Report On Universal Postal Service and The Postal Monopoly October 2008 TABLE OF CONTENTS I. Executive Summary ........................................................................................................ 1 II. Introduction and History ................................................................................................ 5 III. Definition of Universal Service Obligation and Postal Monopoly .............................. 9 A. Universal Service Features ...................................................................................9 B. Private Express Statutes .....................................................................................13 C. Mailbox Rule .........................................................................................................16 IV. Dimensions of the Universal Service Obligation ....................................................... 18 A. Range of Products ...............................................................................................18 B. Uniform Prices and Affordability ........................................................................18 C. Frequency of Delivery..........................................................................................19 D. Quality of Service .................................................................................................21 E. Access to Services and Facilities.......................................................................24 F. Geographic Scope................................................................................................29 G. Security of the Mail ..............................................................................................31 V. Public Service Requirements on the Postal Service ................................................. 32 A. Social Function / Preferential Pricing.................................................................32 B. Governmental Constraints ..................................................................................35 C. Community Presence...........................................................................................39 VI. Mailbox Access ............................................................................................................. 41 A. Safety and Security of the Mail ...........................................................................41 B. Public Perceptions ...............................................................................................43 C. Potential Impacts on Customer Service.............................................................45 D. Potential Impacts on Cost and Affordability......................................................45 E. Environmental Considerations ...........................................................................46 F. Conclusion............................................................................................................48 VII. Private Express Statutes .............................................................................................. 49 VIII. Potential Financial Impacts.......................................................................................... 52 A. Principles and Issues in Calculating Costs of the USO....................................52 B. Approach to Defining the Costs of the USO......................................................53 C. Costs of the USO under Current Environment..................................................54 D. Costs of the USO under Liberalized Environments ..........................................57 E. Conclusion............................................................................................................62 IX. Economic Efficiency Arguments ................................................................................. 62 X. Postal Reforms Internationally .................................................................................... 64 A. Context of Liberalization .....................................................................................65 B. Upside Potential of Liberalization.......................................................................67 C. Experience to Date in Other Countries ..............................................................69 D. Flanking Measures ...............................................................................................71 XI. Customer Satisfaction and Sentiment ........................................................................ 73 A. Customer Satisfaction Scores ............................................................................73 B. “Most Trusted Federal Agency” .........................................................................73 C. Public Outreach....................................................................................................74 D. Consumer Research Results ..............................................................................77 XII. Trade-offs and Stakeholder Impact ............................................................................. 80 A. Impact on the American Public...........................................................................80 B. Impact on the Mailing Industry ...........................................................................82 C. Impact on the Competitors..................................................................................83 D. Supporting Measures / Flanking Measures .......................................................83 XIII. The Future, Summary and Recommendations........................................................... 85 Appendices A. Universal Service and the Postal Monopoly: A Brief History B. Accenture Report: Postal Universal Service Obligation (USO) International Comparison: International Postal Liberalization – Comparative Study of US and Key Countries C. IBM Report: Quantitative Analysis of the Universal Service Obligation D. ILO Report: The Mailbox Monopoly: A New Look at the Last Mile E. RAND Report: The Role of the United States Postal Service in Public Safety and Security: Implications of Proposed Relaxation of the Mailbox Monopoly F. Great Lakes Marketing Report: Universal Service Obligation/Monopoly Research: Summary of Focus Group Research G. Comments of the United States Postal Service to the Federal Trade Commission Preface The Postal Accountability and Enhancement Act of 2006 requires the Postal Regulatory Commission to submit a report to the President and Congress on universal postal service and the postal monopoly in December 2008. The Commission’s report must include the scope of universal service and the postal monopoly under current law, the scope likely required in the future to meet the needs of the American public, and any recommended changes. The Postal Act of 2006 requires the Commission to consult with and solicit written comments from the Postal Service. In addition, Section 710 of the Postal Act of 2006 requires the GAO by 2011 to make a broad range of recommendations and to include experiences of other countries. Therefore, the dialogue on universal postal service and postal monopoly, in many respects, is just beginning. Given the economy and significant dynamics in the marketplace for mailers and the Postal Service, this dialogue may need to occur sooner rather than later. This report represents the Postal Service’s initial effort to inform that dialogue. 2 I. Executive Summary The mission of the U.S. Postal Service is to provide the American public with trusted, affordable, universal service. Congress and the President set forth this mission by recognizing the Postal Service’s critical role in commerce and in binding the nation together. While not explicitly defined, the Postal Service’s universal service obligation (USO) is broadly outlined in multiple statutes and encompasses multiple dimensions: geographic scope, range of products, access to services and facilities, delivery frequency, affordable and uniform pricing, service quality, and security of the mail. While other carriers might offer delivery on a universal basis, the Postal Service is the only carrier obligated to provide all aspects of universal service at affordable prices. To ensure funding of the USO, Congress and the President established the Private Express Statutes (PES) and the mailbox access rule, which together comprise the postal monopoly. Since any obligation must be matched by the capability to meet that obligation, the USO, the PES, and the mailbox rule are inextricably linked. Recent growth in the American population and the number of delivery points has led to a significant increase in the Postal Service’s fixed costs, while over the last few years, volumes have taken a very visible downward turn. Recent economic trends certainly account for a good share of that downturn. So, too, does the acceleration of electronic diversion. Increasingly, personal correspondence is sent via the internet, financial statements arrive online, and bills are received and paid electronically. Online alternatives have become more prominent for news publications and advertising, and competition thrives in the package delivery arena. While the Postal Service may have a limited statutory monopoly, the reality is that there are alternatives to every piece of mail. The Postal Service believes that the broad definition of USO should be maintained. First, there has been no impetus for change towards a more strictly defined USO. As discussed in Section XI, surveys and hearings indicate that the