Report on USO net costs in Iceland

Changing communication habits of businesses and private individuals are transforming postal markets throughout Europe. This development creates significant challenges for postal operators, especially those with a legal obligation to provide universal postal services with nationwide coverage.

Despite necessary changes in regulatory frameworks, the universal service obligation still puts a strong constraint on many postal operators, preventing them from acting in the commercially most optimal way. This constraint gives rise to a financial burden on the universal service provider. A burden that absent the obligation would not have existed.

The situation in Iceland is no different. Iceland Post has therefore commissioned Copenhagen Economics to estimate the size of the financial burden created by the postal universal service obligation (USO) in Iceland for year 2016. Our analysis is based on publicly available information, benchmarks from other countries, financial information from Iceland Post, and interviews with large senders of mail in Iceland.

The main conclusions of our study are:

• The financial USO burden carried by Iceland Post amounts to 650 million ISK for year 2016 and is expected to increase over the coming years.
• The only viable option for the Icelandic government to reduce the USO burden in the long run will be through direct compensation of USO net costs.
• Not compensating the USO burden may threaten the future quality of service and affect the long-term competitiveness of Iceland Post

The study is commissioned by Iceland Post.