97. Further liberalisation is both desirable and unavoidable because it introduces competition. Competition is needed in order to improve services and efficiency. Therefore, the Commission's proposals are, in principle, acceptable.

98. Everyone — incumbents, competitors, and consumers — recognises the importance of maintaining the universal service obligation, though there is considerable variation in different Member States about the extent to which they go beyond the definition in Articles 3-6 of the 1997 Directive. It will be important for the regulator to define the universal service obligation for the licensed United Kingdom universal service provider.

99. In the United Kingdom, it is equally important that the universal service obligation be delivered to a uniform tariff at an affordable price. Given the tendency of liberalisation to push up costs for individual users while reducing them for business users, it is important that the regulator rule on the tariff structure. People need to know exactly how much the change to a more liberal regime will cost them in terms of the price of stamps and levels of service.

100. The core issue is: what does it cost the universal service provider to continue to sustain the universal service obligation at a uniform and affordable tariff? The Commission argues that to reduce the reserved area (monopoly) by weight and price from the current 350 grams to 50 grams will not imperil the universal service obligation at a uniform and affordable tariff because the vast majority of letter post, including direct mail, falls beneath a 20 gram ceiling. The incumbent will retain 50 per cent, on average (60 per cent in the UK case) of all existing postal services revenue and the impact of competition on the incumbent's revenues can be both stimulating as well as damaging. The Post Office appears to ignore the element of opportunity deriving from greater competition and sees only potential losses. The Post Office, the Unions, the NFSP, the consumers (CEG), and the Government urge caution and a reduction to 150 grams until the effects of further liberalisation can be assessed. The Committee is not persuaded that the reduction of the ceiling on the reserved area by weight and price to 50 grams will have the consequence The Post Office predicts — too many of the latter's assumptions are questionable.

101. Therefore the Committee accepts the Commission's case. However, there is a problem for the United Kingdom. The United Kingdom regulator, PostComm, established under the Postal Services Act 2000, whose task is to maintain the universal service obligation, will not be in a position to report on the cost of sustaining the universal service obligation until mid-2001. The Committee believes that it would be illogical to shackle the regulator before he has had a chance to examine the universal service obligation and to indicate how he intends to use his powers under the Act to introduce competition into the reserved area.

102. Therefore, pending a clearer view of the cost of the universal service obligation, and assuming that the Commission's proposals will continue to be negotiated in the EU, the Committee recommends that the Government support a reduction to 150 grams at this stage.

103. The Committee does not believe that the Post Office has made a sufficiently persuasive case on special services and recommends that the Government support the European Commission's proposal in this respect.

104. It is unlikely that the Government will wish to use state aid to support the establishment of a compensation fund, but the Committee recommends no change to the provision contained in the text of the proposed directive[15].

105. The Committee believes that the Commission's proposal for a Directive amending Directive 97/67/EC with regard to further opening to competition of Community postal services raises important issues to which the attention of the House should be drawn, and we make this report for information.