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Mr. Chairman, Members of the Subcommittee, thank you for the opportunity to testify today. My name is Charmaine Fennie and I am chair of the Coalition Against Unfair USPS Competition. The Coalition strongly supports passage of H.R. 22 with certain changes detailed below. It is vitally important that Congress address the many issues which confront the U.S. Postal Service.
The Coalition represents the interests of more than 12,000 privately- owned small businesses in all 50 states and 435 congressional districts. These businesses include the 10,000 mail and packaging stores which operate under the franchises and independent names with which you are familiar including Mail Boxes Etc., Pak Mail, Parcel Plus, PostNet, Postal Annex+ and the independent stores of Associated Mail and Parcel Centers. Additionally, the Coalition represents the 2,000 independently owned office supply stores of the National Office Products Association. Our store owners invest their own capital and work to achieve the American dream. In virtually every instance, they are in their stores daily behind the counter servicing their customers. These businesses exemplify small business at its best.
As I said, it is vitally important that H.R. 22 becomes law. The issue of postal reform is crucial to the members of our Coalition. We have carefully examined H.R. 22 and believe it represents the best effort at comprehensive postal reform. However, there are some very important changes that need to be made. My testimony will outline these changes in detail. Our support of H.R. 22 is dependent on these changes being made. We believe the bill, in its current form, does not adequately protect our small-business owners from predatory practices by the Postal Service.
Proposed Changes to H.R. 22
1. Elimination of the Private Law Corporation/Prohibition Against Competition with Small Businesses in Nontraditional Areas: At the last hearing, Postal Rate Commission Chairman Ed Gleiman testified regarding many of the problems with the Private Law Corporation. The Coalition agrees with this testimony and echoes the concerns of Chairman Gleiman. The need for a Private Law Corporation has not been proven. Neither the Postal Service nor any other advocate has stated a compelling case for authorizing the Postal Service to begin complete and unfettered competition with the private sector in any and all businesses and trades.
The powers of the Private Law Corporation (PLC) are extraordinary because they are the powers of any other corporation under American law. That is to say, the PLC can go into any business it wants, invest in any private company, and enter into joint ventures with any private corporation. What does this mean?
a. The PLC can become a major Fortune 500 corporation or enter into a joint venture with any corporation such as General Motors, General Electric, AT&T, WalMart, or Microsoft.
b. The PLC can purchase any of our members or their stores. The Coalition opposes Congress authorizing a government-owned corporation that can compete with our industry or purchase our stores. The PLC would be unlike any other government chartered/corporation such as the U.S. Enrichment Corporation, COMSAT, Fannie Mae, or Freddie Mac - all of which were created for a specific purpose which the private sector could not provide.
What happens to the profits, if any, of the PLC? There is no obligation of the PLC to provide any financial support to the USPS. In fact, it can be expected that the PLC will not provide ann significant revenues to the USPS since a new and growing corporation would naturally use its profits to grow its revenues or pay bonuses to its top management. What good does this do for the American people as ratepayers or owners of the PLC? Since the stock of the PLC is owned by the USPS, no American can sell that stock to realize any benefit from the PLC. Neither can the ratepayer expect any relief from the threat of rising postal rates. The Postal Service instituted its smallest rate hike in a generation last January, one cent for first class mail. That rate hike is expected to generate an additional $1 billion in revenue. What would the PLC have to do to match this $1 billion revenue contribution to the USPS? It would have to turn itself into businesses such as the following:
- Merrill Lynch - The largest publicly traded brokerage house in the country had a 1997 profit of $1.8 billion on gross revenues of $31.73 billion and was listed as #24 on the Fortune 500. With profits like these, the PLC could plow half its profits back into its business or pay bonuses to its management. The remaining half, nearly $1 billion, could prevent a one-cent rate hike.
- Sears Roebuck - The venerable retailer reported 1997 earning of $41.36 billion, a profit of $1.18 billion and was listed as # 16 on the Fortune 500. One billion dollars could support stamp prices leaving a relatively paltry $180 million for reinvestment and bonuses for management.
- Motorola - The well-known electronics firm was listed as #29 on the Fortune 500. It reported 1997 profits of $1.18 billion on earnings of $29.79 billion dollars.
The point of this analysis is to show how difficult it will be for the PLC to be anything but a major competitor with American business if it's mission is to support stamp prices and universal service. It is hard to make money in American business, and it is particularly hard to make billions of dollars in profits. Is it really the intent of H.R. 22 that the PLC become a wholly owned subsidiary of the Postal Service and strive to be one of the largest companies in America? If the PLC does not make billions of dollars in profits which can be turned over to the USPS to support stamp prices, what purpose has it served?
Mr. Chairman, the record of the USPS in private business ventures does not support such an assumption. In 1997, the General Accounting Office reported an $84.7 million loss on these new ventures. Even if the USPS were to turn its poor record completely around and make it an $84.7 million profit, it would have to increase that profit by 1200 percent to reach $1 billion. A copy of the GAO report is attached for the record.
The evidence shows that the PLC cannot be a success. Congress should not create it in this or any other bill regarding postal reform. Instead, H.R. 22 should firmly direct the Postal Service not to compete with private business in new, nontraditional ventures. The Coalition respectfully requests that a provision such as H.R. 198, the Postal Service Core Business Act introduced by Representatives Hunter and Cunningham, be included in H.R. 22. H.R. 198 firmly states that the Postal Service is to return to its core business of delivering postal services, and not allow itself to be distracted by the new, non-postal ventures. Another version of this kind of legislation has been proposed by the Mail Advertising Service Association. Either of these approaches would send the correct message to the Postal Service and close the door on these illadvised ventures into nontraditional activities.
Mr. Chairman, this issue of defining the mission of the Postal Service is vitally important.

For the last few years, the Postal Service has been seeking to transform itself from the Postal Service to some other type of entity. This is a mistake. The Postal Service has presented no viable plan for its new ventures and its track record is miserable. The mere threat of this huge federal agency being able to compete with congressional authority is very threatening to our small businesses. The Postal Service can spend millions of dollars in a series of failing while damaging to small business at the same time.
For example, the repetitive packaging service which the Postal Service proposes would involve nearly 7,000 locations and generate about $70 million in total revenue. While a small amount by Postal Service standards, it is huge by the standards of our industry. In less than two years, the Postal Service intends to become the largest single enterprise engaging in packaging and compete with nearly 70% of the locations of an industry which has taken nearly 25 years to establish itself. There is no question that such a program would do tremendous damage to the small businesses in our industry.
Mr. Chairman, H.R. 22 must include a provision which will specifically state that the Postal Service must not engage in this kind of competition against small business. The Coalition respectfully requests that H.R. 198, the MASA amendment, or some other form of definite rules which require the Postal Service to concentrate on its core business of delivering the mail on a universal service basis be included in H.R. 22. The Postal Service cannot be allowed to compete with small business.
Regulation of CMRAs
Our industry is based on a close working relationship with the Postal Service. We act as Commercial Mail Receiving Agents (CMRAs) for many of our customers who rent private mail boxes to receive their mail at our stores. This has historically been a positive relationship, with CMRAs working closely with local postmasters. However, in the past few years, the relationship has become strained. In July 1997, the Postal Service published a set of proposed federal regulations for CMRAs without any consultation or notification to our industry. With the exception of actual publication in the Federal Register, there was no notice to our industry and the comment period closed after only 30 days. This was not sufficient time for our small businesses to respond to the rulemaking process. The regulations included many negative new rules including a provision allowing a postmaster to terminate delivery and pickup of mail to a CMRA with no hearing or due process.
After great effort on the part of our industry and with the assistance of the Chairmen for the Full Committee, the Subcommittee, and other members of Congress, the Postal Service reopened the comment period for another 30 days. However, the USPS chose the single busiest time of the year for our industry - November 24 to December 24, 1997. Nevertheless, our industry geared up and responded with over 50,000 letters in opposition to the proposed CMRA regulations. Our members had to compose detailed comments while working 12-14 hours a day, packaging items to be in the mailed for the holidays. The regulations are still pending. This fact pattern is recited to emphasize how the Postal Service can use its regulatory power to harass and harm those it regulates and with which it competes.
This dual regulatory/competitive issue is one which H.R. 22 has dealt with in Section 404a. The Coalition endorses Section 404a and requests specific direction to the Postal Service that this section covers the currently pending proposed federal regulations which would create a tremendous competitive disadvantage for CMRAs. The Postal Service should be directed by this Subcommittee to scrap these proposed CMRA regulations. If there is a need for a revised regulatory framework for the CMRA/Postal Service relationship, it should not be established in an atmosphere of confrontation. The Coalition would be happy to work with the Postal Service on such an endeavor. The Coalition will submit proposed Committee Report language on this matter and requests that this report language be included in the Committee Report.
Status of Packaging
Packaging is one of the principal product lines for the mail and packaging members of the Coalition. In 1994, the Postal Service began a trial packaging service named Pack & Send in about 250 locations in seven states including California, Florida, Alaska, and Texas. The Postal Service did not request a recommended decision from the Postal Rate Commission prior to this service. The Coalition was formed in 1995 over this matter and began its efforts to oppose the direct competition of the Postal Service in one of its members' key product lines.
Over the last four years, the Coalition has fought a hard battle on this issue with the Postal Service at the Postal Rate Commission. First, the Coalition filed a complaint that alleged an illegal postal service being offered without a PRC rate proceeding. After winning this case, a rate proceeding was held at the PRC and a proposed recommended decision from the PRC is now pending before the Postal Service Board of Governors. At this point, the Postal Service has not yet begun packaging, thanks to the PRC ratemaking process.
The Coalition does not believe that the Postal Service should be in the packaging business. The Postal Service estimates it will generate about $13 million annually on packaging, but the Coalition believes it will be far less. This "profit" will only be realized by charging no advertising revenues to the service and only if completely successful. The Postal Service stated in the proceeding that it intended to provide no advertising except an on-site display. Considering the Postal Service's multimillion dollar advertising budget, this seems very unlikely. This $13 million is barely one percent of the $1 billion generated by the one cent rate hike.
As stated previously, the Postal Service will become the largest single packaging service provider by the end of the second year of its experiment. Attached for the record is a copy of 3,500 of the 7,000 zip codes in which the Postal Service proposes to offer packaging. It will offer packaging in most congressional districts represented by Subcommittee members including Philadelphia, Cleveland, Indianapolis, Brooklyn 8,: Chicago, but not in the Chairman's district.
The Postal Service stated during the proceeding that it would only offer packaging where it felt it could make a profit. This means urban and suburban areas where the private sector is already providing the service.
Packaging would be one of the few postal products not offered on a universal basis. In fact, this concept provides the worst of both worlds for the ratepayer and the Coalition's members. The Postal Service will only offer packaging in areas where private business already offers this service. This provides no assistance to universal service and the private sector must compete with its own government. The Coalition is unalterably opposed to the Postal Service providing packaging in competition with its members and requests the Subcommittee to adopt language which would prevent the Postal Service from offering this service in direct competition with Coalition members.
There are many other problems created by this proposed service. Under H.R. 22, packaging is defined as a noncompetitive special service. However, the Postal Service amendments propose that most special services be transferred to the competitive basket in which the Postal Service has complete pricing flexibility so long as the total competitive basket meets the revenue requirements of the bill. This is very dangerous. To the Postal Service, packaging is a device to increase its market share of its underlying services of Express Mail, Priority Mail, or parcel post. It may not even matter to the Postal Service if packaging makes a profit. The Postal Service can do a tremendous amount of competitive damage to small private businesses if it chooses to price a packaging service as at no profit to increase its stake in the underlying delivery service or Express Mail, Priority Mail, or Parcel Post.
The critical factor in the rate proceeding was the PRC requiring full system-wide cost coverage be provided to the proposed rate for packaging by the Postal Service. That cost coverage rate was 57%. If packaging is a competitive service under H.R. 22, the Postal Service could lower its PRC-recommended rate by that 57% cost coverage and reduce its overall solely to attributable costs. This would be devastating to the small private competitor down the street.
Mr. Chairman, our store owners are small businesses who do not have the time and resources to continually participate in future rate proceedings. The best way to deal with this matter is to adopt an amendment which will exclude packaging as a product which the Postal Service can offer. It will do the Postal Service no financial harm. The proposed recommended decision has been pending at the Postal Service for 11 months.

The Board of Governors has not acted on it. Clearly, packaging is not a major issue for the Postal Service.
This is a major issue for us. Packaging is one of the most significant products our businesses sell. While we expect to compete with any private company which chooses to enter into that business, we do not believe it is fair for the federal government through the Postal Service or the PLC to provide this competition. A proposed amendment to implement this suggestion will be provided to the Subcommittee prior to mark up.
The Postal Regulatory Commission
The Coalition has only been involved in one complaint and two rate cases at the PRC.
However, our experience in these cases show how critical the Commission is. The Coalition applauds the provisions of H.R. 22 which will upgrade the status of the PRC. However, the provisions do not go far enough. During the cases in which CAUUC has participated, the Postal Service has regularly refused to disclose information important to the proceeding. Even more distressing is that the Postal Service has the final say on its own rates. As a regulated institution, this simply does not make sense. The Postal Rate Commission should be a true regulatory commission with full regulatory powers and final say on its decisions. The new Postal Regulatory Commission should also be given full authority over international mail. No justification for a distinction between domestic and international mail has been provided by the Postal Service.
Market Tests of Experimental Products
As long as packaging is a postal product which the Postal Service can offer, CAUUC vigorously opposes Subchapter V, the market test provisions of H.R. 22. Even though market tests for noncompetitive products are limited to $10 million per year, this is a very large test for small businesses. For example, even a limited test on packaging could easily reach a large number of stores for "only" $10 million. The proposed packaging test before the Postal RateCommission involved a total revenue of $35 million and 3,500 stores in the first year and $70 million and 7,000 stores in the second year. Even with a $10 million limit, the Postal Service could design a very destructive "experiment" with competition in a thousand or more locations. This would be devastating to small businesses like those in the Coalition. If packaging were assigned to the competitive sector, the entire proposed packaging test could be accomplished with no PRC oversight.
The Coalition does not support any market tests for a postal product such as packaging. The existing postal laws which require a rate case for such an experiment or market test is the best way to protect small business from the threats of a "small market test."
The Postal Service Amendments
Many of the Postal Service amendments are not specifically relevant to the issues important to the Coalition. This testimony has attempted to highlight those which are relevant. Generally, the Coalition believes that these amendments give far too much flexibility to the Postal Service in its competition with private business. That is why it is critical that the changes proposed by the Coalition be adopted. So long as the thrust of H.R. 22 is to grant the Postal Service "flexibility," it is critical that small business be protected from this "flexibility." The general thrust of the Postal Service amendments are to transfer virtually all postal products with the exception of monopoly mail to the competitive basket and to require no contribution to overhead or cost coverage. This leaves the monopoly mail ratepayer to pay for the institutional costs of the Postal Service. This is a profound change from current law.
The Postal Service amendment regarding the PLC give it even more "flexibility" by making stock and bonuses even more of an incentive for management to engage in competition with the private sector. For example, the sale of stock to the general public by the PLC is a major policy issue. What purpose does this serve? Why does the Postal Service need to own a publicly traded subsidiary? What are the pressures on universal service created by this concept? What would be the focus of Postal Service management if it can receive stock options and bonuses from the PLC? Would that focus be universal service or the stock price of the PLC?
Miscellaneous Issues
There are two other issues which the Coalition would like to raise.
1. Packaging Rate Case - The status of the current pending packaging rate case is unclear. Section 3721 terminates all pending rate cases. Does this mean that if the Postal Service does not act on the case that it will terminate? This is fine if H.R. 22 has determined the clear status of packaging and has eliminated it as a postal product. If not, a clear transition must be established. One could also ask what this does to R97-1, the current major rate case now on appeal before the Court of Appeals. A transition for this case may also be appropriate.
2. CMRA Change of Address - The Coalition expresses its thanks to Chairman McHugh and the Subcommittee for the inclusion of this provision in H.R. 22. Customers of CMRAs are the only postal customers in the country currently denied the privilege of standard change- ofaddress and mail forwarding. This is a fairness and equity issue. All postal customers should be treated the same.Conclusion
Thank you again for the opportunity to testify. H.R. 22 is very important to our members. and we urge action on the bill and these amendments as quickly as possible. It is our hope that this bill can be passed this year so the implementation of the postal reform can begin quickly.

LOAD-DATE: March 6, 1999

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