Cost and benefit of the universal service
In June 2001, before Postcomm took any decision on the future of the UK postal market, we made an assessment of whether and by how much providing the universal service imposes a cost or a benefit on Royal Mail. This is important, because Royal Mail is currently the only provider of the universal service in the UK and is required to provide that service under the terms of the licence that we have granted to it.
Our analysis indicated that Royal Mail's capability to deliver to every address in the UK is a commercial advantage and not a burden.
We estimated that the cost (measured as the total potential cost of "loss-making elements" across all of Royal Mail's mail products - net avoidable costs) of Royal Mail's universal service provision was about £81 million, representing about 1.7% of its revenues from its mails business. This excluded any quantification of the benefits of being the universal service provider and was based on actual rather than efficiency costs.
Overall, we concluded that the universal service did not represent a significant burden in the market at that time. Since then Royal Mail has undertaken a renewal plan to reduce its cost base.
