Chairman Stevens, Chairman McHugh, and Members of the Subcommittees: We appreciate the opportunity to participate in this hearing on how the reform experiences of other countries’ postal administrations may relate to ideas and proposals for reform of the U.S. Postal Service. We will discuss experiences of other postal administrations that are particularly relevant to any future decisions by Congress affecting (1) public service obligations, such as universal service and uniform rates; (2) the postal monopoly; and (3) regulation of postal prices. My testimony is based primarily on our past and ongoing work relating to the responsibility of the U.S. Postal Service to provide uniform service to all communities in an increasingly competitive postal environment, as well as on issues involving the postal monopoly and postal rate setting in this country. We have also done limited work on other countries’ postal administrations. To date, we have focused most of our attention on Canada Post. Canada’s experience is especially relevant because of its proximity to the United States and its similarities in geographic size, business environment, and market-oriented economic systems. I will also refer to postal administrations in seven other countries on which we obtained data: Australia, France, Germany, the Netherlands, New Zealand, Sweden, and the United Kingdom. These countries, along with Canada, have been described by Price Waterhouse in a recent study as among the most “progressive postal administrations,” and most of them have undergone reforms that changed their structure and operations in the past decade. Our testimony relating to other countries’ experiences is based primarily on that study as well as data readily available from the other countries’ postal administrations. While we believe that the overall experiences of other countries’ postal administrations are relevant to the current discussions of postal reform in the United States, meaningful comparisons of the specific operational practices followed and performance results can be difficult. Compared to each of the eight other postal administrations, the U.S. Postal Service has at least seven times the mail volume, and at least twice the number of employees. All eight postal services combined have only one-half of the U.S. Postal Service mail volume, and just slightly more than the total number of its employees. The U.S. Postal Service handled about 180 billion pieces of mail in fiscal year 1995 and had over 850,000 employees in December 1995. By comparison, Canada Post has about 6 percent of the U.S. Postal Service’s mail volume and about 6 percent of its number of employees. I have appended to my statement two graphics that illustrate the differences in mail volume and employment between the U.S. Postal Service and the other eight postal administrations. Notwithstanding the differences in workforce size and mail volume, other countries’ experiences with granting their postal administrations greater commercial freedom are relevant to current consideration for granting such freedom in the United States. For example, in 1992, we issued a report describing how the competition from both private firms and electronic communication, particularly in the expedited-service mail and package-delivery markets, may create the need for statutory changes. Similarly, according to Price Waterhouse’s February 1995 report, while many factors are driving postal reform in other countries, the increase in competition in the delivery and communications markets has, above all else, driven the changes. Various parties, including some Members of Congress and the Postmaster General, have called for fundamental changes in the laws and regulations governing the U.S. Postal Service. The Postmaster General has said that the Postal Service needs greater freedom to set postage rates, manage the postal workforce, and introduce new products and services. Private delivery firms and U.S. mailers say they want more freedom to deliver letters now protected by the statutory monopoly. In recent hearings, Congress has been presented with many ideas and some specific proposals for reforming and privatizing the Postal Service. The 1970 Postal Reorganization Act, which created the U.S. Postal Service, was the most recent major change to the laws governing the structure and operation of the postal administration in the United States. Major change has occurred more recently for some foreign postal administrations. In the past decade, a number of other countries have restructured postal administrations from entities subject to close governmental control to entities that are still owned by the government, but with less governmental control over day-to-day practices. For example, in 1981 Canada established the Canada Post Corporation, an entity owned by the Canadian government but freed from many government regulations. Reform of postal administrations also took place in New Zealand in 1987, in Australia and the Netherlands in 1989, in France in 1991, in Sweden in 1994, and in Germany in 1995. Following these reforms, postal administrations in many of these countries reported significant improvements in financial performance and service delivery. We will not discuss their performance or the effects of postal reform. However, I will highlight a key common feature—universal service—of the U.S. and other postal administrations after reform. I will also highlight variances in the characteristics of their monopolies and their ability to set postal prices. We believe that these three areas—universal service, the mail monopoly, and ratemaking—will be among the most challenging for Congress to address in any future reform of the U.S. Postal Service. The primary mission of the U.S. Postal Service, as it now exists in law, is to provide mail delivery service to persons in all communities and access to the mail system through post offices and other means. The rate for First Class mail, i.e. letters “sealed against inspection,” must be uniform for delivery anywhere in the United States. The U.S. Postal Service generally offers delivery to both urban and rural addresses six days a week. Any consideration of reforming the U.S. Postal Service will require a careful review of, and no doubt much debate on, how the current universal service mandate will be affected. In all of the other eight countries, the postal administrations provided certain services widely to their citizens and at uniform rates before reform and continued to provide them following reform. However, the definition of universal mail service varies somewhat from country to country. Some of the countries provided the same level of service for urban and rural customers, while some others had different service standards for urban and rural areas. For example, although Canada Post is required by law to maintain service that meets the needs of Canadian citizens, the service only needs to be similar for communities of the same size. Canadian citizens in very remote areas in the far north may receive mail delivery less frequently each week than those in some other areas of Canada. In some countries, changes in universal service practices, involving such areas as the frequency of delivery and access to post office services, have been controversial. For example, in New Zealand, citizens in rural communities were upset when they learned New Zealand Post wanted to discontinue delivery services to rural addresses. The Post then increased a long-standing rural delivery fee for service, paid by the addressee; this decision proved unpopular, and the fee was eliminated in 1995. There continues to be no rural delivery fee in New Zealand. Accessibility to postal services, which includes maintenance of local post offices in the United States, is also part of the public service obligation of postal administrations in some other countries. The U.S. Postal Service must follow strict legal criteria in determining whether to close post offices. In New Zealand, the postal administration has negotiated a written agreement with the government that specifies the minimum number of postal retail outlets. In the Netherlands, Dutch law specifies minimum requirements regarding the density of post offices in urban and rural areas. Five of the eight countries’ postal administrations differ from the U.S. Postal Service in that a majority of their postal retail outlets are privately owned and operated, according to the February 1995 Price Waterhouse report. This group includes Australia, Canada, the Netherlands, New Zealand, and the United Kingdom. Except for the French postal administration, all of the eight foreign postal administrations have some form of franchising policy for postal retail services. Like the U.S. Postal Service, other postal administrations have also continued to provide certain subsidized services. For example, in Canada, the government compensates Canada Post for providing subsidized rates for publications, parliamentary mail, and literature for the blind. In Sweden, the government subsidizes certain services, such as free delivery of literature to the blind, while the postal service subsidizes the distribution of certain newspapers and provides discounts on association letters. We plan to issue a report shortly on the U.S. Postal Service’s role in the international mail market, including issues that have been raised by both the U.S. Postal Service and its major competitors, such as Federal Express and DHL Airways. The Postal Service participates in the Universal Postal Union, a specialized agency of the United Nations that governs international postal services. Its basic purpose is to help postal administrations fulfill statutory universal service obligations on an international level. A total of 189 Universal Postal Union member countries have agreed to accept mail from each other and to deliver the international mail to its final destination. The Postal Service has said that current universal service obligations and related public service mandates can only be met if its markets continue to be statutorily protected by the Private Express Statutes that provide the Service with a monopoly over letter mail. We plan to issue a report in the coming months that discusses the Postal Service’s monopoly in detail, including the growth since 1970 of private delivery firms that are competing and will likely compete more strongly in the future for some of the Service’s First-Class, Priority, and Third-Class mail. The postal monopoly is defined differently and varies widely in scope among the eight foreign postal administrations. In this country, the letter mail monopoly helps ensure that the Postal Service has sufficient revenues to carry out public service mandates, including universal service.