`[Federal Register Volume 73, Number 152 (Wednesday, August 6, 2008)]
[Rules and Regulations]
[Pages 45848-45851]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-17984]



[[Page 45847]]

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Part III





Postal Regulatory Commission





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39 CFR Part 3020



Administrative Practice and Procedure; Postal Service; Final Rule

  Federal Register / Vol. 73, No. 152 / Wednesday, August 6, 2008 / 
Rules and Regulations  

[[Page 45848]]


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POSTAL REGULATORY COMMISSION

39 CFR Part 3020

[Docket No. MC2008-4; Order No. 88]


Administrative Practice and Procedure; Postal Service

AGENCY: Postal Regulatory Commission.

ACTION: Final Rule.

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SUMMARY: The Commission is transferring Premium Forwarding Service from 
the market dominant list to the competitive product list. It is 
updating the market dominant product list to reflect the status of 
several agreements. It is also republishing the product lists. These 
actions are consistent with changes in a recent law.

DATES: Effective August 6, 2008.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
202-789-6820 or [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    On May 30, 2008, the Postal Service filed a request to modify the 
Mail Classification Schedule transferring Premium Forwarding Service 
(PFS), which is currently classified as a market dominant product 
within the Special Services class, to the competitive product list.\1\ 
The Request was made pursuant to 39 U.S.C. 3642 and 39 CFR 3020.30 et 
seq. and included two attachments.\2\
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    \1\ Request of the United States Postal Service, May 30, 2008 
(Request).
    \2\ Attachment A illustrates the proposed changes to the Mail 
Classification Schedule. Attachment B is a Statement of Supporting 
Justification by Maura Robinson, Manager, Pricing Systems and 
Analysis for the Postal Service.
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    Rule 3020.30 allows the Postal Service to request the transfer of a 
product from the market dominant product list to the competitive 
product list. The Postal Service must provide detailed support and 
justification for such a request. 39 CFR 3020.31 and 3020.32. The 
Commission reviews the Request and the comments of interested parties 
under 3020.34.
    PFS provides residential postal customers with a forwarding service 
for their mail when they are away from their primary residences. Most 
mail from a customer's permanent address is forwarded once a week via 
Priority Mail to the customer's temporary address.\3\ The customer is 
charged a $10 enrollment fee and a weekly fee of $11.95.\4\ PFS is used 
by postal customers with multiple residences, or those on extended 
travel for business, or personal reasons, and recreational vehicle 
owners.
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    \3\ Mail that will be rerouted separately includes mail 
requiring a scan, signature, or additional postage at delivery. 
Express Mail articles are rerouted immediately. Priority Mail 
articles are rerouted separately unless shipping them in the PFS 
package would not delay their delivery. First-Class Mail packages 
that do not fit in the weekly PFS shipment will be rerouted 
separately. Standard Mail pieces will only be included in the PFS 
package if they can be accommodated in the PFS package after 
letters, flats or large envelopes, and magazines have been included. 
Otherwise, Standard Mail pieces will be shipped postage due. Parcel 
Post, Bound Printed Matter, Media Mail, and Library Mail pieces will 
not be included in the PFS package, but will be shipped postage due.
    \4\ PFS is available for a minimum of two weeks and maximum of 
52 weeks. Payment for the entire period of service is due with the 
application.
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    The Postal Service supports its Request with a Statement of 
Supporting Justification from Maura Robinson, Pricing Systems and 
Analysis Manager, at the Postal Service. The Postal Service explains 
that no Governors' Decision is required in this case since no change in 
classification or price is proposed, but merely a transfer of a product 
from one product list to another. Request at 1. The Postal Service also 
asserts that PFS will ``meet the statutory cost coverage requirements'' 
applicable to competitive products under 39 U.S.C. 3633. Request, 
Attachment B at 1-2. The Postal Service further asserts that because 
private alternative options to PFS are available in the form of 
commercial mail forwarding services or informal agreements with friends 
that PFS properly belongs in the competitive product category. Id. at 
3-4. The Postal Service contends with regard to PFS that it does not 
have the ``ability to set prices substantially above costs, raise 
prices significantly, decrease quality, or decrease output, without 
losing a significant level of business.'' Id. at 3. The Postal Service 
position is that the ``[t]ransfer of PFS to the competitive product 
list will ensure that its revenues are appropriately classified, since 
* * * PFS is provided within a competitive market.'' Id. at 5.
    The Commission issued its Notice and Order Concerning Postal 
Service's Request to Transfer Premium Forwarding Service to the 
Competitive Products Category and established Docket No. MC2008-4 on 
June 3, 2008.

II. Comments

    The Commission in Order No. 80 provided interested persons an 
opportunity to offer comments on whether the proposed transfer of PFS 
from the market dominant to competitive product list is consistent with 
the policies of 39 U.S.C. 3633 and 3642. Comments were received from 
United Parcel Service (UPS), the National Association of Retail 
Shipping Centers, Inc. (NARSC), the Public Representative, and David B. 
Popkin (Popkin).\5\ The Postal Service and Popkin also filed reply 
comments.\6\
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    \5\ Comments of United Parcel Service in Response to Order 
Concerning Postal Service's Request to Transfer Premium Forwarding 
Service to the Competitive Products Category (UPS Comments); 
Comments of National Association of Retail Shipping Centers, Inc. 
(Order No. 80) (NARSC Comments); Public Representative Comments on 
Postal Service Request to Transfer Premium Forwarding Service to the 
Competitive Products Category (Public Representative Comments); and 
Initial Comments of David B. Popkin (Popkin Comments); all filed 
June 16, 2008.
    \6\ Reply Comments of the United States Postal Service, June 20, 
2008 (Postal Service Reply Comments); Reply Comments of David B. 
Popkin, June 23, 2008 (Popkin Reply Comments).
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    In its comments, UPS asks that the Commission evaluate the impact 
the proposed transfer of PFS from the market dominant to the 
competitive product list would have on competitive products' required 
contribution to institutional costs. UPS Comments at 2. However, it 
also states that ``[i]t does not appear that PFS will substantially 
change the contribution of competitive products collectively to 
institutional costs.'' UPS does not oppose the proposed transfer of PFS 
to the competitive product list. Id.
    NARSC also does not oppose the proposed transfer, but states 
emphatically that the weekly fee for PFS should not be reduced from the 
current price of $11.95. NARSC contends that ``[p]ricing below that 
level [would] substantially [affect] the PMB [Private Mail Box] 
industry as a predatory business practice.'' NARSC Comments at 1.
    Popkin comments that there are no true alternatives to PFS. Popkin 
Comments at 2-3. He states that commercial alternatives to PFS are not 
substantially the same because they must be used on a permanent basis 
and are not available in all locations. Id. He also contends that 
informal arrangements with friends and family are not a realistic 
alternative to PFS. Id. at 3. Mr. Popkin also expresses his concern 
that the present PFS rules require ``that all interaction to establish, 
modify, or terminate the service be done in person at the post office 
servicing the customer's permanent mailing address'' and that no 
alternatives are available to the in-person option. Id. at 1.
    The Public Representative recommends that the Commission should 
either reject the proposed transfer of PFS from the market dominant to 
the competitive product list or institute proceedings under rule 
3020.34(b) to further scrutinize the

[[Page 45849]]

proposed transfer. Public Representative Comments at 2. He asserts that 
the Postal Service has failed to demonstrate that it does not have 
sufficient market power over prices, quality of service and output with 
regard to PFS. Id. The Public Representative cautions that the Postal 
Service will exercise virtually unlimited market power with PFS in a 
significantly large segment of the market if PFS is moved to the 
competitive products list. Id. at 1-2. He also states that PFS should 
not be classified as a competitive product because there are no real 
alternatives for residential mailers. Id. at 4-6.
    The Postal Service filed a motion to be allowed to offer a reply 
and offered reply comments to the Public Representative's comments.\7\ 
The Commission grants the Postal Service's motion. The Postal Service 
argues in its reply that although the available commercial alternatives 
to PFS may not be exactly the same as PFS, for example, they may have 
some differing features; they are substantially similar enough to 
classify PFS appropriately as a competitive, and not a market dominant, 
product. Postal Service Reply Comments at 2-3. The Postal Service 
states that NARSC's comments make it clear that NARSC sees PFS as a 
competitor to its members' mail forwarding services offerings. Id. at 
3. The Postal Service also references a recent Commission field hearing 
in Flagstaff, Arizona where Cameron Powell, Vice President of Earth 
Class Mail in Seattle, Washington, testified that Earth Class Mail 
provides a reasonable alternative to PFS for mailers that are within 
the target market. Id.
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    \7\ Motion of the United States Postal Service for Acceptance of 
Reply Comments, June 20, 2008 (Postal Service Reply Comments).
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    Popkin also filed a motion to be allowed to offer a reply and 
offered reply comments.\8\ The Commission grants Popkin's motion. In 
his reply comments Popkin contends that services provided by NARSC 
members and Earth Class Mail are not substantially similar enough to 
truly be competitive with PFS services. Popkin Reply Comments at 2-3. 
He states that a search of NARSC's website reveals that in the 
Northeast region of the United States no NARSC member stores exist in 
Maine, Vermont, Rhode Island, New Jersey, Delaware, and the District of 
Columbia, and that only limited locations are available in New 
Hampshire, Massachusetts, Connecticut, New York, Pennsylvania, and 
Maryland. Id. at 2. Popkin also lists prices for various Earth Class 
Mail services related to mail forwarding apparently implying that Earth 
Class Mail services are more expensive than PFS. Id. at 3. He again 
concludes that PFS has no truly comparable competition.
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    \8\ Motion of David B. Popkin for Acceptance of Reply Comments, 
June 23, 2008; David B. Popkin Reply Comments, June 23, 2008 (Popkin 
Reply Comments).
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III. Commission Analysis

    39 U.S.C. 3642 addresses adding or removing products from the 
competitive and market dominant product lists and ``transferring 
products between the lists.'' The Postal Service, the Commission, and 
users of the mail can request such an addition, removal or transfer.
    The statute lays out several criteria that must be considered by 
the Commission when deciding whether an addition, removal, or transfer 
of a product is appropriate. The threshold question the Commission must 
ask is whether:

    * * * the Postal Service exercises sufficient market power that 
it can effectively set the price of such product substantially above 
costs, raise prices significantly, decrease quality, or decrease 
output, without risk of losing a significant level of business to 
other firms offering similar products.

39 U.S.C. 3642(b)(1). If this is the case, the product will be 
categorized as market dominant. The competitive category of products 
shall consist of all other products.
    The Commission is further required to consider the availability and 
nature of enterprises in the private sector engaged in the delivery of 
the product, the views of those that use the product, and the likely 
impact on small business concerns. 39 U.S.C. 3642(b)(3).\9\ The 
Commission rules implementing section 3642 require the Postal Service 
to provide data and supporting justification when requesting the 
addition, removal or transfer of a product. 39 CFR 3020.30 et seq.
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    \9\ In addition, products that are covered by the postal 
monopoly may not be transferred from the market dominant to the 
competitive product list. 39 U.S.C. 3642(b)(2).
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    The question of whether the Postal Service has sufficient market 
power to effectively set prices for PFS without actual competition has 
been addressed by the Postal Service, the Public Representative, and 
Popkin.
    The Public Representative argues that the Postal Service exercises 
``virtually unlimited market power with PFS in a significantly large 
segment, if not virtually all, of the relevant market * * *'' and that 
it has failed to provide the necessary justification and supporting 
data to make a sufficient showing that PFS is not a market dominant 
product. Public Representative Comments at 2-4. Popkin also contends 
that there are no truly competitive alternatives to PFS because of 
significant pricing, logistic and geographic availability differences. 
Popkin Comments at 2-4; Popkin Reply Comments at 3.
    The Postal Service, on the other hand, asserts that its bargaining 
position is constrained by the existence of other shippers who can 
provide services similar to PFS, and thus, the market precludes it from 
taking unilateral action to increase prices or decrease service without 
the risk of losing volume to private companies in the mail forwarding 
business. Request, Attachment B at 2-4. The Postal Service claims that 
informal agreements with friends, private sector firms and commercial 
mail forwarding services offer substantially similar mail forwarding 
services under similar conditions. Id. The Postal Service has not 
provided specific data concerning those alternatives, but cites several 
alternative sources like Earth Class Mail, several mail forwarding 
services geared towards snowbirds, and commercial mail receiving 
agencies. Id.; Postal Service Reply Comments at 2. In addition, it 
appears that Mail Boxes Etc. (MBE) provides a mail forwarding service 
for its mailbox customers.\10\ With the exception of mail forwarding 
services provided by friends, all other services require that customers 
change their address with the Postal Service on a temporary or 
permanent basis.\11\
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    \10\ http://www.mbe.com/ps/index.html.
    \11\ The Commission is not convinced by the Postal Service's 
argument that informal mail forwarding by friends and neighbors is 
substantially similar to the services provided by PFS or commercial 
alternative mail forwarding options. PFS customers enter into a 
formal business-like relationship with the Postal Service with the 
benefit of clearly established parameters for the forwarding of 
their mail. Friends are not ``firms offering similar products.'' 39 
U.S.C. 3642(b)(1). Nonetheless, such an arrangement may be a 
satisfactory alternative for some mail recipients.
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    Finally, the Postal Service states that PFS is but one alternative 
in the mail forwarding market and that ``[t]here is likely to be a 
minimal impact, if any, on small business concerns.'' Request, 
Attachment B at 4. In addition, because the competitive product rules 
set a cost floor, the Postal Service asserts that it will not be able 
to under price PFS in order to eliminate competitors. Id. at 5.
    This is the first time the Commission has been called upon to 
decide whether it is appropriate to transfer a service from the market 
dominant product list to the competitive product list. The record 
supports the finding that there is a sufficient pool of alternative 
services

[[Page 45850]]

that are sufficiently similar to PFS to limit the Postal Service's 
ability to effectively set the price (in the technical economic sense) 
of PFS.\12\
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    \12\ The absence of quantitative support for this conclusion is 
inescapable as PFS is a new, low volume special service providing a 
product that is ancillary to the core functions of the Postal 
Service's business.
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    The Commission notes that a transfer of a product between product 
lists is not necessarily permanent. If circumstances should warrant in 
the future, for example, if the Postal Service appeared to be price 
gouging users of this service, the Commission under section 3642 and 
its own rules can initiate a transfer of PFS from the competitive 
product list back to the market dominant product list. Moreover, users 
of the mail also can request such a transfer. See 39 U.S.C. 3642 and 39 
CFR 3020.30 et seq.
    As part of its responsibility, the Commission will review 
competitive products for their compliance with 39 U.S.C. 3633. The 
Commission has previously reviewed the cost coverage of PFS and 
determined that PFS covers its costs \13\ (39 U.S.C. 3633(a)(2)); the 
transfer should not lead to the subsidization of competitive products 
by market dominant products (39 U.S.C. 3633(a)(1)); and should have a 
positive effect on competitive products' collective ability to provide 
their appropriate share of institutional costs (39 U.S.C. 
3633(a)(3)).\14\ Thus, a preliminary review of the transfer of PFS to 
the competitive product list indicates that it comports with the 
provisions applicable to rates for competitive products.\15\
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    \13\ See Request at 1-2. ``The record also makes clear that PFS 
covers costs and, with overall cost coverage exceeding 140 percent, 
makes a reasonable contribution to overhead costs.'' PRC Op. MC2007-
3 at 3, January 7, 2008.
    \14\ Id.
    \15\ PFS will be reviewed again as part of the Annual Compliance 
Determination in early 2009 and any changes, if necessary, will be 
recommended at that time.
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    Therefore, having considered the statutory requirements, the 
argument put forth by the Postal Service, and the public comments, the 
Commission finds that PFS may be appropriately categorized as a 
competitive product, and therefore, may be transferred to the 
competitive product list.

IV. Other Changes to the Mail Classification Schedule

    Other revisions are also being made to the Mail Classification 
Schedule. In the Negotiated Service Agreements section, the Discover 
Financial Services Negotiated Service Agreement \16\ and the Bank One 
Negotiated Service Agreement \17\ have expired, and will be deleted, 
and the Bank of America Corporation \18\ and The Bradford Group 
agreements \19\ previously approved will be added.
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    \16\ Docket No. MC2004-4. The agreement expired on January 1, 
2008.
    \17\ Docket No. MC2004-3. The agreement expired on April 1, 
2008.
    \18\ Docket No. MC2007-1. The agreement became effective on 
April 1, 2008.
    \19\ Docket No. MC2007-4. The agreement became effective on June 
1, 2008.
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    The revisions to the market dominant and competitive product lists 
are shown below the signature of this Order, and shall become effective 
upon publication in the Federal Register.
    It is Ordered:
    1. The Postal Service request to modify the Mail Classification 
Schedule by transferring Premium Forwarding Service to the competitive 
product list filed May 30, 2008, is granted.
    2. The Motion of the United States Postal Service for Acceptance of 
Reply Comments filed June 20, 2008, is granted.
    3. The Motion of David B. Popkin for Acceptance of Reply Comments 
filed June 23, 2008, is granted.
    4. The Discover Financial Services Negotiated Service Agreement is 
deleted from the Mail Classification Schedule.
    5. The Bank One Negotiated Service Agreement is deleted from the 
Mail Classification Schedule.
    6. The Bank of America Corporation Negotiated Service Agreement is 
added to the Mail Classification Schedule.
    7. The Bradford Group Negotiated Service Agreement is added to the 
Mail Classification Schedule.
    8. The Secretary shall arrange for publication of this Order in the 
Federal Register.

List of Subjects in 39 CFR Part 3020

    Administrative practice and procedure, Postal Service.

    By the Commission.

    Issued July 16, 2008.
Steven W. Williams,
Secretary.

0
For the reasons stated in the preamble, under the authority at 39 
U.S.C. 503, the Postal Regulatory Commission amends 39 CFR part 3020 as 
follows:
0
1. The authority citation for part 3020 continues to read as follows:

    Authority: 39 U.S.C. 503; 3622; 3631; 3642; 3682.


0
2. Revise Parts A and B of Appendix A to Subpart A of Part 3020--Mail 
Classification Schedule to read as follows:

Appendix A to Subpart A of Part 3020--Mail Classification Schedule

 
 
                                * * * * *
Part A--Market Dominant Products
 1000 Market Dominant Product List
First-Class Mail
    Single-Piece Letters/Postcards
    Bulk Letters/Postcards
    Flats
    Parcels
    Outbound Single-Piece First-Class Mail International
    Inbound Single-Piece First-Class Mail International
Standard Mail (Regular and Nonprofit)
    High Density and Saturation Letters
    High Density and Saturation Flats/Parcels
    Carrier Route
    Letters
    Flats
    Not Flat-Machinables (NFMs)/Parcels
Periodicals
    Within County Periodicals
    Outside County Periodicals
Package Services
    Single-Piece Parcel Post
    Inbound Surface Parcel Post (at UPU rates)
    Bound Printed Matter Flats
    Bound Printed Matter Parcels
    Media Mail/Library Mail
Special Services
    Ancillary Services
    International Ancillary Services
    Address List Services
    Caller Service
    Change-of-Address Credit Card Authentication
    Confirm
    International Reply Coupon Service
    International Business Reply Mail Service
    Money Orders
    Post Office Box Service
Negotiated Service Agreements
    HSBC North America Holdings Inc. Negotiated Service Agreement
    Bookspan Negotiated Service Agreement
    Bank of America Corporation Negotiated Service Agreement
    The Bradford Group Negotiated Service Agreement
    1001 Market Dominant Product Descriptions
 
                                * * * * *
Part B--Competitive Products
2000 Competitive Product List
Express Mail
    Express Mail
    Outbound International Expedited Services
    Inbound International Expedited Services
        Inbound International Expedited Services 1 (CP2008-7)
Priority Mail
    Priority Mail
    Outbound Priority Mail International
    Inbound Air Parcel Post
Parcel Select
Parcel Return Service
International
    International Priority Airlift (IPA)

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    International Surface Airlift (ISAL)
    International Direct Sacks--M--Bags
    Global Customized Shipping Services
    Inbound Surface Parcel Post (at non-UPU rates)
    International Money Transfer Service
    International Ancillary Services
Special Services
    Premium Forwarding Service
Negotiated Service Agreements
    Domestic
    Outbound International
        Global Expedited Package Services (GEPS) Contracts
            GEPS 1 (CP2008-5)
        Global Plus Contracts
            Global Plus 1 (CP2008-9 and CP2008-10)
 

* * * * *
[FR Doc. E8-17984 Filed 8-5-08; 8:45 am]
BILLING CODE 7710-FW-P`