The Impact of the USO on the Profitability of Postal Service Provision in Finland

This study aims at investigating the order of magnitude of financial burden of the universal service obligation for the universal service provider. Prior studies have adopted various different cost accounting methods to assess the order of magnitude of net costs arising from postal universal service provision. This study, instead, uses econometric approach for predicting hypothetical profits that the universal service provider had earned without the universal service obligation, and then calculates the net losses for the firm. The econometric model takes into account the impact of cost efficiency on a firm’s profits and further the universal service provider’s entitlement to reasonable profits on postal markets. The data from the firms active in the postal and courier activities sector in Finland during the years 2005-2012 indicate that the profitability of universal service provider was clearly lower than that of competitors during the sample time period. The annual loss due to the universal service obligation was about 5 – 8 percent of the turnover of the universal service provider.