part, by the steep rate increases in both second and third class mail in the last rate case. These were increases largely caused by the decision of the Rate Commission to recommend a 29 cent first class stamp, and not a 30 cent first class stamp as requested by the Postal Service. Many of these suggestions have included various forms of rate deregulation, and many have come from the very largest mailers who hope to obtain rates lower than smaller mailers, by threatening to pull their mail out of the mailstream. In conjunction with these efforts, rate deregulation-cast as rate "reform"-has been pushed hard by the Postal Service at every opportunity. The Postal Service is concerned with obtaining volume, having finally understood that alternate delivery is real, and that a crisis is upon the Postal Service. The Postal Service as an institution has not yet understood that delivery quality problems are just as much the cause of the Postal Service's current problems as are rates. The quality of Postal delivery has been dropping for some time, and has continued to drop over the last year. The only real attention given this deterioration of service-other than honest efforts in individual cases to solve individual problems-has been to change the USPS service standards so slower delivery became the acceptable norm. Service in rural America has especially been degraded by the elimination of certain highway contract routes between adjacent Sectional Center Facilities (SCFs), in effect ending good service which has been in existence for many years. Perhaps the Postal Service will soon realize that delivery quality is critical to its future success. Both the Postal Service's Competitive Task Force's Advertising Mall subgroup (on which I serve) and its Magazine/Newspaper/Newsletter subgroup found that the recent exodus to alternate delivery services was being caused first by the increasingly sharp deterioration in the quality of the Postal Service's delivery, and only second by the level of recent rate increases. The systematic efforts by the Postal Service to deal with the crisis at hand appear to have focused almost exclusively on rate levels. Until the Service's quality of delivery improves radically, we believe that the current crisis will continue-rate abatement or not. III. THE REPORT OF THE JOINT TASK FORCE ON POSTAL RATEMAKING: Although the Joint Task Force on Postal Ratemaking announced some of its conclusions when it testified before Congress earlier this year, the text of its report, Postal Ratemaking in a Time of Change, was not released until mid-week last week. Given the short amount of time we have had to study it, NNA is not prepared to take an official position on any of the specific recommendations contained in the report. The bulk of the report, and what we see as its major recommendation, deals with the cycle of postal rate cases. The Task Force recommends that postal ratemaking be based on a four-year two-step cycle, with a major case every four years. Rates for only the first two years, however, would be legally recommended, and projections for the last two given. Rates for the last two would actually be set in an interim case. While we have much more yet to study in the proposal, as a preliminary matter, the concept of the four-year two-step cycle appears sound. The Task Force also considers the role of the Postal Service in offering services in competitive markets. It initially sets forth what it feels is the public policy basis for permitting continued government provision through the Postal Service of services offered by companies in the private sector. The Task Force very briefly explains why it feels that it is an appropriate goal for the Postal Service to maximize its market share in these markets, even though such activity would be done at the expense of the private sector. Finally the report recommends modifications in the ratemaking process for rates in competitive areas in order to help the Postal Service accomplish this goal. In considering how to approach the issue, the Task Force suggests that the Commission has the authority to treat competitive areas differently for ratemaking purposes from noncompetitive areas, and recommends that the Rate Commission do so. The Task Force also suggests that the Commission has the authority to decide which areas are "competitive," and that the Commission do so before the next rate case.? In competitive areas, the Task Force recommends that a range of permissible rates be set and that the Postal Service be permitted to adjust rates up and down within that range, without supervision.' The Postal Service also suggests the creation of rate discounts for large volume users. Again, while we still have much to analyze in regard to these issues, several questions 'The Task Force assumes that Express Mail, parcel post and heavy weight Priority Mail are currently competitive markets. 'The range would be constructed by fixing a rate consisting of a fixed element to recover all attributable costs of the subclass, and a variable element to recover a zone of institutional costs coverages. Thus, under the proposal, the exact cost coverage of any given subclass would vary depending where the Postal Service fixed the rate. of basic authority stand out. For example, surely the provision of "rate bands" for much of the Postal Service's volume would make it practically impossible for the PRC to fulfill its legal mandate of ensuring that total revenue recovers total costs. Institutional cost coverages are not assigned in a vacuum. Together, the institutional cost burden assigned to both competitive and non-competitive classes must recover the institutional costs of the postal institution as a whole. If the two together do not cover total institutional costs, the statutory mandate of the act will not be fulfilled. It is not clear from the Task Force's report how the Commission would ensure that all the institutional cost burden assigned to the competitive classes and subclasses would be recovered in a "rate band" environment. True, the Task Force would "hope" that the Postal Service would "try to maintain the aggregate institutional cost contribution set by the Postal Rate Commission," but that is not good enough. The Act requires that the Commission recommend rates that will recoup all costs. It does not say that the Commission can recommend rates that will recoup all costs if and only if the Postal Service decides to maintain, in its discretion, the aggregate institutional cost contribution set by the Rate Commission. Before some structure for competitive rates can be even considered, some way must be formulated to ensure the non-competitive rate-payers that the competitive rate-payers will, in reality, bear the full burden of their institution costs. Further, the Commission suggests that a system of declining block rates be set to provide for volume discounts for large mailers. The National Newspaper Association strongly opposes any sort of volume discounts. They are completely inappropriate for any govemment Task Force Report at 42. corporation. If a small mailer and a large mailer mail two pieces that cost exactly the same to process and deliver, then both should pay the same rate. To do otherwise is to provide government incentives that would encourage customers of mailing businesses to use large mailers rather than small. That concept has no place in American Postal Policy. NNA urges caution in this area. The public policy issues raised by deregulated ratemaking in "competitive" markets are fundamental questions which have not been thoroughly aired and debated in Congress, and on which the Congress has not had an opportunity to speak. We are concerned that the Commission might try to broadly implement deregulated competitive raternaking on its own authority, without specific Congressional authorization. From a practical point of view, any attempt to do this will likely lead to extensive appellate litigation—a result that would help no one, and which would further exacerbate the present situation. The Commission also recommends a series of procedures that could be applied to the development of new products. The position NNA would take on these procedures would in large part turn on the details of the particular procedure, as they are fleshed out in regulatory or statutory language. Consequently, we are unable to comment on them at this time. Finally, the Task Force emphasizes the need and suggests several ways in which the Commission and the Postal Service can better work together. Included among those are the publication of Postal Service data in formats adopted by the PRC. NNA has long believed that if these two organizations could work more closely, the mailing public would be better served. This report and this last set of recommendations are a good start to a new relationship between these two groups. We applaud this cooperation and hope it can continue. Thank you for considering our views. I would be happy to answer any questions. |