Effects of changing the USO in Norway

The Norwegian government compensates Norway Post for the so-called net cost of providing postal services included in the universal service obligation (USO). Increased digitalisation and e-commerce is changing the need for postal services and thereby also the net cost of the USO. Against this background, Copenhagen Economics was commissioned by the Norwegian Ministry of Transport and Communications to (i) assess Norway Post’s calculations of USO net cost, which provide the basis for the compensation paid by the government, and (ii) assess the socioeconomic impact (i.e. the impact on USO costs and benefits) of three potential changes to the postal USO.

The main conclusions of our study are:

• Norway Post would today find it commercially optimal to deliver mail every other day (i.e. on average 2.5 days per week) instead of five days per week as required by law. As mail volumes continue to decline, the commercially optimal delivery frequency will drop further.
• Reducing the required delivery frequency from five days per week to every other day has the potential of reducing USO net costs (and thereby public procurement of postal services) by between 440 and 650 million NOK per year 2018-2025, corresponding to between 65 and 80 per cent.
• At the same time, the impact on users of reducing delivery frequency to every other day is most likely very moderate.
• Further reductions in delivery frequency would imply a larger cost saving potential (up to 95 per cent of net costs compared to delivery five days per week), but also a greater risk of causing negative effects on users that would call for the introduction of alternative solutions. 

Based on our analysis of costs and benefits, the Norwegian Ministry of Transport and Communications has proposed to reduce the USO requirement to delivery every other day (i.e. 2.5 days per week).