Office succeeded anywhere close to its expectations, it would constitute the creation of a monopoly.

Now, the word "monopoly" is generally obnoxious to everyone except when you are talking about a public service like the Postal Service. That seems to trigger some people, "Oh, there is another kind of monopoly, and we don't like the monopoly the Postal Service has already," and, without it, we don't have a Postal Service. So now we see this adventure, if you will, this experiment, being brought to a screeching halt. First, they convince the Postal Rate Commission to put an extraordinary rate increase in place that wouldn't indeed have left them in a competitive position. Now, you are telling the committee that your Board has decided that it probably isn't wise to go further in the development of E-COM, and indeed you have taken action to sell off the equipment that has been developed largely with our money and our people in the Postal Service to some unknown private sources that will then use that for some similar purpose.

The Postmaster tells us that he would hope that he can work out a contract where the machinery will stay in the Postal Service, thereby still being accessible. But then we find ourself as a public corporation in partnership with a profitmaking corporation, which it should be-maybe a multitude of profitmaking corporations-if we are going to do that. Some of us are a little hesitant about how far we want to see us becoming a part of multibusiness conglomerates, as if we were a private corporation answerable only to direct investors.

Would you say that, as far as the Board is concerned now, ECOM is dead?

Mr. MCKEAN. I don't think, Mr. Chairman, it is proper to characterize the E-COM service as if we had abandoned it. We did attempt to retain that function which we think the U.S. Postal Service does best. You are quite right, we were beseiged with a couple of external forces. One of them was what we thought to be a rate which was too high and which would have restricted volume at a time when we weren't satisfied that they had achieved the proper volume.

The other is that we felt that rather than abandon it entirely, it would be best to do something in the form of a private sector business partnership.

I spoke to you personally about this, however, at the time that it occurred, and I was disappointed. I believe that, in a business sense, the broader the services that the U.S. Postal Service is able to render, the broader the base of absorption of the institutional costs will be and, frankly, the easier the job will be. I would have preferred that E-COM had been regarded as an experimental service and not have had the necessity of filing the rate with the Postal Rate Commission, and in this belief, I share the belief of the former Chairman, Mr. Hardesty. We both believe that the Postal Service should have the flexibility and, at least in experimental services of this type, to set our rates and to see what the market will allow us to do.

E-COM was troubled, and the decision we reached was a consensus not without some second thoughts.

Mr. FORD. Usually when a business is marketing a multiplicity of products, there are several reasons why they try a product and abandon it. One of the most obvious is that there is really no market for it, that they misjudged the market. When that happens the evidence that that was really true is the fact that nobody else wants it and nobody else gets into it.

I say to you that it has been very obvious around this town for several years that there are a lot of people who want it, there are a lot of people who believe that it will sell, and that it ultimately is the technology of the future-not too distant future.

So we are not dropping E-COM because nobody is interested in it. We are dropping it at exactly the time that we have had 3 or 4 years of increasing evidence that a lot of people are interested in it. So instead of taking steps to try to improve the product or the marketing of that product, we are just going to leave it to the others and say, "You go ahead and see what you can do." My guess is that, if somebody figures out how to do this profitably and then starts to expand it very rapidly, you are not likely to ever find postal management willing to get back into competition with an already existing situation.

Now I don't know how long we wait. We have lost Social Security checks to the Postal Service. They now go over the wire directly to the bank by the millions. That is a revenue loss to us. Utilities don't bill monthly anymore, they bill on a less frequent basis; they don't mail their billings anymore, they bring them out and hang them on people's doors. The Postal Service can give you some estimates of what that is costing them in revenue. Albeit, from the standpoint of the utility, it is economically sound for them to do this, but, nevertheless, we lose this and we can't recapture it.

Now if you are going to keep from getting to a 50-cent stamp in the near future, you have to stay competitive, and that involves not only the price of your product and the quality of your product, but where that product fits in the marketplace.

What you are doing with E-COM, seems so final that you are not admitting any possibility for future improvement on the way it was approached the first time to see if indeed it could be done. If you have developed with the Board of Governors some evidence of the fact that this is fully impractical, that is a different thing, but I haven't heard that yet. If you have it, after the meeting, maybe you might want to send us something.

You, I understand, are giving the Defense Department $1,300 million much less than they asked for, just to put out contracts to find out how we could undertake a space wars program that will probably in the trillions once it is implemented over the future years, numbers that we never contemplated in space programs before. But they have already got this kind of money to get into something that isn't going to produce anything for anybody and has people arguing all over the place about the tactical wisdom of it. But, nevertheless, we are not afraid to spend some money to find out if it has a practical value and if we could apply it in a reasonable period of time to improve the defense of the country. If we are going to spend that kind of money on something that esoteric, why are we so hesitant about spending money on something as really as mundane as marketing a communications system? Isn't it

worth at least a consideration that the Board of Governors ought to put up a little fight, back its management, and see if they can't make it work?

I get the impression that the management over there now feels that the fight is over and that, when Bolger is gone, his successor may or may not have ever heard of E-COM and may or may not even be interested in it.

We did something else. We found out that Federal Express was remarkably successful by overnight delivery. So now we have an expensive, but efficient, overnight delivery system.

Federal Express has given their chairman a $13 million annual budget, so they are not ready to commit suicide down there because of our competition. It keeps us in front of the public, however, as somebody who is keeping up with the times. I don't know whether we are making money or losing money with that overnight delivery. I don't have any basis for a judgment on whether it is working well or it is not working well. But I do know that it is producing a public perception that the Postal Service is no longer a letter carrier on a mule. There is some value in that for a multi-billion-dollara-year sales job that the Postal Service has to do.

The Rate Commission has just had to wrestle with all of my friends, the big newspaper publishers in the country, because they came and chopped the devil out of us a few years ago by figuring out how to put inserts in their Sunday paper. Now you have to work through the inserts to find the Sunday paper. Somebody else has come along and figured out how to use our mail to take their customers back, and they are now running in and asking the Government to stop that kind of competition. We, frankly, have told them, "Hey, you fellows write all the editorials about free enterprise, and these people have learned how to build a better mousetrap. And you are going to have to live with it."

Your Board and the Postal Rate Commission is going to be under constant pressure from people who, from their own perspective, perceive that if they can do something to make you less efficient, it will enhance their own status in the market. And it looks to me like we are capitulating to some rather significant interests that don't like to be identified, very frankly. But the Communications Committee will be glad to identify them for you and tell you how many years they have been trying to find a way to stick things in communication bills to head off the Postal Service. Somebody out there with big bucks believes that this is a part of the wave of the future, and they want a piece of that action. They want it that bad, it seems to me that we ought to be a little bit more jealous in guarding our opportunity to have that for the American, albeit as part of a nonprofit corporation.

That comes down to the philosophy of your Board. Does the Board really believe that the Postal Service should stay in every way it can competitive so that it can continue to grow and hold down its cost to users, and particularly the costs to the non-revenue-producing users? There is no way in this country that you can run a rural route at a profit unless you jerk the boxes and say to the mailman you will only go out that road when you have a letter to deliver. You send him out to the end of the road to see if the little flag is up on somebody's box every day, and they might spend

25 cents a month on postage. They aren't going to get that service from anybody in private. But that service has to depend on the other judgments that you make in marketing, being able to carry

it.

I worry a little bit if we are now going to start digging in andagain, it may sound like I am really strongly sold on E-COM. I don't know when it is going to work. I am really somewhat hesitant about some aspects of it. But my instincts tell me that if it is that damn good in the marketplace, then we shouldn't be throwing it away. I hope you folks will really take another look before you have really finalized this arrangement, and then tell us why you think it is wise to literally get out of the business.

Mr. McKEAN. I would be happy to revisit the matter, Mr. Chairman. You continue to amaze me with regard to your knowledge of postal affairs.

It so happens that, at the time the decision was in its final stages of conclusion, I visited with you and I gave you my own personal opinion. It is true that, carried to its extreme-and I think a ridiculous extreme-the Postal Service, in the sense that it is a public utility, should only take services of the type that E-COM wasthat is experimental-bring them to the point of fruition and, as some people would wish to advocate, it is at that point that they must abandon them and hand them back to the private sector.

I can only assure you that that is not my view. I believe that the Postal Service, in order to compete properly and in order to broaden its absorption of institutional costs, should expand its services. I can assure you, in accordance with our costing methodology, that the express mail service is one of the bright lights in our developing trend. We believe that that is a profitable venture for the U.S. Postal Service, and I personally hope that we will be able to show that we can compete effectively.

So I am disappointed that E-COM didn't work out as well as I would like it to, and I hope that, when we come across other projects of this type, we are able to experiment with them, set our rates, and have the flexibility necessary that this market requires. We don't intend to restrict unnecessarily the services that the Postal Service has because of any philosophical bias that this Board may be perceived to have.

Mr. FORD. Up in my State, we talk about the farmer who went into partnership with the lawyer on a cow. Then when he read the fine print, he discovered that he got the end of the cow that ate and the lawyer got the end of the cow that gave the milk. I wish that farmer was down here to consult with you while you are making this deal.

Mr. MCKEAN. Actually, a moment ago I was about to say that that is the way I would characterize this hearing also. I got the wrong end of the cow.

us.

Mr. FORD. Thank you very much.

Mr. GARCIA. Thank you very much, Mr. McKean, for being with

[The following letter was received in response to written questions subsequent to the hearing.]

Set forth below are the questions posed in your letter to me of October 2 and my responses to those questions.

1. We have received reports that the Governors met here in Washington last week in a lengthy session devoted to consideration of candidates for Postmaster General. Is this true? What was discussed? Why was a public notice of this meeting not posted in the Federal Register pursuant to the "Sunshine in Government Act"?

As you know, the Governors of the Postal Service are charged by statute with responsibility for appointing and setting the term of service of the Postmaster General. For nearly a year the Board's Contingency Committee, which consists of Governor Voss and myself, has interviewed and gathered information about potential candidates inside and outside the Postal Service. During the week of September 17, six of the eight Governors, who were in Washington to attend the National Postal Forum, met for the purpose of interviewing six inside candidates that the Contingency Committee had previously interviewed, not to conduct a meeting within the meaning of the Sunshine Act. Subsequently, the Governors deliberated on the selection of a Postmaster General at our regularly scheduled October meeting in Cleveland. That meeting and the particular agenda item were properly noticed under the Sunshine Act. Out of concern for the privacy of the candidates, our deliberations were in closed session. We concluded our deliberations in closed session at our regularly scheduled November meeting in Washington, D. C.

2. For the record, would you please state whether or not you were aware that Governor John Ryan and Attorney William Olson, of the Smiley-Olson firm, had a prior private sector business relationship in 1978? (Mr. Olson hired Mr. Ryan as an expert witness in a Postal Service Rate Commission case when Olson was representing mailers in Docket MC78-2).