the USO has not been proven; moreover it has often been used as an excuse to protect the USP monopolies."