Wither the Universal Service Obligation
Richard N. Miller, Managing Partner, Market Response International, USA
Mail & Express Review August 2009 The premise of this article is that any move by posts to emasculate the Universal Service Obligation (USO) will be met with rising social protest and political pushback. Such an assault will be compounded by the current economic climate. There may be an answer, but not everyone is going to like it.
The USO in Jeopardy
In most countries, universal postal service is considered a right, not a privilege. When customers see erosion of that service, their ire is directed first at their political representatives – at least in the democratic countries.
The situation is somewhat analogous to the gun debate in the US. Every time gun owners think their rights are being challenged they bring pressure to bear on Congress through their lobbyists to cut any threats off at the knees. Quoting the second amendment to the US Constitution, they insist they have the right, not the privilege, to bear arms.
The case can be made that the same holds true for postal patrons. Though their “rights” may not be embedded in the constitution, in most countries it is firmly embedded in tradition. The one major difference is the absence of a unified lobby to fight for those rights.
Even before the current economic downturn, postal administrations were struggling to cut services with as little damage to historic service expectations as possible. Given the world’s economic malaise, the drop in postal revenues could place the USO in serious jeopardy.
What is the Universal Service Obligation?
The genesis of the USO is somewhat cloudy. The Englishman Rowland Hill propounded the initial concept when he proposed a uniform rate of postage regardless of distance. The concept has since broadened to embrace minimum standards of service. Not every country encodes the obligation, which I call the social contract, in their postal charters, but where it does not, the implication is hard to avoid.
It all comes down to a promise to deliver with reasonable frequency, at a reasonable and uniform cost, to all delivery points within the national borders. This is expensive, particularly given the combined effects of a technological tsunami and a financial meltdown. Postal networks are reeling.
But this double whammy must not relieve the posts of their obligations to “bind together” citizens. How can we justify turning our backs on the tactile communications system that has bound nations together for the better part of a millennium? For sure, as postal revenues continue to erode, universal service is going to be challenged. When it is, the ratepayers will be heard from. We are already beginning to hear the rumbles.
Varying Views of the USO as ‘Social Contract’
In the case of the UK it’s very clear that the number one objective of Postcomm, the regulator, is to ensure the provision of universal service: its “primary duty is to act in a manner…best calculated to ensure customers continue to enjoy a ‘universal postal service”.
• In the US, the USO is enshrined in statute with the statement that “The Postal Service shall have as its basic function the obligation to provide postal services to bind the Nation together through the personal, educational, literary, and business correspondence of the people.” To bind the Nation together is a real social contract.
In Australia the social contract is even clearer. Called the Community Service Obligation, it requires that letter service “be reasonably accessible to all Australians wherever they reside; and the performance standards for the service reasonably meet the social, industrial and commercial needs of the community.” They then set out the provisions for funding it.
And then we have the European Commission, which obliges the governments of the Member States, not specific postal operators, to ensure universal service. It then goes on to say that other options could include relying on competition to provide universal service. Incredibly optimistic! At the moment, no private postal operator in the UK, for instance, is required to contribute to the USO.
Challenges to the USO in the US
In the instances where we have seen postal administrations start to cut into the USO, we have already seen pushback. Take as an example the US where the proposal by the Postmaster General to cut service to five days drew flack from day one.
The PMG cannot act to close marginal post offices. Congress prohibits it, because the members cannot stand the pressure from their constituents. The more you cut USO, the more the customers are going to scream and the more they scream the quicker the politicians are going to buckle. It is a vicious circle that will be very hard to break.
Yet, it is obvious to all that something has to give. In my village of 6,900 residents there are four post offices! At an average of three people per household that equates to about 400 households per post office – ridiculous, but true. On an un-weighted average, each US postal delivery unit should serve 7,000 residential delivery points, not 400. Somewhere there has to be a middle road that does not break the post nor strand its customers.
Different Strokes for Different Folks
In Germany*, the regulatory framework of 1997 makes the postal regulator responsible for ensuring universal service. Universal service standards are set by legislative action and relate to the minimum number of retail outlets, daily collection and delivery, and routing time targets for non-bulk mail. The law then goes on to say universal service will be provided by all operators in the market jointly. And where it fails, it will be provided by regulatory intervention! Though the system is somewhat convoluted, so far it seems to be working, as the regulator has not yet resorted to external funding to maintain the USO.
In the first country in the world to entirely abolish monopoly, Swedish Post is obliged to provide universal services. The definition differs from Germany’s in one major respect, namely it is required to collect and deliver five days a week. Uniform tariffs are required only for single piece items.
Initially customers reacted negatively to precipitous increases in retail prices. A regulatory cap was introduced, and the public attitude has improved. The regulator, PTS, says that so far universal service has not been affected.
The same appears to be true for The Netherlands, where the regulator, OPTA, is charged with the responsibility of monitoring universal service, and TNT Post has the obligation to meet the standards. Those include a minimum set of letter and parcel services, the operation of a public retail network, a routing time target, and six days a week delivery and collection. There appears to be no indications that competition has had a negative impact.
Only Public Funding will save the USO
However, none of these examples takes into account the mounting stress on postal revenues caused by the worldwide recession. For example, in the US the forecasted postal shortfall for 2009 is as much as $6bn. Substitution by electronic media continues apace, and the effects of the recession will last for years, not months. Publications have shrunk or disappeared; printers are folding or merging; ad mail is hammered; express companies own the parcel business; and social mail, an unwitting victim, struggles to survive.
Postal administrations need to stem the flow of red ink. They only have three main factors to work with: labour, infrastructure, and service. The easiest to attack is service: cut delivery days, eliminate unproductive routes, sacrifice speed, and if necessary, strand outlying customers. In effect, break the social contract. The posts will tell us it is a Hobson’s choice. But there is another answer: public support.
Bucking the trend, China recently ordered its post to extend services into rural areas to better serve farmers’ needs. Obviously, the government is paying for it. True, this is a “socialist” nation, but the western world needs to wake up to the fact that a bit of socialist thinking will be necessary to save the postal social contract. We have an obligation to serve the elderly, the distant, the infirm and the blind. And if the market cannot do it, then it must come from public funds, as with healthcare, pensions and the rest. Where the service is critical, and the market cannot support it, the government frequently steps in.
And so it should be with the Universal Service Obligation. Besides, there may be no other option. 200 nations are signatories to the Acts of the Universal Postal Union. The Acts require that each nation accepting post from a reciprocal nation, must deliver to every delivery point, not just the ones that are convenient. To do less is in contradiction of the UPU conventions and is a default on the global social contract.
* The source for some of the country information in this article is The Report on Universal Postal Service and the Postal Monopoly, published by the Postal Regulatory Commission, USA.
