its network, Postcomm made comments designed to focus on the impact this agreement would have on competition in the postal sector. $ ^{84} $ In this case, UK Mail wanted to inject mail into Royal Mail's Inward Sorting Centers. The two companies agreed to use weight-based prices for this interconnection. In negotiating the access price, Postcomm was anxious to make sure that the access price did not damage the ability of the Royal Mail to satisfy its Universal Service Commitments. Postcomm believed that the access price should be based on a reasonable allocation of profit, rather than a retail-minus system. In other words, the access price should be cost- and not price-based. Postcomm noted that using a retail-minus regulatory scheme would be discriminatory as it would favor the Royal Mail's upstream business.

In determining the appropriate measure of costs for setting the weight-based access price, Postcomm adopted a volume-weighted average of first- and second-class tariffs as a proxy product whose costs were determined be about the same as the costs that the Royal Mail would incur. Postcomm was careful to ensure that upstream and downstream costs were properly allocated in this scheme, and also added a reasonable profit element. While Postcomm itself did not set the rate, it commented on the access agreement and was an important party in the negotiation process. Postcomm was not persuaded by UK Mail's argument that the costs should be based upon the lower second-class tariff, rather than a hybrid of both the first-class and second-class tariffs, noting that Royal Mail should base the access price on the geographic area where the other party was located. If the universal service subsidy was threatened in a high-cost service area, Postcomm recommended a rural charge fee.

Interestingly, Postcomm noted that postal service does not entail significant sunk costs, as most of the costs invested can be re-deployed elsewhere in the economy. Postcomm also noted that costs naturally increase as the access point moves further upstream, and the incumbent postal company has to expend more resources to complete its delivery.

### d. Impact of Work Sharing

Even in countries where there is a regulated monopoly, such as the US, worksharing has led to some cost reductions. Cohen et al (2001) estimate that worksharing saved the USPS about $15bn in costs. Work-sharing in essence is a form of access pricing, in which a private competitor may provide certain elements of the postal network, in conjunction with those still provided by the regulated monopoly.

In the UK, the postal reforms that will apply to the Royal Mail in the coming year (2006) do involve licensed operators interconnecting into the Royal Mail's existing distribution system. In the UK, Britain's postal system will be fully liberalized from January 1, 2006. Under the postal reform in the UK, licensed companies will be able to collect, transport, and deliver letters and charge customers. There are a number of additional barriers that must be removed in the UK. Royal Mail is the sole postal company that does not have to pay Value Added Tax. There are also a number of other privileges that the Royal Mail enjoys that need to be eliminated, and that will be part of an ongoing process of reform.