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# February 5, 2003

Mr. James A. Johnson

Mr. Harry J. Pearce

Co-Chairmen

President's Commission on the United States Postal Service

1120 Vermont Avenue, NW, Suite 971

Washington, DC 20005

Dear Mr. Johnson and Mr. Pearce:

On behalf of its members and, indeed, on behalf of the millions of
American citizens who mail greeting cards every day, the Greeting Card
Association (GCA) is pleased to submit the enclosed comments for
consideration by the President's Commission on the United States Postal
Service.

The work of this Commission will be the most important undertaking since
the Postal Reorganization Act of 1970, and it is likely to direct the
course of the nation's postal service into the next century. Our
interest in these determinations is vital not only to the health of our
industry but also to the protection of universal service for every
citizen of our country.

The GCA's representation is unique. Although you will be hearing from
many business mailing entities, ours will be the only one representing
the individual American consumer. And, the stakes are very high. The
U.S. Postal Service is more than just a business; it is the only
universal communications channel available to all citizens.

We look forward to meeting with you and the Commissioners to discuss the
GCA's key recommendations on behalf of the American citizen mailer of
First Class mail.

Sincerely,

![](media/image2.png){width="1.3069444444444445in"
height="0.5166666666666667in"}
![](media/image3.png){width="1.7715277777777778in"
height="0.4548611111111111in"}

Rick Ruffner Hamilton Davison

President Chief Executive Officer

Avanti Press, Inc. Paramount Cards Inc.

GCA President Chairman of GCA Postal Affairs

![](media/image4.png) ![](media/image5.png){width="1.2916666666666667in"
height="0.6805555555555556in"}

Donald J. Hall, Jr. Morry Weiss

President and Chief Executive Officer Chairman and Chief Executive
Officer

Hallmark Cards, Inc. American Greetings Corporation

### UNITED STATES OF AMERICA

## BEFORE THE

**PRESIDENT'S COMMISSION ON THE UNITED STATES POSTAL SERVICE**

**INITIAL COMMENTS OF THE GREETING CARD ASSOCIATION**

# **EXECUTIVE SUMMARY**

The Greeting Card Association (GCA) is the only private-sector advocate
for the household user of First-Class Mail, as well as the
representative of a major component of the mailing industry. Greeting
cards are a national medium of personal communication, reaching every
part of the country and every social and economic group. Most greeting
cards arrive by mail, and the citizen mail users who send them are
keenly aware of the cost of postage. In its Initial Comments, GCA
addresses questions central to the Commission's mandates, as set out in
the Executive Order. Attachment A keys GCA's views and recommendations
to the six specific Executive Order mandates.

GCA's key recommendations are:

-   Preservation of universal delivery service -- to every household, at
    uniform (and affordable) rates, six days a week;

-   A change in the Postal Service's business model, away from
    concentration on high-volume, low-cost bulk mailings and back to the
    core public service function; and

-   Strong, efficient regulatory protection for the captive postal
    customer -- since the Postal Service will remain a statutory
    monopoly for the greater part of its traffic.

The Postal Service must be a *service* and not merely a *business.* It
has for years trusted in expanding volume of cheap-to-handle bulk mail
to finance its unavoidably growing delivery network. But with e-mail and
electronic billing and payment a threat to large volumes of bulk
First-Class letter mail, this model can no longer be relied on. Instead,
the Service must build on its core strengths, if it is to meet the
threat posed by the far lower costs and greater speed of e-media.

Foremost among those core strengths in the Service's universality, which
is unique among communications media, and which therefore must be
preserved, not treated as just another cost center.

Almost equally important, the public trusts the Postal Service --
indeed, it has been found the *most trusted* of public institutions in
the United States by a recent study. This trust, closely tied to the
Service's universality and close-to-home delivery model, must not be
sacrificed to short-term cost-cutting or service quality reduction.
Because of this high level of trust, the mail is an attractive medium
for businesses communicating with their customers -- a fact the Postal
Service appreciates, and has capsulized under the name of the "Mail
Moment." But people's enthusiasm for the Mail Moment stems in large part
from the *personal* correspondence -- greeting cards and letters --
which it brings them. If this personal touch is lost through excessive
rates or declines in service, the value of the Mail Moment to American
business will be lost as well.

Our detailed recommendations to the Commission focus on (1) regulation,
and (2) the possibility that the all-important universal delivery
network may in the future need to be publicly supported.

Universal service must be affordable -- yet the Service is (and will
remain) a statutory monopoly for all of its letter traffic. This fact of
monopoly rebuts any argument that the Service is a "business" which is
unduly hampered by prior regulatory review of its rates and services. As
a partial monopoly with a public-service mandate, the USPS faces
pressure to exploit its captive customers (most First-Class Mail users)
in order to finance competition in markets (parcels, express mail) where
private-sector firms are active or even dominant. Regulation must be
adequate to protect these captive customers. Regulation could be
streamlined and made more effective by requiring greater transparency of
USPS operating and financial data, equipping the Postal Rate Commission
with subpoena power and other needed information-gathering tools, and
eliminating the anomalous final-decision authority of the Postal
Governors.

The Postal Service should, however, be relieved of the present, unduly
restrictive borrowing limit of \$15 billion. Giving it adequate
borrowing authority would allow better timing of rate proceedings,
alleviating the recognized but paradoxical necessity for the Service to
raise rates during slack economic times, and so depressing volumes still
further.

It is possible that, if there are drastic declines in letter mail
volume, it may become impossible to finance the growing universal
delivery network from postage revenues. Some degree of appropriations
support for this network -- not, therefore, a general operating subsidy
for the USPS -- must be seriously considered. GCA believes that such a
tailored subsidy, if found necessary, would not be inconsistent with the
Commission's mandate to avoid putting the whole cost of the status quo
on the taxpayer. Since it would be earmarked for just that aspect of the
postal system which serves everyone, possible objections to taxpayer
funding lose force: the donors and the beneficiaries would be
substantially identical.

# ATTACHMENT A

Recommendations of the Greeting Card Association Pertaining to the
Issues Set Forth in the December 11, 2002 Executive Order Establishing
the President's Commission on the United States Postal Service

+-----------------------------------+-----------------------------------+
| Issue                             | GCA View or Recommendation        |
+-----------------------------------+-----------------------------------+
| The role of the Postal Service in | -   The role of the Postal        |
| the 21^st^ Century and Beyond     |     Service in the 21^st^ Century |
|                                   |     remains the same as at its    |
|                                   |     inception in the 19^th^       |
|                                   |     Century: To provide fast,     |
|                                   |     safe mail service to          |
|                                   |     everyone, six days a week at  |
|                                   |     uniform, affordable rates     |
|                                   |     thus binding the nation       |
|                                   |     together through the sending  |
|                                   |     and receipt of culturally,    |
|                                   |     socially and educationally    |
|                                   |     valuable mail.                |
|                                   |                                   |
|                                   | -   The ruling business model of  |
|                                   |     the past quarter century      |
|                                   |     based on the perpetually      |
|                                   |     expanding flow of easy to     |
|                                   |     handle bulk mail as the       |
|                                   |     bedrock of a likewise         |
|                                   |     expanding delivery network is |
|                                   |     fundamentally flawed no       |
|                                   |     longer workable given the     |
|                                   |     challenge of e-media to mail  |
|                                   |     volumes.                      |
|                                   |                                   |
|                                   | -   The Postal Service must       |
|                                   |     refocus its efforts towards   |
|                                   |     remaining the most            |
|                                   |     *attractive* medium for       |
|                                   |     business and personal         |
|                                   |     communication alike.          |
+-----------------------------------+-----------------------------------+
| The flexibility that the Postal   | -   The Postal Service does not   |
| Service should have to change     |     require nor should it expect  |
| prices, control costs, and adjust |     any flexibility in setting    |
| service in response to financial, |     rates for those products over |
| competitive, or market pressures  |     which it maintains a          |
|                                   |     statutory or de-facto         |
|                                   |     monopoly.                     |
|                                   |                                   |
|                                   | > The Postal Service could be     |
|                                   | > granted greater flexibility to  |
|                                   | > adjust rates over its           |
|                                   | > competitive products but a      |
|                                   | > strong regulatory framework     |
|                                   | > would be essential in order to  |
|                                   | > protect the captive customer.   |
+-----------------------------------+-----------------------------------+
| The rigidities in cost or service | -   Some rigidity in cost and     |
| that limit the efficiency of the  |     service is a by-product of    |
| postal system                     |     the Postal Service's public   |
|                                   |     service obligation and cannot |
|                                   |     be dispensed with, as would   |
|                                   |     be the case in a              |
|                                   |     private-sector business       |
|                                   |     without a public-service      |
|                                   |     obligation.                   |
|                                   |                                   |
|                                   | -   A more realistic borrowing    |
|                                   |     limit -- perhaps \$30 billion |
|                                   |     rather than the present \$15  |
|                                   |     billion would provide         |
|                                   |     additional flexibility to     |
|                                   |     allow rate increases to       |
|                                   |     coincide with periods of      |
|                                   |     greater prosperity.           |
+-----------------------------------+-----------------------------------+
| The ability of the Postal         | -   Universal Service as we       |
| Service, over the long term, to   |     understand it today is the    |
| maintain universal mail delivery  |     Postal Service's single       |
| at affordable rates and cover its |     greatest asset. It is the     |
| unfunded liabilities with minimum |     reason the Postal Service was |
| exposure to American taxpayers    |     created in the first place.   |
|                                   |                                   |
|                                   | -   Though the Postal Service may |
|                                   |     be able to improve its        |
|                                   |     financial position through    |
|                                   |     the combination of new        |
|                                   |     technologies and more         |
|                                   |     autonomy in controlling costs |
|                                   |     and the promotion the         |
|                                   |     importance and value of the   |
|                                   |     "mail moment", partial public |
|                                   |     financing of universal        |
|                                   |     delivery service should       |
|                                   |     remain an option.             |
|                                   |                                   |
|                                   | -   Some measures for greater     |
|                                   |     economy in fulfilling the     |
|                                   |     universal service obligation  |
|                                   |     such as the use of cluster    |
|                                   |     may be consistent with the    |
|                                   |     overall intent of providing   |
|                                   |     universal service and could   |
|                                   |     be considered.                |
+-----------------------------------+-----------------------------------+
| The extent to which postal        | -   The Postal Service's monopoly |
| monopoly restrictions continue to |     is a fundamental component in |
| advance the public interest under |     ensuring that universal       |
| evolving market conditions, and   |     service is provided to every  |
| the extent to which the Postal    |     American. Were the monopoly   |
| Service competes with private     |     abolished, competitors would  |
| sector services                   |     appropriate the low-cost or   |
|                                   |     highly lucrative routes, thus |
|                                   |     raising the USPS' cost to     |
|                                   |     serve the remaining routes    |
|                                   |     (especially in rural or       |
|                                   |     remote areas).                |
|                                   |                                   |
|                                   | -   The Postal Service's monopoly |
|                                   |     must not be used to finance   |
|                                   |     price-cutting in competitive  |
|                                   |     services through excessive    |
|                                   |     charges to monopoly           |
|                                   |     customers.                    |
+-----------------------------------+-----------------------------------+
| The most appropriate governance   | Given the Postal Service's        |
| and oversight structure for the   | universal service mission and     |
| Postal Service                    | accompanying monopoly status, a   |
|                                   | strong regulatory process is      |
|                                   | essential, though some changes    |
|                                   | could be made to speed the        |
|                                   | decision making process:          |
|                                   |                                   |
|                                   | -   The financial and operating   |
|                                   |     data of the Postal Service    |
|                                   |     should be made more           |
|                                   |     transparent, timely and       |
|                                   |     usable.                       |
|                                   |                                   |
|                                   | -   The regulatory body should be |
|                                   |     given the authority to        |
|                                   |     subpoena any data needed to   |
|                                   |     make timely and well informed |
|                                   |     decisions on rate requests.   |
|                                   |                                   |
|                                   | -   Final decision authority on   |
|                                   |     the part of the regulatory    |
|                                   |     body with Court of Appeals    |
|                                   |     review at the instance of any |
|                                   |     interested party including    |
|                                   |     the Postal Service would      |
|                                   |     eliminate much extra time and |
|                                   |     uncertainty from the process. |
+-----------------------------------+-----------------------------------+

Number range CHAPTER **UNITED STATES OF AMERICA**

####  BEFORE THE

**PRESIDENT'S COMMISSION ON THE UNITED STATES POSTAL SERVICE**

**INITIAL COMMENTS OF THE GREETING CARD ASSOCIATION**

**Introduction.** The Greeting Card Association (GCA) presents these
Initial Comments on behalf of two constituencies: the greeting card
industry, and the individual household user of the United States mails.
GCA has been active in postal matters for many years; it most often has
been the *only* private-sector postal advocate for both the industry and
the citizen mailers it serves.

At the first public meeting of the President's Commission, Treasury
Undersecretary Peter R. Fisher commented on the impressive size and
economic value of the mailing industry. Greeting card publishers --
ranging from well-known large corporations to "Mom and Pop" small
businesses -- are an important part of that industry. They employ more
than 250,000 people. Americans spend more than \$7.5 billion a year on
greeting cards; most of those purchased travel through the mail,
predominantly as First-Class letters. Greeting cards account for more
than half of the household-to-household First-Class mail the Postal
Service carries. The greeting card is a truly national mode of
communication; there is no city or hamlet, no economic or social group,
whose members do not exchange greeting cards to honor shared traditions
or express feelings on joyous or sad occasions. In fact, nine out of ten
households are greeting card users. Moreover, the citizen mail users who
send these billions of greeting cards are keenly aware of increases in
postage cost, which is doubtless why news stories on a postal rate
change invariably highlight the "price of a stamp" -- it is the aspect
of postal finances that affects every American.

Because Americans' ability to communicate their thoughts and wishes to
one another through greeting cards depends on affordable, reliable,
universal postal services, GCA is also an advocate for the citizen mail
user. Our job is unique -- to help citizens communicate with each other.
In contrast, in other sectors of the mailing industry, their job is to
help American businesses communicate with their customers. We all want
to find solutions that will preserve and strengthen the Postal Service,
and yet our approaches may be quite different.

**Key recommendations.**

First: Universal service, a tradition since the early days of the Post
Office, is something Americans rely on every day. By universal service
we mean delivery to every household, at uniform, reasonable rates, six
days a week. GCA, while agreeing that improvements in efficiency are
always desirable, believes that universal service must be preserved,
even to the extent of a focused and limited subsidy. It must not be
sacrificed to short-run cost cutting or to the notion that the mail is
no longer the only channel of communication.

Second: Though it must preserve universal service, the Postal Service
must also change its "business model." For more than a quarter-century
it has concentrated on cheap-to-handle bulk business mail, trusting to
volume growth to fund its expanding network. This approach will no
longer work. Faced with the challenge of electronic media for much of
its letter mail traffic, the USPS must re-emphasize its basic public
service mission rather than continuing to try to survive on sheer volume
maximization. In that way, the USPS can develop a rational business
model to fit its changing role in the 21^st^ Century.

Finally: The Postal Service will remain -- for the greater part of its
business -- a statutory monopoly. This status goes hand in hand with its
duty to provide universal service. But if that service is to be
affordable for all, as it should be, then strong, efficient regulatory
protections for the captive customer remain mandatory. These protections
-- in restraining the charges to captive customers -- protect both those
customers and the businesses competing with the Postal Service in other
areas.

**The U.S. Postal Service is more than just a business.** There is no
more important part of the Nation's public infrastructure than the U.S.
Postal Service. For most of its history it has been a universal channel
of connection among our households, businesses, and government bodies.
In recent decades, though, the Service has tried to be both a business
and a public service. It has maintained, as an ideal and in practice,
its historic mission of universal letter mail service, at a nationally
uniform rate. But it has also pursued ever-greater volumes of what some
Postal officials have called "efficient" mail -- the business-generated,
bulk-entered bills, statements, and advertising that now make up over
half of the First-Class mailstream. Its business model has assumed that
the constantly expanding delivery network can be financed by continually
growing volumes of predominantly bulk mail, and it is this type of mail
that the Service has promoted.

and presentment (EBPP) could save as much as \$1.90 per bill -- and only
40 cents of that projected saving would come from Now the Service is at
a crossroads. Its efforts to increase the volumes of automated
business-origin bulk letter mail will not sustain network growth if
billions of these letters simply disappear from the postal system, and
reappear as e-mail or electronic billing transactions. No doubt more
cost savings can be achieved with cutting-edge technology. But it has
been estimated that a business that replaces mailed paper bills with
electronic bill payment avoided postage.[^1]

Clearly, the Postal Service can no longer think of itself as an
ever-expanding, hyper-efficient materials handling business[^2], nor can
it count on increasing or even keeping bulk letter mail volume by
offering further price-cutting discounts. It must, of course, continue
to use efficient, businesslike methods. But it needs, even more, to
emphasize its other strengths and responsibilities -- the
characteristics that make it, first of all, a public service.

**The Postal Service remains the only UNIVERSAL communications
channel.** Foremost among the Postal Service's advantages is its
universality. This uniformly priced universal service commitment is
found nowhere else. Even the Postal Service's best-known private-sector
competitor, United Parcel Service, does not provide it. UPS imposes an
extra charge on all residential deliveries. EBPP, of course, is not
available to any consumer that lacks a computer or Internet connection.

The Postal Service's standing as the ultimate network operation must,
however, be thought of as a strong point[^3] on which to build, not just
another variable in a cost-versus-revenue calculation.

Another strength of the Postal Service, almost equally important today,
is that both senders and recipients trust it. The Postal Service is not
merely a trusted messenger -- it is the *most* trusted of public
institutions, according to recent opinion research.[^4] Capture of the
bulk First-Class letter traffic by e-media would have gone even faster
than it has, but for public uneasiness about privacy ("Is someone
reading my e-mails?") and security ("Is my checking account really safe
on-line?").[^5]

The Postal Service's universality and close-to-home "last mile" delivery
are vital to maintaining this public trust. Of course, the general
public is willing to accept some reasonable economy measures: cluster
boxes, for example, have generally replaced door delivery for new
addresses. On the access side, the public actually welcomes the
convenience of buying stamps and mailing parcels at retail outlets other
than the local Post Office. But the Postal Service must be wary of
introducing so much "economy" into the delivery network[^6] that the
public no longer accepts it as a convenient, user-friendly, trustworthy
universal messenger. Trimming service and reducing service quality would
impair the Postal Service's high reputation with mailers and mail
recipients.

**The unique value of the mail -- for both sender and recipient.** In
part because the mail channel is trusted, reaches everyone, and is easy
to use, people value the experience of receiving their mail. The opinion
research cited earlier showed that among everyday activities, checking
and reading incoming mail outranked everything but seeing one's
significant other -- ahead of talking on the telephone, reading the
newspaper, watching television and -- significantly -- reading
e-mail.[^7] But perhaps an even larger contributor to that high
valuation is the personal message content of the mail. Personal letters
and greeting cards tie families and friends together over great
distances. Certainly an incoming mail bundle that contained only bills
and other transactional material, plus some advertisements, would have
far less appeal.

The Postal Service calls the point where we interact with and experience
our incoming mail the "Mail Moment" -- and is actively encouraging
businesses to think of it as a way to reach their customers. We think
this is a perfectly sound idea -- as far as it goes. What is missing on
the Service's part is recognition of *why* the Mail Moment has the power
it does.

A big part -- perhaps the biggest part -- of the answer is the personal
correspondence that "binds the Nation together."[^8] This mail is not an
input to an economic activity but a vital part of our non-economic lives
-- our personal projects and commitments to family, friends, affinity
groups, and communities. The contribution that personal correspondence
makes to our lives is reason enough for preserving and promoting
affordable, universally available First-Class letter mail. But by making
the mail channel the most favored of all means of communication, it also
creates value for American business. It is fair to say that without the
greeting cards and personal letters that form part of the incoming mail
bundle, the Postal Service's brand would not be the valuable asset it is
today.

**What the Mail Moment means for the business mailer.** The special
value of the mail channel is a social and economic fact, not a law of
nature. If care is not taken to preserve it, it can be lost; once lost,
it probably can never be recovered; mail volume losses that may seem to
have a transient explanation may also turn out to be permanent. The
greeting card industry's experience -- a substantial and long-lasting
diminution in card sales in 1981, after the Postal Governors imposed the
second stamp price increase in that year -- illustrates this effect. The
3.3 percent decline in single-piece First-Class letters throughout FY
2002[^9] may similarly reflect a permanent or long-continued reaction to
the anthrax scare.

That being so, we offer these two fundamental propositions for
consideration by the Commission:

4.  The Postal Service can no longer count on a permanently expanding
    stream of easy-to-handle bulk business letter mail; it must
    concentrate on becoming the *most attractive* channel for business
    mailers.

5.  The Postal Service can be the preferred business-to-customer
    communication channel *if* it preserves and promotes the personal
    correspondence that gives the Mail Moment its unique value to
    American households.

**What should be done: (1) Regulatory changes**. To maintain its unique
presence in American life, the Postal Service must be able to provide
high-quality, universal, affordable delivery. This must be done in the
face not only of challenges to the mail medium itself, but also of the
complex economics of a partly monopolistic, partly competitive,
nationwide public service network.

Let us look first at the idea of *affordable* service. For the citizen
mail user, this means that adequate control over the price of a monopoly
product must be exercised -- not merely to impose cost discipline, but
also to prevent taxing of the captive customer to subsidize aggressive
USPS competition where other media or private-sector firms are its
rivals. First-Class letters have for many years borne an increasing
share of the institutional costs of the Postal Service.[^10] Recent
proposals to offer individual large mailers discounts based purely on
volume, if allowed, would only exacerbate this problem.[^11] (There may
be a legitimate role for volume-related rate incentives, but there is no
reason to confine them to individual mega-mailers; a small business or
householder encouraged by a discount to buy 100 stamps at a time rather
than 20 or five would help reduce Postal Service costs.)

We recognize that many believe the existing rate process takes too long
and costs too much. Before coming to this conclusion, however, one
should take account of the fact that the Postal Service is not merely a
quasi-business with multiple product lines; it is both statutory
monopoly with a public-service mandate *and* an enterprise active in
competitive markets. The rationale often advanced for "pricing
flexibility" for the USPS is that it cannot compete effectively if its
prices require pre-approval by a third-party regulator. This perception
may apply to the Service's *competitive* products, but as applied to
pricing in the *monopoly* classes[^12] it has not even a theoretical
foundation.

In debates over regulation, the alleged cost and complexity of the
regulatory process

can cloud the real issue: the regulated monopolist's desire to avoid
oversight. It is generally agreed that an enterprise with a monopoly in
some but not all of its product lines will be tempted to finance its
competitive trade by exploiting those customers that have no
alternative. The Postal Service is such an enterprise, is subject to
that temptation, and accordingly requires adequate oversight to prevent
exploitation of its captive household and business customers.

Without necessarily agreeing that even the existing process is overly
long -- given the size and complexity of the enterprise -- we can see
some ways in which it could be shortened and streamlined.[^13] Most
significantly, the financial and operating data of the Postal Service
could be made more transparent, timely, and usable. Much of the time and
expense of a general rate case is devoted to deciphering such data and
the ways in which the data have been applied to support rate proposals.
(GCA here speaks from experience as a regular participant, on behalf of
the citizen mail user, in PRC rate and classification proceedings.)
Moreover -- unlike other agencies with similar responsibilities -- the
PRC lacks adequate information-gathering powers. It has no subpoena
authority, and cannot require the Postal Service to perform cost or
market studies that could do much to elucidate the complex economic and
operational issues presented in rate proceedings. To streamline the
process without sacrificing its completeness and accuracy, these
information-policy reforms should be made a high priority.

Another possibility for reform is the unique, and procedurally
complicated, role of the Postal Service Governors. If more rate
flexibility were extended to the Service with respect to its truly
competitive products, the need for regulatory protection of captive
customers would become all the greater. Under current law, the Governors
can modify a PRC decision if they find it would provide inadequate
revenue to permit breakeven. This unique system contributes
substantially to the length of the ratemaking process. If the PRC had
final decisional authority, with Court of Appeals review at the instance
of any interested party including the Postal Service, this extra time
and uncertainty could be eliminated.

The Governors' final authority will be particularly problematic if
regulatory reform should move in the direction of increased pricing
flexibility for the USPS' competitive services.

In any ratemaking system that incorporated relative freedom for the USPS
to set its own rates in competitive markets, or to alter them within
"rate bands" previously set through the PRC process, the Governors'
final authority would allow exploitation of the monopoly customer. The
PRC, on that model, could not control the revenue from competitive
services. Its decision, however, could be changed because -- perhaps
because of USPS price-cutting in just those competitive markets --
*total* revenue was thought by the Governors to fall short of breakeven.
The burden of supporting competition against the private sector would
then be thrust on the captive customer -- contrary to the dictates of
sound economics as well as fairness. In short, any extension of pricing
flexibility for competitive services must be coupled with relocation of
final decision authority (subject to judicial review) in the independent
Postal Rate Commission.

Thus procedural reform should never lose sight of the central role of
the regulatory process, which is to insure fair and nondiscriminatory
treatment for the captive customer of First Class letter mail -- the
mail subject to the Postal Service's statutory monopoly. We have shown
how the individual mail user -- as both sender and recipient -- is more
vital than ever to the survival of the Postal Service. Any changes in
the regulatory regime must reflect that fact.

There are, however, some "rigidities" that genuinely do hamper the
Postal Service in pursuing greater efficiency and stability. An
especially important one is the overly-restrictive borrowing limit
imposed by 39 U.S.C. § 2005(a) -- currently \$15 billion, which seems
unduly restrictive for a \$75 billion/year enterprise with substantial
monopoly protections and some of the business advantages of a government
entity. A more realistic borrowing limit would let the Service delay a
revenue-raising rate increase until its customers could better afford
it.[^14] Of course, the increased timing flexibility provided by, for
example, a doubling of the borrowing limit would carry with it the need
to be prepared to raise rates, for debt retirement as well as current
expenses, when economic conditions permitted.

**What should be done: (2) Public support for universal service.** With
probable declines in First-Class letter volume as billing and other
transactions migrate to the Internet, a new understanding of the USPS
mission, along the lines we have sketched above, will be needed. Mail
that provides a variety of satisfactions to mail users can be encouraged
even if the electronic media are theoretically cheaper. Cost reductions,
in new areas as well as those where the Service has already made
commendable progress, can also help as would improvements in service
such as those that technology offers in the areas of mail address
corrections and mail tracking. But we must face the possibility that
more financial support will be needed to cope with the substantial fixed
costs of the delivery network.[^15]

The Commission therefore should give serious consideration to the
possible need for a partial subsidy. We recognize that the Commission
will (rightly) resist the idea of maintaining the status quo at
taxpayers' expense. That is not what we suggest.

The Postal Service's long-standing business model of financing network
expansion through volume growth needs to change because the foreseeable
decline in its largest revenue generator will be driven principally by
an external cause -- the advent of electronic media that offer superior
speed and lower cost for the purely informational content characteristic
of transaction-oriented First-Class letters. Thus the attractiveness of
e-media for *one* type -- though, clearly, a very important type -- of
mail content will put at risk the public's access to an affordable
universal delivery system for *all* types of content.

A subsidy scaled to, and earmarked for, the support of those fixed costs
of the delivery system that could not be recovered, under
diminished-volume conditions, without excessive increases in postage,
would be an appropriate response. First, it deals with a narrowly
defined problem; it is not a general operating subsidy for the entire
Postal Service. Second, it is aimed at supporting that part of the
postal system that directly serves all Americans. If all benefit from
the subsidy-supported network, the theoretical objection to a subvention
from tax funds largely disappears: the donors would be essentially
identical with the beneficiaries. In this light, it becomes evident that
such a subsidy would be consistent with long-standing Federal policies
of supporting vital infrastructure elements (Federally-aided highways,
air transportation, river and harbor improvement, and the like).

**Conclusion.**

Solving the long-term structural and viability issues that face today's
Postal Service will not be easy under any circumstances, but without a
coherent and realistic view of what the Service's future role should be,
it will scarcely be possible. In these Comments we have tried to offer
such a view:

-   The Postal Service must refocus its efforts on its universal
    public-service mission, and on the citizen mail user in particular;

-   Universal service, fundamentally as we understand it today, is the
    Postal Service's greatest single asset and must not be sacrificed to
    short-term cost-cutting;

-   The ruling business model of the last quarter-century -- a
    perpetually expanding flow of easy-to-handle bulk mail, viewed as
    the financial underpinning of a likewise expanding delivery network,
    is at best obsolescent;

-   The Service must concentrate on remaining the most *attractive*
    medium for business and personal communication alike;

-   The letter mail monopoly will remain necessary for the foreseeable
    future, and -- especially if the Service should be granted more
    flexibility in pricing its non-monopoly products -- efficient and
    effective regulation to protect the captive customer will be
    necessary as well;

-   The Service needs, and its customers would benefit from, the
    flexibility of a more realistic borrowing limit -- perhaps \$30
    billion rather than the present \$15 billion.

-   If the financial gap between mail volume and necessary delivery
    network expansion continues to grow, partial public financing of
    universal delivery service should remain an option.

[^1]: . PriceWaterhouse Coopers, *Projecting Electronic Diversion for
    First-Class Mail in the H.R. 22 Simulation Model* (February 7,
    2000), p. 5.

[^2]: 2\. This fact is acknowledged in the Postal Service's April 2002
    *Transformation Plan.* But many of the recommendations in that
    document seem attuned to a continuance of older policies.

[^3]: 3\. We call today's universal system a *strength* of the Postal
    Service because, among other things:

    Connection to the system to receive mail is essentially costless
    (using the Internet means buying hardware, learning new skills, and
    paying a monthly access fee);

    A sender can reach any recipient using a single format, at a single
    unit price, via a single carrier, with delivery at or close to the
    recipient's home or office, six days a week; and

    The recipient gets a *tangible* greeting card, letter, or other
    message, without any extra steps.

[^4]: . Pitney Bowes, Inc., *Americans' Feelings About Mail* (May 2000),
    pp. 3-4. The same study shows (p. 3) that respondents also
    considered the mail the most private and secure channel.

[^5]: 5\. The Internet is becoming a more trusted medium -- but still
    has a long way to go to match the Postal Service. The Conference
    Board has reported that, as of 2002 Q4, 33 percent of survey
    respondents felt the Internet was safe for financial transactions,
    compared to 27.5 percent a year earlier. Conference Board E-Mail
    Express, vol. 2, no. 18, Week of January 21, 2003. For examples of
    the practical advantages and disadvantages of converting a
    traditionally paper-based procedure -- college admission
    notifications -- to on-line form, see "Admit Site Gets 2,300
    Visitors," *Yale Daily News*, January 16,2003, at
    [www.yaledailynews.com](http://www.yaledailynews.com/). (Despite the
    cost advantage of on-line communication, Yale's Dean of Admissions
    noted that "people need paper in their hands.")

[^6]: . It is sometimes not realized how extensively "rationalized" USPS
    delivery is, by comparison with many foreign posts. In this country,
    city delivery may be to a front door, a curbside box, or a
    neighborhood cluster box. In some small communities, one must go to
    a Post Office box for one's mail. On rural routes, the customer's
    box must be on the carrier's line of travel -- even if the customer
    lives some distance up an intersecting road. In France, on the other
    hand, *every* delivery is made to a building. See Bernard, et al.,
    "Delivery Cost Heterogeneity and Vulnerability to Entry," at
    [[www.prc.gov/tsp/111/DeliveryCost.pdf.]{.underline}](http://www.prc.gov/)

[^7]: . *Americans' Feelings About Mail,* supra, p. 7.

[^8]: . Cf. the first section of the Postal Reorganization Act of 1970,
    39 U.S.C. § 101(a).

[^9]: 9\. Reported in U.S. Postal Service *Revenue, Pieces and Weight
    Report, Government Fiscal Year 2002.*

[^10]: 10\. In addition, the Postal Service has resisted initiatives
    designed to share the cost savings from technological progress with
    household mailers. The Postal Rate Commission has repeatedly
    recommended a lower-priced stamp for the automation-ready courtesy
    envelopes supplied by utilities and other businesses for consumer
    bill payment; the Postal Service Governors have repeatedly rejected
    it.

[^11]: . In a mass mailing, the unit attributable cost is the same for
    the first piece and the millionth piece. Under a volume discount,
    therefore, the lower-priced pieces make a smaller contribution to
    institutional costs.

[^12]: 12\. The statutory monopoly applies to letters, which are broadly
    defined in the USPS regulations (39 CFR § 310.1). In practice, the
    Service also enjoys a working monopoly over delivery of most
    magazines. So far as all the monopoly classes are concerned, the
    observation that pricing flexibility has no theoretical underpinning
    applies also to the application of monopoly revenues to compete
    unfairly for other business. Cross-subsidization of competitive
    products by additional revenues extracted from captive customers is
    inconsistent with the theory of competitive pricing, which condemns
    pricing below marginal cost, and with the idea that regulation
    seeks, inter alia, to replicate at least some of the effects of a
    competitive market where pricing at marginal cost is infeasible.

[^13]: . Much has already been done by the Postal Rate Commission, using
    existing law, to permit speedy adjudication of innovative
    classification changes and related rates.

[^14]: 14\. The damage to mail volume from ill-timed rate increases is,
    indeed, a serious problem, recognized by (among others) Postal
    Service CFO Richard Strasser in his remarks at the Commission's
    first session on January 8, 2003. When mail usage declines-- in the
    case of business mail, commonly because of deterioration in general
    economic conditions -- the Service cannot reduce costs quickly
    enough to avoid a revenue gap. But in difficult economic times, a
    rate increase to plug the gap may only exacerbate it by further
    driving down volumes.

[^15]: . Such fixed costs are an inevitable feature of any delivery
    network, whether governmental or privately-owned.