## Comments of the

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## National Postal Policy Council

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## President's Commission

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## United States Postal Service

> February 12, 2003

## Comments of the National Postal Policy Council 

to the President's Commission on the United States Postal Service

The National Postal Policy Council appreciates this opportunity to
provide its views on the organization and direction of the United States
Postal Service as it confronts a challenging future. The Council
commends the President for recognizing that a vision for sustaining this
vital national asset and the services from it the public will still
require in the increasingly complex and competitive environment of the
21^st^ Century must be articulated. The Council also commends the
members of this Commission for taking the time from busy and demanding
careers to undertake this critical public service.

The National Postal Policy Council is a twenty-year-old trade
association, representing many of the largest predominantly First Class
mailers in the financial services, banking, insurance, utility and
telephone industries. NPPC strongly supports a healthy postal system as
a key element in its members' business success and in the public's
economic and communications interest.

The postal system in the United States is clearly at a turning point.
Under inexorably building pressure from diversion of business
communications particularly into electronic form, as well as hard copy
competitors, USPS is not only no longer growing,

Comments of National Postal Policy Council -- page 2

but is experiencing some actual decline in its business. The situation
is exacerbated by the ongoing soft economy. As a result, the Service is
finding that revenue targets are not being met. It is being saved from
massive deficits only by a relentless, creative and effective
cost-cutting campaign instituted by a determined management team.
Postmaster General Potter and his colleagues deserve kudos for their
efforts to date on this.

The old cycle of options the Service has used for decades to cure
budgetary ills, raising rates or reducing services, no longer applies in
today's environment. Doing either will accelerate diversion into
electronics. Many of NPPC's members are in financial services and
related industries which have electronic alternatives readily available
to them. They fully understand that increased rates and/or reduced
services will induce businesses generally to accelerate the push into
electronics. Only the surface of promotions, incentives, advertising and
more to the public to divert to electronic services has been scratched.

As a result, rethinking the Service, its mission and its operations has
become essential. NPPC will address various of the aspects of reform
placed before you by the President.

Comments of National Postal Policy Council -- page 3

[THE ROLE OF USPS IN THE 21^ST^ CENTURY]{.underline}

Fundamentally, the role of USPS in the 21st Century will not and should
not change; it will, however, be overshadowed and diminished in scope.
The postal system will and should remain the institution that binds the
nation together -- for hard copy delivery. Over the course of 100 years,
dramatically accelerating once it reached ubiquity, the telephone
rendered personal letter writing largely obsolete. The Internet and
email have begun that same process with respect to business mail, and
may achieve a similar level of use as the century progresses. Those
systems bind the nation together, as well.

However, for the foreseeable future, even though diminishing, business
mail will remain a large and vital part of the mailstream. The tension
between a more distant future with potentially dramatically diminished
business volume, and a near-term future with a continued major business
component, complicates any effort to arrive at changes to recommend for
the system. In NPPC's view, then, change has to incorporate elements
that have stood the test of time and underpinned USPS' extraordinary
success over its whole 200-year-plus history, or just the 30 years since
the last reorganization. This has to be done even as the system is
revamped to deal with its sweeping challenges.

Comments of National Postal Policy Council -- page 4

[FLEXIBILITY IN PRICING, CONTROLLING COSTS AND ADJUSTING
SERVICE]{.underline}

[Pricing]{.underline}

NPPC believes that the Postal Service should have more flexibility in
its pricing than it has had to date. To the extent it can better tailor
its rates to the needs of its customers, and particular circumstances,
as well as change rates swiftly -- either up or down \-- to respond to
demands in the marketplace, the more likely it can retain or even grow
volume. One example of that would be expressly to permit Negotiated
Service Agreements in the monopoly and non-competitive classes and
subclasses. NSAs can provide for novel forms of worksharing or
incentives for additional business that benefit both the mailer and
USPS. And in these classes, they would be available to any mailer
similarly situated.

In any competitive class or subclass, NPPC believes the Service should
be able to undertake formal contracts with mailers. Because it would be
an attempt to compete, USPS here should be treated more like a private
sector entity. That is, it should have full freedom to negotiate in
order to capture market share and build the business. For example, it
could be considered whether, and how with effective oversight, terms of
contracts could be confidential, and not necessarily be identical for
all mailers similarly situated. One possibility to maintain oversight
and ensure that USPS has negotiated in

Comments of National Postal Policy Council -- page 5

good faith to achieve conscionable provisions, would be to make
contracts reviewable by the General Accounting Office.

With pricing flexibility, there may be less need for the extensive
proceedings overseen by the Postal Rate Commission. As have other
mailers, NPPC has agreed and disagreed with various of the Commission's
decisions over the years, but in our opinion, the Commission has
executed its charge to review and recommend outcomes on proposed rate
increases in general ably and effectively. However, in today's world,
USPS must be able to make price changes far more quickly than the
typical 18 months from initiation within the Postal Service to a
recommended decision. Therefore, both streamlining the current process
and alternatives to it should be examined.

Streamlining is not an easy goal to achieve. Both considerations of due
process and full exposition and testing of results, forecasts, and
assumptions in underpinning rate changes make reducing preparation for,
and execution of, ratesetting proceedings difficult. However, freeing
USPS to make changes with adequate notice for competitive reasons,
coupled with the potential for post hoc review by the Rate Commission
might be worth consideration. Using a more legislative style of
proceeding might be another way to accord more flexibility, and
certainly speed, to USPS' pricing changes.

Comments of National Postal Policy Council -- page 6

One alternative possibility worth some exploration would be to shift
postal responsibility to another federal agency with relevant expertise.
One example would be the Federal Communications Commission, which would
be particularly relevant to USPS' current and foreseeable challenges.
This is because: A) it has amassed expertise with some jurisdiction
concerning the Internet; B) it has jurisdiction over telecommunications;
and C) it has great experience with ratesetting and other formal
proceedings, although done in a more traditional regulatory style than
the quasi-judicial proceedings of the Rate Commission. Having an
overview of the entire communications world, both USPS and its
electronic competitors, would enable the FCC to make judgments that are
informed by its knowledge in these areas. There should be some tangible
benefits in terms of managing USPS' rate profile from this "holistic"
approach.

Moreover, the FCC has demonstrable expertise with a "price cap"
mechanism, from both the standpoints of developing and administering it.
Under this approach, a maximum price is set by the oversight body, and
the overseen firm or, in this case, system, elects rates at or below
that maximum price. The price cap is set based on a number of factors
including a price index, productivity and consumer benefits, as well as
"exogenous" costs. It is designed to prompt greater productivity,
relative simplicity (although not simple), and price benefits to
consumers. Price caps, in NPPC's view, should be given very careful
consideration for adaptability to the needs of mailers and users of a
system under competitive challenge.

Comments of National Postal Policy Council -- page 7

Other federal agencies might also be considered, such as the Federal
Trade Commission or some arms of the Department of Commerce.

We are not as sanguine with simply linking USPS price increases to some
index, say, the consumer or producer price indices. To the extent that
the system stayed below the increase in the index selected, and improved
its income position through productivity improvements or otherwise, the
difference could be retained by USPS. Then, it would be used either for
investment in the system (including paying down debt) or for
distribution in bonuses or other performance-based compensation. While
simpler and speedier to administer, such an approach might not provide
adequate incentive to reduce rates where appropriate or otherwise
produce enough benefits to consumers and business mail users.

In addition, in whatever pricing system might be selected, worksharing
incentives should be maintained. The principle of lowest combined cost,
between the efforts of USPS and its customers, has served both parties,
and the public, well. NPPC does not foresee any real likelihood that the
Service could so boost its productivity that it would make preparation
of mailings, shipping and other efforts currently undertaken by many
business mailers, more economical in-house than being undertaken by the
mailers. In fact, worksharing should be expanded wherever demonstrable
savings can be achieved.

Comments of National Postal Policy Council -- page 8

Finally, to maintain a credible basis for any change in rates, as well
as for a variety of other purposes, USPS should exhibit as much
financial transparency as possible. The one exception would be to
withhold terms if some form of contracting were to be permitted in a
competitive class. To this end, NPPC associates itself with the comments
of the Mailers Council.

[Service]{.underline}

As we indicated above, any significant deterioration in service could be
a major blow to USPS. Businesses, including those of NPPC, would be
forced to divert as many communications and business interactions as
possible to the Internet. So, we believe it must remain a prime concern
to sustain quality service offered by USPS. To date, USPS has generally
been very responsive to mailers' concerns about service standards and
meaningfully meeting them. That kind of attentiveness and responsiveness
on the core of its mission must not be permitted to erode in any
reformed postal system.

Any revised postal system should, in NPPC's view, maintain a monopoly in
business mail. Please see our comments below. In such a class, there
would not, by definition, be the prompt of competition. Therefore, some
method of assuring that service is not unduly diminished must be found.
Given USPS' track record on heeding

Comments of National Postal Policy Council -- page 9

mailers concerns, NPPC does not recommend regulatory oversight. However,
maintaining high quality service at affordable rates could and should be
one of the imperatives of legislation effecting change to the system.

Relatedly, NPPC believes that there should be some form of measurability
for monopoly products that is publicly and regularly reported. USPS
current external

measurements are beneficial, but not adequate. Establishing some
routine, but credible independent measurement of business First Class
mail would be quite helpful in sustaining the service that class will
need to avoid defecting in great numbers to electronic alternatives.

Finally, we believe USPS should be better able to control how and where
it provides services. Specifically, we mean that it should be more
easily able to close unprofitable post offices, and undertake other
consolidations of routes, delivery points and so forth that could
demonstrably achieve savings through greater efficiency. This should not
mean depriving anyone of service in some form, as USPS should be
required to find alternatives, albeit more economical, that assure
universal service..

Comments of National Postal Policy Council -- page 10

[Labor]{.underline}

USPS is a very labor-intensive organization, with some 80% of its costs
devoted to its people. NPPC and its members take their hats off to
postal workers for the job they do every day, as well as the courage
they collectively and individually exhibited during last year's Anthrax
scare. To maintain service as they did in the face of random terror was
most impressive.

Having said that, in a diminishing volume environment, USPS must manage
all of its costs, including its workforce. So far, USPS has done an
outstanding job. Without resorting to layoffs or compensation
reductions, management has saved the equivalent of 22 million
worker-hours since the fiscal year began on October 1 of last year. We
emphatically applaud their success, and the methods they have chosen to
achieve it -- attrition and otherwise.

We also applaud both management and labor on the reduction of grievance
proceedings. Both sides are making an effort, and the result is a
healthier, more consistent and effective workforce.

With respect to changes in the workforce or its rules, NPPC does not
feel qualified to make judgments on labor relations matters. So, we will
confine our

Comments of National Postal Policy Council -- page 11

comments to a few general observations. First, we believe that some form
of performance-based pay should be instituted. While we have no specific
suggestions, NPPC believes that an appropriately done package could
provide incentives to improvements in productivity and more. Creating
results-driven performance incentives that are carefully calibrated
would enhance the stake workers and managers have in the system, and
benefit every user, as well as the recipients of the incentives.
Mindful, however, of some recent abuses in the private sector of a pay
approach that has largely worked, NPPC very much believes such
incentives must remain open to public scrutiny. The specifics of
performance-based pay, and how it might be incorporated into the

current or any new compensation system, might well itself be the subject
of collective bargaining.

We also believe that the restriction against strikes should be
maintained. The continued flow of the mail remains critical to business,
and to the public generally. The nation's economic security would, USPS'
growing competitive challenges notwithstanding, still be dramatically
affected by disruptions to mail processing and delivery.

Finally, we support continued collective bargaining in the postal
system. Postal workers have benefited from and largely been satisfied
with this approach. The system has accommodated it well, and mailers and
the public have long since adjusted to it. Any

Comments of National Postal Policy Council -- page 12

move away from it, in our view, would risk stimulating workers'
disaffection with the system, as well as damaging morale, to the
detriment of performance.

[Products]{.underline}

As we have seen from many unfortunate corporate combinations, ranging
afield from core areas of competence can be fraught with difficulties,
and success can prove very elusive, indeed. NPPC suggests that USPS
would be no less subject to those kinds of risks and uncertainties in
the marketplace were it to undertake to provide products or services
beyond its core postal offerings. In our opinion, USPS should stick to
its knitting, and simply try to make its postal products as compelling
as possible. It should not be in the business of providing other
government services, non-postal electronic services (e.g., selling
stamps via the Internet should continue to be a valid USPS service,
offering copying or printing services should not), or retail services in
its buildings.

However, one possibility of raising some additional funds would be to
license some of its postal-related products, such as stamp albums or
even mugs, to retailers. It could also lease space in its buildings to
retailers, with the provision that they also sell postal products. There
may be other USPS-private sector innovations that could be helpful, as
well. We suggest that some attention be given to directing USPS to study
thoroughly what might be done in this area.

Comments of National Postal Policy Council -- page 13

[UNIVERSAL SERVICE]{.underline}

The most important of the Postal Service's functions is to provide
service daily to every American address. NPPC believes that that
function in some form must be maintained in any reformation of the
postal system. Aside from the expectations of the public from long
history, business generally needs delivery six days per week. For

NPPC's members, particularly those dealing with financial services, six
days of delivery are essential to maintaining the swift and smooth flow
of bills, payments and other communications. Because of the volume and
the time sensitivity of these mailings, losing a day would be quite
damaging. An example here is remittance mail, with heavy volume that
must be moved to depositories several times per day, every day. A loss
of a day of service to this mail would be quite disruptive.

In addition, NPPC's members must be able to send hard copy to any
address. The volume and time sensitivity of these communications are
such that allowing days for nondelivery would not merely be a
ministerial chore of adjusting mailings. There would be real and serious
business impacts. Therefore, if some addresses were not served daily,
communications with those individuals and businesses would have to be
diverted to an electronic form.

Comments of National Postal Policy Council -- page 14

NPPC recognizes that the postal system suffers from many diseconomies in
the pursuit of universal service. A large number of post offices and
other facilities, as well as

numerous postal routes, cost the Service more money than is returned
from their use. As we mentioned above, USPS should have more flexibility
to close unprofitable facilities, and find alternatives for those mail
recipients on costly routes. So long as service is made available to all
on six days in some fashion -- centralized pickup points, for example --
USPS should have much more freedom to manage its services.

In addition, some focus might be placed on retrofitting urban and
suburban addresses which currently have costly to-the-door delivery.
More economical approaches such as curbside delivery or cluster boxes
could be considered. Obviously, the more savings that could be achieved,
the more funds could be applied to other purposes, including defraying
pension and retiree health liabilities.

[MONOPOLY]{.underline}

NPPC believes that USPS' monopoly must be maintained in First Class.
USPS has been built to handle delivery to every address. Simply stated,
no other organization is prepared to provide, or capable of providing,
"last mile" services everywhere. To remove the monopoly would likely
induce new competitors to "cream skim" dense delivery

Comments of National Postal Policy Council -- page 15

routes that can be served economically. This would reduce the Postal
Service to the deliverer of last resort to addresses incapable of
economically sustaining its operation.

The probable patchwork of resulting services would render the delivery
of First Class mail much more uncertain. It would also almost surely
require taxpayer support of the diminished USPS.

. Relatedly, there is a question of whether the mailbox should be opened
to competitors. NPPC believes that USPS should maintain control of
access to the mailbox However, we would suggest to the Commission that
it should consider recommending some form of limited experimentation
with USPS' licensing of some businesses to use the mailbox. This could
create a direct, new revenue stream. It also could offer opportunities
for partnerships between USPS and private sector businesses that would
create other potential revenue streams, and perhaps new products
altogether.

NPPC realizes that there are a great many pros and cons to opening the
mailbox. Hence, our thought about controlled experimentation first. We
also recognize particularly in today's difficult environment that
security is of paramount concern in the mails and in the mailbox. We
thus would urge the Commission to especially consider those risks in any
mailbox opening, experimental or otherwise, and whether they are high
enough to outweigh any advantage from licensed access.

Comments of National Postal Policy Council -- page 16

[GOVERNANCE]{.underline}

NPPC believes that the Postal Service should remain a corporate-like
entity, run by a chief executive and accountable to a board. As we have
described above, there should be some changes to its oversight on rates
and otherwise, generally to enable the system to become more nimble and
able to respond to its competition.

Assuming the postal system would remain a federal corporate-like entity,
we further assume it would continue to have a board or equivalent that
would be presidentially appointed and subject to Senate confirmation. We
also believe that as the challenges mount for the Postal Service,
maintaining a high caliber of appointees to the board will be, if
anything, even more critical than it has been to date. We further
recognize that the President's prerogatives on appointment should not in
any way be attempted to be constrained with respect to a postal board.
Therefore, we simply suggest that this Commission emphasize to the
President how vital it will be to the system in the years ahead to have
such a group of high caliber appointees on the board.

In addition on the board, NPPC would note the turmoil in corporate
America, which USPS has thankfully avoided. However, as a result of that
turmoil, reforms have been instituted in corporate boards that have
improved their functioning and

Comments of National Postal Policy Council -- page 17

accountability. We encourage the Commission to look to those examples of
change to determine whether any should in some fashion be applied to
USPS' governance.

Finally, NPPC would like to state its opposition to privatization of the
Postal Service. Inasmuch as we continue to believe that USPS must
sustain imperatives such as universal service, we believe it must remain
a governmental entity, however corporate-like it may look, in order to
do so. A privatized entity could have no such requirement, nor could it
sustain some of USPS' diseconomies of service to certain areas, for
example. Therefore, in our view, the postal system should remain a
federal enterprise.

Thank you and we look forward to working with the Commission further as
it proceeds with its work.

Respectfully submitted,

> Arthur B. Sackler

Executive Director