U.S. Postal Service: Information on How Broadband Affects Postal Use and the Communications Options for Rural Residents
Published: 2016-09-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: As broadband availability grows, Americans—including those in rural areas—increasingly partake in communications and services offered via the Internet. Some of these Internet services have changed how individuals use USPS. Though many factors influence use of postal services, understanding the relationship between broadband use and the use of postal services is critical to both the future of postal services overall and the communication options available to rural residents. GAO was asked to examine the relationship between broadband and postal use, particularly in rural areas.
This report addresses the relationship between broadband use and the use of USPS's (1) mail services, (2) package and shipping services, and (3) post offices, particularly in rural areas. To address these objectives, GAO reviewed literature on broadband and mail trends, factors associated with postal and broadband use, and the role of post offices in rural America. GAO conducted regression analyses using 2007-2014 data, the most recent available, from the USPS HDS, which collects information from a nationally representative sample of households. GAO interviewed local stakeholders, such as officials from post offices and Internet service providers, in five rural areas, chosen based on recent deployment of broadband and other factors. GAO also interviewed 11 postal experts, chosen based on participation in previous GAO work and postal conferences.
GAO is not making recommendations in this report. USPS did not have any comments on the draft report.
section_title: What GAO Found
paragraphs: Broadband use has in recent years been associated with reduced use of First-Class Mail. Continued declines as a result of broadband, however, are uncertain. Broadband access to various Internet services, especially online bill paying, is associated with reduced use of transaction mail, a subset of First-Class Mail. GAO analysis of the U.S. Postal Service's (USPS) Household Diary Survey (HDS) data from 2007-2014 found that households using broadband to access Internet services tended to send less transaction mail than other households, controlling for age, income, and education. However, GAO found that in recent years broadband use may not have had a statistically significant effect on correspondence mail, a subset of First-Class Mail that includes letters and greeting cards. Experts GAO spoke with had mixed views on the future of First-Class Mail as a result of broadband use, with only 4 of the 11 experts expecting decreases in First-Class Mail in the short term. Several experts and officials suggested that Internet privacy and security concerns, as well as many individuals having already changed postal habits in response to the Internet, are among the factors that could be contributing to a slowed rate of “electronic diversion” from mail. With regard to rural areas, GAO analysis of HDS data suggests that rural households without broadband tended to send more transaction and correspondence mail than non-rural households without broadband in recent years. The officials in rural areas GAO interviewed generally agreed that residents of rural areas value mail and postal services for a variety of reasons, including that they have fewer retail alternatives and trust USPS services. Despite this relationship, GAO found that the subset of rural households with broadband were not statistically different in the volume of correspondence mail sent compared to non-rural households. In rural areas, two groups of businesses that GAO spoke with also noted that improved Internet access could result in mail volume declines.
E-commerce continues to have a strong effect on USPS package and shipping volumes. GAO analysis of HDS data found that broadband use in the home was associated with sending and receiving more packages with USPS in recent years. This analysis also found that households in rural areas made greater use of package and shipping services, a view echoed in interviews with officials in rural areas. While research and experts interviewed by GAO generally agreed that USPS's package business will grow in the short term, USPS is likely to face longer-term challenges, such as increased competition in the delivery market.
It is unclear what role broadband use has played in the reduction in post office visits in recent years. GAO analysis of HDS data found no statistically significant relationship between broadband use and post office visits. However, GAO found that rural households tend to visit post offices more regardless of broadband use. Local stakeholders GAO interviewed said that rural residents may use post offices at higher rates because post offices play a valuable social role in small communities and that alternatives for certain services, such as money orders, are lacking. To balance the benefits of its postal retail network with the high costs of some facilities, USPS is undertaking various initiatives. Despite these efforts, balancing the benefits of a robust network with the costs of maintaining that network, especially in rural areas, will remain a challenge for USPS.

section_title: Letter
paragraphs: From the early days of sending and receiving U.S. mail to the rollout of  telephone lines across the country, access to various forms of  communication has long been important for all Americans, but particularly  for geographically isolated rural residents. As the United States has  continued to increase the availability of broadband, Americans—including  those in rural areas—increasingly partake in communications and  services offered via the Internet. Some of these Internet services have  changed how individuals use the U.S. Postal Service (USPS). For  example, traditional USPS activities such as mailing a letter or paying a  bill can now be accomplished by sending an e-mail or using online  banking. This trend is referred to as “electronic diversion.” USPS has  restructured its services and network in various ways to try to remain  competitive in a digital world. Some of these changes have affected rural  areas, such as reducing hours at rural post offices. Though use of postal  services can be influenced by many factors, including general economic  conditions, understanding the relationship between broadband use and  the use of postal services is critical to both the future of postal services  overall and the communication options available to rural residents.
You asked questions about USPS’s restructuring efforts and their effects  on services to rural residents and whether there is enough understanding  of the relationship between broadband and postal use to properly inform  USPS’s actions. You requested that we examine the relationship between  broadband use and use of postal services, particularly in rural areas. We  examined the relationship between the use of broadband and the use of  USPS’s: (1) mail services, (2) package and shipping services, and (3)  post offices, particularly in rural areas.
To assess the relationship between fixed broadband use and the overall  use of postal services in recent years, we first identified factors  associated with postal and broadband use through a review of academic  and government literature. Using the results of this literature review to  inform our work, we conducted regression analyses using data for the  period 2007 through 2014 from the USPS Household Diary Survey  (HDS). Conducted annually, HDS obtains information from a nationally  representative sample of over 5,200 households to provide a  comprehensive and continuous description of the mail originating from  and arriving in American households. Based on interviews with USPS  officials and review of documentation about how the survey was designed  and conducted, we concluded that the HDS data were sufficiently reliable  for the purpose of analyzing relationships between broadband use and  postal use while accounting for other variables of interest. To further  assess the relationship between broadband availability and online bill  paying, we analyzed data for the period 2010 through 2015 provided by a  regional bank with operations in Louisiana on customers eligible for online  bill paying services as well as broadband provider data from the National  Broadband Map and the Federal Communications Commission (FCC).  Based on interviews with FCC officials and officials with the regional  bank, we concluded that these data were sufficiently reliable for the  purpose of analyzing the relationship between broadband availability and  online bill paying among customers of that bank. We also conducted  analysis using USPS retail facility data as of January 2016 and FCC’s  broadband subscriber data, to describe broad patterns in postal retail  availability and broadband use. Based on interviews with USPS officials,  we concluded that the USPS’s retail facilities data were sufficiently  reliable for this purpose. Based on interviews with FCC officials and a  review of documentation, we concluded that the broadband subscriber  data were also sufficiently reliable for this limited purpose.
To better understand use of Internet and postal services in rural areas  and expand on the findings of our quantitative analysis, we identified five  case study areas that had recently received broadband access through  receipt of broadband infrastructure loans or grants from the U.S.  Department of Agriculture (USDA) that met our definition of rural, and that  were geographically diverse. These areas were in Louisiana, Missouri,  New Mexico, North Dakota, and Virginia. In each of these areas, we  interviewed officials with local USPS post offices, economic development  entities and businesses, and Internet service providers (ISP) about the  relationship between broadband and use of postal services. We visited  case study areas in two states, Missouri and Virginia, where we  conducted interviews. In total, in the relevant areas in all five states, we  interviewed officials at nine USPS post offices and five ISPs, and  conducted five meetings where we brought together economic  development and business officials from our case study areas. While  findings from our case studies cannot be generalized to all rural areas,  they provide illustrative examples of the relationship between broadband  and postal services, as well as perspectives from stakeholders in rural  areas. We also used our literature review to identify research on the role  of post offices in rural America.
To better understand the implications of our findings for USPS, we  conducted semi-structured interviews with 11 postal experts. We selected  individuals and entities from a variety of backgrounds based on their roles  as experts in previous GAO reports and participation in recent postal  conferences. We also discussed our findings with officials from USPS and  the Postal Regulatory Commission (PRC), which is an independent  agency that conducts regulatory oversight of USPS. For more detailed  information about our scope and methodology, see appendix I.
We conducted this performance audit from October 2015 to September  2016 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Postal Trends
paragraphs: Challenging economic conditions, a changing business environment, and  declining mail volumes have contributed to USPS’s revenue shortfall and  inability to cover its expenses and financial obligations. USPS has  incurred 9 consecutive years of net financial losses and over $125 billion  in unfunded liabilities as of fiscal year 2015. As a result, USPS has  remained on GAO’s High Risk List since 2009.
USPS’s financial condition is largely attributable to a decline in mail  volume. Overall, mail has declined by 28 percent from its peak—213  billion pieces—in fiscal year 2006 to about 154 billion pieces in fiscal year  2015. Volume for First-Class Mail, USPS’s most profitable product, has  significantly declined from its peak in fiscal year 2001. For instance, First- Class Single Piece mail—that is, all mail bearing postage stamps such as  bill payments, personal correspondence, cards, and letters—has declined  by about half over the last 9 years (see fig. 1). Although overall mail  volumes have declined, USPS packaging and shipping services have  experienced double-digit growth in recent years, largely as a result of  electronic commerce. USPS package volume roughly doubled from 2008  to 2015. Package and shipping services, though, are sensitive to  economic changes and have a lower profit margin than First-Class Mail.
In addition to mail and package delivery, USPS maintains its retail  network of post offices across the country. In fiscal year 2015, there were  approximately 31,600 total postal managed retail offices. A key part of  USPS’s revenue stream, post offices contributed a little over half of the  $19 billion in total retail revenue that USPS earned in fiscal year 2015.  USPS has reported decreases in retail revenue at its post offices, as well  as fewer retail visits (see fig. 2). Online revenues through the USPS  website (usps.com), though, generated over $1 billion in fiscal year 2015.  USPS also has partnerships with retailers that provide another 64,000  locations for customers to access stamps and USPS services.
In response to its financial crisis, USPS took a number of actions that  attempted to balance its operating costs with its lower revenues, including  making changes to its operations and network. For example:
From 2009 to 2013, USPS decreased the size of its workforce as well  as overall work hours through retirements, attrition, and initiatives to  streamline its operations.
In 2012 and 2013, USPS consolidated 141 mail-processing facilities  and reduced mail-processing work hours by over 6 million in 2013.
USPS reduced or modified retail hours in thousands of mostly small,  rural post offices as part of its Post Office Structure Plan  (POStPlan). USPS has also expanded its partnerships with retailers  in an effort to provide greater access to its products and services  while reducing costs.
USPS changed its standards by increasing the number of days for  some mail to be delivered and still be considered on time.
These changes have led to concerns that rural areas are facing degraded  delivery service performance. USPS is now collecting data to examine  rural delivery service performance.
section_title: Internet Trends
paragraphs: Overall, Internet access and use has grown nationwide, and a large  majority of Americans now have access to broadband. According to the  Pew Research Center, use of broadband has grown from less than 10  percent of adults in 2000 to about 67 percent in 2015. However, FCC  has concluded that advanced telecommunications capability is not being  deployed to all Americans in a reasonable and timely fashion. In  particular, many Americans still lack access to advanced  telecommunications capability, especially in rural areas and on tribal  lands.
The federal government has made efforts to increase access to the  Internet across the United States, especially in rural areas. As required by  the American Recovery and Reinvestment Act of 2009 (Recovery Act),  FCC released the National Broadband Plan in 2010 to improve access to,  and the services provided by, broadband. To extend access to  broadband as well as to stimulate the economy, Congress also  appropriated $7.2 billion for broadband programs in the Recovery Act.  This funding included $2.5 billion for USDA’s Broadband Initiatives  Program (BIP), which provided financing for broadband infrastructure  projects in rural areas. By 2010, USDA had awarded BIP funding to  nearly 300 projects.
section_title: Broadband Use Is Associated with Lower Use of First- Class Mail, Though Less So in Rural Areas; Extent of Future Decreases in All Areas Is Unclear
subsections: section_title: Broadband Use Is Associated with Reduced Use of Some First-Class Mail but Continued Mail Volume Declines Are Uncertain
paragraphs: Broadband access to various Internet services, especially online bill  paying, has in recent years been associated with reduced of use  transaction mail, a subset of First-Class Mail. Our analysis of USPS’s  HDS data from 2007 to 2014 found a negative relationship between  broadband use and the volume of transaction mail sent, after adjusting for  available demographic and other factors that might be associated with the  use of postal services. In other words, controlling for age, income, and  education, households that used broadband to access Internet services  tended to send less transaction mail than other households. Our analysis  of the HDS data also found that households using broadband were  specifically more likely to pay bills online. Further, other analysis we  performed in one of our case study areas suggests that broadband  availability was associated with greater likelihood of online bill payment.  Specifically, we found that the more broadband providers available to  customers of a specific regional bank in Louisiana, the more likely these  customers were to pay certain bills online. These findings are consistent  with other research that has shown First-Class Mail volume to be  negatively affected by availability of the Internet. Further, these findings  align with evidence that while some customers still prefer to receive paper  statements through the mail, an increasing percentage now pay their bills  electronically. Our summary of HDS data on how households pay their  bills also illustrates this trend (see fig. 3). All 11 of the experts we spoke  with agreed that individuals with broadband are more likely to engage in  online activities that replace transaction mail use, such as online bill  paying. One of the experts we spoke with noted that in contrast to  correspondence mail, discussed below, bill payments are financial  transactions and therefore more easily influenced by matters of cost and  convenience. Two other experts we spoke with noted that some  businesses have encouraged customers—often through financial  incentives—to switch to electronic bill payment.
Correspondence mail, another subset of First-Class Mail, has been in  decline for over a decade, but we found that broadband use may not have  had a significant effect on that trend in recent years. Specifically, our  analysis of USPS HDS data found no statistically significant relationship  between use of broadband and correspondence mail, after adjusting for  demographic and other factors that might be associated with the use of  postal services. USPS has reported that some decline in correspondence  mail has been due to electronic diversion, but four of the experts, as  well as the PRC officials, we spoke with suggested that by now most  individuals have changed their behaviors to reflect their Internet use,  since many households have had the basic Internet access necessary for  electronic communications for years. That is, according to these experts,  a substantial number of individuals now have established preferences for  e-mail and other technologies over mail, developed over many years, and  their behavior does not continue to change. As one expert we spoke with  suggested, the lack of a relationship between broadband and  correspondence mail in our analysis could reflect that individual  communication choices are no longer significantly influenced by  broadband in the home. Two experts we spoke with also noted that  correspondence mail has been a relatively small portion of First-Class  Mail and has generally been a durable part of the mail stream. Some  individuals may continue to send personal cards and invitations as a  matter of etiquette and tradition, possibly making this type of mail volume  more resistant to electronic diversion.
Although USPS’s First-Class Mail volume, including both correspondence  and transaction mail, has declined substantially since 2000, it is unclear  to what extent broadband use will lead to further declines. Several studies  have found that electronic diversion was a key factor in past mail volume  declines. However, although USPS has said that they anticipate that  First-Class Mail volume will continue to decline with the migration to  electronic alternatives resulting from technological changes, experts we  spoke with had mixed views on the future of First-Class Mail and its  relationship to broadband use. Only 4 of the 11 experts we spoke with  said that First-Class Mail was likely to continue decreasing at least in the  short-term. Two of these experts maintained that there may be another  large decline in First-Class Mail as broadband access expands and the  now younger generations—who have come of age almost entirely using  electronic services and technologies for their business and personal  interactions—become the dominant portion of the population and  economy. One expert suggested that as the Internet continues to evolve,  there are likely to be new, unforeseen ways in which postal business will  be diverted online. As USPS has explained to PRC, even upon reaching  the natural ceiling of Internet use (where theoretically everyone in the  United States could have Internet access), electronic diversion of the mail  could still increase because of an increasing depth of Internet usage (that  is, an increasing number of things individuals can accomplish using the  Internet). For example, First-Class Mail could erode further if more  individuals abandon paper copies of their bills and rely on electronic  records exclusively. Four experts, as well as officials from six of the  groups we spoke with for our case studies, also suggested that Internet  privacy and security concerns could be contributing to a slowed rate of  electronic diversion. For example, officials from one group of business  officials we met with said that many people in their area see mail as safer  than Internet services because of computer hacking and identity theft  concerns. According to these officials, cybersecurity concerns remain a  barrier to broadband adoption and a source of continued First-Class Mail  use.
USPS officials told us they recognized that broadband use is changing  the way people use postal services. As a result, USPS has been  exploring a variety of initiatives to strengthen the value of First-Class Mail  for all business and residential customers. USPS is piloting Informed  Delivery, a program which lets customers receive an interactive e-mail  each day that shows the faces of the mail pieces they will receive in their  mailbox. Further, in an effort to appeal to the tactile satisfaction  customers may experience when handling hardcopy mail (e.g., catalogs,  advertising postcards) while also leveraging smartphone technologies,  USPS has long collaborated with business customers to develop mail that  incorporates a variety of paper textures as well as Quick Response codes  that allow customers to easily access the business’s online presence.  Two experts we spoke with, though, suggested that USPS should focus  on its main business of mail delivery, rather than digital initiatives and  other efforts that may distract the organization from its core  competencies. According to the USPS officials we spoke with, USPS  must continue to innovate to stay competitive and relevant to its  customers. They believed that USPS cannot ignore the changes and  opportunities created by broadband and mobile technologies.
section_title: Broadband Expansion May Affect Rural America’s Reliance on First-Class Mail
paragraphs: Overall, households in rural areas have tended to send more  correspondence and transaction mail than non-rural households in recent  years. Specifically, our analysis of USPS HDS data found that among  households without broadband, households in rural areas tended to send  more correspondence and more transaction mail than did non-rural  households, after adjusting for demographic and other factors that might  be associated with the use of postal services. This analysis is generally  consistent with the USPS Office of Inspector General’s (OIG) findings on  First-Class Mail trends. The OIG found that the areas with the lowest  declines in mail volume also had the lowest populations. However,  when factoring in broadband use, we found that rural households that  used broadband tend to resemble non-rural households in the amount of  correspondence mail they sent. In other words, after adjusting for  demographic and other factors, rural households with broadband Internet  access were not statistically different in the volume of correspondence  mail sent compared to non-rural households.
The USPS, ISP, and business officials we interviewed for our case  studies generally agreed that overall, residents of rural areas value mail  and postal services for a variety of reasons. First, they stated that rural  residents generally have fewer alternatives to the mail. Officials from 7 of  the 14 USPS and business group stakeholders we spoke with noted that  customers in rural areas have less access to alternative forms of  communication, with both broadband and mobile service generally less  reliable. Second, officials stated that rural residents overall tend to be  older and therefore less likely on average to adopt new technologies.  Officials from 9 of the 19 USPS, ISP, and business group stakeholders  we spoke with said that elderly residents generally make up a higher  proportion of the population in rural areas and often do not have  broadband access or, if they do, are reluctant to convert to online bill  payment. Third, we were told in our case study areas that rural residents  trust and value USPS services. For instance, three of the five groups of  business stakeholders we spoke with in rural areas mentioned that they  trust USPS employees and the mail. Internal research by USPS also  suggests that rural customers are generally more satisfied with their  USPS experiences than non-rural customers.
Notwithstanding the strong relationship between many rural residents and  USPS noted by the USPS, ISP, and business group stakeholders we  interviewed, the future of First-Class Mail volume in rural areas is unclear.  In the aggregate, rural areas have experienced mail volume declines. For  example, the USPS official from one rural post office we spoke with  recalled that postal carriers would have numerous trays of colorful  envelopes ready to be delivered in the week before Mother’s Day, but that  in recent years, such letters are rarer. Research suggests that some of  this decline has likely been due to electronic diversion and that further  declines may occur as broadband access expands to more rural areas.  Two groups of business officials we spoke with for our case studies noted  that introducing expanded and improved broadband access is likely to  increase use of the Internet, resulting in further declines in mail volume.  For instance, one business stakeholder we spoke with noted that prior to  a fiber broadband project’s recent completion, many residents of this rural  area only had DSL or satellite services for their Internet, which he said  were less reliable. The full effect of such expanded broadband access in  our case study areas specifically is unknown at this time, given the recent  completion of many of the broadband projects.
section_title: E-Commerce Continues to Drive Package and Shipping Business, but USPS Could Face Increased Competition and Challenges in the Package Delivery Market
paragraphs: E-commerce continues to have a strong effect on USPS package  volumes. Our analysis of USPS HDS data found a positive relationship  between broadband use and packages both sent and received, after  adjusting for demographic and other factors that might be associated with  the use of postal services. In other words, broadband use in the home  was associated with sending and receiving more packages with USPS.  These findings align with other research showing growth in package  volumes related to e-commerce activities. As we previously reported, the  Internet has become an important part of the U.S. economy, particularly  in how it facilitates e-commerce. Nine of the experts we spoke with  specifically attributed the growth in e-commerce as largely responsible for  the association we found between broadband use and package delivery.  As one expert described, packages have increased in number  dramatically as conducting online transactions became easier, and  USPS’s large delivery network allows it to benefit from this trend.
We found that households in rural areas made greater use of package  and shipping services. Specifically, our analysis of USPS HDS data found  that households in rural areas received more packages than did non-rural  households, after adjusting for demographic and other factors that might  be associated with the use of postal services. The same analysis also  found that rural households without broadband tended to receive more  packages than non-rural households without broadband. Our analysis  also found that, substantively, rural households using broadband tended  to resemble non-rural households using broadband in the number of  packages they received. In other words, when rural households used  broadband, they received packages at rates similar to non-rural  households.
The USPS, ISP, and business officials we interviewed for our case  studies agreed that rural residents send and receive more packages than  their non-rural counterparts. A commonly cited reason for the relatively  high use of package delivery services was the lack of retail options in  many rural areas. Three of the nine local USPS officials we spoke with  specifically noted that e-commerce may be used at a higher rate in rural  areas because of the lack of brick-and-mortar retail options. One USPS  official mentioned that there are not many local shopping options in his  town, which he said had only a tiny general store, a grocery store, and a  Family Dollar store, with the nearest Walmart being 60 miles away. As a  result, residents do a lot of online shopping and catalog shopping, with  individuals regularly coming to the post office to collect packages.  Officials from 7 of the 14 USPS and business group stakeholders we  spoke with also attributed some of the recent growth of packages to rural  entrepreneurs that ship merchandise sold through websites such as eBay  or Etsy.
The growth in USPS’s package business is likely to continue in the short  term. E-commerce and thus package volumes have been forecasted to  grow in the double digits year-over-year for the next few years. Other  recent research indicates that while e-commerce continues to grow, it  remains a modest share of overall consumer purchase activity,  suggesting significant room for growth. Six of the experts we spoke with  expected that as a result of overall e-commerce growth, USPS’s package  and shipping services will likely continue to increase in the short-term.
USPS has opportunities to maintain or enhance its share of the package  delivery market. Two experts we spoke with said that USPS is likely to  remain the dominant package deliverer in rural areas in the short-term  because delivery in low-population-density areas is expensive, but USPS  is already obligated to visit most households for mail delivery. USPS has  also implemented measures to address the shipping needs of rural  customers specifically. For instance, USPS created a new job category  for rural carriers that will enable them to provide package delivery service  on Sundays and holidays. Also, USPS is purchasing new vehicles that  will accommodate projected package volumes. Under a pilot program in  some cities, USPS is offering access to lockers in convenient locations  that customers can use to receive or ship packages. USPS has also  designed new mailboxes that can fit most packages weighing up to 5  pounds, which will enable carriers to deliver more packages directly to the  mailbox, rather than having to leave their vehicle or leave a notice  requiring the customer to retrieve the parcel at the Post Office.
Regardless of any short-term gains in the package delivery market, USPS  is likely to face challenges in the longer term. Six of the experts we spoke  with suggested that it could be difficult for USPS to maintain large  increases in package volumes since they are likely to face increased  competition in the package delivery business. The online retailer Amazon,  for instance, is developing its own delivery network that could eliminate  large package volumes from USPS. One expert also noted that as  USPS’s package business continues to increase, it could necessitate the  development of additional routes, as well as the purchase of more trucks,  to deliver packages. Additional routes beyond those necessary for daily  mail delivery are more expensive to operate and thus could undercut any  profits USPS would make from increased package volumes. This could  be particularly challenging in rural areas where package deliveries are  more expensive, as it may necessitate surcharges on package delivery in  those areas. Furthermore, should the demand for USPS delivery of  packages later decrease, USPS could find itself with an expensive,  underutilized delivery-related infrastructure to maintain. Another expert  also suggested that any shift in priority by USPS to package delivery  could degrade the core business of delivering mail, leading to possible  service declines for First-Class Mail and periodicals.
section_title: Overall Effect of Broadband Use on Post Office Visits Is Unclear, though Data Is Limited; Rural Residents Value the Presence and Services Provided by USPS
paragraphs: While access to Internet services has had a major effect on other postal  services, as described above, it is unclear what role the Internet has  played in the nationwide reduction in post office visits in recent years. Our  analysis of USPS’s HDS data found no statistically significant relationship  between broadband use and post office visits. Our analysis of USPS’s  retail facilities and FCC’s broadband subscriber data also did not  demonstrate a clear connection between USPS retail availability and  broadband use. Further, revenue data from the post offices in our case  study areas show no consistent trends; some offices generated more  revenue after the broadband project was completed, while others  generated less revenue. One expert we spoke with suggested that these  findings could be the result of off-setting trends, with some customers  using post offices more frequently to pick up packages, while some  customers are buying fewer stamps at the post office. Another expert said  that broadband use may be unrelated to post office use because people  have settled into new postal retail behaviors. That is, whether they use  broadband to access the Internet could no longer be a significant factor in  whether individuals choose to visit post offices. The PRC officials we  spoke with also noted that not all postal transactions can be done online.  For instance, purchasing money orders must be done in person at a  USPS retail facility.
With regard to rural households, however, we found that rural households  tended to visit post offices more than non-rural households, independent  of broadband use. Our analysis of the USPS HDS found that households  in rural areas tended to make more post office visits than did non-rural  households, after adjusting for demographic and other factors that might  be associated with use of postal services. That is, our analysis suggests  that rural households used local post offices at a higher rate than non- rural households. However, this information is limited because it does not  capture the nature of the post office visits. Indeed, a possible explanation  for the relationship we found is that some rural households are required to  pick up their mail at the local post office because they are not eligible for  home delivery.
Rural residents may rely on post offices more than non-rural customers  because, as noted previously, fewer retail options exist for them. Officials  from 12 of the 19 USPS, ISP, and business group stakeholders we spoke  with maintained that post offices provide services that are not available  anywhere else in their communities. The PRC officials we spoke with also  said that the lack of retail options could explain an increased reliance on  USPS services. For instance, officials from eight post offices we spoke  with said that some residents use post offices frequently for money  orders, sometimes because they do not have bank accounts or because  there are no banks in their rural communities. Although money orders are  among USPS’s more profitable products, the number of domestic money  orders sold has plunged 60 percent since their peak in fiscal year 2000,  largely as the result of alternatives from other providers and broad shifts  toward electronic payments.
Rural residents may also use USPS services and post offices at higher  rates because of the special role of USPS in rural communities. Officials  from 12 of the 19 USPS, ISP, and business group stakeholders we  interviewed for our case studies in rural areas agreed that post offices are  valuable to the economic and social life of their communities. Seven of  the 11 experts we spoke with believed that rural customers may have a  different relationship with USPS than other customers. According to one  expert, the post office is “disproportionately important” in rural areas while  another expert noted that rural post offices provide a sense of community.  Four of the nine local USPS officials we interviewed said that in very  small communities where most of the residents know one another, the  post office serves as one of the few places where residents see each  other and talk. As a result, post offices serve as a valuable social space in  these small communities, where even the bulletin board can be a  valuable communication tool. The USPS OIG also recently stated that in  rural areas the post office is not just a place to pick up mail, buy stamps,  or mail a package, but can also serve as a community gathering place.  Six local USPS officials also listed examples of when postal employees  went above and beyond their typical duties to help fellow citizens of their  rural communities. For instance, according to the USPS officials, staff  commonly help illiterate, disabled, or non-English speaking customers  complete forms.
In addition to what we heard from our case study and expert interviews,  research we identified through our literature review noted that USPS retail  outlets have long played an important role in the health of rural  communities for several reasons. Many rural areas, due to their remote  locations and often limited retail options, face systemic disadvantages  impeding their full and robust participation in the global economy. In these  areas, USPS prices can establish a competitive baseline for other  delivery services. USPS also ensures that anyone—including isolated or  disadvantaged consumers—can access products from anywhere.  Researchers have also reported, as discussed above, that in addition to  the practical effects, post offices may serve an important symbolic and  social role in rural areas. The mail carrier is a source of social contact  for isolated populations and may be a rural resident’s only daily contact.  Furthermore, USPS also cooperates with other government agencies for  their mutual benefit. For example, state wildlife departments have used  rural mail carriers to track populations of small game.
To balance the benefits of its retail network with the high costs and  decreasing revenue generated by those retail facilities, USPS is  undertaking various initiatives. USPS officials we spoke with noted the  real value of the local post office to rural customers. Officials said that  POStPlan was implemented in a way that sought to minimize the impact  on rural communities, such as keeping many post offices open but with  more limited hours of service. USPS has also made the purchase of  stamps easier for rural customers by selling stamps in grocery stores or  pharmacies. Finally, rural carriers serve as a “Post Office on Wheels” and  can both sell stamps and pick up packages for customers in very remote  areas. USPS is also developing mobile technology applications that will  allow customers to perform more services at retail USPS locations  without interacting with USPS personnel, such as printing shipping labels.
Irrespective of these efforts, balancing the benefits of a robust retail  network with the costs of maintaining that network, especially in rural  areas, will continue to be challenging for USPS. Research has indicated  that though delivery of mail may be more expensive per piece in rural  areas than in urban areas, a variety of benefits accrue to USPS for  maintaining the network to deliver the mail in rural areas. Despite these  and the more intangible benefits described above, research has also  indicated that USPS’s retail network may not be structured efficiently.  Prior to USPS’s recent retail changes as part of POStPlan, analysis  prepared by USPS OIG suggested that USPS’s network had too many  retail facilities located too closely together and with too many retail  windows relative to the local population, though rural customers on  average must travel farther to reach a postal facility than in urban areas.  Another study of the distribution of USPS retail facilities found that the  distribution of another valuable retail business, pharmacies, followed the  distribution of population much more closely than did the distribution of  postal retail outlets. Further, our analysis of USPS retail facilities data  shows that USPS has more facility open hours per capita in rural areas  than in nonrural areas. The postal retail network, though, is different from  one based on market forces largely because of USPS’s universal service  obligation, part of which requires it to provide access to retail services.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to FCC, PRC, and USPS for review and  comment. FCC provided technical comments, which we incorporated as  appropriate. PRC also provided technical comments, including requests  for more information about our methodologies in the final report, which we  incorporated as appropriate. USPS did not have any comments on the  draft report.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the Postmaster General, the Acting Chairman  of the PRC, the USPS Office of Inspector General, the Chairman of the  FCC, and other interested parties. In addition, the report will be available  at no charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at 202-512-2834 or rectanusl@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff making key contributions to this report are  listed in appendix II.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report assess the relationship between the use of broadband and the  use of the U.S. Postal Service’s (USPS) (1) mail services, (2) package  and shipping services, and (3) post offices, particularly in rural areas. For  the purposes of all our data analysis in this report, we defined “rural” as  areas identified as rural by the U.S. Department of Agriculture (USDA)  Economic Research Service’s Rural-Urban Commuting Area Codes  (RUCA). The 2013 RUCA data (the most recent available) incorporates  Census tract commuting patterns and other measures of “rurality” in  addition to population density. RUCA has 10 tiers along a spectrum of  rurality, each of which is further broken down into secondary codes. We  used the 4-tiered data consolidation, which collapses the 10 RUCA tiers  into 4, where the bottom 2 tiers are considered rural.
subsections: section_title: Background
paragraphs: For background and context for this report, we examined our recent  reports on USPS as well as the USPS Office of Inspector General’s  reports on mail volume changes and USPS changes to its operations and  network. We also examined USPS’s Revenue, Pieces & Weight reports  from fiscal year 2001 to 2015 for information on mail volumes. Further, we  reviewed recent Federal Communications Commission (FCC) and Pew  Research Center reports on broadband trends.
section_title: Literature Review
paragraphs: To assess the relationship between broadband use and overall use of  postal services, we first identified factors associated with postal and  broadband use through a review of academic and government literature.  We also used our literature review to identify research on the role of post  offices in rural America. To identify articles for our literature review, we  searched databases such as Academic OneFile, National Technical  Information Service, PolicyFile, ProQuest Research Library, Scopus, and  WorldCat. Searches were limited to documents from 2010 and later. After  conducting preliminary searches in these databases, two analysts  separately reviewed the search results to identify the most relevant  articles, with a third analyst resolving the differences. After this review, if  an article cited another article or was cited by an article that seemed  relevant to our audit, we included those articles in our literature review.  With our full list of articles, an analyst reviewed each article for its key  findings regarding factors associated with postal and broadband use. All  of these key findings were then summarized by an analyst, with the  conclusions used to inform our data analysis. We also identified other  studies cited in this report through our interviews with various  stakeholders. All articles cited in this report were also subjected to an  internal review to ensure that the methodology was sufficient for our  purposes and that we characterized its findings appropriately.
section_title: Household Diary Survey Analysis
paragraphs: To assess the relationship between broadband use and the use of postal  services, as well as how use of postal products differs in urban and rural  areas, we conducted regression analyses using data from the USPS’s  Household Diary Survey (HDS). Conducted annually, the HDS obtains  information from a nationally representative sample of over 5,200  households to provide a comprehensive and continuous description of the  mail originating and destinating in American households. Our analysis  used HDS data collected from 2007 to 2014 because data were collected  for all our variables of interest for these years and because 2014 was the  most recent year for which data were available for our analysis. The data  were not available, and it was not our purpose, to assess the relationship  between broadband use and the use of postal services in the early years  of broadband, that is prior to 2007. For our analysis, we created a pooled  dataset that included household-level data collected as part of the HDS  from 2007 to 2014, and we used weights, calculated by USPS, designed  to ensure that each yearly sample was representative of households  nationwide.
We used negative binomial regression analysis to model the HDS data.  Negative binomial regression models are a type of count model that allow  for overdispersion in zero counts in the dependent variable, which was  appropriate given that not all households used all postal services we  examined. Based on the findings from the literature review described  above, we included independent variables for age, education, and  income, because those factors have been found to be associated with  use of both postal and broadband services. We also included  independent variables for household location, to assess whether the  rurality of a household affects postal use, and both the Census region  and year, to control for any other regional or time effects. To examine the  effect of Internet use on postal use, we included an independent variable  for broadband access. We did not have complete information on all  factors that might relate to volume of mail sent or received, such as  proximity to a post office or the reliability or speed of a household’s  broadband connection. Accordingly, our model omits some factors that  may also influence the volume of mail households send and receive. Our  dependent variables—the aspects of postal and broadband use we  examined—were the volume of:  visits to the post office; periodicals received; and bills paid online.
We considered coefficient estimates statistically significant if they were  significant at a level of 0.05 or less. For interaction coefficients that  considered the joint effect of rural status and broadband access, we used  an adjusted Wald F statistic to assess statistical significance.  Because  our primary goal was to assess the existence and direction of any  relationship between broadband access and our dependent variables,  and because of substantial variation in the distribution of counts across  our different dependent variables, we focused our discussion on the  direction and statistical significance of the estimated coefficients for  broadband, rural status, and their interaction, rather than their individual  magnitude.
To ensure the accuracy of our data analysis, and reliability of the HDS  data, we conducted various tasks. To verify that we understood the HDS  data provided to us, and were able to correctly apply the weights that  make the data nationally representative, we re-created select statistics  reported by USPS in its 2014 HDS report. The statistics were selected to  represent data from all of the USPS product types of interest to our model  (i.e., First-Class Mail, Packages, and Post Office visits, as well as a  selection of other product types). To assess the HDS data reliability, we  interviewed USPS officials and reviewed documentation about the design  of the survey and the methods by which survey data were collected and  processed. Based on this information, we concluded that the HDS data  were reliable for the purpose of conducting a regression analysis of  broadband use and postal use while accounting for household location  (rural versus non-rural) and other variables of interest.
section_title: Other Data Analysis
paragraphs: To assess the relationship between broadband availability and online bill  paying, we analyzed data provided by a regional bank with operations in  Louisiana and data on broadband providers in that same state. More  specifically, we analyzed data from 2010 to 2015 on customers eligible for  online bill-paying services from a regional bank in one of our case study  areas—described further below—and broadband provider data collected  by the National Broadband Map and FCC’s Form 477. Using these data,  we created a zip-code-level dataset. With this dataset, we calculated the  percentage of customers paying their bills online, among those eligible,  for each month over our time period. We also calculated percentages of  customers paying their bills online for categories of customers with  different numbers of broadband providers (that is, those areas with 1, 2-3,  4-5, or more than 5 broadband providers available at that time). We also  calculated percentages for the rural and urban zip codes specifically.
Based on interviews with officials from FCC and the regional bank, as  well as review of documentation associated with the broadband data, we  concluded that these data were reliable for the limited purpose of creating  summary statistics of broadband availability and customer online bill- paying trends. However, we acknowledge that the broadband data  collected as part of the National Broadband Map and FCC’s Form 477  overstate broadband availability in some areas by counting entire Census  blocks as served by providers who serve any portion of that block.  Though there were over 11 million Census blocks in the United States for  the 2010 Census, this limitation could be problematic in rural areas with  relatively large Census blocks. We therefore are not reporting the results  of this analysis for rural areas specifically. Nevertheless, the National  Broadband Map and FCC data represent the best snapshot of broadband  availability as of the time of the data’s collection. Further, GAO used the  National Broadband Map data for other analysis in 2014. At that time,  we assessed the reliability of the National Broadband Map data by  reviewing how the map developers collected data and conducted quality  assurance checks, as well as through interviews with stakeholders.  Based on this information, and knowing the limitation described above,  we determined that these data were sufficiently reliable for our reporting  purposes.
To assess the relationship between postal service availability and  broadband use, we analyzed broadband subscriber data and information  from USPS’s Facilities Database. More specifically, we analyzed data on  the location and hours of service for USPS retail facilities as of January  2016 as well as broadband subscriber data collected by FCC’s Form 477.  Using these data, we created a county-level dataset. With this dataset,  we calculated the average hours of USPS retail availability for areas with  different levels of broadband subscribers. In each county, we also  calculated the average hours of USPS retail availability per capita, across  counties with different levels of broadband subscribers. Based on  interviews with USPS officials, we concluded that the Facilities Database  was reliable for the purpose of conducting an analysis with broadband  use. Based on interviews with FCC officials and review of documentation,  we also concluded that the broadband subscriber data were reliable for  the purpose of conducting analysis with USPS retail availability.
section_title: Expert Interviews
paragraphs: To discuss interpretations of our data analyses and to better understand  the implications of our findings for USPS, we conducted semi-structured  interviews with 11 postal experts (see table 1 below). We selected  individuals and entities intended to represent a variety of backgrounds— including mailers, researchers, consultants, and a consumer advocate— and based on their roles as experts in previous GAO reports and  participation in recent postal conferences. We also discussed our  findings with officials from USPS and the Postal Regulatory Commission  (PRC). To assess the responses provided in these interviews, an analyst  examined each interview summary for specific themes, and a second  analyst reviewed the work for accuracy and completeness.
section_title: Case Study Interviews and Analysis
paragraphs: To better understand use of Internet and postal services in rural areas  and expand on the findings of our data analysis, we identified five case  study areas that had recently received broadband access through receipt  of broadband infrastructure loans or grants from USDA, met our definition  of rural, and were geographically diverse. More specifically, we obtained  a list of Broadband Initiatives Program (BIP) projects—including their  completion date, service area, and broadband speeds offered—from  USDA’s Rural Utilities Service. To identify areas that recently gained  improved broadband access, we identified those BIP projects completed  between January 2015 and September 2015. To assess whether the  service areas of these projects met our definition of rural, discussed  above, we analyzed the shape files of the service areas using RUCA  code data to identify those with areas that were entirely rural. From these  remaining projects, we selected five projects to obtain a range of  geographic locations. These five projects were in northeast Louisiana,  northern Missouri, northern New Mexico, western North Dakota, and  western Virginia. Finally, we selected two of these areas to visit in person  (Missouri and Virginia), based on resource and logistical considerations.
For each of these case study areas, we interviewed officials with local  USPS facilities, economic development entities and businesses, and  Internet service providers (ISP) about the relationship between  broadband use and use of postal services. In total, we interviewed  officials at nine USPS post offices (see table below) and five ISPs, and  conducted five meetings where we brought together economic  development and business officials from our case study areas. To assess  the responses provided in these interviews, an analyst examined each  interview summary for specific themes, and a second analyst reviewed  the work for accuracy and completeness. While findings from our case  studies cannot be generalized to all rural areas, they provide illustrative  examples of the relationship between broadband and postal services, as  well as perspectives from residents and businesses in rural areas.
To further understand how, if at all, the recent broadband projects  affected postal use in our case study areas, we analyzed USPS’s post  office revenue data. More specifically, we calculated the total revenue  generated at nine post offices in our case study areas for the same 6- month periods before and after completion of the broadband project. We  were not able to conduct more detailed analysis of revenue trends  because of lack of equivalent data at all post offices, since different post  offices have used different revenue and transaction-tracking systems, and  other limitations. Based on interviews with USPS officials, we concluded  that the USPS revenue data were reliable for the purpose of examining  trends over time at selected post offices.
We conducted this performance audit from October 2015 to September  2016 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, key contributors to this report  were Mark Goldstein (Director); Teresa Anderson (Assistant Director);  Faye Morrison (Assistant Director); Kyle Browning; Stephen Brown; Russ  Burnett; Caitlin Cusati; Leia Dickerson; Sharon Dyer; Bill Egar;  Georgeann Higgins; Kenneth John; John Mingus; Anna Maria Ortiz;  Cheryl Peterson; and Michelle Weathers.