Before the

POSTAL REGULATORY COMMISSION

Washington, DC 20268-0001

Annual Compliance Report, 2008 Docket No. ACR2008

REPLY COMMENTS OF THE GREETING CARD ASSOCIATION

In these Reply Comments, the Greeting Card Association (GCA) discusses a
significant point made in the initial Comments of the Public
Representative.

GCA, along with many others in the mailing industry, has expressed
skepticism about the benefits -- particularly the long-term benefits --
of any reduction in the frequency of mail delivery. The analysis offered
by the Public Representative provides fresh reasons to believe that such
skepticism is justified. In view of the public discussion of possible
delivery frequency reductions, triggered in part by the Postmaster
General's recent testimony before the Senate oversight subcommittee[^1],
GCA believes that the line of inquiry opened up by the Public
Representative should be pursued further in the Commission's compliance
report.

The proposition with which we are concerned is that what the Public
Representative calls "an ad hoc reduction in service"[^2] would produce,
at best, a short postponement of the failure of more and larger mail
classes to comply with the cost recovery requirements of the statute.
This is said to be the case because unit variable costs are rising
faster than the rate of inflation which controls Postal Service revenue
increases[^3]. The Public Representative also contests the "conventional
wisdom" that increasing volumes will (help to) solve the Service's
financial problems: this is said to be impossible if the gap between
unit variable cost and unit revenue continues or increases.[^4]

GCA acknowledges that neither time nor available resources have
permitted it to make a full analysis of the Public Representative's
position.[^5] Nonetheless, it is persuasive enough on its face that the
Commission should do so, and should make its conclusions part of the
compliance report in this docket. The relevance of the cost-vs.-revenue
trend discussed by the Public Representative is clear enough, given that
results for FY 2008 show an increase in the number of mail categories
not recovering their attributable costs. Nothing in 39 U.S.C. § 3653(b)
appears to bar the Commission from including, alongside its findings on
compliance with rate and service standards in FY 2008, its best thinking
on how compliance can best be assured in the future.

"Compliance," as discussed in the Public Representative's submission, is
largely a matter of recovery of attributable costs -- which can be
taken, roughly, as equivalent to variable costs. The bigger picture,
however, must include the Service's ability to recover *all* its costs.
Even if variable cost per piece were static, declining volume would
create problems in recovering institutional costs (\$32.2 billion,
according to the *Public Cost and Revenue Analysis, Fiscal Year 2008*
filed in this docket). In this connection, the likelihood that a
reduction in service would lead to volume losses over and above those
ascribable to electronic diversion again becomes relevant. The
Commission has acknowledged[^6] that this effect is not yet well
understood -- but some such effect is certainly likely, and should not
be neglected in the consideration of service reductions. Appropriate
contribution to institutional costs is a key element of compliance with
the rate standards of the statute.[^7] This issue, therefore, is
likewise a suitable subject for analysis and discussion in the
Commission's compliance report, and would make that document much more
helpful and influential in the current debate on basic changes in postal
policy.

February 13, 2009

Respectfully submitted,

David F. Stover

2970 South Columbus Street

No. 1B

Arlington, VA 22206-1450

\(703\) 998-2568

\(703\) 998-2987 fax

[postamp@crosslink.net]{.underline}

[^1]: Before the Subcommittee on Federal Financial Management,
    Government Information, Federal Services, and Homeland Security,
    Committee on Homeland Security and Governmental Affairs, January 28,
    2009.

[^2]: Public Representative Comments, p. 5.

[^3]: Barring an "exigency" case under 39 U.S.C. § 3622(d)(1)(E).

[^4]: Public Representative Comments, pp. 3-4.

[^5]: At least one of the Public Representative's suggestions for
    bolstering net revenue -- proper alignment of discounted rates with
    cost savings -- parallels the position GCA has taken and continues
    to support. See Public Representative Comments, pp. 5-6.

[^6]: Postal Regulatory Commission, *Report on Universal Postal Service
    and the Postal Monopoly* (December 19, 2008), pp. 125-126.

[^7]: 39 U.S.C. §§ 3622(c)(2) (market dominant products), 3633(a)(3)
    (competitive products).