News & insights

Access the latest CEPA developments, our case studies and publications

Sectors

Read about our portfolio of sectors and the type of work we conduct in each

About

Find out more about what we do in economic consulting and our company history

Careers

Learn more about working at CEPA, our latest vacancies and how you can contribute to our work

News & insights

Date: November 2015 | Client: Ofcom | Sector: Communications & media | Post & media | Expertise: Finance

Financing the Universal Postal Service

Managing structural decline

The volume of letters delivered under the Universal Postal Service is declining from year to year. This poses a challenge to efficient cost recovery. We have assessed different options for the regulation of the Universal Service, from 'traditional' utility regulation models to lighter touch monitoring regimes.

Asset light companies

An added complication is the 'asset light' nature of Royal Mail's Universal Service business. In contrast to many regulated sectors (such as energy networks) the scale of fixed, tangible assets required is low. Many of Royal Mail's assets are intangible and hard to value: for example its brand and operational and logistic expertise. This means calculating and benchmarking a return on capital is particularly challenging.

Margin-based approaches

Our advice helped Ofcom develop its current approach to monitoring the profitability of the Universal Service. We recommended referring to a return on sales - benchmarked to comparable companies - as a core measure of profitability. We also proposed a wider range of financial sustainability metrics based on a review of credit rating agency approaches to assessing financial health.

The report can be viewed here.

Download PDF

To find out more, please contact our experts listed below.

Tom Cochrane
Principal United Kingdom
Mark Cockburn
Managing Director United Kingdom