Copyright 1999 Federal News Service, Inc.
Federal News Service
FEBRUARY 11, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
1659 words
HEADLINE: TESTIMONY OF
COMMISSIONER RUTH
Y. GOLDWAY
BEFORE THE HOUSE COMMITTEE ON GOVERNMENT
REFORM
SUBCOMMITTEE ON THE POSTAL SERVICE
BODY:
Chairman McHugh, members of the Committee
on Government Reform, Subcommittee on Postal
Service, I am submitting this testimony on H.R. 22, the Postal Modernization Act
of 1999, as an individual statement of one Commissioner of the Postal Rate
Commission and as an addendum to the testimony delivered on behalf of the full
Commission by Chairman Gleiman.
I want to commend Chairman Gleiman for the
careful, thorough and cooperative fashion in which he supervised the development
of the Commission's joint testimony. His lengthy testimony does not reflect all
of the concerns that arose during Commission discussions, but it incorporates
the vast majority of our comments and the remarkable consensus we reached on a
broad array of issues. In particular, I appreciate the Chairman's comments on
the need to broaden the qualifications for membership on the Postal Service
Board of Directors in order to assure that the public interest is well
represented; his comments on the need to limit, in some fashion, the portion of
profits that could go directly to bonuses; and his clear descriptions of the
complex problems that could arise as a result of the establishment of the
Private Law Corporation.
While I respect the hard work and several years of
deliberation that have gone into the drafting of the current H.R. 22, as a
relative newcomer to the field of postal services who has previously focused on
the consumer's point of view, I may have a somewhat different perspective on
postal reform, which I offer for your consideration.
During
the economic expansion of the 1990s, consumers have experienced the turmoil and
rapid changes of a highly competitive marketplace and, for the most part, they
have greatly benefited. The forces of new technologies and deflationary raw
material costs have combined with innovations in marketing, deregulation,
mergers creating scope and scale economies, and fierce battles to gain market
share so that consumers now have more and better quality goods and services
available to them at lower prices. Likewise, H.R. 22 should rely more on the
advantages of competition than on protecting the marketplace from possible
Postal Service competition.
H.R. 22 should encourage the Postal Service to
be more efficient and innovative. Its competitors would then have to respond and
the public would get the benefit of lower prices and better services from all
providers.
But 205's restrictions on the introduction of new products,
except as part of a Private Law Corporation, limit the Postal Service's ability
to be innovative and respond to changing technologies with new products. It
isinappropriate for legislation designed to prepare the Postal Service for the
next century to prohibit it from providing services other than those
specifically related to the physical delivery of letters, printed material or
packages weighing up to 70 pounds.1 Yes, new products can be offered by the
Private Law Corporation, but, as the Chairman's testimony explains, the PRC has
concerns about the construct and activities of such a corporation.
Therefore
I would propose loosening the definition of postal product in H.R. 22's revised
102 to allow for product innovation where there is a nexus to postal operations,
and where the Postal Service can show that the new product will benefit from
Postal Service scale or scope economies. If the Postal Service can draw on such
economies, consumers will benefit from lower prices.
We should not curtail
the ability of the Postal Service to be innovative just because of its size. As
the Supreme Court has said, "(1)ow prices benefit consumers regardless of how
those prices are set, and so long as they are above predatory levels, they do
not threaten competition."2 Further, it has said, "(i)t is in the interest of
competition to permit dominant firms to engage in vigorous competition,
including price competition."3
Enhancing the ability of the Postal Service
and its competitors to do battle fairly will have a beneficial impact on Postal
Service productivity, industry competition and consumer welfare. However,
enhancing competition in the postal industry should be a two-way street. To that
end, ! would ask the Committee to assess further the impact of other laws that
may unfairly inhibit competition by Postal Service competitors. The Committee
should consider decreasing the scope of the letter monopoly on a graduated
basis, say over ten years, charging the PRC with reporting annually to Congress
about such a provision's effects on universal service.
The rather elaborate
and detailed statutory checks and balances built into H.R. 22's price cap
mechanism will serve to protect mailers from cost shifting or sudden price
increases. On the other hand, they provide little opportunity or incentive for
the Postal Service to lower rates either to reflect the rapid impact of
management efficiencies or to offer volume-attracting discounts. Lowering prices
in a nondiscriminatory fashion (i.e., not NSA's) in a competitive market does
not always mean cost shifting or predatory pricing, and such reductions can be a
way for the Postal Service to attract new customers. Lower prices could, in
themselves, be powerful incentives for the Postal Service to increase
productivity and directly benefit consumers. Therefore, I am inclined to support
that section of the Postal Service's price cap proposal which broadens the
definition of products to current subclasses -- as long as H.R. 22 also includes
an amendment requiring the Commission to review and adjust the baseline rates
every five years. Such a regular quinquennial review would provide a public
forum in which imbalances resulting from the price cap mechanism, on the high or
low end, could be examined and corrected.
In this same vein, I would be
inclined to allow the Postal Service broader discretion in its market tests for
postal products than H.R. 22 currently allows as long as at the midpoint of the
trial the PRC was required to review the ongoing test to determine that the
resources allocated to the test were not unduly disproportionate to the revenues
derived and the PRC could cancel the test if such a finding was made.
Finally, while I would appreciate the Subcommittee's consideration of these
possible adjustments expanding the Postal Service's ability to compete with
other providers with regard to prices and new products, I think it is vital that
the Postal Service be required to present its products and services to consumers
in the marketplace under the same terms as its competitors. To that end, I am
concerned that H.R. 22 does not subject the operations of the Postal Service to
federal laws and regulations concerning deceptive advertising. Recently, the
Commission held in the Life Time Fitness complaint case that the Postal
Service's use of language in a marketing diskette for advertising mail was
"deceptive and inappropriate."4 Nonetheless, the Commission found it necessary
to dismiss the complaint because of limitations on its complaint authority.
H.R. 22 may not subject the Postal Service to the review of any regulatory
agency for deceptive practices. The Federal Trade Commission is the agency
primarily charged with prohibiting deceptive acts and practices? but FTC
jurisdiction over Postal Service operations is problematic. Section 401(1) of
Title 39 permits the Postal Service "to sue and be sued in its official name,"
but FTC jurisdiction extends only to a corporation "which is organized to carry
on business for its own profit or that of its members .... -6 Although the
"break even" standard currently found in 39 U.S.C. 3621 would be deleted by H.R.
22, it is unclear whether all Postal Service operations would be considered to
be of the type covered by FTC jurisdiction. Further, one can read 307, which
amends 409 of Title 39, as specifically excluding the FTC from policing Postal
Service advertising and marketing practices.7
Nor is there readily apparent
Commission authority over deceptive practices. H.R. 22 expands the Commission's
complaint powers, but there is no specific reference to deceptive practices. For
example, revised $ 3662 of Title 39 would allow interested parties to file a
complaint with the Commission if they believe that "the Postal Service is not
providing postal service in accordance with the policies of this title," but
there is no specific policy in Title 39 directed against deceptive advertising.
And, as the Life Time Fitness case suggests, even under current law, the
regulated side of Postal Service operations needs this kind of oversight.
Once again, thank you for the opportunity to share these additional
comments. I look forward to further participation with my fellow Commissioners
as the legislative process for H.R. 22 proceeds.
FOOTNOTES:
1 I would
note that the 70-pound restriction would mean the Postal Service never could
compete against its competitors for larger weight packages if it so chose. The
current lack of Postal Service competition for 70+ pound package delivery is
meaningful; private carder rates jump dramatically just past the 70-pound mark.
2 Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 338 (1990). See
also generally Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509
U.S. 209 (1993).
3 Id. at 341, citing prior cases for the same proposition.
4 Docket No. C98-1, Complaint of Life Time Fitness, Concurring Opinion at 1,
issued January 27, 999.
5 See 15 U.S.C. Sections 45.
6 15 U.S.C.
sections 44. See Community Blood Bank of Kansas City Area, Inc. v. FTC, 405 F.2d
1011 (8t" Cir. 1969) for one decision explaining the scope of FTC jurisdiction
over corporations.
7 Proposed 39 U.S.C. sections 409(d)(1)(C)(ll) applies
FTC antitrust jurisdiction to certain aspects of Postal Service operations. In
applying 15 U.S.C. sections 45 to the Postal Service, it specifically includes
only the FTC's "unfair methods of competition" authority.
END
LOAD-DATE: February 12, 1999
