**MINUTES**

**Time**: 9:30 am CST

**Date**: March 18, 2003

**Location**: LBJ Library and Museum

Austin, Texas

**Members in Attendance**: Co-Chairs James A. Johnson and Harry J.
Pearce, Commissioners Dionel Aviles, Don V. Cogman, Carolyn Gallagher,
Norman Seabrook, Robert Walker, and Joseph Wright.

**Staff in Attendance**: Executive Director Dennis Shea; Randall Lewis;
and Jana Sinclair White.

**Agency Employees in Attendance**: Designated Federal Official Roger
Kodat.

**Members of the Public Providing Oral or Written Statements**: Thomas
Day, Vice President for Engineering, United States Postal Service;
Robert Otto, Chief Technology Officer and Vice President for Information
Technology, United States Postal Service; Judith F. Marks, President,
Lockheed Martin Distribution Technologies; Heribert Stumpf, President
and CEO, Siemens Dematic Postal Automation L.P.; Norman Lorentz, former
Senior Vice President and Chief Technology Officer, United States Postal
Service (1998-2000) and currently Chief Technology Officer, Office of
Management and Budget; Greg Schmid, Director of the Future of the Global
Mail Program, Institute for the Future; The Honorable John Nolan, Deputy
Postmaster General and Member, United States Postal Service Board of
Governors; Nicholas Barranca, Vice President for Product Development,
United States Postal Service; Maynard Benjamin, President, Envelope
Manufacturers Association; Michael Monahan, President, Global Mailing
Solutions, Pitney Bowes Inc.

**Matters Discussed**:

Co-Chair Harry J. Pearce called the meeting to order at 9:30 am and
turned the meeting over to Co-Chair James A. Johnson for his opening
remarks. Mr. Johnson expressed his appreciation to Dr. Betty Sue Flowers
and her staff for making the LBJ Library and Museum ("Library")
available to the Commission. He noted that the Commission chose the
Library as the location of the meeting in part because it was President
Johnson who had created the first Presidential commission to review the
provision of postal services in the United States. He also noted that
the Commission chose to have the meeting, which examined how new
technologies are affecting the Postal Service's business model, in
Austin because the city has emerged as one of the world's leading
technology centers. He thanked everyone who had participated in the
rebuttal comment process. He noted that the rebuttal comments would soon
be posted on the Commission's website. Mr. Johnson also recognized Sam
Winters, a native of Austin and a former Chairman of the Postal
Service's Board of Governors. The meeting continued with remarks by
Co-Chair Harry J. Pearce.

Co-Chair Harry J. Pearce thanked Dr. Flowers and the staff of the
Library for hosting the Commission. Mr. Pearce discussed the agenda for
the meeting and reviewed each panel of witnesses. He also announced that
members of the audience would have an opportunity to share their views
with the Commission at the end of the meeting. The meeting continued
with remarks by Commissioner Robert Walker, Chair of the Technology
Challenges and Opportunities Subcommittee.

[Remarks by Commissioner Robert Walker]{.underline}

Mr. Walker provided a brief description of the Technology Subcommittee's
activities to date, noting that it had convened twice by conference
call, had reviewed materials, and had met individually with private
parties. He made clear that the subcommittee had not reached any
conclusions thus far. Mr. Walker stated that subcommittee members are
exploring strategies that will help the Postal Service respond to the
loss of mail volume to electronic alternatives. He stated that the
subcommittee is also considering existing technologies and whether the
Postal Service has taken maximum advantage of such technologies both to
improve the efficiency of its operations and to develop new products and
services.

[Panel One: The Application of Technology to the Operations of the
Postal Service -- Status Report and Plans for the Future]{.underline}

Testifying on this panel were Thomas Day and Robert Otto. Please see
attachments A and B for the text of their prepared written comments.

*Questions for Mr. Day:* In response to questions regarding the
automation of the flats mail stream, including large envelopes,
newspapers, catalogues, and packaging materials (collectively, "flats"),
Mr. Day stated that suppliers to the Postal Service had been developing
automation programs that would create one bundle of mixed letters and
flats for each delivery point. He stated that he expects technology to
be available within three to five years that would bundle flats and
letters together. In response to questions regarding whether the Postal
Service is behind the curve with respect to the pace in which it
introduces new technologies, Mr. Day stated that the technology the
Postal Service is using today is "state of the art." He cited as an
example the development of a next-generation sorter that takes advantage
of the latest technology to distribute small parcels and bundles. This
new equipment, known as the Automated Package Processing System (APPS),
will automate the existing package and bundle processing network. He
asserted that FedEx, UPS, and Airborne do not take automation down to
the end delivery point, as will the APPS. Mr. Day further stated that
disruption of the infrastructure and processing systems during
deployment is the major hindrance to the pace of technology deployment,
rather than the lack of capital and technology. When questioned about
why the Postal Service had not utilized specific technologies such as
kiosks and personal postage printers, Mr. Day responded that the Postal
Service plans to place 2,500 self-service postal centers in postal
facilities across the country this year. He agreed that more
customer-friendly locations, such as shopping centers and grocery
stores, should be considered for placement of self-service postal
centers. In response to questions regarding standardization of the mail
piece, Mr. Day stated that from an engineering perspective,
standardization would make processing the mail easier, but that it could
also reduce the volume of direct mail. He noted that several European
Posts that have more stringent mail piece standardization requirements
than the United States do not have the same volume of direct mail
marketing as the United States. He stated that the Postal Service's
approach to mail-piece standardization has been to accommodate the
mailer until the point of diminishing returns. He admitted that it is
unclear whether the cost of non-standardization is covered by additional
revenue from the "infinite" variety of mail. When asked whether the
Postal Service had done any analytical work concerning whether it would
be best to start fresh or renovate Postal Service facilities, he stated
that the "greenfields" approach would be quicker than retrofitting old
facilities, but noted that there could be capital problems with this
approach. He further stated that the Postal Service is currently
reviewing its network to determine whether its facilities are located in
the best locations and whether it is offering the best products. In
response to a question regarding the number of remote encoding centers,
Mr. Day stated that the Postal Service plans to reduce the number of
centers from the current 55, but did not give a target number. He also
asserted that the Postal Service is making better use of these
facilities.

*Questions for Mr. Otto:* In response to questions regarding the
technology employed by the Postal Service, Mr. Otto stated that the
information technology used by the Postal Service is among the best
within the federal government. In response to a question concerning
productivity gains, Mr. Otto asserted that the Postal Service did not
lag behind private industry for productivity gains in the information
technology area. In response to questions regarding the Postal Service's
change of address service, he stated that the Postal Service had
developed the Postal Automated Redirection System (PARS). He testified
that PARS will allow customers to change their addresses permanently or
temporarily on-line, and that the first tests of PARS will be conducted
this summer. When questioned about the security of PARS, Mr. Otto
asserted that the Postal Service has the best security in the industry.
He stated that the same security measures would be used for PARS that
currently are used for change of address forms, and that the Postal
Service has not had problems with the security of these forms. In
response to a question regarding the effect of technology on the number
of Postal Service employees, Mr. Otto stated that technology would
reduce the number of employees. He asserted that the Postal Service
would work with the functional areas affected by new technologies to
place employees in other jobs. Mr. Otto agreed that a large number of
Postal Service employees would be eligible for retirement over the next
ten years. In response to questions concerning Postal Service
facilities, Mr. Otto stated that the Postal Service maintains an
operational facilities database.

[Panel Two: The Suppliers of Technology to the Postal
Service]{.underline}

Testifying on this panel were Judith F. Marks and Heribert Stumpf.
Please see attachments C and D for their prepared written comments.

*Questions for Ms. Marks:* In response to questions concerning pricing
flexibility, Ms. Marks asserted that the Postal Service should have the
flexibility to set rates. She stated that a price auditing method should
be implemented as opposed to regulation via the Postal Rate Commission's
current lengthy process. In response to questions concerning the pace
that the Postal Service implements technology, Ms. Marks stated that
infrastructure is the biggest constraint to technology implementation.
She further stated that the Postal Service does not have any incentive
to take risks, which often slows technology development. In response to
questions regarding standardization of the mail piece, Ms. Marks stated
that the more standardized the mail piece, the better the equipment
suppliers could design equipment to handle the mail. She asserted that
she believed direct marketers would pay fees to go outside of
standardized designs and argued the merits of activity-based costing. At
the request of the Commissioners, Ms. Walker agreed to prepare a report
for the Commission regarding the uses of technology to increase
"top-line" growth.

*Questions for Mr. Stumpf:* In response to questions concerning
initiatives that Siemens Dematic Postal Automatic L.P is developing for
the Postal Service, Mr. Stumpf asserted that the most important
initiative is the Delivery Point Packaging program. He stated that he
believes the program could be deployed within three to five years. When
questioned as to how the development and deployment of the Delivery
Point Packaging program could be accelerated, he stated that a larger
capital investment by the Postal Service would help. In response to
questions concerning the effect of capital constraints on technology
development and deployment, Mr. Stumpf noted that during the last three
years, capital spending has been frozen, stopping many initiatives that
would have affected cost savings in future years. He asserted that
capital constraints most affected upgrades to old equipment. In response
to a question concerning whether mail piece standardization would reduce
costs, Mr. Stumpf noted that the equipment bought by other countries was
not much less expensive than equipment bought by the United States. In
response to a question concerning federal regulations, Mr. Stumpf stated
that federal regulations that apply to the federal procurement process
pose the biggest problem for new vendors.

[Panel Three: Putting the Customer First: Making the Customer the Focus
of New Technology Applications]{.underline}

Testifying on this panel was Norman Lorentz. Please see attachment E for
his prepared written comments.

*Questions for Mr. Lorentz*: In response to a question concerning the
potential for electronic diversion of first class mail, Mr. Lorentz
stated that he was not aware of any reliable data on the subject. In
response to a question regarding whether the Postal Service places
adequate emphasis on the customer, Mr. Lorentz stated that based on his
experience while working for the Postal Service, he believed the Postal
Service did a good job of removing costs from the mail stream, but that
it did not do as well at making the customer the focus of new technology
applications. When asked whether the Postal Service employs the use of
focus groups, he stated that the Postal Service has used focus groups in
the recent past. He cited as an example a planned focus group conducted
in 1995 to examine problems with on-time delivery of first class mail.
In response to a question of whether the Postal Service's website should
be linked to FirstGov.gov, the federal government's website, Mr. Lorentz
stated this decision should be based on customer preferences. He noted
that the technology to link the websites was trivial and that it could
be implemented immediately.

[Panel Four: The Electronic Diversion of First-Class Mail: Its Impact on
the Postal Service's Business Model and the Prognosis for the
Future]{.underline}

Testifying on this panel were Greg Schmid, the Honorable John Nolan, and
Nicholas Barranca. Please see attachments F, G, and H for their prepared
written comments.

*Questions for Mr. Schmid*: In response to a question concerning Mr.
Schmid's confidence in his prediction that digital technology may divert
administrative mail, but that it would also create new advertising mail,
thus leading to a long-term net gain in mail volume, Mr. Schmid admitted
there are many uncertainties surrounding future mail volumes. Mr. Schmid
noted that to achieve gains in advertising mail, the Postal Service must
take advantage of opportunities to add value to mail. In response to
questions regarding the Postal Service's role in the future, Mr. Schmid
asserted that the Postal Service had a unique opportunity because it has
the trust and confidence of consumers and because its services are
viewed positively. He stated that the Postal Service should reach out to
its customers and determine what information customers would like to
receive. He cited as an example, a request from a customer to receive
information for a specific period of time regarding a certain subject.
When asked to rationalize his earlier comment that people like to
receive mail, but dislike receiving junk mail, Mr. Schmid stated that
mail must be of value to the recipient In response to questions
regarding future technologies, Mr. Schmid stated that there are several
technologies being introduced that will allow retailers to rethink their
role in the supply chain.

*Questions for Mr. Nolan:* Mr. Nolan first responded to a question
concerning the Board of Governors role in developing the Postal
Service's business strategy. He stated that an Executive Committee
within the Postal Service develops different business strategies and
presents the strategies to the Board of Governors once a year at a
session focused specifically on the business strategy of the Postal
Service. When asked why the Postal Service had not explored specific
initiatives to raise revenue, such as advertising on envelopes and
personalized postage stamps, Mr. Nolan stated that the Postal Service
had explored these initiatives and determined they would not be
beneficial to the Postal Service at this time. Mr. Nolan stated that
other countries that used personalized postage stamps experienced
initial interest, but that the interest eventually faded, and that it
was the Postal Service's internal policy that an individual must be
deceased for ten years before being featured on a stamp. With regard to
advertising on mail, Mr. Nolan stated that the Postal Service had
concerns about how to control the content of the advertisement. In
response to questions regarding pricing flexibility, Mr. Nolan stated
that Postal Service management believes it should have the flexibility
to set rates and that a price auditing method should be adopted. He
asserted that changing the system to a post rate-setting audit would
allow the Postal Service to do more testing of products and pricing.

*Questions for Mr. Barranca:* In response to a question concerning his
thoughts on Mr. Schmid's testimony that the Postal Service could add
value to the mail by making the mail more information rich, Mr. Barranca
stated that he agreed with the basic concept. He noted, however, that
the direct marketing industry has expressed concerns with the Postal
Service collecting information from the consumer to provide targeted
mail.

[Panel Five: Making the Mail Process More Intelligent -- Maximizing the
Value of Mail]{.underline}

Testifying on this panel were Michael Monahan and Maynard Benjamin.
Please see attachments I and J for their prepared written comments.

*Questions for Mr. Monahan:* In response to questions concerning the
amount Postal Service customers would be willing to pay for increased
levels of intelligent mail (I-Mail), Mr. Monahan asserted that the
Postal Service already offers a number of services at premium costs and
that the benefit of I-Mail is that it makes these services more
accessible to all consumers. He also asserted that certain customers,
like the 1.5 million consumers and businesses that use digital meters to
send mail, would be willing to pay more for technology because it saves
customers costs by eliminating trips to a postal facility.

*Mr. Benjamin:* When asked why the Postal Service had not adopted the
technologies he demonstrated in his presentation to the Commission, Mr.
Benjamin stated that a lack of financial resources was a factor. In
response to questions concerning customer input regarding new
technologies, he asserted that getting input is often difficult for the
Postal Service because it is once removed from the customer. He
elaborated that the Postal Service consults with suppliers to the Postal
Service, such as Pitney Bowes, but that it should also consult with the
ultimate consumer of the technology.

[Testimony from the audience]{.underline}

*Morline Moore, President of the Texas Postal Workers Union*: Ms. Moore
asserted that e-mail will not make the Postal Service obsolete. She
stated that mail is more effective than e-mail for advertisers and that
e-mail replaces phone conversations rather than mail. Ms. Moore also
asserted that the Postal Service will not be successful as long as deep
worksharing discounts are given to large mailers. She stated that it is
not necessary for others to do work that postal employees are already
performing. She stated that postal employees are excited by and are
willing to take-on the challenges and opportunities facing the Postal
Service. She also stated that the mailbox should not be opened to users
other than the Postal Service.

*Earl Vaughn, Legislative Director for APWU in Houston, Texas*: Mr.
Vaughn questioned the Commission regarding the process by which flats
and letters could be bundled together. The Commissioners noted that the
Postal Service should answer this question. Mr. Nolan said that he would
talk with Mr. Vaughn about the process after the meeting.

[Commission Business]{.underline}

Co-Chair Johnson announced that the Commission's next public meeting
will take place in Los Angeles, California, at the Westin Hotel at Los
Angeles Airport, on Friday, April 4.

The meeting adjourned at approximately 3:00 pm CST.