######  BEFORE THE {#before-the .boldcent}

######  POSTAL RATE COMMISSION {#postal-rate-commission .boldcent}

######  WASHINGTON, D.C. 20268-0001 {#washington-d.c.-20268-0001 .boldcent}

POSTAL RATE AND FEE CHANGES Docket No. R2006-1

Initial Brief Of

Major Mailers Association

[On Selected Special Service Issues]{.underline}

Michael W. Hall

35396 Millville Road

Middleburg, Virginia 20117

Counsel For

Major Mailers Association

Dated: Middleburg, Virginia

December 21, 2006

TABLE OF CONTENTS

Page

[Executive Summary 1](#executive-summary)

[Statement Of The Case 2](#statement-of-the-case)

[QBRM Discount 2](#qbrm-discount)

[High Volume QBRM Per Piece Fee 2](#high-volume-qbrm-per-piece-fee)

[Confirm Service 4](#confirm-service)

[Argument 5](#argument)

[I. The Commission Should Reject The Postal Service Not To Give QBRM
Recipients Credit For The Cost Savings They Make Possible
5](#__RefHeading___Toc154479848)

[II. The Postal Service's Proposed Increase In The QBRM Per Piece Fee Is
Fatally Flawed 10](#__RefHeading___Toc154479849)

[III. The Postal Service's Confirm Service Proposal Should Be Rejected
22](#__RefHeading___Toc154479850)

[IV. Conclusion 27](#__RefHeading___Toc154479851)

TABLE OF AUTHORITIES

Page

*Postal Rate and Fee Changes, 1997,* Docket No. R97-1, Opinion and
Recommended Decision, issued March 4, 1988 6

*Postal Rate and Fee Changes, 2000*, Docket No. R2000-1, Opinion and
Recommended Decision, issued November 13, 2000 6

LIST OF TABLES

Page

[Table 1 Current Confirm Fee Rate Structure and Rates
5](#__RefHeading___Toc154479908)

[Table 2 Comparison of Manual/Automated Pieces that Remain After the
First Barcoded Sort For HAND and QBRM Letters
7](#__RefHeading___Toc154479909)

[Table 3 MMA Derivation of QBRM Unit Cost Savings (Cents)
9](#__RefHeading___Toc154479910)

[Table 4 USPS Proposed Fee Increase For Confirm Service
23](#__RefHeading___Toc154479911)

#  {#section .Lev1}

BEFORE THE\
POSTAL RATE COMMISSION\
WASHINGTON, D.C. 20268-0001

Postal Rate And Fee Changes Docket No. R2006-1

# Initial Brief Of Major Mailers Association On Selected Special Service Issues {#initial-brief-of-major-mailers-association-on-selected-special-service-issues .Lev1}

Major Mailers Association (MMA) hereby submits its initial brief on
issues relating to the following Special Services: Business Reply Mail
(BRM ) and Confirm Service. MMA is also submitting a separate initial
brief dealing with issues regarding First Class workshared rates and
discounts.

# Executive Summary

1\. The Commission should reject Postal Service's proposal to reduce the
discount for Qualified Business Reply Mail (QBRM) from 3.2 cents to 2.5
cents. The Postal Service's proposal is based on an arbitrary refusal to
recognize the full cost savings that QBRM achieve. The Commission should
instead increase the QBRM discount to 4.0 cents consistent with
substantial evidence provided by MMA witness Richard E. Bentley
(MMA-T-1) and Time Warner TW) witness Robert W. Mitchell (TW-T-3)

2\. The Commission should reject the Postal Service's proposal to
increase the per piece fee for High Volume QBRM (HV QBRM) based on the
fatally flawed 2005 BRM Practices Study that was submitted as part of
Library Reference USPS-LR-L-34. Instead, the Commission should adopt MMA
witness Bentley's recommendation that the per piece fee be reduced to
0.5 cent.

3\. The Postal Service's ill-conceived proposal to radically alter the
rate structure for its new Confirm Service should be rejected out of
hand. MMA takes no position on how Confirm Service should be priced for
Standard Mail. The proposal of MMA witness Bentley to provide unlimited
scans to First Class presort mailers subject only to a reasonable annual
set up fee for each subscriber will attract new subscribers and assist
the Postal Service's efforts to retain or increase First Class presort
mail volumes.

## Statement Of The Case

MMA generally relies upon the Statement Of The Case set forth in its
Initial Brief and adds the following:

### QBRM Discount

The Postal Service's proposal to reduce the QBRM discount, from 3.2 to
2.5 cents was presented by USPS witness Abdulkadir Abdirahman. He
measured cost savings of 1.5 cents because he artificially limited the
operations through which cost savings could be measured and failed to
properly reconcile his theoretical model results to the CRA.

The Postal Service's proposal was opposed by two witnesses -- MMA
witness Richard E. Bentley (MMA-T-1 at 26-28, Appendix II at 1-6) and
Time Warner (TW) witness Robert W. Mitchell (TW-T-3). Mr. Bentley and
Mr. Mitchell both recommended that the QBRM discount be increased, from
3.2 to at least 4.0 cents. OCA witness Pamela Thompson supported the
Postal Service's 2.5 cent discount proposal but for all the wrong
reasons.[^1]

USPS witness Abdirahman filed rebuttal testimony on this issue. Tr.
35/11959-960.

### High Volume QBRM Per Piece Fee

The direct testimony of USPS witness L. Paul Loetscher (USPS-T-28 at 8)
devoted exactly one paragraph, just over 10 lines, indicating that he
sponsored the Business Reply Mail Practices Study contained in Library
Reference USPS-LR-L-34 and providing a most superficial description of
that study.

During cross examination, USPS witness Loetscher admitted that, as a
check on the reasonableness of the new BRM Practices Study's conclusion
that almost 27% of all HV QBRM is hand counted, he compared that result
to the finding of the Postal Service's 1997 BRM Practices Study (R97-1
Study) that 47% of all BRM was hand counted. He also admitted that he

1.  was not even aware of the fact that, in R2000-1, the 1997 Study
    results were repudiated by USPS witness Campbell who conducted a
    survey of HV QBRM counting methods when it became apparent that the
    1997 Study was unreliable (Tr. 7/1575);

2.  never even reviewed KeySpan Energy witness Richard E. Bentley's HV
    QBRM presentation in R2000-1 (id);

3.  had never reviewed the Commission's R2000-1 Recommended Decision
    (Tr. 7/1576);

4.  was not even aware of the fact that, in R2000-1, the Commission
    rejected the 1997 Study results and, instead, relied entirely upon
    the HV QBRM counting method analysis presented KeySpan Energy
    witness Bentley ((Tr. 7/1575).);

5.  was not even aware of any statements of USPS policy on using more
    automated methods of counting business reply mail (Tr. 7/1585);[^2]
    and

6.  was not even aware ***until "a couple days" before testifying,***
    that, in R2001-1, USPS witness Michael Miller expanded USPS witness
    Campbell's survey results and demonstrated that the percentage of HV
    QBRM that is manually counted is much lower than Mr. Campbell
    thought. Indeed, Mr. Loetscher confirmed that the only reason he
    found out about Mr. Miller's survey results was that "somebody came
    racing back and said \[MMA counsel\] Mike Hall is going to beat you
    over the head with this, so maybe you ought to study it." (Tr.
    7/1577-78).

On September 6, 2006, MMA witness Richard E. Bentley submitted testimony
addressing the proper per piece fee for HV QBRM. Using two data sets,
one based on the counting method percentages developed in Library
Reference USPS-LR-L-34 sponsored by Mr. Loetscher and the other using
the results from USPS witness Miller's Survey from R2001-1. Based on
these analyses, he recommended that the Commission reject the USPS
proposal to ***increase*** the per piece fee by 12.5%. Based on his
findings that HV QBRM per piece fee cost is about ***one-tenth*** of a
cent, Mr. Bentley recommended that the Commission set the per piece fee
at 0.5 cent and give serious consideration to eliminating the charge
altogether. MMA-T-1 at 28-30 and Appendix II at 6-8.

On November 20, 2006, USPS witness Loetscher filed rebuttal testimony
that took Mr. Bentley to task for his reliance upon the Commission's
R2000-1 methodology and USPS witness Miller's R2001-1 survey of Hi
Volume QBRM counting methods. After being confronted with obvious errors
in the data underlying Library References USPS-LR-L-34 and USPS-LR-193
during cross examination, the Postal Service tried to cover up these
errors by filing "errata" to witness Loetscher's rebuttal testimony and
the two library references and blamed MMA for not bringing these obvious
errors to its attention earlier in the proceeding.

### Confirm Service

Confirm Service allows mailers the ability to track both their outgoing
and incoming mail through scans that are recorded and reported as the
letters are sorted on barcode sorters and other postal equipment.
Subscribers routinely use information provided by Confirm to identify
service problems and to provide better service to their customers.
MMA-T-1 at 30.

The Postal Service first began offering Confirm Service just a few years
ago, following Commission approval in MC2002-1. Confirm Service has not
garnered the market response that the Postal Service originally
anticipated.

Although Confirm Service is basically a high tech, Internet based
information service, the Postal Service's response is unlike most other
businesses. Instead of exploring ways to increase the Confirm Service
market, the Postal Service has taken the unenlightened position that
prices should be significantly increased and the rate structure should
be changed dramatically.

Since its inception, the Postal Service has used a subscription-based
pricing model. Today, there are three levels of Confirm Service: Silver,
Gold and Platinum. The rate structure currently provides different
levels of service depending upon subscription level as follow:

[]{#__RefHeading___Toc154479908 .anchor}Table 1\
Current Confirm Fee Rate Structure and Rates

  ------------------------- -------------- -------------- ----------------
  Fee Category              Subscription                  
                            Level                         

                            Silver         Gold           Platinum

  Subscription Fee          \$ 2,000       \$ 4,500       \$ 10,000

  \# of months              3              12             12

  Additional IDs            \$ 500         \$ 500         \$ 500

  Additional Scans          \$ 500         \$ 750         N/A
  ------------------------- -------------- -------------- ----------------

USPS witnesses Mitchum and Page presented the Service's proposals for
Confirm Service. The Postal Service's proposal to radically alter the
rate structure for Confirm Service will not produce fair and equitable
rates, will cause existing subscribers to reconsider and limit their use
of Confirm Service, and discourage new subscribers. MMA witness Bentley
's proposal for First Class mail is reasonable and will put Confirm
Service on the right track to benefit mailers and the Postal Service.

## Argument

I.  []{#__RefHeading___Toc154479848 .anchor}The Commission Should Reject
    The Postal Service Not To Give QBRM Recipients Credit For The Cost
    Savings They Make Possible

The concept of a QBRM discount was first proposed by the Postal Service
and adopted by the Commission in R97-1. At that time, the Commission
approved a 3-cent discount from the basic First Class rate of 33 cents.
PRC Op. R97-1 at 303-304. By design, the discount represented a 75%
passthrough of the relevant mail processing cost savings.

The Postal Service's proposal of the 3 cent QBRM discount was a response
to the Commission's longstanding concern that certain mailers where
being denied a fair share of the benefits that their very efficiently
processed return mail letters made possible for the postal system. As
the Commission stated (PRC Op. R97-1 at 319:

The Commission finds that QBRM, unopposed as a matter of classification
on this evidentiary record, is an appropriate response to longstanding
concerns that certain BRM distributors have not been given an
opportunity to obtain a discount recognizing the costs that
pre-approved, prebarcoded pieces save the Postal Service. The Commission
welcomes the Service's attention to rectifying this situation.

The cost analysis supporting the QBRM discount was last approved by the
Commission in R2000-1. PRC Op. R2000-1 at 556; PRC-LR-12B, part B;
MMA-T-1 at 27. The Commission's analysis compares the costs to process a
specially prepared QBRM letter with the costs to process a similar
letter that is hand-addressed (HAND letter). Cost savings are based on
all processing operations from acceptance through the incoming secondary
sortation operation, and primarily reflect the RBCS cost of barcoding
HAND letters ***and the higher percentage of HAND letters (compared to
QBRM letters) that must be processed manually throughout the
mailstream.***

Both QBRM and HAND letters enter the general mailstream with all other
collection mail. QBRM is then separated from other mail using the
special FIM marking that is recognized by automated equipment within the
mail preparation operations. From that point on, QBRM is processed by
automation. HAND letters remain combined with all other single piece
letters and are processed through the RBCS where, to the extent
possible, they are "read" by machines or off-site postal employees and
have a barcode applied. From that point on, HAND letters are processed
by automation (to the extent possible).

The Commission's currently approved methodology estimates the unit costs
for QBRM and HAND and computes the difference to derive the savings due
to the special cost sparing features of prebarcoded, automation
compatible QBRM.

In this proceeding, USPS witness Abdirahman has proposed to limit
derived QBRM cost savings by measuring cost savings only through the
first barcode sortation. The Postal Service's methodology is flawed for
two reasons. First, the Postal Service method models QBRM and HAND
letters only as far as the first outgoing sortation, thus ignoring
entirely the additional savings that accrue after that point in
processing. Second, when USPS witness reconciles his model derived
results with the CRA, he applies the wrong CRA Proportional Adjustment
factor to the QBRM model-derived unit cost, thereby understating the
derived cost savings.

Correcting for both of these errors, MMA witness Bentley derived a QBRM
unit cost savings of 6.75 cents, a full 5.26 cents more than the savings
derived by the Postal Service (1.49 cents). Accordingly, far from
supporting a reduction in the QBRM discount, the evidence supports an
***increase*** in the discount to ***at least*** 4.0 cents.

Appendix II to Mr. Bentley's testimony provides a technical discussion
of the shortcomings associated with the Postal Service's QBRM cost
savings analysis, explains why that methodology severely understates
actual cost savings, and demonstrates that actual QBRM unit cost savings
exceed 6 cents.

First, Table 2 shows the percentages of QBRM and HAND letters that are
rejected during the first barcoded sort, as shown in the Postal
Service's mail flow models and confirmed by USPS witness Abdirahman.[^3]

[]{#__RefHeading___Toc154479909 .anchor}Table 2\
Comparison of Manual/Automated Pieces that Remain\
After the First Barcoded Sort\
For HAND and QBRM Letters

  ---------------------------------- ------------------------------------
  Type of First-Class Letter         \% Rejected During the First
                                     Barcoded Sort

  HAND                               9.72%

  QBRM                               4.24%

  **Source**: MMA-T-1, App. II, p.   
  2, Table 1                         
  ---------------------------------- ------------------------------------

Manual processing costs are approximately 13 times the cost of automated
processing. *See* USPS-T-42 at.12. Because almost 10% of HAND letters
require very expensive manual processing after the first barcode sort
while only 4.24% of QBRM letters require manual processing, the Postal
Service's proposal to stop counting cost savings from this point on
ignores substantial savings enjoyed by QBRM compared to HAND letters.
*See* MMA-T-1, App II at 2. The Postal Service's derived cost savings
between QBRM and HAND letters is only 1.03 cents. (*See* Library
References USPS-LR-L-69 and USPS-LR-L-104. By contrast, the comparable
figure, which takes into account savings that accrue after the first
barcoded sort, is 2.65 cents. *See* Tr. 18D/6634. (Response to TW/USPS-6
(B)) Accordingly, the Postal Service's "narrow" view understates
model-derived unit cost savings 1.62 cents or 61%. MMA-T-1. App II at
2-3.

USPS witness Abdirahman seems to rely on USPS witness Hatcher's
testimony from R2005-1 and USPS witness Miller's testimony form R2001-1
to fulfill his burden of proof -- of convincing the Commission to alter
its currently approved method that includes all operations after the
first barcoded sort in the derivation of QBRM cost savings. When asked
to support his "narrow" approach, he stated,

The methodology for the cost study I am presenting in this case is
unchanged from the model presented by witnesses Hatcher in R2005-1 and
Miller in R2001-1. I do not have any further rationale beyond what was
covered in Dockets No. R2005-1, USPS-T-22, pages 4 at 5-6 and R2001-1:
USPS-T-22, Section IV" related interrogatory responses and Commission
hearing transcripts. My analysis is limited to costs incurred up to the
point each mail piece (QBRM and Hand written reply mail) receives its
first barcode sortations on the BCS.

Tr. 4/561-62. In his rebuttal testimony, he appeared to echo those
sentiments but provided no new evidence. *See* USPS-RT-7 at 12-15. In
fact, he readily confirmed that fewer QBRM letters are rejected by
automation equipment after the first barcoded sort. Tr. 35/12019. He
readily confirmed that QBRM letters have a higher automation success
rate than HAND letters. Tr. 35/12020. But still, somehow, Mr. Abdirahman
concluded that "the only identifiable difference between QBRM and HAND
letters is in the RBCS". Tr. 35/12020. This implies that any additional
costs incurred by HAND letters, which must be processed manually more
often than QBRM, are immaterial to the derivation of QBRM cost savings.
MMA does not understand this logic and urges the Commission to reject
such specious reasoning.

Once he derived the unit costs from his models, USPS witness Abdirahman
then compounded his first error by applying the ***same*** CRA
Proportional Adjustment factor of 1.564 (the adjustment factor for BMM)
to the model-derived unit costs of ***both*** HAND and QBRM letters. Mr.
Bentley agreed that 1.564 was the appropriate factor to apply to HAND
letter costs. However, he strenuously disagreed with Mr. Abdirahman's
use of that same factor to adjust the costs for QBRM. As he explained
(MMA-T-1, App II at 4-5),

QBRM letters share the same cost causing attributes as Automation
letters. Both types of letters are prebarcoded and meet stringent
automation compatibility requirements. Therefore, QBRM letters and
Automation letters both bypass the RBCS operation. Tr. 4/563.
Accordingly, I have applied the CRA Proportional Adjustment factor of
0.931 derived for Automation letters to the QBRM unit cost of 4.122
cents. This brings the QBRM model-derived unit cost "into alignment"
with the CRA for QBRM.

Table 3 shows how Mr. Bentley derived QBRM cost savings.

[]{#__RefHeading___Toc154479910 .anchor}Table 3\
MMA Derivation of QBRM Unit Cost Savings\
(Cents)

  ------------------ ----------------- ---------------- ------------------
                     \(1\)             \(2\)            \(3\)

  Type of            Model-Derived     CRA Proportional Reconciled Unit
  First-Class Letter Unit Cost         Adj Factor       Cost

                                                        \(1\) x (2)

  HAND               6.768             1.564            10.589

  QBRM               4.122             0.931            3.838

  Difference                                            6.751

  **Sources**: Tr.                                      
  18D/6634,                                             
  MMA-LR-1, pages 3                                     
  and 5                                                 
  ------------------ ----------------- ---------------- ------------------

For these reasons, there is ample support for raising the QBRM discount
to 4 cents and that is what the Commission should recommend.

II. []{#__RefHeading___Toc154479849 .anchor}The Postal Service's
    Proposed Increase In The QBRM Per Piece Fee Is Fatally Flawed

The Postal Service's proposal to increase the HV QBRM per piece fee by
12.5% is based upon a new, but flawed BRM Practices Study recently
conducted in January 2005. *See* Library Reference USPS-LR-L-34. Among
other things, that "study" estimates that 27% of all HV QBRM, more than
40 million pieces per year, is hand counted. With counting machines and
weighing techniques that are more than 12 times as productive and
readily available to all post offices, there is no excuse for hand
counting HV QBRM letters. Certainly, if such inefficiencies in fact do
occur, the Postal Service must not be rewarded for employing such
wasteful counting procedures.

There are several reasons to be skeptical about the 2005 BRM Practices
Study's conclusion that the Postal Service's estimate that 27% of HV
QBRM is hand counted is simply wrong. As Mr. Bentley testified,

This is not the first time that the Postal Service has tried, and
failed, to convince the Commission that it laboriously hand counts QBRM
received in very large quantities day-in and day-out. Apparently the
Postal Service has not learned from its past mistakes and history has
repeated itself in the latest BRM Practices Study.

In R2000-1, USPS witness Campbell relied on a 1997 BRM Practices Study
that was basis for the study relied upon by the Postal Service in this
case. Back then, the BRM Practices Study led Mr. Campbell to conclude
that 47% of QBRM volumes received in high quantities were counted
manually. After this practice was seriously questioned, Mr. Campbell
went back to the drawing board and, using the CBCIS and other data
systems, obtained specific counting information for the top 77 High
Volume QBRM recipients by means of a survey. Using this new information,
I presented my own study that concluded only 11% of these pieces were
hand counted. In that case, the CBCIS data proved that the BRM Practices
Study results were not representative of High Volume QBRM recipients and
the Commission agreed.

In R2000-1, the Commission agreed with Mr. Bentley, stating PRC Op.
R2000-1 at 552 (emphasis added):

The updated processing information supplied by Campbell shows results
that implausibly seem to favor manual counting, the most inefficient
counting method. (Tr. 14/6030) It is easy to believe that high volume
offices would use the more efficient counting methods; ***it strains
credulity to think that offices receiving large volumes would hand count
most or all of the pieces***...

In R2001-1, just a year later, USPS witness Miller conducted a more
detailed survey of the top 151 HV QBRM recipients. He found that almost
none (just 0.4%) of HV QBRM volumes were counted manually. Therefore, as
Mr. Bentley testified, "I seriously question the reasonableness of the
new sampling study that estimates 27% of today's HV QBRM is actually
counted manually.

The record shows that there were sound reasons for Mr. Bentley's
skepticism about the 2005 BRM Study's conclusion that 27% of all HV QBRM
is hand counted. First, it appears that that the 2005 BRM Study was
designed and conducted to meet an artificial and very strict time limit
imposed by the Postal Service. As USPS witness Loetscher testified, his
consulting firm was contacted in December 2004 and told that he needed
to provide study results by March 2005. Obviously, the choice of when to
conduct the study was driven more by the deadline imposed by the Postal
Service than considerations of which time period would produce
reasonable results. Tr. 38/13289-290. As Mr. Loetscher testified (Tr.
38/13288 (emphasis added)):

Q Well, let\'s get to why you chose January to run your sample.

A It wasn\'t a choice upon our part. It was a choice upon the Postal
Service\'s part. They wanted to get data as quickly as possible, so they
contacted us in December and asked us when was it possible for us to get
out in the field, so they could have the results by \-- I forget the
exact date, but March or April. ***So, we were constrained on when we
could be in the field collecting data***.

It also appears that, whether the result of rushing Mr. Loetscher's firm
or for some other reason, the Postal Service's "BRM Team" failed to
provide Mr. Loetscher with vital information that should have led him to
question the 2005 Study's finding that 27% of all HV QBRM is counted by
hand. Indeed, more than a year after the study was conducted, Mr.
Loetscher was still in the dark about very relevant information. As he
admitted on August 10, 2006, he

1\. was not even aware of the fact that, in R2000-1, the 1997 Study
results were repudiated by USPS witness Campbell who conducted a survey
of HV QBRM counting methods when it became apparent that the 1997 Study
was unreliable (Tr. 7/1575);

2\. never even reviewed KeySpan Energy witness Bentley's HV QBRM
presentation in R2000-1 (id);

3\. had never reviewed the Commission's R2000-1 Recommended Decision,
the latest definitive ruling on per piece fee issues, where the
Commission devoted 31 paragraphs and 10 pages to this issue (Tr.
7/1576),

4\. was not even aware of the fact that, in R2000-1, the Commission
rejected the 1997 Study results and, instead, relied entirely upon the
HV QBRM counting method analysis presented KeySpan Energy witness
Bentley ((Tr. 7/1575).);

5\. was not even aware of any statements of USPS policy on using more
automated methods of counting business reply mail (Tr. 7/1585); and

6\. was not even aware ***until "a couple days" before testifying,***
that, in R2001-1, USPS witness Michael Miller expanded USPS witness
Campbell's survey results and demonstrated that the percentage of HV
QBRM that is manually counted is much lower than Mr. Campbell thought.
Indeed, Mr. Loetscher confirmed that the only reason he found out about
Mr. Miller's survey results was that "somebody came racing back and said
\[MMA counsel\] Mike Hall is going to beat you over the head with this,
so maybe you ought to study it." (Tr. 7/1577-78).

Mr. Loetscher's ignorance on this latter point is especially puzzling
since he testified on December 6, 2006 that, when preparing to conduct
the 2005 BRM Study, he spoke with USPS witness Miller about whether
there were seasonality issues associated with conducting the 2005 BRM
Study in January 2005. As Mr. Loetscher testified,

We discussed the issue with people knowledgeable of BRM, like witness
Miller, and said are there any seasonal issues that we should be
concerned of and he didn\'t think that there was too much seasonality in
it, at that time. But, we did not do an exhaustive examination of the
volume flows by season, no."

See Tr. 38/13290. Mr. Loetscher's testimony on this score is absolutely
astounding for several reasons. First, it establishes that he actually
spoke to USPS witness Miller ***before*** the study was conducted, but
apparently was never informed that Mr. Miller had conducted and then
presented in R2001-1 his expanded survey of HV QBRM counting methods.
Second, Mr. Miller's apparent conclusion, that seasonality was not an
issue, flies in the face of one of Mr. Loetscher's principal criticisms
of Mr. Bentley's analysis -- that it did not take seasonality into
account.[^4] *See* USPS-RT-9 at 4, Tr. 38/13271.

It is obvious that the 2005 BRM Study was conceived and conducted in
haste. Haste makes for erroneous results and the record shows that the
2005 BRM Study design and results are shot through with errors, errors
that the Postal Service cannot hide by filing errata to the 2005 Study
and Mr. Loetscher's November 20, 2006 rebuttal testimony and library
reference.

During cross examination on December 6, 3006, MMA pointed out to USPS
witness Loetscher that 2005 Study file alldata2 contained ***6***
instances of duplicate volume reports. Tr. 38/13293. The Postal
Service's ill-considered response to disclosure of these errors was to
file "errata" to Mr. Loetscher's original Library Reference
USPS-LR-L-34, his rebuttal testimony, and Library Reference
USPS-LR-L-193, The Postal Service's actions are inexcusable for several
reasons. First, once MMA placed the accuracy and veracity of the
original study results into issue, the Postal Service cannot be allowed
to expunge evidence of these errors by filing "errata." Second, contrary
to the Postal Service's claim, the "errata" did not just correct the
***6*** instances of duplicate information discussed during the hearing.
In fact, there were ***64*** instances of duplicate volume reports for
just one site. Third, and by far the worst, the "errata" filed by the
Postal Service removed all **64** instances of duplicate information
even though the accompanying notice claims that only the original
***six*** were removed from the alldata2 file. Attached hereto as
Appendix I is a spreadsheet showing all **64** duplicated data items.
MMA has reviewed the substitute file and confirmed that all the data
entries for Site 1533 have been removed.

This omission is serious. In total, the duplicates affect almost 5% of
the total volumes included in the 2005 Study results. Moreover, the
Postal Service's actions in removing all ***64*** duplicated data errors
while claiming that only **6** errors were removed is disingenuous at
best. This type of dissembling cannot be allowed to stand.

On December 18, 2006, MMA made the foregoing facts known to the
Commission. *See* "Reply Of Major Mailers Association's To December 15,
2006 Opposition Of The United States Postal Service To Major Mailers
Association Motion To Strike Errata To Library References And Rebuttal
Testimony Of Postal Service Witness Loetscher," dated December 18, 2006
. On December 19, 2006, the Postal Service filed a further response to
"set the record straight." Unfortunately, the Postal Service's response
only confuses matters further. What remains ***crystal clear*** on the
record is that, during cross examination of witness Loetscher, MMA
counsel and Mr. Bentley pointed out to Mr. Loetscher only ***6***
duplicates \-- which have been color coded with an aqua blue background
on Appendix I to this brief. Tr. 38/13292-293, 13296-297. He was not
confronted with all ***64*** duplicates at that time. Yet in its
so-called "errata" filings of December 13, 2006, the Postal Service in
fact removed all 64 duplicate entries for **Site 1533** (appearing in
the left column on Appendix I). So, as MMA has correctly alleged, the
December 13 "errata" changed many more entries than the *6* identified
for Mr. Loetscher at the December 6 hearing.

Based on the Postal Service's December 19 Response (at 2), it now
appears that, as far as the Postal Service is concerned, removing the 64
entries shown on Appendix I represents only 1 duplicate correction. The
problem with this "explanation" is that there were 5 other duplicates
"corrected" in the December 13 "errata" ***but*** the Postal Service's
December 13 Notice did not identify them with any specificity. With over
19,000 entries in the alldata2 file, the Postal Service had an
obligation to specify exactly what was being removed.[^5] MMA and the
Commission cannot be expected to make a line by line comparison of all
19,000 plus entries in the original alldata2 file and the replacement
file to find the needles in the alldata2 haystack.

In addition, it appears that the Postal Service still has not provided
an Excel file showing the final expansion of sample data that changed
the hand counting percentage from 18% to 27%. This is a major omission
that has significant ramifications that contribute the to Postal
Service's derived overstatement of the unit cost for processing HV QBRM
letters.

There are numerous other flaws in the design and implementation of the
2005 BRM Study and the tabulation of the anomalous results, as
exemplified by the following facts relating to the HV QBRM universe:

-   The Study may be representative of other types of BRM but it
    certainly is not representative of HV QBRM. The study was designed
    to be representative of ***all*** BRM, not just HV QBRM.
    Consequently, to the extent that the HVQBRM universe differs from
    the universe for all BRM, the sample chosen, based on ODIS BRM
    volumes, will not necessarily reflect HV QBRM. HV QBRM differs from
    other kinds of QBRM because the letters, by definition, are all
    destined to the exact same unique 9-digit zip code. Thus, by
    definition such concentrated volumes lend themselves to much more
    efficient counting methods than other types of BRM.

Moreover, many of the top 20 BRM 3-digit sites, included with certainty
in the sample, ***did not*** receive high volumes of HV QBRM. According
to ODIS data, eight of these top 20 BRM sites received ***less than*** 1
million HV QBRM pieces, with three sites receiving less than 100,000
pieces. *See* USPS-LR-L-34, Sample Draw, worksheet All 3D.

-   The 2005 BRM Practices Study failed to incorporate ***volumes***
    ***per account***, the **primary** cost driver for determining
    whether or not to hand count BRM. Absent such data, it is not
    possible to determine how many letters were ***received per
    account*** and whether hand counting should even be considered. A
    prime example of this problem is illustrated by site 1575 in 5-digit
    zip 10004. On 1/26/05, this office manually counted 20,000 Low
    Volume QBRM letters, which according to USPS productivity, would
    take 7 man hours to accomplish. There is no indication if this was
    for 1 QBRM account, 10 QBRM accounts or 1,000 QBRM accounts. Tr.
    38/13301-02. Knowing the number of accounts that are associated with
    reported volumes is critical to selection of a reasonably efficient
    counting method.

-   USPS witness Loetscher indicated that some offices hand count HV
    QBRM no matter how much volume is received. As he stated,
    "**\[t\]here are also offices that said that they always count it
    manually regardless of the volume."**. Tr. 13/13306 (emphasis
    added). MMA finds his admission astounding. If Mr. Loetscher had
    read the Postal Service's policy statement about making greater use
    of automated counting methods, he certainly would have known to
    question this "finding." But he did not do his homework and the USPS
    BRM let him down.

The table below illustrates just a few of the sites that did not seem to
use any counting methods other than hand counting. Such inefficient
practices, should not be tolerated by the Commission and should not be
included in the basis for establishing the HV QBRM per piece fee.[^6]

  --------- --------- --------- ------------ ---------- ---------- --------
                                Manually                           
                                Counted                            
                                Volume By                          
                                Fee Paid                           

  Site      Date      Zip       HV QBRM      QBRM       HV BRM     BRM

  485       1/12/06   46208     1,378        93         70         39

  530       1/11/05   66201     4,055        7,664      2,898      107

  531       1/12/06   66201     611          2,256      981        154

  553       1/14/06   66214     812                     2,349      125

  600       1/11/06   60194     2,928        57         174        31

  601       1/11/06   60194     1,625        336        1,457      75

  606       1/12/05   60106     6,783        3          1,265      139

  619       1/12/06   60194     4,488        53         219        25

  630       1/13/06   60194     1,284        181        117        42

  750       1/12/06   08873     2,541                   1,016      30

  1779      1/13/05   60106     4,287        5          309        
  --------- --------- --------- ------------ ---------- ---------- --------

-   The sampled data indicated that just 7% of HV QBRM was manually
    counted. Somehow, when the sampled data was expanded to represent
    the HV QBRM universe, the percentage counted by hand almost
    ***quadrupled*** to 27%.[^7] Moreover, the inflated data for other
    BRM categories \-- QBRM, HV BRM and BRM \-- exhibited increases in
    the percentage of letters hand counted that were nowhere near this
    amount. The table below summarizes this information.

  ---------------------------------- ---------- --------- --------- --------
  Data Source                        HV QBRM    QBRM      HV BRM    BRM

  Alldata3 (Sampled Data)            7%         26%       63%       89%

  Sitematrix_w_466_st4 (Intermediate 18%        41%       63%       97%
  Result)                                                           

  USPS-LR-L-34 (Final Result)        27%        43%       73%       98%

  \% Change from Original Sample     286%       65%       16%       10%
  ---------------------------------- ---------- --------- --------- --------

While the 7% hand counting might reflect the HV QBRM universe for the
January sample period, it seems highly unlikely that a quadrupling of
the 3-day percentage is necessary to accurately reflect the universe's
percentage for the entire year.

-   Almost 5% of the volumes included in the HV QBRM sample (115,825
    pieces) appear to be duplicates from sites 1533 and 1783 within
    5-digit zip code 11735. There is no explanation for this. In fact,
    of the 64 entries for each site, 63 are identical. The ***only***
    difference is where site 1533 reported 14 QBRM pieces that were
    manually sorted, whereas site 1783 indicated 19 pieces. See Appendix
    I for a listing of all 128 lines of code. Other problems may exist
    but given the late acquisition of the data, it is not possible to
    uncover all of them.

-   Some offices provided data that was obviously irrational. For
    example, site 761 from zip code 93706 had three separate lines of
    data for HV QBRM. Two accounts that received 172 and 1,003 pieces,
    respectively, were counted by weighing techniques, but a third
    account, which received 1,561 pieces, was counted manually.

-   The data file sitematrix_w_466_st4 provides some kind of
    intermediate version of the inflated sampled data. According to that
    file, there are 55 3-digit zip code sites that received HV QBRM. Of
    those 55 sites, 22 or 40% received fewer than 146,152 pieces per
    year, the annual breakeven volume. Since the minimum volume to
    qualify for the HV QBRM fee is over 30,000 per quarter, it seems
    highly unlikely that so many 3-digit sites would have HV QBRM
    recipients who choose to pay the fixed quarterly fee of \$1,900 if
    they did not expect to receive more than the breakeven volume of
    36,538 per quarter (the equivalent of 146152 pieces per year). The
    table below lists the 22 sites in question.[^8]

  --------------------------- -------------------------------------------
  3 Digit Site                Annualized HV QBRM Pieces Received

  830                         120,285

  775                         111,917

  961                         111,172

  934                         101,139

  934                         49,097

  819                         40,664

  251                         37,515

  396                         30,847

  380                         28,402

  755                         26,228

  293                         22,809

  251                         20,130

  274                         19,402

  819                         18,702

  571                         14,956

  590                         14,602

  079                         4,959

  380                         2,112

  755                         1,290

  079                         1,264

  212                         1,250

  982                         146
  --------------------------- -------------------------------------------

> **Source**: USPS-LR-34, sitematrix_w_466_st4 sitematrix_inflated

-   There has been some discussion as to the specific daily volume that
    weighing techniques becomes economical. MMA found this critical
    quantity to be about 400 pieces while the Postal Service indicates
    that 500 would be more appropriate. As found in the study sample,
    157,327 pieces or 6% were counted by weighing techniques. This
    includes 110 separate times that weighing was deemed the appropriate
    method. On 64 of those occasions, the volume was less than 500,
    averaging just 99 pieces and ranging from 1 to 425. On 22 occasions,
    or 20% of the data reports, volumes of less than 10 pieces were
    recorded as being counted by weighing techniques.[^9] This is a
    highly unlikely scenario.

-   The study failed to account for significant seasonal variations that
    particularly impact HV QBRM. USPS witness Oronzio states that "a
    High Volume QBRM mailer may not actually receive much mail on any
    given day", and that HV QBRM volumes "may be concentrated in
    relatively few days per month." USPS-RT-15 at 4. That observation is
    irrelevant to resolution of the issue presented. MMA agrees that,
    right after the peak holiday season, some HV QBRM recipients
    certainly could receive low volumes during the January sampling
    period. However, since HV QBRM recipients will eventually receive at
    least the minimum volume, currently 36,538 pieces per quarter, in
    order to justify the fixed quarterly fee, there can be no doubt that
    volumes for such recipients will, at some point, pick up
    significantly. If, in the sampled 3-day period a HV QBRM recipient
    received few pieces, it is highly likely that such pieces would be
    counted manually. However, ***if, outside the sample period volumes
    increase as expected, it is also highly likely that the recorded
    manual counting method would be changed to some other technique***,
    particularly weighing or counting machines which do not require
    postal sorting equipment.

-   The study model is fatally flawed because it ***cannot and does
    not*** account for changes to more efficient counting methods when
    volume increases occur. Thus, if a particular HV QBRM recipient
    receives low volumes of say 10 pieces per day during the 3-day
    sample period and those pieces are hand counted, under the 2005 BRM
    Study design volumes received for that recipient will ***always***
    be treated as hand counted. When that volume increases from 10 to,
    say, 10,000 piece per day, the reporting site will certainly turn to
    more efficient counting methods.

-   The study design, which is focused on all BRM and not just HV QBRM,
    does nothing to adjust the counting method if volumes suddenly
    increase on a seasonal basis. USPS witness Loetscher indicated that
    he had "no idea of the seasonality of high volume QBRM." Tr.
    38/13285. He further confirmed his failure to even consider
    seasonality when he noted his discussion with USPS witness Miller at
    which it was decided, without the benefit of any kind of study
    whatsoever, that "he didn\'t think that there was too much
    seasonality in it." Tr. 38/13290.

When inflating the data to the entire HV QBRM universe, Mr. Loetscher's
study design cannot account for changes in counting methods as volumes
increase on a seasonal basis.

This situation described directly above is exacerbated because of the
period of study determined solely because of the need to collect data as
quickly as possible. The January data collection period was not a good
choice, since it directly follows the holiday season when postal volumes
historically hit their peak. Another way to view this is to expand the
3-day sampled volume by assuming no seasonality. The total HV QBRM
volume accounted for is less than 40% of the total. (719,829 pieces / 3
days x 250 delivery days/year = 60 million pieces. Total FY 2005 HV QBRM
volume was 163.5 million pieces.) Therefore, it is clear that the volume
received in January during the study period is seasonally low compared
to volume received for the entire year.

-   USPS witness. Oronzio testified that manual counting methods are
    often chosen by USPS personnel because of the 15 to 20 minutes
    required "to set-up and sweep a machine just to run less than 5
    minutes worth of mail." Tr. 37/12273 . Mr. Oronzio's "example" does
    not hold up under even the most cursory scrutiny. He fails to note
    that other readily available counting methods such as weighing
    techniques and special counting machines do not require 15 to 20
    minutes to set up and sweep.[^10]

The way the study was implemented does not provide any reliable way of
relating HV QBRM counting methods to the HV QBRM volume received.
Instead of collecting volumes by HV QBRM account, the participants were
told that they could aggregate volumes from several separate HV QBRM
accounts. MMA and USPS witness Loetscher appear to agree about one core
principle: the likelihood that HV QBRM can and will be counted with much
more efficient counting methods -- any method other than manual counting
-- increases as the volume received ***for a particular account*** on a
given day increases. Tr. 38/13291-292 Unfortunately, the data collected
during the 2005 BRM Study do not show if high volumes of HV QBRM were
hand counted because the high volume actually represented low volumes
for many HV QBRM accounts or whether this was a particular site's
misguided "policy" to count all HV QBRM by hand.

Errors in collecting and reporting the raw data were compounded by
dubious methods employed by witness Loetscher's team to expand this
data. For example, the alldata2 file shows that only 7 percent of all HV
QBRM volumes were hand counted. Nevertheless, when that data was
expanded to the annual volumes for the same offices, the percentage of
HV QBRM pieces counted by hand jumped to 18 percent. In the final stage,
where data is expanded to the entire universe, the hand counting
percentage jumps again to 27%,

There is no explanation, much less an adequate one, for these results.
Witness Loetscher testified that the file showing 18% being hand counted
was some "preliminary" result that probably should not have been
included in the original Library Reference USPS-LR-L-34. Tr.
38/13314-315,13326. However, the truly fatal flaws appear to be
omissions. There is no way to replicate the expansion process the Postal
Service used to reach its highly doubtful results. ***Indeed, the
"inflated" data that derives the 27% of HV QBRM counted manually has not
been provided for the record.***[^11]

The bottom line is that the Postal Service derives a unit cost of 0.458
cents for counting HV QBRM letters. Almost 90% of that cost figure is
tied ***directly*** to the obviously erroneous assumption that 27% of
all HV QBRM letters are counted manually. Had the Postal Service assumed
the same productivity for counting such pieces by either weighing or
counting machines, the unit cost would have been 0.087 cents, a
reduction of 81%.[^12] As shown in Mr. Bentley's Technical Appendix II,
his analysis of QBRM counting costs indicates that the per piece unit
costs for HV QBRM are very low, ***only about 0.10 cents***.

For these reasons, MMA urges the Commission to reject the Postal
Service's derived unit costs for counting HV QBRM. Instead of raising
the per piece fee as the Postal Service proposes, the Commission should
set the HV QBRM per piece fee at 0.5 cents or lower.[^13] With an
attributable cost that ranges from 0.012 to 0.070 cents, the implicit
cost coverage of a 0.5 cent fee ranges from 714% to 4,166%. The
Commission should also give serious consideration to eliminating the per
piece fee altogether because the attributable costs are ***virtually
zero***.

III. []{#__RefHeading___Toc154479850 .anchor}The Postal Service's
     Confirm Service Proposal Should Be Rejected

Confirm Service is a relatively new "high tech" service provided by the
Postal Service introduced as a result of MC2002-1. Confirm allows
mailers the ability to track both their outgoing and incoming mail
through scans that are recorded and reported as the letters are sorted
on barcode sorters and other postal equipment. Subscribers routinely use
information provided by Confirm to identify service problems and to
provide better service to their customers.

The current Confirm rate structure offers three levels of subscription
services, Silver, Gold and Platinum, depending on how many "scans" a
customer expects to utilize. Platinum service, the most expensive level,
entitles a mailer to receive information from an unlimited number of
scans for a fixed price of \$10,000 per year.

The Postal Service proposes to eliminate this top tier by introducing a
new rate structure that charges on the basis of scans received, which
subscribers must purchase in blocks of 1 million "units." For First
Class mail, one unit is equal to one scan; for Standard mail it takes 5
units for each scan. Table 4 shows illustrative percentage fee increases
faced by current Platinum level subscribers under the Postal Service's
proposal for various blocks of 1 million scans.

[]{#__RefHeading___Toc154479911 .anchor}Table 4\
USPS Proposed Fee Increase For Confirm Service

  ------------------------------------ ----------------------------------
  Number of First-Class Scans          Proposed Increase
  (Millions)                           

  100                                  -12%

  250                                  14%

  500                                  58%

  1,000                                145%

  **Source**: Tr. 14/3918-19           
  ------------------------------------ ----------------------------------

The Postal Service's proposed rates are expected to generate a 49%
increase in revenues compared to the current rates. Such an increase is
excessive when compared to the average proposed increase of just 8.5%.
However, USPS witness Mitchum characterizes the revenue requirement goal
as "modest". As Mr. Mitchum explains, a "modest" cost coverage is
desirable because "demand for the product has not met the forecast used
in MC2002-1". *See* USPS-T-40, p. 19. ***MMA has trouble equating a
"modest" cost coverage with an increase that is 6 times the average
overall increase.***

The Postal Service's Confirm Service proposal in this case is
problematic for several reasons. First, the proposed 49% increase in
revenues is excessive for a new service that still is in its infancy. If
the Postal Service is serious about increasing usage of Confirm Service,
the sheer magnitude of this increase is counterproductive. In this
regard, MMA witness Bentley testified "I am informed that existing
Platinum subscribers, who face double and triple digit increases are
considering curtailing or eliminating their use of Confirm." MMA-T-1 at
31. As Mr. Bentley explained, one option under consideration is to use a
sampling of scans rather than all scans as a means for reducing Confirm
costs, if the proposed restructuring of the Confirm fee structure is
implemented. Other mailers who are considering this service have
suspended such plans, pending the outcome of this case.

The Postal Service argues that the new unit-based rate structure would
be useful for ***possible future services***. As USPS witness Mitchum
testified:

The use of units also provides the Postal Service flexibility in adding
other types of scans in the future, which may or may not have a fee
associated with them, without incurring substantial programming costs.
In essence, units may become the mechanism for obtaining revenue for
various forms of information about the mail.

USPS-T-40 at 16. This claim is a makeweight. The Commission should not
provide the Postal Service with "future flexibility" based on nebulous
assertions about possible services that may or may not be developed at
some uncertain time. No rate structure change is necessary for Confirm
Service at this time. The time to consider the rate structure change
urged by the Postal Service is if, as, and when the Service has a
concrete proposal so that the Commission can make an informed decision
about the need for a rate structure change.

The Postal Service's proposal to change the rate structure has
galvanized opposition from a wide spectrum of Confirm Service existing
subscribers, including both First Class and Standard mailers, potential
users, value added resellers and, notably the OCA. Almost uniformly, the
parties who object to the Postal Service's proposal want to retain the
existing three-tier rate structure and increase the subscription charges
if necessary to make up a legitimate revenue shortfall.

MMA's position on Confirm Service is somewhat different than most other
parties. First, MMA agrees with Mr. Mitchum's claim that "\[b\]y
providing information about mail, Confirm® service is an integral part
of the Postal Service's overall effort to provide greater value to
mailers." USPS-T-40 at 14. MMA believes that Confirm Service offers the
possibility for the Postal Service to cement its relationship with First
Class workshare mailers. These mailers are the Service's best customers
because they provide the Postal Service with over \$3.00 in revenue for
every \$1.00 that it costs to process and deliver their letters. No
other class or subclass of mail is as profitable for the Postal Service.

The record also shows that there is a ***pressing*** need for the Postal
Service to employ innovative measures to mitigate the inroads that
electronic diversion has been making in this highly profitable
market.[^14]

With these considerations in mind, MMA's primary proposal is that, at
least for First Class workshared mailers,[^15] the Commission should
recommend outright elimination of the additional fees for blocks of 1
million scans. First Class Confirm subscribers would pay a reasonable
fixed annual fee, for example \$2,000, to cover the costs of setting up
and maintaining their accounts. Payment of this annual fee would entitle
a Confirm subscriber to receive an unlimited number of scans.

An annual fee of \$2,000 would definitely generate several hundred
thousand dollars from existing First Class Confirm subscribers and very
likely generate as much and possibly more revenues from potential new
subscribers for whom the existing subscription charges may not seem cost
effective due to the per scan charges. As MMA witness Bentley testified
(MMA-T-1 at 33),

In addition to providing workshare mailers with a strong incentive to
keep using the mails, my proposal is likely to attract additional
subscribers by making Confirm more affordable for hundreds or even
thousands of medium sized mailers. In contrast, the Postal Service's
marketing approach of raising Confirm revenues by 49% will certainly
discourage the entry of new subscribers, and, more than likely, cause
current subscribers re-evaluate their decision to use Confirm Service.

In the worst case, the annual fee revenues would help to offset the
relatively small \$1.2 million cost of providing Confirm Service. More
importantly, the necessary costs associated with providing Confirm
Service are quite small in comparison to the huge institutional cost
contribution that First Class workshared mailers make to the postal
system.

From a marketing perspective, MMA's proposal to effectively lower the
cost of Confirm Service while establishing a solid linkage with its very
valuable workshare mail business makes a lot more sense than the Postal
Service's position \-- that if the market does not materialize as
anticipated, the charges for Confirm Service should be increased. The
Postal Service's proposal is a typical unimaginative regulatory
response. In this regard, the Postal Service's offering of Confirm
Service as a ***separate*** service is completely out of step with the
way competing delivery companies treat similar tracking services -- as
an integral, rolled-in feature of the delivery services they
provide.[^16] Finally, pursuing a more aggressive marketing approach
like that proposed by MMA makes sense because the large investments
associated with developing and building out the Confirm Service system
have already been made and the costs of providing Confirm Service are
mostly fixed costs.[^17]

As an alternative to eliminating the fee for Confirm scans, MMA
recommends that the existing rate structure, including the Platinum
subscriber level with unlimited scans be retained. The impact on current
Confirm subscribers is far too great and the potential rate shock has
not been adequately considered by the Postal Service. Moreover, the
overall increase of 49% should be reduced. For a service that benefits
both mailers and the Postal Service, the rate increase should be
absolutely minimized.

Finally, MMA notes that the Postal Service is proposing to eliminate
existing DMCS language that allows the mailer and the Service to know
when the clock starts to run on mailings. MMA urges the Commission to
reject the Postal Service's proposal to eliminate this "start-the-clock"
provision. Subscribers can and do use Confirm data to identify areas in
which the Postal Service is failing to meet its own delivery standards,
to bring such problems to the attention of postal operations
specialists, and to work cooperatively with the Postal Service to solve
the bottlenecks and other causes of such problems. With the existing
start-the-clock provision there is no question when a particular problem
mailing was entered. Without such a provision, the usefulness of Confirm
data could be compromised.

IV. []{#__RefHeading___Toc154479851 .anchor}Conclusion

For the foregoing reasons, the Commission should

-   reject the Postal Service's proposal to *reduce* the QBRM discount
    to 2.5 cents and, consistent with substantial record evidence,
    *increase* the QBRM discount from 3.2 to 4.0 cents as MMA and Time
    Warner propose.

-   reject the Postal Service's fatally flawed 2005 BRM Practices Study
    and set the High Volume per piece fee at 0.5 cents, as recommended
    by MMA and supported by the record.

-   adopt MMA's proposal that Confirm Service be provided to First Class
    presort mailers at an annual fee designed just to cover set up
    costs.

Respectfully submitted,

######## Major Mailers Association

By: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Michael W. Hall

35396 Millville Road

Middleburg, Virginia 20117

540-687-3151

> Counsel for

**Major Mailers Association**

Dated: Middleburg, Virginia

December 21, 2006

R2006-1

Appendix I

  ---------------------------------------------------------------------------------------------------------
  **Site                                               **Site                                 
  1533, Zip                                            1783, Zip                              
  11735 Data                                           11735 Data                             
  Collected                                            Collected                              
  on                                                   on                                     
  1/24/05**                                            1/24/06**                              
  ----------- ------------- ------------ ------------- ----------- ------------- ------------ -------------
  **Fee       **EOR from    **Manual     **Total       **Fee       **EOR from    **Manual     **Total
  Paid**      BCS**         Counting**   Pieces**      Paid**      BCS**         Counting**   Pieces**

  HVQBRM      53,408        \-           53,408        HVQBRM      53,408        \-           53,408

  HVQBRM      24,282        \-           24,282        HVQBRM      24,282        \-           24,282

  QBRM        7,349         \-           7,349         QBRM        7,349         \-           7,349

  QBRM        6,546         \-           6,546         QBRM        6,546         \-           6,546

  QBRM        5,295         \-           5,295         QBRM        5,295         \-           5,295

  QBRM        4,326         \-           4,326         QBRM        4,326         \-           4,326

  QBRM        3,881         \-           3,881         QBRM        3,881         \-           3,881

  QBRM        2,484         \-           2,484         QBRM        2,484         \-           2,484

  QBRM        1,994         \-           1,994         QBRM        1,994         \-           1,994

  QBRM        1,514         \-           1,514         QBRM        1,514         \-           1,514

  QBRM        985           \-           985           QBRM        985           \-           985

  QBRM        828           \-           828           QBRM        828           \-           828

  QBRM        760           \-           760           QBRM        760           \-           760

  QBRM        760           \-           760           QBRM        760           \-           760

  QBRM        355           \-           355           QBRM        355           \-           355

  HVBRM       \-            288          288           HVBRM       \-            288          288

  QBRM        \-            175          175           QBRM        \-            175          175

  QBRM        66            \-           66            QBRM        66            \-           66

  QBRM        63            \-           63            QBRM        63            \-           63

  HVBRM       \-            46           46            HVBRM       \-            46           46

  HVBRM       \-            40           40            HVBRM       \-            40           40

  HVBRM       \-            39           39            HVBRM       \-            39           39

  QBRM        31            \-           31            QBRM        31            \-           31

  QBRM        26            \-           26            QBRM        26            \-           26

  QBRM        24            \-           24            QBRM        24            \-           24

  HVBRM       \-            24           24            HVBRM       \-            24           24

  QBRM        23            \-           23            QBRM        23            \-           23

  HVBRM       \-            22           22            HVBRM       \-            22           22

  QBRM        20            \-           20            QBRM        20            \-           20

  QBRM        19            \-           19            QBRM        19            \-           19

  HVBRM       \-            15           15            HVBRM       \-            15           15

  QBRM        \-            14           14            QBRM        \-            19           19

  QBRM        \-            14           14            QBRM        \-            14           14

  QBRM        10            \-           10            QBRM        10            \-           10

  QBRM        \-            7            7             QBRM        \-            7            7

  BRM         \-            7            7             BRM         \-            7            7

  QBRM        5             \-           5             QBRM        5             \-           5

  HVQBRM      5             \-           5             HVQBRM      5             \-           5

  HVQBRM      5             \-           5             HVQBRM      5             \-           5

  QBRM        \-            5            5             BRM         5             \-           5

  QBRM        \-            5            5             QBRM        \-            5            5

  HVBRM       \-            5            5             QBRM        \-            5            5

  HVBRM       \-            5            5             HVBRM       \-            5            5

  HVBRM       \-            5            5             HVBRM       \-            5            5

  BRM         \-            5            5             HVBRM       \-            5            5

  QBRM        4             \-           4             QBRM        4             \-           4

  HVBRM       \-            4            4             HVBRM       \-            4            4

  HVBRM       \-            4            4             HVBRM       \-            4            4

  QBRM        \-            3            3             QBRM        \-            3            3

  BRM         \-            3            3             BRM         \-            3            3

  BRM         \-            3            3             BRM         \-            3            3

  HVQBRM      2             \-           2             HVQBRM      2             \-           2

  QBRM        2             \-           2             QBRM        2             \-           2

  QBRM        2             \-           2             QBRM        2             \-           2

  HVBRM       \-            2            2             HVBRM       \-            2            2

  HVBRM       \-            2            2             HVBRM       \-            2            2

  BRM         \-            2            2             BRM         \-            2            2

  QBRM        1             \-           1             QBRM        1             \-           1

  QBRM        1             \-           1             QBRM        1             \-           1

  QBRM        1             \-           1             QBRM        1             \-           1

  QBRM        1             \-           1             QBRM        1             \-           1

  QBRM        1             \-           1             QBRM        1             \-           1

  BRM         \-            1            1             BRM         \-            1            1

  BRM         \-            1            1             BRM         \-            1            1

              **115,079**   **746**      **115,825**               **115,084**   **746**      **115,830**
  ---------------------------------------------------------------------------------------------------------

[^1]: Ms. Thompson's support for a 2.5 cent QBRM discount was based on
    her mistaken impression that the discount had been 2.5 cents in an
    earlier proceeding. When MMA counsel pointed out her error and asked
    if , consistent with her original rationale, she would now support a
    QBRM discount of 3.0 cents, the answer was no. So, Ms. Thompson is
    left with supporting a 2.5 cent discount but no logic or factual
    evidence to support her position.

[^2]: The relevant portion of the USPS policy statement is reproduced at
    page 548 of PRC Op. R2000-1.

[^3]: Library Reference USPS-LR-L-69; Tr. 4/561.

[^4]: Indeed, Mr. Loetscher claims that 13% of all HV QBRM volume is
    processed on "low volume" days ***because*** of seasonal issues,
    which directly contradicts the outcome of his discussion with Mr.
    Miller. Moreover, he states emphatically that "I have no idea of the
    seasonality of high volume QBRM." *See* Tr. 38/13278,285.

[^5]: A fundamental problem with the Postal Service's 2005 BRM Practices
    Study is that the documentation was woefully inadequate. Essential
    Excel files were not included, the data was coded without any
    explanation or column headings, and the Postal Service utilized
    Fortran, in MMA's opinion an archaic, little used program, designed
    to be run on a Unix based operating system. As the Microsoft Word
    APPEND_B file in Library Reference USPS-LR-L-34 states, "\[t\]he
    processing of the data in this library reference was performed on
    Data General minicomputer running the DGUX version of UNIX operating
    system. Source programs ending with a ".f" are FORTRAN programs."

[^6]: Manual counting of volumes greater than about 400 pieces is
    clearly inefficient, as illustrated by the video that accompanied
    MMA-LR-4. See also Tr. 38/13261.

[^7]: While the Postal Service provided "sitematrix" data that showed,
    as an intermediate step, that 18% of HV QBRM was manually counted,
    there is no data whatsoever, that shows how the fully inflated data
    derive his final result that 27% of HVQBRM is manually counted.

[^8]: For purposes of this table, we have assumed that the volume for
    each site represents only one HV QBRM recipient. If the volumes
    listed represent more than one HV QBRM recipient then the data are
    all the more anomalous.

[^9]: There were some instances where the counting method for 1 single
    piece was identified as being counted by weighing techniques. See,
    for example, the reports from sites 523, 525 and 617 as shown on
    alldata2.

[^10]: Mr. Oronzio's off the cuff math does not compute. The hourly
    throughput of a BCS is about 36,000 pieces. Assuming a run time of 5
    minutes used in his example, the BCS would count approximately 3,000
    pieces of QBRM. It would take approximately one hour to count 3,000
    QBRM letters. Therefore, even if other counting techniques not
    requiring a 15-20 minute set up time were not readily accessible, it
    would still make sense to use the BCS.

[^11]: It seems clear that, with no knowledge about HV QBRM seasonality,
    it would not be possible to inflate 3 days worth of sampled data to
    accurately reflect the entire HV QBRM universe.

[^12]: The unit cost reduction is similarly 81% using the Commission's
    attributable cost methodology rather than the Postal Service's
    methodology. *See* Library Reference USPS-LR-L-104.

[^13]: The Commission should also require the Postal Service to study
    why offices might choose to hand count letters in any amounts that
    exceed 500 pieces. With a productivity that exceeds 36,000 pieces
    per hour, counting machines and weighing techniques should always be
    employed in that situation.

[^14]: *See* e.g. Initial Brief Of Major Mailers Association On Issues
    Regarding First Class Presort Rates, dated December 21, 2006,
    Section I.

[^15]: MMA takes no position on how Confirm Service should be priced for
    Standard Mail.

[^16]: Both Federal Express and UPS include tracking services as part of
    the price for delivering a package or letter.

[^17]: As MMA witness Bentley testified, "USPS witness Page could not
    adequately explain why 41% of the costs are "variable" when they
    obviously do not relate to the number of scans. Such costs concern
    "help desk" costs, which more likely vary with the number of
    subscribers, and "travel" costs associated with promotional
    activities. Moreover, USPS witness Page could not explain why he
    categorized such costs as variable, other than to state that he was
    told to do so." *See* Tr. 15/4708, 4710. (Responses to
    MMA/USPS-T23-1 and 3).