Privatization and Universal Service Obligations

Abstract

Telecommunications, airlines, and postal services have similar economic features. However, they have followed different privatization patterns. While privatization of the universal service provider (USP) is common in telecommunications and airlines, it is by far less frequent in the postal sector. This paper analyzes how the size of the universal service obligation (USO) and the mechanisms traditionally used to finance it have prevented privatization in the postal sector. By using a model of a mixed duopoly, we explain that privatization is inversely related to the cost of public funds for USO transfers and to the size of the USP's reserved area.

Postal Services Liberalization Policy of the State Owned Enterprise

“…numbers of employees contribute to high labor cost and inefficiency. High numbers of employees are claimed as the reason for the government not easily privatizing the company [9]. The case of PT Pos Indonesia reveals that high numbers of employees are due to the geographical situation of Indonesia.…”

“…In practice, numbers of success stories regarding privatization does not seem to apply with postal services. Postal industry is less likely to be successfully privatized [9].…”

“…A unique service provided and the characteristic of products and services [6] become the major reason for the difficulty to privatize it. Cost is the main issue for the company to provide postal services at the particular period of time [9]. The cost of products and services provided by the company is often very low which means that support from the government is needed.…”

The first privatisation policy in Latin America: selling state-owned enterprises in 1948-1950 Puerto Rico

“…Some of the contemporary analyses written in the 1960s are valuable, but the authors of these studies lacked the theories, concepts and tools supplied by recent literature. Theoretical developments have provided valuable hypotheses on the motivations of politicians choosing between public ownership and privatisation (Shleifer and Vishny 1994;Boycko et al 1996;Bel and Calzada 2009), and have identified different objectives linked to privatisation policies Yarrow 1988, 1991). On the one hand, both the theoretical and the empirical literature have provided interesting results regarding the use of privatisation to obtain political support (Perotti 1995;Biais and Perotti 2002;Bortolotti et al 2003;Bel and Fageda 2009).…”