United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on the Postal Service, Committee on

Government Reform and Oversight

House of Representatives

November 1998 U.S. POSTAL SERVICE

Development and

Inventory of New

Products

GAO/GGD-99-15

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-278754 

November 24, 1998

The Honorable John M. McHugh

Chairman, Subcommittee on the Postal Service

Committee on Government Reform and Oversight

House of Representatives

Dear Mr. Chairman:

This report responds to your request for information on new Postal

Service products. Over the past few years, the Postal Service’s

introduction of new products1

 has stirred controversy. Some Members of

Congress have said that the Service is unfairly expanding its product line

to compete in nonpostal-related markets and have introduced legislation

to curtail such activity. Some private sector companies have also

complained about the Service’s entry into nontraditional postal markets.

They were concerned that the Postal Service could use its governmental

status to an unfair advantage when introducing products that compete

with private sector companies. In examining these concerns, you

requested that we review several issues related to the Postal Service’s

development and marketing of new products and provide information on

expenses and revenues associated with new products the Service

introduced in recent years. You indicated this information would be useful

to the Subcommittee in its deliberations to reform the U.S. Postal Service.

As agreed with the Subcommittee, this report addresses the following

objectives:

• Identify the statutory and regulatory authorities and constraints covering

all major groups of new products.

• Identify the potential impact that enactment of H.R. 222 and the Postal

Service’s proposed reform legislation could have on new products.

• Provide information on the Postal Service Marketing Department’s new

product development process and determine, for three selected products,

how closely that process was followed.

1

For purposes of this report, a product is defined as a commodity, a service, or a concept that is

expected to result in a commodity or service.

2

H.R. 22 was legislation considered during the 105th Congress to fundamentally modernize and reform

the U.S. Postal Service. A similar bill (H.R. 3717, 104th Cong. (1996)) was introduced in the 104th

Congress.

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B-278754 

• Provide information, including financial data, on all new postal3 and

nonpostal4

 products the Service marketed and/or had under development

during fiscal years 1995, 1996, and 1997.

Results in Brief The statutory and regulatory authorities governing the Postal Service

provide the Service broad latitude to develop and market a wide variety of

new products, including both postal and nonpostal products. Under these

broad authorities, the Service has developed an array of new products,

such as Global Priority Mail and prepaid phone cards. Our analysis shows

that the Service is subject to at least three constraints in developing and

marketing new products. First, since it is the underlying statutory mission

of the Postal Service to provide postal services to bind the nation together,

the Service needs to be able to explain how any new product it develops

will further that mission. Second, under its statutory authority, before

marketing (including test marketing) a new domestic postal product,

which necessarily involves classification5

 of mail, the Service must request

a recommended decision from the Postal Rate Commission (PRC)

regarding the propriety of the Service’s proposed classification, rates, or

fees for the new product. Prior to issuing its recommended decision, PRC is

required to hold hearings on the Service’s proposal. The Postal Board of

Governors, however, may reject or modify PRC’s recommended decision.

The Service is not required to request a recommended decision from PRC in

the case of nonpostal products, such as telephone cards and retail

merchandise. Third, the Service’s ability to market new products can be

constrained or influenced by congressional oversight, restrictions imposed

during the appropriations process, or other legislative actions.

Adoption of either H.R. 22 or legislative changes offered by the Postal

Service would amend the Service’s current statutory authority to develop,

test, approve, and market new products. H.R. 22 would place new

restrictions on the introduction of new, nonpostal products and

international postal products. For example, the Service would be

restricted to introducing new, nonpostal products through a for-profit

corporation created and owned by the Postal Service. However, H.R. 22

would provide the Service with broader latitude to test market

3

There is no statutory definition of a postal product. However, court and administrative decisions have

held that products are considered to be postal in nature if they involve an aspect of the posting,

handling, or delivery of mail.

4

Nonpostal products include, for example, retail merchandise and most of the Service’s new electronic

initiatives.

5

Classification refers to a grouping of mail matter for assigning it a specific rate or method of handling.

Page 2 GAO/GGD-99-15 New Postal Products
B-278754 

experimental postal products.6 For example, market tests of new postal

products could be conducted for as long as 2 years and generate

$10 million in revenues per year without prior PRC approval and could be

extended to a third year with PRC’s approval. Larger scale market tests,

with up to $100 million in annual revenues, would also be permitted under

rules adopted by PRC. The Postal Service’s proposed legislative changes

would also provide the Service with broader latitude to test market

experimental postal products. Under the Service’s proposed changes, it

would be able to test market experimental domestic postal products

without having them reviewed by PRC first. Under the Service’s proposal, it

could also continue to develop, test, approve, and market new capital,7

philatelic,8 international, and nonpostal products without having them

reviewed by PRC.

In 1996, to facilitate the Service’s goal of initiating and growing new

businesses, the Service’s Marketing Department established the New

Business Initiatives and Products Group, which implemented a new

product development process. Known as the CustomerPerfect!sm

9

 new

product development process, it is intended to ensure effective

management control through a formalized system of checks and balances

that require top management buy-in at four critical stages: (1) concept

stage, (2) business plan stage, (3) test stage, and (4) implementation stage.

Our review of three judgmentally selected products showed that in

developing these products, the Marketing Department’s New Business

Initiatives and Products Group generally followed the CustomerPerfect!

new product development process. The Service provided explanations, in

all cases, for any deviations from the process.

Information and financial data we gathered on new products show that

during fiscal years 1995, 1996, and 1997, the Service marketed, or had

under development, 19 new products that had been publicly announced.

Three of these new products involved strategic alliances10 with other

businesses, such as the Service’s alliance with SmarTalk Teleservices, Inc.

to market FIRSTCLASS PHONECARDTM. As of July 1998, the Service had

6

Experimental postal product is a term used in H.R. 22 that generally equates to a new postal product.

7

Capital products are generally limited to infrastructure improvements, such as buildings and

equipment.

8

Philatelic products are stamps and related merchandise that incorporates stamps.

9

CustomerPerfect! is the Service’s Malcolm Baldrige Award criteria-based management system. The

CustomerPerfect! management cycle of planning, implementation, and review consists of activities

intended to give direction to the organization and to build and sustain improved performance against

set goals.

10A strategic alliance is an agreement between two or more parties for sharing the risks of a project,

including revenues and expenses.

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B-278754 

discontinued 5 of the 19 new products for various reasons and was

considering discontinuing another. Total revenues and expenses for the 19

products, from inception through fiscal year 1997, as reported by the

Postal Service and unaudited by us, were $148.8 million and $233.5 million,

respectively. During the first 3 quarters of fiscal year 1998, Service officials

stated that 4 of the 19 new products had produced revenues that exceeded

expenses. In this regard, it may not be reasonable to expect all new

products to become profitable in their early years, because new products

generally take several years to become established and recover their

start-up costs. Appendi x III contains an inventory that provides summary

background and financial information about the Service’s 19 new

products.

Background The Postal Service is an independent establishment in the executive

branch. The Postmaster General, Deputy Postmaster General, and nine

presidentially appointed members of the Postal Board of Governors direct

the operations of the Postal Service. The Postal Service is to operate in a

businesslike manner and is to break even in the long term. An independent

Postal Rate Commission was established to, among other things, regulate

the Postal Service’s adherence to ratemaking standards and to ensure that

it does not take advantage of its monopoly on the delivery of letter mail.

Since the creation of the General Post Office in 1775, the core business of

the U.S. Postal Service has been the collection and delivery of letters and

packages to the households and businesses of the nation. Today, however,

the Service sees its core business threatened by the advent of the

electronic age. The Service believes that its role as provider of universal

postal service at uniform rates faces competition significantly more

challenging than the competition from past eras—most notably the

telegraph and the telephone.

In 1997, former Postmaster General Marvin Runyon, in testimony before

your Subcommittee, said the electronic rival the Postal Service currently

faces goes far beyond anything faced before. He stated that computers,

telephones, television, and electronic funds transfers are being brought

together with a rapidly evolving communications network, and this

network promises one day to link nearly every home and business in the

nation with the capability to rapidly trade messages, money, and

multimedia content.

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B-278754 

According to the Postal Service, this new communications network—e.g.,

the Internet and its World Wide Web, e-mail, electronic commerce, and

electronic data exchange—is fundamentally altering consumers’ choices

and expectations. More importantly, because of these new choices, the

Service is concerned that future First-Class Mail revenues will decline due

to the electronic diversion of mail. In fact, the former Postmaster General

was so concerned about this prospect that he testified before the

Subcommittee that if a significant amount of First-Class Mail gravitates to

alternative sources of delivery, this could jeopardize the Service’s core

business, which is the financial bedrock of universal service.

It is against this backdrop that the Postal Service began, in the mid-1990s,

focusing resources on the aggressive development and introduction of

new products—primarily nonpostal products. This move, however, has

created controversy. Some Members of Congress and some private sector

companies have said that the Postal Service is unfairly expanding its

product line to compete in nonpostal-related markets, and they have

manifested their concerns in various forms. For example:

• Representative Hunter introduced a bill (H.R. 3690) on June 20, 1996, to

prohibit the Service from making available to the public any commercial

nonpostal service that it did not have available on January 1, 1994. H.R

3690 was not enacted and was reintroduced as H.R. 198 on January 7,

1997. H.R. 198 was referred to the Committee on Government Reform and

Oversight with no further legislative action.

• Representative Northup sought to stop the Postal Service from expanding

one of its international mail services—Global Package Link—through an

amendment to the Fiscal Year 1998 Treasury, Postal Service, and General

Government Appropriations bill. Although the proposed amendment did

not become part of the Fiscal Year 1998 Appropriations Act, the conferees

agreed to study the issue.11 Additionally, the Conference Report

accompanying the act included a request that the Postal Service report on

its nonpostal activities.12

New products originate from several different sources within the Postal

Service organization, and various review and approval processes are used

for the introduction of new products—the source and type of approval

process used generally being related to the type of product. New products

11We issued a report on Global Package Link service in June 1998. See U.S. Postal Service: Competitive

Concerns About Global Package Link Service (GAO/GGD-98-104, June 5, 1998).

12The Postal Service issued its report responding to the conferees’ request on February 27, 1998.

Page 5 GAO/GGD-99-15 New Postal Products
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typically fall into one of the following major groups—capital, philatelic,

postal, and nonpostal products.

Scope and

Methodology

To identify the statutory and regulatory authorities and constraints

covering all groups of new products, we researched and analyzed

applicable sections of the U.S. Code, Postal Service regulations, PRC

regulations, and relevant court and administrative opinions and decisions.

Additionally, we reviewed H.R. 22 and the Postal Service’s proposed

reform legislation to determine how existing statutory and regulatory

authorities and constraints governing new products may be affected by

enactment of either of these legislative proposals.

To document the Marketing Department’s CustomerPerfect! new product

development process, we interviewed marketing and finance managers

responsible for the development and oversight of the process. To track the

flow of three judgmentally selected products13 through the process, we

worked primarily with the program managers responsible for those

products. In all cases, we obtained, where possible, documentation to

corroborate oral statements. This documentation included, for example,

copies of draft and approved Business Proposition Statements, copies of

draft and approved Business Plans, documents provided to top

management and the Postal Service’s Board of Governors, financial

information about the three new products, and summary information

about contracts and contractors. We did not independently verify the

accuracy of the financial data provided or validate the Service’s claim as to

how much of its annual revenues were at risk to electronic diversion.

We gathered pertinent information from the Service’s Finance Department

to develop profiles, including financial data, on the remaining new

products the Service marketed and/or had under development during

fiscal years 1995, 1996, and 1997 and that had been publicly announced as

of November 1997. Included in the information we gathered were Business

Proposition Statements, Business Plans, documents provided top

management and the Board of Governors, and financial information about

each new product. We reviewed and analyzed the information gathered

and summarized the results of that work in appendix III. Clarification

13Of the Postal Service’s 19 new products, 11 were under the purview of the Marketing Department’s

new product development process. From those 11, 3 were selected for more in-depth review—the

Service’s phone card business (FIRSTCLASS PHONECARDTM), the Service’s remittance processing

business (REMITCO), and the Service’s Electronic PostmarkTM System. This selection was made in

concert with the Subcommittee staff and provides coverage of products in varying stages of

completion.

Page 6 GAO/GGD-99-15 New Postal Products
B-278754 

questions were addressed either by Finance officials or the program

manager responsible for a particular product. As with the three products

we reviewed in detail, we did not independently verify the accuracy of the

financial data provided on the remaining products in appendix III. The

inventory of products in appendix III is limited to products marketed and

products under development that have been publicly announced by the

Service. It does not include products under development that have not

been publicly announced because of the proprietary nature of the

Service’s research and development effort. To help ensure that all new

products were identified, we researched the Service’s electronic database

of press releases, speeches, and testimonies to identify announcements

concerning products under development.

We conducted our review at Postal Service Headquarters in Washington,

D.C., between November 1997 and July 1998 in accordance with generally

accepted government auditing standards.

We requested comments on a draft of this report from the Postal Service,

and the Service’s comments are discussed at the end of this letter.

Statutory and

Regulatory

Authorities and

Constraints Governing

the Postal Service’s

Ability to Market New

Products and Recent

Reform Proposals

The Postal Service has broad statutory authority to develop, test, approve,

and market a variety of new products, including new capital, philatelic,

domestic and international postal, and nonpostal products. However, our

analysis shows that the Service is subject to at least three constraints.

First, since it is the underlying statutory mission of the Postal Service to

provide postal services to bind the nation together, the Service needs to be

able to explain how any new product it develops will further that mission.14

 Second, under its statutory authority, before marketing (including test

marketing) a new domestic postal product, which necessarily involves

classification of mail, the Service must request a recommended decision

from PRC regarding the propriety of the Service’s proposed classification,

rates, or fees for the new product. Prior to issuing its recommended

decision, PRC is required to hold hearings on the Service’s proposal. The

Governors of the Postal Service may approve, allow under protest, reject,

or modify PRC decisions as provided for in statute.15 Finally, the Service’s

ability to market new products can be constrained or influenced by

14The Service’s basic mission is to provide postal services to bind the nation together and provide

those services in a prompt, reliable, and efficient manner, at reasonable rates, to all communities and

patrons. See 39 U.S.C. 101.

1539 U.S.C. 3625(a).

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B-278754 

congressional oversight, restrictions imposed during the appropriations

process, or other legislative actions.

Adoption of H.R. 22 or legislative changes offered by the Postal Service

would amend the Service’s current statutory authority to develop, test,

approve, and market new products. H.R. 22 would place new restrictions

on the introduction of new, nonpostal products and international postal

products. For example, the Service would be restricted to introducing

new, nonpostal products through a for-profit corporation created and

owned by the Postal Service. However, H.R. 22 would provide the Service

with broader latitude to test market experimental postal products. For

example, market tests of new postal products could be conducted for as

long as 2 years and generate $10 million in revenues per year without prior

PRC approval and could be extended to a third year with PRC’s approval.

The Postal Service’s proposed legislative changes would also provide the

Service with broader latitude to test market experimental postal products.

Under the Service’s proposed changes, it would be able to test market

experimental domestic postal products without having them reviewed by

PRC first.

Current Statutory and

Regulatory Authorities and

Constraints Governing the

Postal Service’s Ability to

Market New Products

The Postal Reorganization Act of 197016 provides the Postal Service with

broad statutory authority to develop, test, approve, and market new

products. With respect to the Postal Service’s general duties, the act

directs the Service to plan, develop, promote, and provide adequate and

efficient postal services at fair and reasonable rates and fees.17 In addition,

it specifies that it is the Service’s general duty to “receive, transmit, and

deliver . . . written and printed matter, parcels, and like materials and

provide such other services incidental thereto as it finds appropriate to its

functions and in the public interest.”18

In more specific terms, the act also provides the Postal Service authority

to develop a variety of new products. With regard to new capital products,

the Service has authority under the act to determine the need for post

offices, postal and training facilities, and equipment and to provide such

offices, facilities, and equipment as it determines are needed.19 The act

also provides the Service with the specific power to provide philatelic

16Pub. L. No. 91-375, 84 Stat. 720, as amended and codified in Title 39 of the United States Code.

1739 U.S.C. 403(a).

18Id.

1939 U.S.C. 404(a)(3).

Page 8 GAO/GGD-99-15 New Postal Products
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services.20 With regard to new international products, the act has been

interpreted by the courts as providing the Service, with the consent of the

president, the authority to establish international products.21 Finally, with

regard to nonpostal products, the act provides the Service with the

specific power to “provide, establish, change, or abolish special nonpostal

or similar services.”22 These provisions do not contain any specific

limitations or constraints on the Postal Service’s authority to develop, test,

approve, and market these products except for the requirement to obtain

presidential consent with regard to international products. Nevertheless,

our analysis shows that the Postal Service is subject to at least three

constraints that affect postal operations, including the development and

marketing of new products.

First, the act sets forth the mission of the Service to provide “postal

services to bind the Nation together through the personal, educational,

literary, and business correspondence of the people.”23 In addition, it

directs the Service to provide postal services in a prompt, reliable, and

efficient manner, at reasonable rates, and to all communities and patrons.

Therefore, when the Service develops any new product, it needs to be able

to explain how that new product will further its underlying statutory

mission. For example, in response to recent questions from Congress

regarding its marketing of new retail products with postal themes, such as

neckties, T-shirts, greeting cards, and other gift items, Postal officials

justified these nonpostal products as being needed to help provide the

necessary revenues to operate its basic functions and obligations.24

However, more recently, the Postal Service acknowledged growing

concerns in Congress and in the private sector about its marketing of these

retail products, and it decided to end the sales of apparel merchandise at

post offices.25

Second, under its statutory authority, before marketing a new domestic

postal product, which necessarily involves classification of mail, the

Service must request a recommended decision from PRC regarding the

2039 U.S.C. 404(a)(5).

21See UPS Worldwide Forwarding, Inc. v. USPS, 66 F.3d 621 (3d Cir. 1995) (interpreting 39 U.S.C.

407(a)).

2239 U.S.C. 404(a)(6).

2339 U.S.C. 101(a).

24Report on Postal Service Activities-In Compliance with the Conference Report on Public Law No.

105-61 (Feb. 27, 1998).

25The Postmaster General announced this change in policy on June 24, 1998. The Service plans to

continue such sales through mail order catalogs, its Web site, at special events, and at the Postmark

America store in the Mall of America in Minnesota.

Page 9 GAO/GGD-99-15 New Postal Products
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propriety of the Service’s proposed classification, rates, or fees for the

new product. The requirement to request a recommended decision from

PRC before marketing a new product applies, however, only to new

domestic postal products.26 Therefore, the Service may introduce new

capital, philatelic, international, and nonpostal products without first

requesting a recommended decision from PRC. Although there is no

statutory definition of a postal product, court and administrative decisions

have held that a product is considered to be postal in nature if it involves

an aspect of the posting, handling, or delivery of mail.27

With regard to new domestic postal products, the act also requires that PRC

provide an opportunity for a hearing on the record for the Service, mail

users, and a PRC officer representing the interests of the general public

prior to PRC issuing its recommended decision.28 Under its regulations, PRC

provides general rules of practice for these proceedings and special rules

and expedited proceedings for recommended decisions, such as decisions

on (1) experimental products, (2) market tests of new products, and

(3) new products that are to be marketed for only a limited amount of

time.29 The Postal Service’s Board of Governors may approve, allow under

protest, reject, or modify PRC decisions as provided for in statute.

Third, the Postal Service’s ability to market new products can be

constrained or influenced by congressional oversight and other

congressional action. The act provides for congressional oversight of the

Postal Service. This oversight responsibility resides primarily with the

Senate Committee on Governmental Affairs and its Subcommittee on

International Security, Proliferation and Federal Services; and with the

House Committee on Government Reform and Oversight and its

Subcommittee on the Postal Service. These Committees and

Subcommittees periodically hold oversight hearings on postal operations,

at which time the Postal Service may be asked to justify any new product

being developed or marketed. Additionally, other congressional action,

including restrictions imposed during the appropriations process and

other types of legislative action, can constrain or influence the Postal

Service’s new product activities.

26See 39 U.S.C. ch. 36; UPS Worldwide Forwarding, Inc. v. USPS, 66 F.3d 621 (3d Cir. 1995); PRC

Opinion, “Provisional Packaging Service,” MC97-5 at note 1 (March 31, 1998).

27See National Association of Greeting Card Publishers v. USPS, 569 F.2d 570, 596 (D.C. Cir. 1976); PRC

Order No. 1145, “Complaint of Coalition Against Unfair USPS Competition,” C96-1 (Dec. 16, 1996).

2839 U.S.C. ch. 36.

29See 39 C.F.R. Part 3001.

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Current Authorities and

Constraints Would Be

Affected by the Adoption

of H.R. 22

On January 7, 1997, the Chairman, Subcommittee on the Postal Service,

introduced H.R. 22 in the 105th Congress to reform the laws that govern

the Postal Service. H.R. 22 followed up on a similar bill (H.R. 3717, 104th

Congress (1996)) introduced by the Chairman in the 104th Congress. The

most recent version of H.R. 22 was agreed to by the Subcommittee on the

Postal Service on September 24, 1998. H.R. 22—currently entitled the

Postal Modernization Act of 1998—would amend the Service’s current

statutory authority to develop, test, approve, and market new products in

a number of ways.

First, H.R. 22 would provide, for the first time, statutory definitions for the

terms postal products and nonpostal products. A postal product would be

specifically defined as “any service that provides for the physical delivery

of letters, printed matter, or packages weighing up to 70 pounds, including

physical acceptance, collection, sorting, or transportation services

ancillary thereto.” A nonpostal product would be defined as “any product

or service offered by the Postal Service (or that could have been offered

by the Postal Service under section 404(a)(6), as last in effect before the

date of enactment of the Postal Modernization Act of 1998) that is not a

postal product.”

Having specifically distinguished between postal and nonpostal products,

H.R. 22 would place additional constraints on the introduction of new,

nonpostal products. Under H.R. 22, the Service would be restricted to

introducing new, nonpostal products through a private, for-profit

corporation funded through revenues derived from the Service’s

competitive products and loans obtained on the credit of the corporation

itself. The corporation would be owned by, but separate from, the Postal

Service and would be subject to the same corporate laws as any other

similar private company. Furthermore, nonpostal products that the

Service first offered to the public between January 1, 1994, and the date of

enactment of H.R. 22 would be transitioned into the private corporation,

following a schedule and procedures established by PRC.

30 Nonpostal

products first offered to the public prior to January 1, 1994, could continue

to be produced or discontinued by the Service directly (but not established

or changed). PRC would not, as under current law, be involved in reviewing

the establishment of new nonpostal products.

Under H.R. 22, for the first time postal products would be specifically

divided into separate “competitive” and “noncompetitive” categories.

Competitive products would include those postal products facing full

30Under H.R. 22, the Postal Rate Commission would be renamed the Postal Regulatory Commission.

Page 11 GAO/GGD-99-15 New Postal Products
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competition within the marketplace. As specified in H.R. 22, competitive

activities would be, to the maximum possible extent, on the same terms

and conditions as those faced by private sector competitors.

After establishment of initial rates (referred to in H.R. 22 as baseline rates)

based on a recommended decision by PRC, the Postal Service would have

discretion to set prices for competitive products as it deems appropriate,

as long as (1) each of these products was priced to cover its own costs,

and (2) the competitive products collectively made a specified

contribution to the overhead of the Postal Service. PRC would do annual

audit reviews of competitive products to ensure that prices were set in

accordance with the law.

Noncompetitive products would include those products such as

First-Class Mail and other classes of mail for which there are few practical

or legal alternatives to the Postal Service. After establishment of baseline

rates based on a recommended decision by PRC, rates for noncompetitive

products would be established using a price “cap” regimen, based on the

consumer price index less a “productivity offset,” which PRC will determine

every 5 years. Once the cap is established, the Postal Service may adjust

prices on an annual basis within specified limits.

International postal products would be grouped into the competitive or

noncompetitive categories, as appropriate, and would, for the first time, be

treated the same as any other postal product with regard to PRC

involvement and oversight.

H.R. 22 would provide the Service with broader latitude to test market

experimental postal products. Under H.R. 22, experimental postal

products could be tested in the marketplace without having to meet the

specific price cap/competitive category requirements the bill would

impose. Specifically, the proposal would authorize market tests of

experimental noncompetitive and competitive postal products for as long

as 2 years and for $10 million in revenues per year without prior PRC

approval. Market tests could be extended to a third year with PRC’s

approval. Larger scale market tests, generating up to $100 million in

annual revenues, would also be permitted under rules adopted by PRC. The

Postal Service would be required to provide to PRC (1) notice prior to the

initiation of any market tests; and (2) annually, information regarding

costs, revenues, and quality of service on its market tests of new products.

PRC would have the authority to review market tests through annual audit,

to review market tests upon complaint, or to stop market tests that do not

Page 12 GAO/GGD-99-15 New Postal Products
B-278754 

meet established criteria. After completion of the market tests, the Service

would be required to either discontinue the test or follow the requirements

for its permanent placement in either the competitive or noncompetitive

postal product categories.

Current Authorities and

Constraints Would Be

Affected by the Adoption

of the Postal Service’s

Proposed Legislative

Changes of May 7, 1997

In response to the introduction of the original version of H.R. 22, the

Postal Service presented to the Subcommittee on the Postal Service its

own legislative proposal for postal reform on May 7, 1997. The proposal,

referred to as the Postal Pricing Reform Act of 1997, would allow the

Postal Service to test market experimental domestic postal products

without having them reviewed by PRC first. The Postal Service believes that

the existing system is unduly inhibiting, potentially too lengthy, and

inadequate to accommodate the needs of a modern Postal Service.31

The proposal provides for the Postal Service to test market experimental,

domestic postal products without first requesting a recommended decision

from PRC on product classification and rates or fees. After an experimental

product has been in existence for 3 years or has actually generated

$100 million of annual revenue, the Postal Service could either discontinue

the experiment or request a recommended decision from PRC. The Service

could continue to offer experimental products while PRC was conducting

hearings.

Under the Service’s proposal, the Service could continue to develop, test,

approve, and market new capital, philatelic, international, and nonpostal

products without having them reviewed by PRC. Finally, the proposal does

not appear to affect current distinctions between postal and nonpostal

products set forth in administrative and court decisions.

31Decision of the Governors of the USPS on the Recommended Decision of PRC, C96-1 at 9-10 (April 8,

1997).

Page 13 GAO/GGD-99-15 New Postal Products
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The Marketing

Department’s

CustomerPerfect!

New Product

Development Process

and Illustrative

Examples of Three

Products Under The

Purview of That

Process

The Service’s Marketing Department is one of the primary players in the

introduction of new products. Since June 1996, the Marketing Department

has relied on a formalized review and approval process to govern the

introduction of its new products. The process, referred to as the

CustomerPerfect! new product development process, is based on the

Malcolm Baldrige Award criteria and incorporates many aspects of the

Service’s review and approval process for capital projects. As part of our

overall review of the Marketing Department’s new product development

process, we traced the movement of three products through that process,

and we found that they generally followed the tenets of the

CustomerPerfect! new product development process.

The Marketing

Department’s

CustomerPerfect! New

Product Development

Process

During the early 1990s, Postal management recognized that the Postal

Service was facing a future of growing competition across many of its

product lines. In particular, managers believed that the emerging

electronic communications industry had the potential to seriously erode

the Service’s First-Class Mail base—the financial bedrock of universal

service. Faced with this perspective, management developed the corporate

goal of initiating and growing new businesses, particularly in the

electronic communications arena, in order to ensure its commercial

viability as a service provider for the worldwide movement of messages,

merchandise, and money.

To carry out its goal of initiating and growing new businesses, the Service

turned primarily to its Marketing Department, which began developing

concepts for new products. To oversee this work, Marketing established a

New Business Initiatives and Products Group. Additionally, to facilitate

the process of developing and introducing new products and to ensure

effective management control, the Service developed a formalized system

of checks and balances that requires top management buy-in at critical

stages of the development process. This system of checks and balances,

adopted in June 1996, is known as the CustomerPerfect! new product

development process. This process is also used to review the performance

of products and terminate those that do not perform to Postal Service

expectations.

As an additional check to ensure that the new product development

process is followed, top management established a Business Evaluation

Group in the Finance Department. In addition to helping the Marketing

Page 14 GAO/GGD-99-15 New Postal Products
B-278754 

Department oversee the process, the Business Evaluation Group is to

validate the financial feasibility of new products and provide the Board of

Governors with an independent financial assessment of each new product.

The Business Evaluation Group reports directly to the Chief Financial

Officer/Senior Vice President.

Under the new product development process, new products initiated by

the Marketing Department’s New Business Initiatives and Products Group

go through four distinct stages: the (1) concept stage, (2) business plan

stage, (3) test stage, and (4) implementation stage. During each stage,

there are specific review and decision points for top management.

Additionally, the Board of Governors must approve the Business Plan,

product testing and results, and product implementation (rollout).

The purpose of the concept stage is to generate ideas for new products

that are consistent with the Service’s strategic plan32 and

CustomerPerfect!. The Marketing Department prepares a Business

Proposition Statement during this stage that outlines such things as the

business objective for the new product, the market situation, and a

revenue forecast. If the Chief Marketing Officer approves the Business

Proposition Statement, then the new product proposal advances to stage

2—the business plan stage.

In the business plan stage, a preliminary Business Plan is prepared that

includes detailed sections on customer requirements, the target market

and strategy for entering that market, the organization and management

structure for the business, financial projections, and critical success

factors and measures of success. In developing the preliminary Business

Plan, a cross-functional team is assembled to achieve consensus on the

product assumptions needed to build the preliminary Business Plan. Team

members, selected on the basis of skills needed, are drawn from various

postal headquarters departments, such as Marketing, Finance, Legal, and

Purchasing; and Field Operations. Any issues the cross-functional team

cannot resolve by consensus are settled by the Chief Marketing Officer.

After the preliminary Business Plan is developed, the Chief Marketing

Officer solicits feedback from individual members of the Management

Committee, which comprises the Postmaster General, Deputy Postmaster

General, Chief Operating Officer, Chief Financial Officer, and Chief

Marketing Officer. Following review and approval by the Management

32Under the Government Performance and Results Act of 1993, agencies are to develop strategic plans

in which they define their missions, establish results-oriented goals, and identify strategies they will

use to achieve those goals.

Page 15 GAO/GGD-99-15 New Postal Products
B-278754 

Committee, the Marketing Department conducts a proof of concept

operations test with a vendor to validate the new product concept. If the

operations test indicates that the new product concept is valid and ready

for market testing, then the Chief Marketing Officer presents the

preliminary Business Plan to the Strategic Planning Committee of the

Board of Governors for review. With the Strategic Planning Committee’s

approval, the Chief Marketing Officer presents the preliminary Business

Plan to the Board of Governors. If the Board approves the preliminary

Business Plan, then the proposed new product moves to stage 3—the test

stage.

The purpose of the test stage is to test and evaluate the new product in the

marketplace. Postal field operations participate with cross-functional team

representatives to establish the scope of a limited market test and the

measures of success. Following the limited market test, the Chief

Marketing Officer reviews the test results and determines the need for an

expanded test. If the Chief Marketing Officer determines that an expanded

test is warranted, then a proposal for a major market test is prepared. That

proposal is then to be reviewed and approved by the Management

Committee, Strategic Planning Committee of the Board of Governors, and

the Board of Governors. Following Board approval, the new product is

tested in a major market. After the major market test, the process requires

a thorough review of the results by the cross-functional team and Chief

Marketing Officer. If this review determines that the established measures

of success have been met, the new product proceeds to stage 4—the

implementation stage.

The first step in the implementation stage is for the Marketing Department

to update and finalize the Business Plan on the basis of the results of the

major market test and feedback from the individual members of the

Management Committee. After a final review and approval of the market

test results and Business Plan by the Management Committee, Strategic

Planning Committee of the Board, and the Board of Governors, the new

product is rolled out to the target market, which, in most cases, is the

nation.33 After a new product is rolled out, it is to be tracked continuously

against the Business Plan and subjected to annual performance reviews by

the Marketing Department. On the basis of the results of the annual

performance reviews, the Marketing Department is to make improvements

to the new product as indicated.

33Products such as Dinero Seguro (electronic money transfers to Mexico) are available only in selected

U.S. markets.

Page 16 GAO/GGD-99-15 New Postal Products
B-278754 

Appendix I lists the major events during each of the four stages of the new

product development process.

Three Examples of

Products Under the

Marketing Department’s

CustomerPerfect! New

Product Development

Process

As part of our overall review of the Marketing Department’s new product

development process, we traced the movement of three

products—FIRSTCLASS PHONECARDTM, REMITCO, and Electronic

PostmarkTM System—through that process, primarily to determine how

closely they followed prescribed steps. The Postal Service had partially

developed all three products before the CustomerPerfect! new product

development process was implemented in June 1996. Prior to that date,

the products followed developmental steps similar to and later

incorporated into the new product development process.

FIRSTCLASS PHONECARDTM is the name of the Postal Service’s prepaid

phone card, which can be purchased at postal retail outlets and from

postal vending machines. REMITCO is the Postal Service’s remittance

processing business. REMITCO extends the Postal Service’s business of

delivering payments, such as credit card and utility payments, to the actual

processing of checks being mailed from customers to businesses.

Electronic PostmarkTM is the Postal Service’s electronic version of its

traditional postmark. The Electronic PostmarkTM System applies the

digital signature of the Postal Service to an electronic transaction, states

the time and date it is applied, and displays notification to the recipient if

the transaction has been tampered with.

Although all three products were moved into the new product

development process in June 1996, the products entered different stages of

the new process and progressed at different rates. FIRSTCLASS

PHONECARDTM entered the new process at the test stage and has since

progressed to the implementation stage. At the end of fiscal year 1997,

FIRSTCLASS PHONECARDTM was the only product to have achieved

national rollout under this process. REMITCO and Electronic PostmarkTM

System entered the new process at the business plan stage, although

REMITCO is the only one of the two that has progressed to the test stage.

In general, we found that each of the three products followed the tenets of

the new process. However, proof of concept operations tests were not

done for FIRSTCLASS PHONECARDTM and REMITCO, although the

process called for these tests. According to Postal officials, such tests

were unnecessary because the product concepts had already been

validated by various private sector companies.

Page 17 GAO/GGD-99-15 New Postal Products
B-278754 

Appendix II contains a more detailed discussion of each product, including

information on the origin and development of the product; the short- and

long-term goals for the product; and our assessment of how closely the

product followed the new product development process, as well as the

Postal Service’s rationale for any deviations from the new process.

Inventory of New

Postal Products

Appendix III contains an inventory and summary information about each

publicly announced new product the Postal Service marketed and/or had

under development during fiscal years 1995, 1996, and 1997—excluding

capital and philatelic products.34 Table 1 summarizes the financial

performance of each new product and the 19 products in total, from

product inception through fiscal year 1997, and for the first 3 quarters of

fiscal year 1998.

34As noted earlier, products under development that had not been publicly announced are not included

in the inventory.

Page 18 GAO/GGD-99-15 New Postal Products
B-278754 

Table 1: Summary Financial Data on

New Products Marketed and/or Under

Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of

Capital and Philatelic Products)

Profit (loss) in millions

Product

Product inception

through fiscal

year 1997

First 3 quarters of

fiscal year 1998

FIRSTCLASS PHONECARDTM ($3.0) $3.9a

REMITCO (6.1) (6.3)

Electronic Commerce Servicesb (20.3) c

Global Priority Mail (5.4) (0.6)

Global Package Link (1.1) (0.2)

Retail Merchandise 3.3 5.0

PostOffice Online (0.8) (4.5)

WEB Interactive Network of Government

Services

(4.0) (1.1)

Deliver America (3.2) c

Information Based Indicia Program (3.1) (1.8)

Customer Initiated Payment System (1.3) c

Unisite Antenna Program (1.6) 0.1

LibertyCash (6.4) (1.9)

Dinero Seguro (10.5) (5.4)

Sure Money (0.5) (0.5)

Delivery Confirmation (2.9) 9.6

Provisional Packaging Service (2.6) c

Fastnet (11.7) c

Global e-Post (3.5) c

Total ($84.7) ($3.7)

Note: Figures in table are as reported by the Postal Service and unaudited by GAO.

aDoes not include any proceeds from the sale of the FIRSTCLASS PHONECARDTM business to

SmarTalk Teleservices, Inc.

bIncludes Electronic PostmarkTM System and Certificate Authority System.

cReported no financial activity during first 3 quarters of fiscal year 1998.

Source: U.S. Postal Service.

The information displayed in appendix III provides (1) a description of

each product, (2) a history of each product, (3) financial data from

inception of product through fiscal year 1997, and (4) fiscal year 1998

financial data—through quarter 3—for each product. Highlighted below

are some of our observations concerning the inventory listing.

Page 19 GAO/GGD-99-15 New Postal Products
B-278754 

• Of the 19 new products listed, 11 were at least partially developed under

the Marketing Department’s CustomerPerfect! new product development

process and 8 were not.

• Three products—FIRSTCLASS PHONECARDTM, Dinero Seguro, and

Unisite Antennas—involved strategic alliances with other entities.

• Of the 19 new products listed, 5 had been discontinued as of July 1998, and

the Service was considering discontinuing 1 more—Customer Initiated

Payment System (CIPS). Additionally, the Service was awaiting a decision

from its Board of Governors on whether or not to proceed with its

Provisional Packaging Service (formerly known as pack-and-send). 

• Of the 19 new products listed, 10 were started before fiscal year 1996, 6

were started in fiscal year 1996, and 3 were started in fiscal year 1997.

• From date of product inception through fiscal year 1997, only one product

reported making a profit—retail merchandise. Total revenues and

expenses reported for the 19 products, through fiscal year 1997, were

$148.8 million and $233.5 million, respectively, resulting in a net loss of

$84.7 million. In this regard, it may not be reasonable to expect all new

products to become profitable in their early years, because new products

generally take several years to become established and recover their

start-up costs.

• During the first 3 quarters of fiscal year 1998, 13 of the 19 products listed

had financial activity. Four of the 13 reported net profits, and 9 reported

net losses for the period. Total revenues and expenses for the 13 products

during the first 3 quarters of fiscal year 1998 were $117.8 million and

$121.5 million, respectively, resulting in a reported net loss of $3.7 million.

Agency Comments We requested comments from the Postmaster General on a draft of this

report. On October 27, 1998, the Postal Service’s Chief Marketing

Officer/Senior Vice President provided comments on the draft report. He

said that the Service was in agreement with the information presented. He

provided some technical updates, which we incorporated into the report

where appropriate.

We are sending copies of this report to the Ranking Minority Member of

your Subcommittee; the Chairman and Ranking Minority Member of the

Subcommittee on International Security, Proliferation and Federal

Services, Senate Committee on Governmental Affairs; the Postmaster

General; and other interested parties. Copies will also be made available to

others upon request.

Page 20 GAO/GGD-99-15 New Postal Products
B-278754 

Major contributors to this report are listed in appendix IV. If you have any

questions about the report, please call me on (202) 512-8387.

Sincerely yours,

Bernard L. Ungar

Director, Government Business

 Operations Issues

Page 21 GAO/GGD-99-15 New Postal Products
Contents

Letter 1

Appendix I 

Major Events During

Each Stage of the

Marketing

Department’s

CustomerPerfect!

New Product

Development Process

24

Appendix II 

Illustrative Examples

of Three Products

Under the Purview of

the CustomerPerfect!

New Product

Development Process

26

Appendix III 

Inventory of New

Products Marketed

and/or Under

Development During

Fiscal Years 1995,

1996, and 1997

(Exclusive of Capital

and Philatelic

Products)

40

Page 22 GAO/GGD-99-15 New Postal Products
Contents

Appendix IV 

Major Contributors to

This Report

61

Table Table 1: Summary Financial Data on New Products Marketed

and/or Under Development During Fiscal Years 1995, 1996, and

1997

19

Abbreviations

CIPS Customer-Initiated Payment System

IBIP Information Based Indicia Program

PIN personal identification n‘umber

PostECS Postal Electronic Courier Service

PRC Postal Regulatory Commission

USPS United States Postal Service

WINGS WEB Interactive Network of Government Services

Page 23 GAO/GGD-99-15 New Postal Products
Appendix I 

Major Events During Each Stage of the

Marketing Department’s CustomerPerfect!

New Product Development Process

Concept Stage • Generate an idea for new product that is consistent with the Service’s

strategic plan and CustomerPerfect!.

• Prepare a Business Proposition Statement for the new product idea.

• Present the Business Proposition Statement to the Chief Marketing Officer

for Review and Approval.

• Move the new product idea to the business plan stage following the Chief

Marketing Officer’s approval.

Business Plan Stage • Prepare a preliminary Business Plan for the new product and solicit

feedback from the individual members of the Management Committee.

• Present the preliminary Business Plan to the Management Committee for

review and approval to proceed with an operations test.

• Conduct a proof of concept operations test to validate the new product

concept and its readiness for market testing.

• Provide operations test results to the Chief Marketing Officer for review

and approval.

• Present the preliminary Business Plan, including operations test results, to

the Board of Governors’ Strategic Planning Committee and then to the

Board of Governors for their sequential review and approval.

• Move the new product to the test stage following approval by the Board’s

Strategic Planning Committee and the Board of Governors.

Test Stage • Perform a limited-scope market test of the new product.

• Evaluate limited-scope market test results and present results to the Chief

Marketing Officer for review and decision on whether to proceed with a

major market test.

• Present a proposal for a major market test to the Management Committee,

the Board’s Strategic Planning Committee, and the Board of Governors for

their sequential review and approval to proceed with the major market

test.

• Conduct the major market test and evaluate the results against measures

of success. Submit results for the Chief Marketing Officer’s review.

• Move to the implementation stage following determination by the Chief

Marketing Officer that measures of success for the major market test were

met.

Implementation Stage • Finalize the Business Plan on the basis of major market test results and

feedback from individual members of the Management Committee.

Page 24 GAO/GGD-99-15 New Postal Products
Appendix I 

Major Events During Each Stage of the

Marketing Department’s CustomerPerfect!

New Product Development Process

• Present the finalized Business Plan and results of the major market test to

the Management Committee, the Board’s Strategic Planning Committee,

and the Board of Governors for their sequential review and approval.

• Roll out new product to target market following review and approval of

the major market test results and Business Plan by the Management

Committee, the Board’s Strategic Planning Committee, and the Board of

Governors.

• Track the new product continuously against the Business Plan, perform

annual reviews, and improve the product as indicated.

Page 25 GAO/GGD-99-15 New Postal Products
Appendix II 

Illustrative Examples of Three Products

Under the Purview of the CustomerPerfect!

New Product Development Process

As part of our overall review of the Marketing Department’s new product

development process, we traced the movement of three

products—FIRSTCLASS PHONECARDTM, REMITCO, and Electronic

PostmarkTM System—through that process, primarily to determine how

closely those products followed prescribed steps. Our discussion of each

product includes information on the origin and development of the

product; the short- and long-term goals for the product; and our

assessment of how closely the product followed the new product

development process, as well as the Postal Service’s rationale for any

deviations from the process. In general, we found that each of these three

products followed the tenets of the CustomerPerfect! new product

development process.

FIRSTCLASS

PHONECARDTM

FIRSTCLASS PHONECARDTM is the exclusive brand name of a phone card

offered through a strategic alliance between the U.S. Postal Service and

SmarTalk Teleservices, Inc. Phone cards are a way of paying for telephone

service in advance by establishing a prepaid account with a card issuer.

Phone cards provide customers with a convenient way of making calls

when away from the home or office.1

The Postal Service entered the phone card business about 3 years ago as a

way of increasing revenues and providing customers with a convenient,

reliable, and trusted means for purchasing and using phone cards. The

Service’s short-term goal for the FIRSTCLASS PHONECARDTM is to

provide a reliable service and make the business profitable. Its long-term

goal is to become a leading retailer in the phone card industry. The

FIRSTCLASS PHONECARDTM initiative has generally followed the

CustomerPerfect! new product development process.

History of FIRSTCLASS

PHONECARDTM

According to Postal officials, the genesis of the Postal Service’s entry into

the phone card business was in July 1995, after American Express

Telecom, Inc., approached the Service about forming a strategic alliance to

market phone cards. In August 1995, the Service signed an agreement with

American Express to test market phone cards in 712 postal facilities in 7

geographic areas—Columbus, OH; Albuquerque, NM; San Diego, CA;

Miami, FL; Salt Lake City, UT; San Antonio, TX; and Providence, RI.

According to postal officials, the test market locations were chosen

1

To use a prepaid phone card, the cardholder calls the card issuer’s toll-free number, inputs his/her

personal identification number (PIN), and inputs the telephone number he/she wishes to reach. The

card issuer’s computer times the call and deducts the charges from the cardholder’s account.

Page 26 GAO/GGD-99-15 New Postal Products
Appendix II 

Illustrative Examples of Three Products

Under the Purview of the CustomerPerfect!

New Product Development Process

primarily because of their high concentrations of target consumers;2 and

secondarily because the Service had already slated these areas for

increased advertising budgets, which could be used, in part, to promote

phone card sales.

In May 1996, the Service and American Express expanded the test to 5

more geographic areas—Atlanta, GA; San Francisco, CA; Orlando, FL;

New York, NY; and Washington, D.C.—which brought the total number of

postal facilities selling phone cards to about 1,200. In November 1996,

following approval by the Board of Governors, the Service and American

Express signed an agreement establishing a strategic alliance for

marketing phone cards nationwide. In essence, the terms of the alliance

provided that the revenues and expenses were to be shared equally

between the two parties. Since the alliance agreement was signed, an

additional 10,500 postal facilities have begun selling phone cards, bringing

the total number of facilities selling phone cards to about 11,700 at the end

of fiscal year 1997. The number of locations selling phone cards has

increased only slightly since that time. In August 1997, the Service and

American Express also began implementing a plan for marketing phone

cards in as many as 4,000 postal vending machines.3

Also, in August 1997, SmarTalk Teleservices, Inc., approached American

Express to discuss acquiring its subsidiary, American Express Telecom,

Inc., which included FIRSTCLASS PHONECARDTM. SmarTalk also wanted

to establish a strategic alliance with the Postal Service for continuing the

FIRSTCLASS PHONECARDTM business. SmarTalk offered $34 million for

the FIRSTCLASS PHONECARDTM business, which was to be split equally

between the Postal Service and American Express. According to Postal

officials, American Express was interested in SmarTalk’s offer because it

was in the process of consolidating operations and reducing its secondary

business ventures. According to Postal officials, the Service was also

interested in SmarTalk’s offer for a number of reasons. First, SmarTalk’s

offer seemed reasonable when compared to other buy-outs in the industry.

Second, the terms of the proposed new alliance agreement with SmarTalk

were more favorable to the Service than the terms under the alliance with

American Express had been. Third, in a J.P. Morgan study commissioned

by the Postal Service in late 1996 to evaluate potential phone card

partners, SmarTalk ranked third among the top seven candidates. The

2

Target consumers included such groups as college students, foreign/domestic tourists, small business

owners, military personnel, seniors, and people relocating.

3

At the end of fiscal year 1997, the Service was marketing the FIRSTCLASS PHONECARDTM in about

2,000 postal vending machines.

Page 27 GAO/GGD-99-15 New Postal Products
Appendix II 

Illustrative Examples of Three Products

Under the Purview of the CustomerPerfect!

New Product Development Process

Service believed, on the basis of the results of that study, that SmarTalk

would make a good strategic alliance partner. Subsequently, on December

8, 1997, the Board of Governors voted to accept SmarTalk’s offer; and on

December 22, 1997, the Service, American Express, and SmarTalk signed

the transition plan agreement for the FIRSTCLASS PHONECARDTM

business. The transition to SmarTalk began in January 1998 and was

completed in June 1998.

Short- and Long-Term

Goals for the FIRSTCLASS

PHONECARDTM Business

The Service’s short-term goal for the FIRSTCLASS PHONECARDTM is to

provide a reliable product to customers and make the business profitable.

Its long-term goal is to grow revenue annually at a rate of at least

15 percent and become a leader in the phone card industry. According to

Postal Service data, through fiscal year 1997, the FIRSTCLASS

PHONECARDTM business had performed substantially below

expectations—operating at a net loss. However, for the first three quarters

of fiscal year 1998, the FIRSTCLASS PHONECARDTM business was

operating at a net profit. Overall, Postal Service data show that the

FIRSTCLASS PHONECARDTM business has covered all start-up costs and

contributed a net profit to the Postal Service.

A Business Plan prepared by the Marketing Department in August 1996 for

FIRSTCLASS PHONECARDTM projected a $35 million profit for the Service

in fiscal year 1997. The Postal Service’s share of the revenues and

expenses was projected to be $90 million and $55 million, respectively.

The actual performance in fiscal year 1997 was quite different—the Postal

Service’s share of the revenues and expenses was $10 million and

$12.4 million, respectively, resulting in a net loss for the year of

$2.4 million. Postal officials attributed the differences between projections

and actual performance to overly optimistic projections. For fiscal year

1998, the Service has established a Postal Service revenue goal of

$32.3 million. The Service has not established a specific net profit goal for

fiscal year 1998; however, it expects the business will operate at a profit.

Through the first three quarters of fiscal year 1998, the FIRSTCLASS

PHONECARDTM business had achieved $11.9 million of its $32.3 million

revenue goal for the year and was operating at a net profit of $3.9 million.4

The Postal Service acknowledges that achieving its long-term goal will be

a formidable task—it has more than 500 competitors in the phone card

industry. Other companies in the phone card business range from small

4

No proceeds from the sale of the FIRSTCLASS PHONECARDTM business to SmarTalk are included in

the amounts shown.

Page 28 GAO/GGD-99-15 New Postal Products
Appendix II 

Illustrative Examples of Three Products

Under the Purview of the CustomerPerfect!

New Product Development Process

operations to large international companies, such as American Telephone

and Telegraph, Sprint Communications Company, and MCI

Telecommunications Corporation. According to International Telecard

Association data, phone card sales in the United States totaled $1.1 billion

in 1996.5

 The Postal Service expects phone card sales in the United States,

according to a study by J.P. Morgan, to reach more than $3 billion annually

by the year 2000.

FIRSTCLASS

PHONECARDTM Initiative

Generally Followed the

CustomerPerfect! New

Product Development

Process

The FIRSTCLASS PHONECARDTM initiative, under the guidance of the

Marketing Department, began in 1995, about 1 year before adoption of the

CustomerPerfect! new product development process. During this time, the

initiative went through development phases similar to those of the new

product development process. The FIRSTCLASS PHONECARDTM went

through a concept and business plan phase and entered a test phase with

phone cards being test marketed in about 1,200 postal facilities. The test at

1,200 postal facilities occurred under the direction of the former Chief

Marketing Officer, although no proof of concept operations test was done

during the business plan phase to validate the FIRSTCLASS

PHONECARDTM. According to postal officials, a proof of concept

operations test was considered unnecessary because the concept had

already been validated by numerous private sector companies, including

American Express and SmarTalk, who were already successfully

marketing phone cards.

The new product development process was implemented in June 1996, and

the FIRSTCLASS PHONECARDTM was officially placed in the test stage of

that process. Two major events have occurred with phone cards since that

time, and both events were approved by the Service’s top management and

its Board of Governors. First, the FIRSTCLASS PHONECARDTM entered

the implementation stage, and its national rollout began. Second,

American Express Telecom, Inc., was sold to SmarTalk, and a new

strategic alliance was formed between the Postal Service and SmarTalk for

continuing the FIRSTCLASS PHONECARDTM business.

At the end of fiscal year 1997, FIRSTCLASS PHONECARDTM was the only

initiative under the purview of the new product development process to

have reached the implementation stage and national rollout. According to

postal officials, the results of the FIRSTCLASS PHONECARDTM business

5

The International Telecard Association is a voluntary association of companies and individuals in the

phone card industry.

Page 29 GAO/GGD-99-15 New Postal Products
Appendix II 

Illustrative Examples of Three Products

Under the Purview of the CustomerPerfect!

New Product Development Process

will be evaluated annually and adjustments made to ensure continued

product improvement and profitability.

REMITCO REMITCO is the Postal Service’s new remittance processing business.

REMITCO extends the Postal Service’s business of delivering payments,

such as credit card and utility payments, to the actual processing of

checks being mailed from customers to businesses.

At present, the Service has one remittance processing facility, which is

located on Staten Island in New York City. That facility is operated for the

Postal Service by a private company—REMITCO Management Corp.6

 The

Postal Service’s short-term goal is to make the Staten Island remittance

processing facility profitable. The Service’s long-term goal is to protect

First-Class Mail volume by encouraging businesses to allow customers to

pay their bills via mail instead of electronically. Thus far, REMITCO has

generally followed the steps incorporated in the CustomerPerfect! new

product development process.

History of REMITCO According to the Postal Service, REMITCO was conceived as a way to

slow the public’s move toward electronic bill payment by developing a

remittance processing service that would support customers who want to

continue paying their bills with paper checks via mail while, at the same

time, offering the businesses that receive those payments a convenient,

economical, and high-quality alternative to in-house remittance

processing.

According to Postal officials, the concept of processing remittances

became a reality for the Service in December 1996, when it signed a

contract to take over and operate American Express’ remittance

processing facility on Staten Island in New York City. This facility had

been operated in-house by American Express to process incoming

payments from its high-dollar credit card customers in the Northeast. The

Staten Island project is serving as the Service’s first test of its new

REMITCO remittance processing business—a business the Service hopes

to expand nationwide by eventually opening numerous facilities

throughout the nation.

6

The Postal Service’s remittance processing business is named REMITCO. REMITCO Management

Corp. is the name of the private sector business hired by the Postal Service to manage and operate its

Staten Island facility.

Page 30 GAO/GGD-99-15 New Postal Products
Appendix II 

Illustrative Examples of Three Products

Under the Purview of the CustomerPerfect!

New Product Development Process

According to Postal officials, because the Postal Service did not want to

manage the day-to-day operations of a remittance processing facility, it

contracted with REMITCO Management Corp. to run the Staten Island

facility. REMITCO Management Corp. began processing American Express

remittances at the Staten Island facility on May 15, 1997.

The REMITCO Management Corp. consists of approximately 95

employees. Many of REMITCO’s employees are former American Express

remittance processing employees who worked at the Staten Island facility.

There are no Postal Service employees doing remittance processing.

The operation of the Postal Service’s REMITCO business is

straightforward. For example, when consumers in the Northeast mail their

American Express credit card payments to an American Express post

office box in New York City or Newark, NJ, the Postal Service identifies

and separates the mail containing those payments at the originating mail

processing facility. It then transports that mail, along with other mail, to its

postal facility in New York City or Newark, NJ. From there, a private

courier transports the mail containing the payments to the Staten Island

REMITCO facility. At the facility, REMITCO employees utilize automated

equipment to open the mail, record the payments, and prepare bank

deposit statements. The batched checks are then taken by private courier

to American Express’ bank for deposit.

According to Postal officials, REMITCO will help improve and protect its

First-Class Mail-based remittance stream—one of its core businesses. By

protecting the First-Class Mail-based remittance stream, Postal officials

believe REMITCO will also save postal jobs tied to the processing and

delivery of that mail.

In 1997, the Postal Service delivered about 15 billion First-Class Mail-based

remittances from consumers to businesses. Those payments generated

nearly $5 billion in postage revenue for the Service. In recent years,

however, Postal officials have become concerned that new information

technology is fundamentally altering consumers’ choices and expectations

for paying their bills. The former Postmaster General voiced these

concerns in testimony before the House Subcommittee on the Postal

Service on April 24, 1997, when he noted that computers, telephones, and

electronic funds transfers are offering consumers attractive alternatives to

paying bills through the mail. He stated that electronic alternatives take 

“. . . dead aim on (the Service’s) most critical market: First-Class Mail.”

Further, he stated that “one fourth of (the Service’s) business—indeed, the

Page 31 GAO/GGD-99-15 New Postal Products
Appendix II 

Illustrative Examples of Three Products

Under the Purview of the CustomerPerfect!

New Product Development Process

core (of the Service’s) business and the financial bedrock for universal

service—is bills, payments, and statements.” He concluded that the

Service is already seeing substantial diversion of bill payments from the

First-Class Mail stream to other electronic methods of bill paying—even

though that medium is still in its infancy.

Postal officials point to two developments that they believe are signaling

serious trouble for First-Class Mail volume. First, they estimate that

$6 billion of the Service’s $33 billion First-Class Mail revenue is at risk of

being lost to electronic diversion of mail. Second, they note that the

Service’s share of the correspondence and transactions market decreased

from 77 percent to less than 59 percent between 1991 and 1996 as a result

of electronic diversions. Postal officials believe that the Postal Service,

through REMITCO, can slow the diversion of First-Class remittance mail

to electronic diversion.

Postal officials stated that some private sector companies have expressed

concern that the Service is competing with them head-on—but with an

unfair advantage. According to Postal officials, these competitors believe

that the Postal Service provides faster delivery of remittances to

REMITCO than to private sector processors. Postal officials stated,

however, that the same procedure used to identify and separate

REMITCO’s mail containing payments early in the mailstream and

transport that mail to REMITCO is applied to all businesses that have a

minimum number of mailpieces at a processing facility each day. The

number of mailpieces can vary by location and time but is generally

around 250 pieces.

Short- and Long-Term

Goals for REMITCO

The Postal Service’s short-term goal for REMITCO is to increase its

customer base to a level that will produce a net profit from the Staten

Island operation.7

 The long-term goal is for REMITCO to be a national

network of payment processing centers that will help protect First-Class

Mail volume by encouraging businesses to allow customers to continue

paying their bills via mail instead of switching to electronic payments.

At present, the Postal Service’s REMITCO operation on Staten Island is

processing remittances for three businesses—American Express; Public

Service Electric and Gas of Metro Park, NJ; and Mellon Bank Credit Card

7

Total revenue for fiscal year 1997 was $1.4 million, and start-up and operating expenses were

$6.3 million.

Page 32 GAO/GGD-99-15 New Postal Products
Appendix II 

Illustrative Examples of Three Products

Under the Purview of the CustomerPerfect!

New Product Development Process

of Wilmington, DE.8 The Service is targeting, as potential customers,

businesses that receive 10 million remittances or more annually and do

their own remittance processing. Examples include credit card companies,

utilities, communications companies, mortgage companies, insurance

companies, and large retailers.

The Service estimates that for the Staten Island facility to become

profitable, it must process about 60 million remittances annually. As of the

end of fiscal year 1997, the facility was processing at the rate of about

50 million pieces annually. Officials hope that within 5 years, the facility

will be processing approximately 186 million remittances annually for

about 30 customers at a net profit of approximately $6 million per year.

Through fiscal year 1997, however, REMITCO reported a net loss of about

$6.1 million.

The Postal Service has stated that it plans for REMITCO to eventually

become a national remittance processing network. The preliminary

Business Plan projected that within 5 years the Service would be operating

about 20 REMITCO facilities near major remittance processing markets

throughout the country.9

 It also estimated that within 5 years REMITCO

could contribute between $300 million and $350 million in revenue and

$70 million to $80 million in profit to the Postal Service each year.

According to Postal officials, if those aspirations are realized, REMITCO

will have achieved its long-term goal of protecting First-Class Mail as the

preferred method of paying bills.

Postal officials noted that of the 15 billion First-Class

consumer-to-business remittances delivered in 1997, approximately

11 billion—about 73 percent—were processed in-house. This percentage is

declining as the market consolidates and more companies outsource

remittance processing. The Service is targeting 1 billion of the 11 billion

consumer-to-business remittance payments that are currently processed

in-house. The target group is companies with high-volume remittances

because the Service believes it can offer a lower cost alternative. The

Service is not targeting remittances processed by third-party processors

such as banks.

8

REMITCO began processing remittances for Public Service Electric and Gas in April 1998 and Mellon

Bank Credit Card in June 1998.

9

According to Postal officials, the number of anticipated processing facilities has since been revised to

about 10.

Page 33 GAO/GGD-99-15 New Postal Products
Appendix II 

Illustrative Examples of Three Products

Under the Purview of the CustomerPerfect!

New Product Development Process

REMITCO Generally

Followed the

CustomerPerfect! New

Product Development

Process

REMITCO was conceived in June 1995, a year before the inception of the

CustomerPerfect! new product development process. Nonetheless,

REMITCO followed steps later incorporated in the new product

development process and was officially moved under that process in

June 1996.

REMITCO, a Marketing Department product, went through a concept

phase, which began in June 1995, similar to the new product development

process. During the summer and fall of that year, ideas regarding the

feasibility and marketing of the business were formulated and a Business

Proposition Statement was prepared. In December 1995, the Chief

Marketing Officer reviewed and approved the statement, and REMITCO

moved into a preliminary business plan phase. At the outset of that phase,

representatives of the various postal departments involved in bringing a

new product to market—such as marketing, legal, finance, and

information systems—worked together to achieve a consensus on

assumptions for a Business Plan.

In June 1996, REMITCO was officially placed in the business plan stage of

the CustomerPerfect! new product development process. Although the

business plan stage of the new product development process calls for a

proof of concept operations test with a vendor, Postal officials explained

that this step was not undertaken because retail remittance is a

well-established service in the private sector. A preliminary Business Plan

was presented to the Strategic Planning Committee on April 1, 1996, and

the Board of Governors approved proceeding to the test stage on

November 5, 1996.

The test stage of the REMITCO project began in December 1996, when the

Service was awarded a contract by American Express to process

remittances at its Staten Island processing facility. That same month, the

Service contracted with REMITCO Management Corp. to operate the

facility—in effect, a major market test of the REMITCO concept.

Evaluation of the test was scheduled to be completed in October 1998 by a

cross-functional product team. With the Chief Marketing Officer’s approval

of the test results, the Business Plan is to be finalized and REMITCO is to

be presented to top management for approval. The plan is to then be

presented to the Board of Governors.

If the Board approves the Business Plan, the Service could either begin an

expanded major market test at additional sites or move REMITCO to the

implementation stage and begin a national rollout of REMITCO before the

Page 34 GAO/GGD-99-15 New Postal Products
Appendix II 

Illustrative Examples of Three Products

Under the Purview of the CustomerPerfect!

New Product Development Process

end of 1998. According to Postal officials, results of the rollout will be

checked against the Business Plan through an annual review process, and

continuous improvements will be made.

Electronic

PostmarkTM System

An electronic postmark is an unmodifiable time and date stamp attached

to an electronic communication—such as e-mail. In the case of a Postal

Service-applied electronic postmark, the associated communication is

digitally signed. The digital signature enables the Service to determine if

there has been any unauthorized access or modification to the electronic

message after it was postmarked.

The Electronic PostmarkTM System was developed under the Postal

Service’s electronic commerce services research initiative. The electronic

commerce services research initiative was discontinued at the end of fiscal

year 1997 following the development of the Electronic PostmarkTM System

and the Certificate Authority System.10 The Postal Service continues work

on both the Electronic PostmarkTM System and the Certificate Authority

System.

The Service’s short-term goal for its Electronic PostmarkTM System is to

refine the product through operations testing and begin marketing. The

Service’s long-term goal is to elevate the public’s acceptance of the

Electronic PostmarkTM System to the same level as the postmark for

traditional mail.

Prior to June 1996, activities associated with developing the Service’s

Electronic PostmarkTM System were approved under the capital projects

review and approval process. Since June 1996, Electronic PostmarkTM

System activities have been under the Service’s CustomerPerfect! new

product development process.

History of Electronic

PostmarkTM System

The Postal Service’s Electronic PostmarkTM System prototype originated

from a research initiative known as electronic commerce services. That

research effort began in fiscal year 1993 and was discontinued at the end

of fiscal year 1997. According to Postal officials, the electronic commerce

services research initiative was discontinued after it met its objectives, i.e,

the successful development of two new electronic capabilities—the

Electronic PostmarkTM System and the Certificate Authority System. The

10The Certificate Authority System authenticates or certifies the identity of customers sending and

receiving electronic messages.

Page 35 GAO/GGD-99-15 New Postal Products
Appendix II 

Illustrative Examples of Three Products

Under the Purview of the CustomerPerfect!

New Product Development Process

electronic commerce services research initiative was the Service’s first

endeavor in the electronic commerce arena.

The Postal Service views its entry into the electronic commerce market as

an extension of its core business—the delivery of traditional mail.

According to Service officials, electronic mail has the same attributes as

traditional mail, but because of security concerns, electronic mail has not

gained wide acceptance in the legal and business community—especially

for legal and financial transactions.

The Service believes that its Electronic PostmarkTM System will help bring

the level of acceptability of electronic mail up to that of First-Class Mail.

The Service recognizes that some private companies are already marketing

electronic postmarking services. However, the Service believes it is in the

best position to serve the public’s need for an independent, third-party

agent offering secure electronic mail. According to the Postal Service, the

public has trusted the Service with the security of its traditional mail for

over 200 years. Postal officials believe that with Postal-backed electronic

services, the public will have the same high level of trust and confidence in

the security of the Service’s electronic mail that it does with the Service’s

traditional mail.

Short- and Long-Term

Goals for Electronic

PostmarkTM System

The Service’s short-term goal for its Electronic PostmarkTM System is to

complete operational testing, make refinements to the product as called

for by the operations tests, and build a solid case for a substantial

investment to build and deploy an Electronic PostmarkTM production

system. The Service expects to begin wide-scale marketing of its

Electronic PostmarkTM System within the next 2 years. Additionally, the

Service plans to explore the feasibility of licensing private companies to

use its Electronic PostmarkTM System.

The Service’s long-term goal is to elevate the level of acceptance of its

Electronic PostmarkTM System to the same level as its traditional

postmark. No specific time frames have been established for this goal.

According to Postal officials, the speed at which this occurs will be

dictated not only by advancements in electronic technology but also by the

courts, which must decide issues relating to the legal acceptability of

digitally signed electronic documents in lieu of traditional “hard-copy”

documents.

Page 36 GAO/GGD-99-15 New Postal Products
Appendix II 

Illustrative Examples of Three Products

Under the Purview of the CustomerPerfect!

New Product Development Process

Activity on Electronic

PostmarkTM System Has

Been Limited Under the

CustomerPerfect! New

Product Development

Process

As noted above, the Service’s Electronic PostmarkTM System was initiated

under the umbrella of its electronic commerce services research initiative.

The concept of electronic commerce services was conceived in 1993,

about 3 years before the CustomerPerfect! new product development

process was implemented. During that period, the electronic commerce

services research initiative was under the capital projects review and

approval process—a process used to monitor the development of capital

projects, such as the upgrading of postal equipment and the construction

and renovation of postal facilities.

According to Postal officials, there are many similarities between the new

product development process and the capital projects review and approval

process. Consequently, the electronic commerce services research

initiative, between 1993 and 1996, went through stages similar to the

concept stage and business plan stage of the new product development

process. For example, a capital projects decision analysis report was

prepared for the electronic commerce services research initiative, which is

very similar to the preliminary Business Plan required during the business

plan stage of the new product development process. Also, the Board of

Governors approved the electronic commerce services research initiative,

just as the Board must approve new products under the new product

development process. According to Postal officials, when the initiative

was discontinued at the end of fiscal year 1997, the Service had spent

$20.3 million on electronic commerce services. Of that amount,

$3.2 million was spent on the Electronic PostmarkTM System.11

With the implementation of the new product development process in

June 1996, the electronic commerce services research initiative was

moved from the capital projects review and approval process to the

business plan stage of the new product development process. It remained

at that stage until it was discontinued in September 1997.

According to Postal officials, the Electronic PostmarkTM System is to be

moved under the auspices of another Postal Service initiative, PostOffice

Online, after some limited market testing later in 1998 under Postal

Electronic Courier Service (PostECS), a joint project involving the U.S.

Postal Service, Canada Post, and LaPoste (France). PostECS is an electronic

service designed to replace traditional international faxes and overnight

courier services. The U.S. Postal Service joined the PostECS project with

Canada Post and LaPoste in early 1998.

11The remaining $17.1 million was spent developing the Certificate Authority System.

Page 37 GAO/GGD-99-15 New Postal Products
Appendix II 

Illustrative Examples of Three Products

Under the Purview of the CustomerPerfect!

New Product Development Process

After successfully testing its Electronic PostmarkTM System capability

under PostECS, the Service plans additional testing under its PostOffice

Online initiative. PostOffice Online, currently in the test stage of the new

product development process, is a service designed to help small

businesses move money and messages and sell merchandise conveniently

and securely over the Internet. PostOffice Online began market testing in

March 1998. A classification case was filed on July 15, 1998, with PRC for

Mailing Online Services—a component of PostOffice Online. A more

detailed description of PostOffice Online can be found in appendix III.

Page 38 GAO/GGD-99-15 New Postal Products
Page 39 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Name of product Description of product History of product

FIRSTCLASS

PHONECARDTM

(This product is

discussed in more

detail on pages

26-30.)

Prepaid telecommunications card. The FIRSTCLASS

PHONECARDTM is the brand name of a prepaid phone

card available to the public through a strategic

allianceb between the Postal Service and SmarTalk

Teleservices, Inc. The FIRSTCLASS PHONECARDTM

can be purchased at postal retail units and from postal

vending machines throughout the U.S. At the end of

1997, the FIRSTCLASS PHONECARDTM was available

in $10, $20, and $50 denominations, and the

per-minute rate for domestic calls was 39 cents. In

April 1998, the Service lowered its per-minute rate and

added a $100 phone card. The new per-minute rate

ranged from 25 cents for the $100 card to 33 cents for

the $10 and $20 cards. International rates varied by

country.

In July 1995, American Express Telecom, Inc.,

approached the Postal Service about forming a

strategic alliance to market phone cards. In August

1995, the Postal Service and American Express

entered into an agreement to test market phone cards.

Following the market test, the FIRSTCLASS

PHONECARDTM was made available nationwide. At the

end of 1997, the FIRSTCLASS PHONECARDTM was

being sold in about 11,700 postal retail units and in

about 2,000 postal vending machines.

At the end of 1997, SmarTalk Teleservices, Inc.,

acquired American Express Telecom, Inc., including

the FIRSTCLASS PHONECARDTM business, for $34

million and formed a new strategic alliance with the

Postal Service for continuing the business. The $34

million from the sale of the business was split equally

between the Postal Service and American Express.

The FIRSTCLASS PHONECARDTM business is

sponsored by the New Businesses Marketing Group

and has been monitored under the CustomerPerfect!

new product development process since adoption of

that process in June 1996. At the end of 1997, this was

the only product to have achieved national rollout

under the new product development process.

Page 40 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Financial data from inception of product

through FY 1997 FY 1998 financial data through quarter 3

Inception date

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

Revenue goal

for FY 1998a

(millions)

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

FY 1995 $11.1 $14.1 ($3.0) $32.3 $11.9c $8.0 $3.9c

(continued)

Page 41 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Name of product Description of product History of product

REMITCO

(This service is

discussed in more

detail on pages

30-35.)

Remittance processing. REMITCO is a Postal Service

business managed by the REMITCO Management

Corp. REMITCO extends the Service’s role beyond

mail delivery to the processing of remittance

documents. Remittance processing involves opening

return envelopes and extracting bill payments,

processing the checks and depositing them into

business recipients’ bank accounts, and electronically

transmitting remittance records to the business

recipients.

As potential REMITCO customers, the Service is

targeting businesses that receive 10 million

remittances or more annually and do their own

remittance processing. Examples include credit card

companies, utilities, communications companies,

mortgage companies, insurance companies, and large

retailers.

In 1995, American Express decided to outsource its

in-house remittance processing operation located on

Staten Island in New York City. The Postal Service was

the successful bidder on this project and in December

1996 signed a contract with American Express. In turn,

the Postal Service contracted with REMITCO

Management Corp. to manage and operate the Staten

Island facility. 

The Postal Service assumed the lease on the Staten

Island facility from American Express on July 15, 1997,

and has spent approximately $2 million on

improvements. The facility is owned by the New York

Port Authority. 

REMITCO began processing American Express

remittances on May 15, 1997. Since then it has started

processing remittances for Public Service Electric and

Gas of Metro Park, NJ; and Mellon Bank Credit Card of

Wilmington, DE. Ultimately, the Service hopes to have

a nationwide network of about 10 other similar

processing facilities.

REMITCO is sponsored by the Service’s New

Businesses Marketing Group and has been monitored

under the CustomerPerfect! new product development

process since adoption of that process in June 1996.

Page 42 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Financial data from inception of product

through FY 1997 FY 1998 financial data through quarter 3

Inception date

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

Revenue goal

for FY 1998a

(millions)

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

FY 1995 $1.4 $7.5 ($6.1) N/A $2.3 $8.6 ($6.3)

(continued)

Page 43 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Name of product Description of product History of product

Electronic Commerce

Services

(includes Electronic

PostmarkTM System

and Certificate

Authority System) 

(Electronic

Commerce Services

initiative discontinued

9/97)

(Electronic

PostmarkTM System is

discussed in more

detail on pages

35-38.)

Value added services for electronic transmissions. The

electronic commerce services initiative was a research

effort initiated by the Postal Service to develop value

added services for electronic transmissions. Through

this research, electronic commerce services

developed two new electronic commerce

systems—the Electronic PostmarkTM System and a

Certificate Authority System. The Electronic PostmarkTM

System applies an electronic time and date stamp and

the digital signature of the Postal Service to an entire

electronic transaction, and displays notification to the

recipient if the transaction has been tampered with.

The Certificate Authority System authenticates or

certifies the identity of customers sending and

receiving electronic messages.

The initial research under the electronic commerce

services initiative began in FY 1993. With the

development of two new electronic systems—the

Electronic PostmarkTM System and the Certificate

Authority System—this research initiative was

completed. Plans are to integrate these two new

systems into Postal Service products and possibly

commercial vendor products for testing during 1998. 

The Postal Service was to begin testing its Electronic

PostmarkTM System in October 1998. The first tests are

to be done under PostECS (Postal Electronic Courier

Service), a joint project involving the U.S. Postal

Service, Canada Post, and LaPoste (France). PostECS

is an electronic service designed to replace

international faxes and overnight courier services. The

U.S Postal Service joined PostECS in early 1998.

The principal sponsor of the electronic commerce

services initiative was the Service’s Technology

Applications Group. The initiative began about 3 years

before adoption of the CustomerPerfect! new product

development process. Funding for the initiative was

approved under the capital projects review and

approval process. Future activities associated with the

Electronic PostmarkTM System and Certificate Authority

System are to be governed by the new product

development process.

Global Priority Mail Expedited international delivery service for documents,

correspondence, and merchandise. Conceptually,

Global Priority Mail is the Service’s domestic priority

mail service elevated to an international level. Priority

Mail is First-Class Mail that receives special handling

for a premium price. Global Priority Mail is available for

mail sent from the U.S. to any 1 of 33 destinations.e

Global Priority Mail evolved from an earlier pilot

program launched in March 1995 known as WorldPost

Priority Letter Service. WorldPost Priority Letter Service

officially became Global Priority Mail in March 1996.

Global Priority Mail is an expedited international

service for documents, correspondence, and

merchandise being sent to designated countries. The

service features a 4-business-day delivery standard to

designated countries for a premium price.

Global Priority Mail is sponsored by the Service’s

International Business Unit and is not under the

purview of the CustomerPerfect! new product

development process.

Page 44 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Financial data from inception of product

through FY 1997 FY 1998 financial data through quarter 3

Inception date

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

Revenue goal

for FY 1998a

(millions)

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

FY 1993 0.0 $20.3 ($20.3) N/A N/A N/Ad N/A

FY 1995 $23.6 $29.0 ($5.4) $27.5 $18.9 $19.5 ($0.6)

(continued)

Page 45 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Name of product Description of product History of product

Global Package Linkf Expedited international package delivery service for

high-volume U.S. mailers. Global Package Link is an

expedited international parcel delivery service offered

by the Postal Service to U.S. mailers who send at least

10,000 parcels per year to 1 or more destinations

covered by the program. To participate in the

program, U.S. mailers must agree to link their

information systems with those of the Postal Service so

the customer and the Service can generate reciprocal

data concerning the parcels, meet certain shipping

preparation requirements, and designate the Postal

Service as the carrier of choiceg for each country to

which the Global Package Link parcels are being sent.

Global Package Link evolved from an earlier pilot

program launched in November 1994 known as

International Package Consignment Service.

International Package Consignment Service officially

became Global Package Link in November 1995. The

initial work on the program began in FY 1995.

According to Service officials, Global Package Link

was designed as a parcel delivery service that would

make it easier and more economical for direct

marketers to export bulk shipments of merchandise

internationally. In 1998, Global Package Link service

was available to 11 destinations.h Global Package Link

parcels are generally scheduled for delivery in 3 to 10

business days, depending on the destination.

Global Package Link is sponsored by the Service’s

International Business Unit and is not under the

purview of the CustomerPerfect! new product

development process.

Retail Merchandisei Marketing merchandise displaying stamp images or

Postal Service symbols. Retail merchandise marketed

by the Service contains either a stamp image, heritage

logo, or the logo of a core service—e.g., Priority Mail.

Examples of retail merchandise marketed by the

Service include T-shirts, beverage mugs, neckties,

greeting cards, and stationery. As of July 1998, such

merchandise was being sold in all 500 postal storesj

and in about 25,000 of the Service’s 33,000 traditional

retail units. Merchandise may also be ordered from a

Postal Service catalog or through the Service’s Web

site. However, in June 1998, the Service announced

plans to curtail its retail merchandising activity. The

Service will no longer sell apparel merchandise in post

offices, although such merchandise will still be

available at the Postmark America Store in the Mall of

America and through catalog and web site programs

and special events. Stationery, greeting cards,

packaging products, and a limited line of collectables

will continue to be sold at retail units.

The Service’s centralized retail merchandise program

started in early FY 1997 with the emphasis primarily on

postal stores. According to Postal officials, the

program quickly expanded to the traditional postal

retail units because of the positive feedback from

customers. Prior to FY 1997, merchandise was

marketed on a decentralized basis. According to

Postal officials, merchandise marketed in this manner

was generally associated with a special event, such as

the unveiling of a new stamp. Under the decentralized

program, each postmaster could decide what

merchandise, if any, to market. 

Retail merchandising is sponsored by the Service’s

Retail Group and is not under the purview of the

CustomerPerfect! new product development process.

However, retail merchandise does follow a modified

retail product development process.

Page 46 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Financial data from inception of product

through FY 1997 FY 1998 financial data through quarter 3

Inception date

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

Revenue goal

for FY 1998a

(millions)

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

FY 1995 $77.5 $78.6 ($1.1) $47.5 $20.3 $20.5 ($0.2)

FY 1997 $25.9 $22.6k $3.3 $79.3 $31.5 $26.5k $5.0

(continued)

Page 47 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Name of product Description of product History of product

PostOffice Online

(formerly known as

DeskTop Post Office)

Internet-based postal services. PostOffice Online is a

service designed to help small businesses move

money, messages, and merchandise conveniently and

securely over the Internet. Conceptually, PostOffice

Online customers will be able to (1) pay for their

mailings and print postage using their personal

computers; (2) buy mailing products and supplies

on-line; and (3) contact the Postal Service and request

parcel pickup service, or check to see if a particular

package has been delivered. Customers will also be

able to design their own newsletters or advertisements

and send them to the Postal Service electronically. At

that point, the Service will assume responsibility for

printing the documents and delivering them to the

addresses the customer chooses. Also, as part of

PostOffice Online, the Service will test its Electronic

PostmarkTM System. However, the Service does not

plan to conduct these tests until after the Electronic

PostmarkTM System has been successfully tested

under PostECS—Postal Electronic Courier Service.

PostECS is a joint project involving the U.S. Postal

Service, Canada Post, and LaPoste (France). PostECS

is designed to replace international faxes and

overnight courier services. (The Electronic PostmarkTM

System is discussed in detail on pages 35-38 and in

summary form in this appendix under “Electronic

Commerce Services.”)

The PostOffice Online project began in July 1997. It is

an umbrella electronic initiative that combines some of

the Service’s new ideas with some of its prior research

work in the electronic arena. For example, the ability to

send newsletters and advertisements electronically to

the Service for preparation and delivery began as a

research and development project known as NetPost,

and the Electronic PostmarkTM System began as part

of a research initiative known as electronic commerce

services. (See discussion on pages 35-38.)

Market testing of PostOffice Online began in March

1998 with 50 customers in Tampa, FL. In May 1998,

the test was expanded to include about 50 customers

in Hartford, CT. An updated version of PostOffice

Online has been developed based on experience from

these tests. The Electronic PostmarkTM System portion

of the test is not scheduled to begin until later in

1998—following its initial test under PostECS. On July

15, 1998 the Service filed a classification case with

PRC for a component of PostOffice Online—Mailing

Online Services. 

PostOffice Online is sponsored by the New Businesses

Marketing Group and has always been monitored

under the CustomerPerfect! new product development

process.

WEB Interactive

Network of

Government Services

(WINGS)

(Project discontinued

2/98)

Internet-based information on government services

and products. WINGS was designed to provide

one-stop shopping for federal, state, and local

government information and services. Conceptually,

using a portable computer connected to the Internet or

a public kiosk located in high-traffic areas, such as

post office lobbies, libraries, shopping malls, and

grocery stores, the public could (1) locate needed

government information and services, and (2) transact

government business. Examples of the types of

information and services that were to be available

under WINGS included (1) motor vehicle registration,

(2) tax forms and answers, and (3) change of address

notices. Anticipated revenues were to come from fees

paid by the agencies participating in WINGS.

The Postal Service began a 6 month operations test of

WINGS in May 1996 in North Carolina. No fees were

charged participating agencies during the operations

test. WINGS was discontinued at the end of its

operations test because of (1) lower-than-anticipated

public demand for the service, (2) agencies’

reluctance to participate in a consolidated interagency

information program, and (3) a new direction for

electronic commerce services.

WINGS was sponsored by the New Businesses

Marketing Group and was monitored under the

CustomerPerfect! new product development process

following adoption of that process in June 1996.

Page 48 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Financial data from inception of product

through FY 1997 FY 1998 financial data through quarter 3

Inception date

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

Revenue goal

for FY 1998a

(millions)

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

FY 1997 $0.0 $0.8 ($0.8) N/A $0.0 $4.5 ($4.5)

FY 1996 $0.0 $4.0 ($4.0) N/A $0.0 $1.1 ($1.1)

(continued)

Page 49 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Name of product Description of product History of product

Deliver America 

(Project discontinued

6/97)

Interactive catalog shopping through kiosks.

Conceptually, through kiosks connected to the

Internet, customers could have electronically ordered

stamps, postal-related retail merchandise, and U.S.

Mint collectible coins and have the merchandise

delivered by the Postal Service to the address(es) of

their choice. Plans were to expand available

merchandise, after an initial test period, to include

sportswear, business supplies, and housewares. The

project, however, was discontinued before any tests

were conducted.

The idea for the Deliver America kiosks originated in

FY 1995. The project was put “on-hold” for several

months due to the reassignment of resources. No

market tests were conducted. The Deliver America

initiative was subsequently discontinued in June 1997.

Deliver America was sponsored by the New

Businesses Marketing Group and was monitored

under the CustomerPerfect! new product development

process following adoption of that process in June

1996.

Information Based

Indicia Program (IBIP)

Electronic Postage Using Personal Computers. To print

electronic postage using a personal computer, a

customer purchases postage on-line through an

established account with the Postal Service. The value

of the postage is then downloaded and secured in an

electronic vault that is connected to the personal

computer. With the required software, indicias can

then be printed directly on a mailstrip or the mailpiece,

and the amount of the postage is automatically

deducted from the electronic vault. Each indicia

produced in this manner contains a digital signature

that makes counterfeiting, without detection, difficult.

On August 25, 1998, the Service announced that it had

approved, for market testing, a system for printing

electronic postage that would not require a vault

attached to the customer’s computer. 

In April 1998, this service was available, only on a test

basis, in the Washington, D.C., metropolitan area. The

Postal Service expects to expand this service to other

geographic locations during the latter part of 1998.

The initial research for the project began in FY 1996,

following our reportl

 on weaknesses in the Service’s

postage meter program. In May 1994, we reported that

the Service incurred revenue losses stemming from

criminal tampering with postage meters, counterfeiting

of indicia, and criminal use of lost and stolen meters to

produce meter indicia for which postage was not paid.

In response to that report and its own investigation, the

Service initiated the Information Based Indicia Program

to enhance its postage metering revenue security.

After successfully meeting laboratory conditions for

secure postage, the Postal Service began market

testing products to print Information Based Indicia in

March 1998. On March 31, 1998, at the National Postal

Museum in Washington, D.C., the first letter bearing

approved personal computer-generated postage was

produced.

The Information Based Indicia Program is sponsored

by the Service’s Retail Group, which manages all

postage metering. Although this product is not

sponsored by the New Businesses Marketing Group, it

has followed the CustomerPerfect! new product

development process since adoption of that process in

June 1996.

Customer-Initiated

Payment System

(CIPS)

Payment alternative for recurring bills. CIPS is another

way for consumers to pay recurring bills. Conceptually,

under CIPS, consumers who choose to participate in

the program will receive a prebarcoded post card with

a unique identification number—instead of a courtesy

reply envelope—along with their monthly statements

from participating companies. Consumers drop their

prebarcoded cards in the mail, and the Postal Service

initiates the payment. Financial institutions are then

electronically instructed via the automated

clearinghouse network to debit the customer’s account

and credit the invoicer’s account—thus paying the bill.

The research work on CIPS began in FY 1996. At the

end of 1997, no customer tests had been conducted

on CIPS. The Postal Service had been unsuccessful in

its efforts to convince large private sector companies

to participate in the program. The Postal Service is

considering terminating this program because of

difficulty in getting a major company to participate in

the program. 

CIPS is sponsored by the New Businesses Marketing

Group and has been monitored under the

CustomerPerfect! new product development process

since adoption of that process in June 1996.

Page 50 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Financial data from inception of product

through FY 1997 FY 1998 financial data through quarter 3

Inception date

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

Revenue goal

for FY 1998a

(millions)

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

FY 1995 $0.0 $3.2 ($3.2) N/A N/A N/A N/A

FY 1996 $0.0 $3.1 ($3.1) N/A $0.0 $1.8 ($1.8)

FY 1996 $0.0 $1.3 ($1.3) N/A $0.0 $0.0 $0.0

(continued)

Page 51 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Name of product Description of product History of product

Unisite Antenna

Programm

Wireless communication towers on postal property.

Through a strategic alliance between the Postal

Service and Unisite Incorporated, 150 communication

towers are to be built on postal property and then

leased to wireless carriers. Under the strategic alliance

agreement, the Postal Service contributes the land and

Unisite Incorporated contributes its construction and

marketing services. Revenues and expenses are to be

essentially shared equally between the two parties.

The first antenna constructed under the Unisite

Antenna Program became operational in June 1996.

Constructing antennas on postal sites led to

unexpected public criticism of the program. Because

of this, the Postal Service put its plans on hold to

expand the program beyond the original 150 sites. At

the end of 1997, 15 antenna sites were operational. 

The Unisite Antenna Program is sponsored by the

Service’s Facilities Group and is not under the purview

of the CustomerPerfect! new product development

process. The approval for the program was granted

under the rules governing the Service’s contracting

authority.

LibertyCash (formerly

known as LibertyCard)

Stored-value card. LibertyCash is a Postal Service

stored-value card that can be used to pay for all postal

products and services. The card can be filled in

amounts of $5 to $300 at the retail unit or over the

telephone. The card is replaceable if lost or damaged.

The customer selects his/her own personal

identification number. Market test locations include

about 2,800 post offices in Indiana, Colorado,

Wyoming, Florida, Nevada, Northern California, and

Minneapolis/St. Paul, MN.

Exploratory work on the LibertyCash card began in FY

1995. Following an operations test in late 1996, the

Service began market testing the card in 1,222 postal

retail units in May 1997. In August 1998, the Service

expanded its market test to include an additional 1,600

retail units, bringing the total to about 2,800 post

offices.

LibertyCash is sponsored by the New Businesses

Marketing Group and has been monitored under the

CustomerPerfect! new product development process

since adoption of that process in June 1996.

Page 52 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Financial data from inception of product

through FY 1997 FY 1998 financial data through quarter 3

Inception date

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

Revenue goal

for FY 1998a

(millions)

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

FY 1996 <$0.05n $1.6 ($1.6) N/A $0.1 $0.0 $0.1

FY 1995 $0.1 $6.5 ($6.4) N/A <$0.05n $1.9 ($1.9)

(continued)

Page 53 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Name of product Description of product History of product

Dinero Seguro Electronic money transfers from the U.S. to Mexico.

Dinero Seguro, which means “safe money,” is an

electronic version of a Money Order that can be used

to transfer money from designated U.S. locations to

Mexico. At the end of 1997, Dinero Seguro was

available at about 870 postal retail units in California,

Texas, and Illinois. As part of a Dinero Seguro

transaction, the customer is given a confirmation

number and a prepaid phone card good for one

3-minute call to Mexico. The customer can then use

the phone card to inform the person in Mexico that the

money has been sent and pass along the confirmation

number. The transferred funds can then be picked up

from any one of the more than 1,300 Bancomer Bank

branches in Mexico. This service is provided through a

strategic allianceb between the U.S. Postal Service and

Bancomer Bank.

The idea for Dinero Seguro originated in 1989.

However, it was not until FY 1996 that the Service

began an earnest effort to market Dinero Seguro.

According to Postal officials, the Service thought it was

inappropriate to enter this market before 1996

because of the ailing financial condition of the market

leader. According to Postal officials, the Service did

not want to be perceived as contributing to the market

leader’s financial woes. 

The Service decided to move forward with Dinero

Seguro in 1996 following the market leader’s financial

recovery. In May 1996, the Service began an

operations test and shortly thereafter began test

marketing Dinero Seguro in three states with significant

Mexican-origin populations. Plans to further expand

Dinero Seguro have been put on hold pending further

review by the Service. 

Dinero Seguro is part of an umbrella initiative known as

Money Mover. Money Mover covers the Service’s

international and domestic money order business and

its new electronic money-by-wire service—Sure Money.

Dinero Seguro is sponsored by the New Businesses

Marketing Group and has been monitored under the

CustomerPerfect! new product development process

since adoption of that process in June 1996.

Sure Money Electronic money transfers from the U.S to El Salvador,

the Philippines, and the Dominican Republic. This

service was not available at the end of 1997. Rather, it

was awaiting the results of the Dinero Seguro tests.

Sure Money provides the same service as Dinero

Seguro, except in this case, the money is transferred

to El Salvador, the Dominican Republic, or the

Philippines. 

A domestic version of this money-by-wire service is

also planned. The domestic version will allow

immediate money transfers between post offices,

stations, and branches within the United States. Plans

call for testing to begin in 1999.

Sure Money was designated a potential Postal Service

product in FY 1997. Assuming favorable outcome of

the Dinero Seguro tests, Postal officials expect to test

market Sure Money in early FY 1999. This schedule

may be affected, however, by the outcome of the

Postal Service’s review of its Dinero Seguro program. 

Sure Money is part of an umbrella initiative known as

Money Mover. Money Mover covers the Service’s

international and domestic money order business and

its planned domestic electronic money-by-wire service.

Sure Money is sponsored by the New Businesses

Marketing Group and has been monitored under the

CustomerPerfect! new product development process

since adoption of that process in June 1996.

Page 54 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Financial data from inception of product

through FY 1997 FY 1998 financial data through quarter 3

Inception date

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

Revenue goal

for FY 1998a

(millions)

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

.

FY 1996 $1.5 $12.0 ($10.5) N/A $4.6 $10.0 ($5.4)

FY 1997 $0.0 $0.5 ($0.5) N/A $0.0 $0.5 ($0.5)

(continued)

Page 55 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Name of product Description of product History of product

Delivery Confirmation

(formerly known as

Track-and-Trace)

Tracking mail as it moves through the mailstream and

notifying shippers upon delivery. This service is

designed to provide the date of delivery or attempted

delivery for Express Mail, Priority Mail, and Standard

Mail (B)—parcels, bound printed matter, and library

mail. This service was included in the rate filing

approved by the Board of Governors in July 1998. It is

designed to meet expedited and package shippers’

need for delivery status information. To support this

service, a new data acquisition and communications

infrastructure is being implemented. A major

component of this implementation is the deployment of

hand-held scanners to all delivery employees. This

deployment is expected to be completed by February

1999. To help ensure that a high level of service is

provided to customers who purchase the service when

it becomes available, a national delivery confirmation

operations test was started in late 1997. The revenues

to date are associated with the test customers.

The Postal Service began offering a limited delivery

confirmation service for Express Mail in 1991. In

February 1996, the Board of Governors approved

$60.5 million for track-and-trace research and

development testing, and in May 1997, it approved

$704.3 million to implement the delivery confirmation

system infrastructure.

Delivery Confirmation was initially sponsored by the

Postal Service’s Comprehensive Interactive Information

System Management Group, which is now the

Information Systems Group in Expedited/Package

Services. Delivery Confirmation is not subject to the

CustomerPerfect! new product development process.

Project funding, however, was approved under the

Service’s capital projects approval process—a

process similar to the new product development

process.

Provisional Packaging

Service (formerly

known as

Pack-and-Send)

Packaging service. Under this proposed service, the

Postal Service will, for a fee, prepare customers’

packages for shipment and enter them directly into the

mailstream.

In April 1998, PRC approved a 2-year test of this

service; and as of July 1998, the Service was awaiting

a decision from its Board of Governors on whether or

not to proceed with its packaging service. 

Following an initial test in 1993, the Postal Service

expanded testing in 1996 to about 20 Post Office

Express units located in supermarkets and other high

customer traffic locations. The packaging service was

suspended following a PRC decision in February 1997

that the service was subject to PRC classification and

rate-setting procedures. 

On July 30, 1997, the Postal Service filed a request

with PRC to offer a provisional packaging service. PRC

approved a 2-year test, but it encouraged the Board of

Governors to reconsider the public interest before

marketing this service. In particular, it asked the

Governors to consider “the financial consequences of

entering into competition with the thousands of existing

owner-operated small businesses that currently

provide packaging services, and to consider what

measures the Postal Service might implement to

mitigate the potential harm to individual private

businesses.” As of October 1998, Provisional

Packaging Service was on hold pending further

evaluation. 

Provisional Packaging Service is sponsored by the

Service’s Marketing Systems Group and is not under

the purview of the CustomerPerfect! new product

development process.

Page 56 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Financial data from inception of product

through FY 1997 FY 1998 financial data through quarter 3

Inception date

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

Revenue goal

for FY 1998a

(millions)

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

FY 1991 $0.1 $3.0 ($2.9) N/A $28.2 $18.6 $9.6

FY 1993 $0.8o $3.4 ($2.6) N/A N/A N/A N/A

(continued)

Page 57 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Name of product Description of product History of product

Fastnet

(Project discontinued

in early 1996)

Overnight package delivery service in selected

metropolitan areas. Fastnet was an overnight delivery

service available in selected geographic locations for

parcels originating and destinating within the same

area. Fastnet service was available in Austin, TX;

Baltimore, MD; Buffalo, NY; Columbus, OH;

Hackensack, NJ; Indianapolis, IN; Jacksonville, FL;

Las Vegas, NV; Miami, FL; Minneapolis/St. Paul, MN;

Orlando, FL; San Diego, CA; and Tampa, FL.

Beginning in 1995, the Service test marketed Fastnet

in 13 selected geographic locations. At the conclusion

of the test in early 1996, the Service discontinued

Fastnet because the results fell short of expectations.

Fastnet was sponsored by the Service’s New

Businesses Marketing Group and was discontinued

before the Group adopted the CustomerPerfect! new

product development process.

Global e-Postp

(Project discontinued

in late 1996)

International E-mail to hard copy delivery system.

Under the Global e-Post concept, a mailer would

prepare data and transmit it to the Postal Service,

which would then route the electronic transmission to a

partner postal administration in the destination country.

At the destination foreign postal facility, the

transmission would be matched with stored templates,

printed, placed in envelopes, and delivered through

the foreign postal system.

In April 1996, the Postal Service conducted an

operations test of Global e-Post in Anaheim, CA. In that

test, Xerox Corporation electronically sent, through the

U.S. Postal Service, a letter to the German Postal

Administration that was downloaded, printed, and

delivered to more than 10,000 business addresses in

Germany. The project was discontinued later in 1996

so available staff could be devoted to higher priority

projects. 

Global e-Post was sponsored by the Service’s New

Businesses Marketing Group. Global e-Post began

before adoption of the CustomerPerfect! new product

development process. However, the project was

discontinued under the CustomerPerfect! new product

development process.

Page 58 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

Financial data from inception of product

through FY 1997 FY 1998 financial data through quarter 3

Inception date

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

Revenue goal

for FY 1998a

(millions)

Revenue

(millions)

Expenses

(millions)

Profit (loss)

(millions)

FY 1995 $6.8 $18.5 ($11.7) N/A N/A N/A N/A

FY 1996 $0.0 $3.5 ($3.5) N/A N/A N/A N/A

N/A means not applicable.

Note: The financial data displayed in this matrix were provided by the U.S. Postal Service.

According to Postal officials, expenses reported include one-time nonrecurring start-up costs.

Other information is based on interviews with Postal officials and documentation provided by the

Service, e.g., Business Proposition Statements, Business Plans, and documents provided to top

management and the Board of Governors. We did not independently verify the accuracy of the

financial data.

aAnnual revenue goals are established only for products and services that have moved past their

initial pilot project status.

bA strategic alliance is an agreement between two or more parties for sharing the risks of a

project, including revenues and expenses.

cThe Postal Service is amortizing its $17 million share of the sales proceeds over the 4-year life of

the strategic alliance with SmarTalk. No proceeds from this sale are included in the amounts

shown.

dAbout $300,000 was spent on Electronic PostmarkTM System during the first 3 quarters of fiscal

year 1998.

eGlobal Priority Mail service is available to Austria, Belgium, Denmark, Finland, France, Germany,

Great Britain, Iceland, Ireland, Luxembourg, The Netherlands, Norway, Portugal, Spain, Sweden,

Switzerland, Australia, China, Hong Kong, Japan, New Zealand, The Philippines, Singapore,

South Korea, Taiwan, Thailand, Vietnam, Canada, Brazil, Chile, Israel, Mexico, and Saudi Arabia.

Page 59 GAO/GGD-99-15 New Postal Products
Appendix III 

Inventory of New Products Marketed and/or

Under Development During Fiscal Years

1995, 1996, and 1997 (Exclusive of Capital

and Philatelic Products)

f

Global Package Link was the subject of another GAO report. See U.S. Postal Service:

Competitive Concerns About Global Package Link Service (GAO/GGD-98-104, June 5, 1998).

g“Carrier of choice” means that Global Package Link customers agree to use the Postal Service as

their carrier unless the parcel recipient specifically chooses another carrier.

hIn 1998, 11 destinations were covered by the program—Canada, China, Japan, Mexico, Brazil,

Chile, Hong Kong, France, Germany, Singapore, and the United Kingdom.

i

Retail merchandising was the subject of a Postal Service report prepared in response to a House

Appropriations Committee request on this activity. The report, dated February 27, 1998, was

addressed to the Chairman of the House Committee on Appropriations.

j

A postal store is a retail unit, with extended hours, designed to make postal services and

products more readily accessible to the customer.

k

Expenses for retail merchandise reflect inventory in retail units awaiting sale.

l

See GAO report, Postage Meters: Risk of Significant Financial Loss But Controls Are Being

Strengthened (GAO/GGD-94-148, May 26, 1994), for additional details.

mAdditional information concerning the Postal Service’s Unisite Antenna Program can be found in

a report prepared by the Postal Service’s Office of Inspector General—(CAG-AR-98-001,

Apr. 1998).

nBecause this figure is less than $50,000, it is not included in the financial data discussed

elsewhere in this report.

oRevenues from market tests conducted prior to 1997 could not be collected because there was

no dedicated account identifier code in place.

pClosely associated with Global e-Post was International Data Post, which was a consortium of

several European countries and the U.S. Postal Service to establish a network among various

postal administrations to make it possible to e-mail personal correspondence to foreign postal

administrations that, in turn, would deliver hard copies of the correspondence to the intended

recipient. That concept has not yet materialized.

Page 60 GAO/GGD-99-15 New Postal Products
Appendix IV 

Major Contributors to This Report

General Government

Division, Washington,

D.C.

Gerald P. Barnes, Assistant Director

William R. Chatlos, Senior Social Science Analyst

Roger L. Lively, Senior Evaluator

Charles F. Wicker, Senior Evaluator

Office of General

Counsel, Washington,

D.C.

Jill P. Sayre, Senior Attorney

(240272) Page 61 GAO/GGD-99-15 New Postal Products
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