Definition, development, and implementation of a strategic BU Costing Model for the Cypriot Postal Regulator

Project executed on behalf of Cypriot Postal Regulator (OCECPR)

Project Objective

Our client the Cypriot postal regulator needed a strategic model for:

  • Identifying a cost reference for each product/item served to the final clients this mainly to execute a replicability test.
  • Calculating the Net Cost of the Universal Postal Service that the state should pay the incumbent operator.
  • Defining wholesale tariffs mainly in terms of delivery in rural areas
  • Performing future-looking scenarios for evaluating the potential impact/evolution of specific regulatory remedies

Project Description

Axon defined a full strategic model which determined the cost of all the activities, processes, and specific fluxes of each of the postal products Cyprus Post – CP provided. This model was defined via a bottom-up approach that considered:

  • The current demand, as well as a forward-looking volumetric projection for the next 5 years
  • The specific times for executing each activity, processes, and procedures which CP performs to serve their clients. Values which have been calculated based on the analysis of the proprietary CP statistical studies and its comparison with the average times reported at international level.
  • The definition of a specific cost per type of employee depending on the seniority and characteristics of the activities to be done.

Axon developed and implemented the bottom-up model that permitted OCECPR to obtain the unitary costs of all the different retail products CP offered in the market after assuring their compliance with the EC postal directive. The model also included two additional modules that permitted:

  • Performing tariff replicability tests
  • Evaluating and calculating the Net Cost of the Universal Postal Service Provision, this by calculating Cyprus Post’s costs with and without the US obligations.
Figure 1: Overview of Axon's postal bottom-up model

Key Takeaways

As result of the Project the OCECPR has a tool which provides:

  • A cost reference for all CP’s products, therefore they could have a clear review of the commercial practices done by the incumbent operator, not only in the implementation year but also providing future trend results.
  • A replicability tool which permitted to analyse and evaluate the real existence of anticompetitive practices of X or Y tariff sold by the operator. In other words, the client had a tool to verify potential anticompetitive practices.