Copyright 1999 Federal News Service, Inc.
Federal News Service
MARCH 4, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
1747 words
HEADLINE: PREPARED STATEMENT OF
JOHN F.
STURM
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEWSPAPER ASSOCIATION OF
AMERICA
BEFORE THE HOUSE GOVERNMENT REFORM
COMMITTEE
POSTAL SERVICE SUBCOMMITTEE
BODY:
Mr. Chairman, members of the
subcommittee, it is a pleasure to appear before you today to discuss H.R.
22--the Postal Modernization Act of 1999. We appear before you today as a member
of the Main Street Coalition for Postal Fairness, a group that represents
approximately 40 percent of the mail volume in the United States. Most Main
Street members are small mailers.
We welcome the opportunity to appear
before you and sincerely appreciate the enormous effort that you and your staff
have devoted to this process in recent years. Since NAA has commented
extensively on earlier drafts of H.R. 22, and those comments still stand, my
comments today will focus directly on the areas of the bill that we can support
and areas that continue to present fundamental problems for the newspaper
industry.
NAA is a national trade association headquartered in Vienna,
Virginia, that represents more than 1,700 newspapers in the U.S. and Canada,
accounting for 87 percent of the U.S. daily circulation. While most NAA
newspapers are dailies, many weekly newspapers are also members.
The Postal
Service is very important to newspapers. We use Periodicals and Standard mail to
deliver our editorial and advertising products. We also have a strong First
Class interest since we, unlike most businesses, receive the vast majority of
our revenue through the mail.Although newspapers are among the Postal Service's
largest customers in any local area, the Postal Service has come to view
newspapers as competitors, and has targeted newspapers' advertising revenue for
diversion to direct mail advertising. The Postal Service has engaged in
extensive marketing efforts to achieve this goal, even noting in its 1998
Marketing Plan that one of its objectives was to "create the platform for moving
substantial revenues from pre-printed newspaper inserts into mail."1 This
certainly was not a role envisioned by Congress when it reorganized the Postal
Service in 1970.
NAA believes that the Postal Service was intended to be and
should remain a public service. As such, it should focus on and improve its
performance of its core mission--efficient, universal mail delivery at
non-discriminatory rates. Our views concerning H.R. 22 reflect this fundamental
position.
NAA supports a number of provisions of H.R. 22, including those
which would strengthen oversight by the Postal Rate Commission and improve its
ability to ensure that the Postal Service does not stray from its public service
mission. These provisions include:
- Giving the PRC subpoena power over the
Postal Service so that the PRC has sufficient information to determine whether
rates fully cover attributable costs and bear a fair share of overhead costs. We
believe this provision should be strengthened by giving the PRC the power to
require the Postal Service to gather data, and keep whatever systems of
accounts, contracts, and other "business" systems the PRC finds appropriate.
- Relaxing banking requirements for the Postal Service in order to allow it
to bank and to borrow capital under more favorable conditions. - Strengthening
the Inspector General's office in order to more closely monitor the Postal
Service.
- Improving contracting, transportation, law enforcement, and labor
matters for the Postal Service.
As has been detailed in previous submissions
to this subcommittee, NAA has fundamental concerns about the basic thrust of
H.R. 22, which allows a government agency with a de jure monopoly to compete
with the private sector. NAA believes that government entities should offer
commercial services only where there is market failure--that is, where the
private sector either cannot or will not offer such services. That is clearly
not the case here, and NAA therefore believes that the competitive policy
choices made in H.R. 22 are in error, and not consistent with the Postal
Service's public service mission. We note that even if Postal Service
competition with the private sector were to be condoned, it is absolutely
critical that Congress-- and not a regulatory agency--choose the areas in which
the Postal Service would be allowed to compete, and on what terms. Likewise, any
decision to expand the areas in which the Postal Service could compete on a
largely unfettered basis is an important public policy question that
Congress--not a regulator--must make.
In any case, whether or not Congress
decides to split postal products between competitive and noncompetitive
categories, we believe certain specific tenets are crucial:
- Congress
should ensure that joint and common costs are allocated in such a way that the
small mailer--beholden to the monopoly--is not left paying the tab. H.R. 22 does
not indicate how joint and common costs would be allocated between competitive
and noncompetitive products today and in the future. According to the figures in
the last rate case, First Class (including Priority Mail) is assessed 85 percent
of the overhead costs of the Postal Service even though it represents only 53
percent of the mail volume. Given the power to allocate joint and common costs,
we believe the Postal Service would shift even more costs onto First Class.
- Congress should not give the Postal Service pricing flexibility. Allowing
pricing flexibility within baskets for products identified by H.R. 22 as
"noncompetitive" gives the Postal Service the ability to discriminate in favor
of the largest mailers at the expense of small mailers. The rates within a
basket should rise and fall together, so that small businesses and the citizen
mailer do not fall victim to pricing discrimination.
- The "exceptions"
allowing for a positive adjustment of rates for "noncompetitive" products are
much too broad. While the exception for statutorily imposed funding obligations
appears, at least at this point, to be reasonable, the other simply is too
vague. Under proposed 39 U.S.C. Section(c)(2)(B)(ii), the test for a positive
adjustment factor would be if the Postal Service--under a "best practices
standard"---would need additional revenues to continue to develop postal
services of the kind and quality adapted to the needs of the United States. This
provision unintentionally undercuts the discipline that the bill seeks to impose
on the Postal Service, and needs to be considerably narrowed.
- The Postal
Service should not offer contract rates or volume discounts. The Postal Service
is a public service organization, with certain governmental advantages, that
provides mail delivery services for the benefit of all its citizens. The Postal
Service should not "price like a business" and give one customer a better "deal"
than another. There is no place in our country's postal policies for the notion
that those who can bring in more "trade" should be favored over those who
cannot. The principle of equal rates for equal service--no special deals
allowed--should remain a bedrock of any American postal system.- The Postal
Service should not implement "market tests" that could lead to a shift of
business from the private sector to the federal agency without prior approval of
the Postal Rate Commission. The public policy decision of what types of new
services to offer, the appropriate breadth of such services, the prices to be
set, and the competitive impact is a question of the first instance for the PRC,
not the Postal Service.
In a more general view, NAA has serious doubts
about applying a price cap system to a governmental entity. The goal of price
cap regulation is to achieve greater cost control and specific, tangible
benefits for the average consumer. NAA supports these goals. But price caps are
meant to maximize shareholder pressure on management, in order to maximize
efficiency, and thus profits. Thus, a price cap is a regulatory mechanism whose
success turns on the presence of shareholders. How a price cap system would
work---or whether it could work at all--with an entity that has no shareholders
is not clear. It is telling that none of the economists who testified before
this subcommittee in April 1997 were able to support a price cap structure for a
government entity such as the Postal Service.
In further regard to price
caps, we were sharply dismayed by the Postal Service's proposed amendments,
which would eliminate the discipline that the price cap in H.R. 22 seeks to
impose and eviscerate the other safeguards in H.R. 22.
Finally, NAA strongly
opposes the notion of a separate private law subsidiary that could buy private
sector corporations (or form joint ventures) for the purpose of selling postal
and non-postal products. NAA believes that the Postal Service and its employees
would have both the incentive and opportunity to favor the subsidiary (and the
companies in which it has investments) when delivering the mail and providing
other services. If Congress decided to create an entity that could offer postal
and nonpostal products to the public on a "private law" basis, NAA believes that
the entity should be a private entity, entirely separate from the Postal
Service, with no chance of Postal Service control and no chance of misallocating
common costs.
In summary, the competitive policy of this country
traditionally has been that government should not compete with the private
sector, absent market failure. NAA believes that this is sound policy, which has
stood the test of time, and finds it unfortunate that H.R. 22 does not embrace
it. We appreciate that the bill contains a number of provisions that are
intended to prevent Postal Service exploitation of its governmental status and
to protect monopoly ratepayers from subsidizing Postal Service forays into
competitive markets. These safeguards include structural separation and cost
allocation provisions. NAA believes, however, that these protections would be
inadequate, or, as in the case of price caps, are not yet sufficiently proven.
Thus we are concerned that the net result of H.R. 22 would be to risk further
disadvantaging those members of the public whom the Postal Service is intended
to serve.
On the other hand, as detailed above, we are glad to support those
provisions of H.R. 22 that focus on improving the Postal Service's performance
of its core mission of providing efficient, universal mail service at
non-discriminatory rates. We believe that those measures represent a big step
forward.
Thank you for considering our views.
1 United State Postal
Service 1998 Marketing Plans, October 1997 at page AD 40.
END
LOAD-DATE: March 6, 1999 
