Correos, the largest postal services organisation in Spain, has carried out its public service mission (universal service obligation/USO) since 1998.
Under the USO, Correos provides basic postal services throughout Spain, at affordable rates and meeting certain specifications on quality. This service must be provided, regardless of its commercial profitability.
In January 2020, Spain planned to compensate Correos €1,280 million for carrying out the USO in the 2011-2020 period. This resulted in an examination by the Commission, which ultimately found that the compensation given to Correos by the state of Spain was compatible with EU State aid rules.
Frontier worked with Correos, developing a profitability cost approach model, to estimate the net costs incurred by Correos to carry out the USO. The fact that the USO could have led to some benefits for Correos, such as brand recognition, was also taken into account.
Our analysis ultimately concluded that the funds received from Spain were justified by the net costs to carry out the USO, therefore proving the compensation to be compatible under EU State aid rules. We presented our methodology and analysis to the European Commission, and advised Correos with their responses to questions and comments from the Commission.
Frontier Economics regularly advises on regulatory and competition issues in postal services. For more information please contact firstname.lastname@example.org or call +44 (0) 20 7031 7000.