The USO requires Royal Mail to deliver post six-days-a-week to any address in the UK for the same price, which it does by subsidising less profitable areas (geographic or product) with more profitable services and routes.
"Once this ability to cross-subsidise is lost, it will be irreversible," the postal operator said. "It is likely to be far more difficult for a regulator to unwind a situation once direct delivery is established than to set an appropriate framework now which safeguards the Universal Service."
In its regulatory submission to Ofcom, Royal Mail said that TNT Post UK's publicly-stated plans for the direct delivery market could cost it £200m in lost revenue in 2017-18, undermining its ability to reach a 5-10% EBIT margin sustainably.
Furthermore, Royal Mail stated that TNT was only delivering mail from business customers "much of which is machine-sequenced [and] valuable for the USO provider" and that it was targeting urban markets that have the cheapest "cost to serve".
Royal Mail said that by "cherry picking urban areas, easier-to-handle mail" and by offering an every-other-day service (which it cannot do as it must abide by the USO), direct delivery entrants were denying it revenues that currently support the costs of the USO.
It added that its commercial responses were currently constrained due in part to the high level of fixed costs associated with the USO and to the fact that its proposed access price changes have been suspended pending an Ofcom investigation into a complaint by TNT Post.
Royal Mail called upon Ofcom to "undertake a full review of direct delivery as a matter of urgency and to determine quickly the regulatory changes needed to protect the Universal Service".
However, a spokesman for the regulator said that while it would consider Royal Mail's submission carefully, all of the evidence it had "including business plans and forward looking data from all of the operators" suggested that there was no current threat to the Universal Service.
"We have said that we will review [the direct delivery market] next year and unless we have evidence that we should do that sooner our position will remain unchanged," he added. "At the moment we simply don't see any immediate threat to the Universal Service."
