Postal Profits Arise where People Are

Abstract

Directive 97/67/CE has forced European postal operators to tackle universal service obligation (USO) problems. The Italian operator, Poste Italiane, after the 1998 reform, which transformed it from a public enterprise into a corporate entity with shares fully owned by the Treasury, put in place dramatic business reorganization. In 1999, the new company reduced its losses to 663 Million Euros, compared to 1,3 Billion Euro losses¹ in 1998. However, in order to implement an effective break even strategy (planned to be achieved by 2002), it became evident that a careful economic analysis of the universal service provision would be necessary in order to put in place actions aimed at increasing revenues as well as lowering costs. When analyzing local postal markets, it is common experience to find (urban) high volumes and revenues associated with high population density and (rural) low volumes and revenues associated with low population density. This is mainly because urban areas enjoy higher incomes, which attract more mail. However, the Italian experience is substantially different, in that the strong differences in income among regions give rise, in some cases, to “poor” cities (in the South) and “rich” countryside (in the North). Therefore, the study of Italian delivery profitability is particularly interesting, because it clearly depends on both income (demand) and density (cost).

The views expressed here are of the authors only and do not necessarily represent those of Poste Italiane S.p.A.. They are very grateful to R. Scocchera for precious data management. They are also grateful to R. Cohen and M. Squinzi for helpful comments on earlier drafts of the paper. They bear the responsibility for any remaining errors.

This figure relates to Poste Italiane’s overall business (postal and financial services), while the postal service alone faces a bigger loss (1.585 Billion Euros).