Copyright 1999 Federal News Service, Inc.
Federal News Service
MARCH 4, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
1821 words
HEADLINE: PREPARED STATEMENT OF
GUY H.
WENDLER
AMERICAN BUSINESS PRESS
BEFORE THE HOUSE
GOVERNMENT REFORM COMMITTEE
POSTAL SERVICE
SUBCOMMITTEE
BODY:
My name is Guy H. Wendler,
and it is a privilege to appear before this subcommittee on behalf of the
American Business Press, a founding member of the Main Street Coalition. I am
the president of Stamats Communications, Inc., a family owned and operated
publishing and marketing communications company based in Cedar Rapids, Iowa, and
I serve as the Chairman of the ABP Washington Legal Committee.
Stamats
Communications publishes four periodicals mailed at the Periodicals rates:
Buildings, Commercial Building, Meetings in the West, and Meetings South with
circulations of 57,000, 75,000, 25,000 and 17,500 respectively, typical of the
specialized, business publications mailed by ABP members. In addition, Stamats
publishes directories and higher education marketing newsletters, and we assist
colleges and universities in their marketing efforts by providing research and
consulting services and both print and electronic marketing materials.
American Business Press is an association of the nation's leading
business-to business and professional periodicals, and it has been an active
participant in postal matters for decades. Since the passage of the Postal
Reorganization Act in 1970, it has participated in every rate case before the
Postal Rate Commission, and I have testified in two of those proceedings.
Throughout its history, ABP has promoted a strong, nationwide postal service and
has sought to protect the interests of the smaller circulation periodicals that
are representative of its membership. We estimate that ABP's more than one
hundred members spend approximately $200,000,000 annually on postage to deliver
the nearly one thousand periodicals that they produce.As publishers of small
circulation periodicals, ABP members rely almost exclusively on the Postal
Service for delivery, and we would thus be alarmed at the prospect of a Postal
Service with declining revenues and levels of service. Just as the Postal
Service has been given the responsibility to "bind the nation together," so too
do ABP member publications bind together the nation's businesses. The crucial
and unique role that our publications play in assisting American businesses in
the ever more competitive world economy would be jeopardized by a deteriorating
Postal Service, so we do not take lightly the claims that far
reaching postal "reform" is necessary to avoid that
circumstance.
ABP therefore does not want to see a Postal
Service weakened by diversion of profitable First-Class mail to electronic media
or by an inability to compete for core portions of its product line, because the
implications of such a Postal Service would be devastating to our businesses
and, we believe, to American business in general. But we cannot support cures
for the alleged illness that are only marginally, if at all, directed to these
supposed ills and that would in all likelihood produce for our small segment of
the publishing industry the crippling rate increases they are intended to
prevent. We see in H.R. 22--and for more so in the amendments proposed by the
Postal Service--a shift in ratemaking authority over periodicals and other
non-competitive classes that does nothing to respond to electronic diversion but
appears to be little more than a power grab by the Postal Service.
ABP will
focus the remainder of these remarks on ratemaking; the Main Street Coalition
will address H.R. 22 in a comprehensive fashion. But before turning to the
specifics of the bill, I would like to present a bit of important history is.
Smaller circulation periodicals of the type published by ABP members have
long been the target of proposed USPS changes in periodical rate design. For
example, on more than one occasion in recent years, the Postal Service has
attempted to eliminate the flat, unzoned editorial rate that has been the
bedrock of periodical rates since the founding of the Republic and that has
given readers throughout the nation equal access to information. Each time, ABP
has opposed that change, and each time the Postal Rate Commission has said "no."
Several years ago, the Postal Service proposed another change in rate design
that would have adversely affected only smaller circulation periodicals when it
requested a rate increase for magazines without large enough circulation to
prepare their mail on pallets, in order to fund a rate decrease for those able
to do so. Again, the Postal Rate Commission heard evidence in opposition from
ABP, and again it said "no."
But these efforts by the Postal Service to tilt
its rates in favor of mass-circulation magazines pale in comparison to its 1995
"reclassification" request. In that case, one that was allegedly revenue
neutral, the Postal Service proposed a bifurcation of periodicals such that a
few hundred of the largest would enjoy double- digit rate decreases, while
twenty-thousand or so publications would suffer increases of up to 20% and more.
And yet again, ABP had the opportunity to present evidence and policy argument
opposing this massive change, and again the Postal Rate Commission said "no."
It is beyond dispute that, but for the authority of the Postal Rate
Commission and the courageous way in which it has exercised that authority, the
rates faced by ABP periodicals and thousands of others would be much, much
higher--so high, in fact, that existing magazines would have folded and, at
least as importantly, start-up magazines devoted to start-up industries may
never have been launched. Now, in the name of efficiency and responsiveness to
market conditions, we are being asked to give up the protections that have been
essential to our survival in exchange for an enhanced ability by the Postal
Service to respond to threats that are incipient, at best, and for a system of
constraints on the ability of a monopolist to set its own rates. We are not
convinced that the trade is a good one.
H.R. 22 recognizes that when a
monopolist is given ratemaking authority, there must be a series of limitations
and constraints. It attempts to craft those constraints with an overall price
cap (that may not effectively cap prices) and a band within which individual
prices for individual products must fall. As we understand the specifics of H.R.
22--and such understanding does not come easily--- each individual rate cell
applicable to each product must move up or down within what we have called a
"deviation band" of plus or minus two percentage points of the CPI-X price cap,
or a range of four percentage points.
Even as this crucial provision has
evolved and been interpreted, its real world application is far from clear. In
the 1997 rate case, for example, the Postal Service proposed, and the entire
industry supported, a new rate category for Periodical mail sorted to three zip
code digits. How, if at all, could this change be effected under H.R. 22, and if
it could be, what would happen if a change were sought by the Postal Service
that is similar in form but far less innocuous? More importantly, for how long
will rates remain just and reasonable, or fair and equitable, if every rate
element is constrained within a tight band, while individual categories of costs
move by varying amounts or even in opposite directions?
Apart from these
important though technical details concerning how H.R. 22 would work, we are
even more concerned not with how it would work but with what the Postal Service
can do with it. It appears to ABP that, especially if (or should we say when) we
return to a period of higher inflation, with a higher CPI-X factor, the Postal
Service will be able under H.R. 22 to accomplish the zoned editorial rate, the
discriminatory sack surcharge, and the "revenue neutral" reclassification with
its 17% average rate increase rejected by the Postal Rate Commission as in
violation of the Postal Reorganization Act's mandate of fair and equitable
rates. The only question is how long it will take.
We note that in response
to the individual rate constraints set forth in H.R. 22, the Postal Service has
proposed a significantly less restrictive set of constraints. While H.R. 22 is
troubling, the Postal Service proposal is frightening. In both cases, we
suggest, the problem is in large part systemic. Ideally, the rate setter should
be an entity that is inherently trustworthy, and that entity should have
substantial discretion to consider costs and other factors in order to establish
rates that are fair and equitable. That is the present system. In H.R. 22 and
the Postal Service version thereof, rate setting authority would be transferred
to the Postal Service--a powerful monopoly that I do not believe is particularly
interested in setting rates fairly for businesses such as ours--so the thrust of
the bill is to circumscribe its authority and substantially restrict its
discretion. ABP respectfully suggests that more work is needed to determine
whether putting a strait jacket on the fox that guards the hen house can truly
do justice to either the fox or the hens.
I have focused thus far on the
area of greatest concern to ABP, the details of the rate-setting mechanism. I
would like to comment briefly as well oh"another rate issue, the overall level
of Periodicals rates, and the prospects for rate relief under H.R. 22. Over the
past six months, ABP has participated actively in a joint publishing
industry/Postal Service task force formed to study why the claimed costs of
processing periodicals have skyrocketed in recent years, rising much more
rapidly than the costs of processing similar mail in other classes and, despite
greater mailer worksharing, more rapidly than Postal Service wage rates. Should
this effort be successful in stopping or even reversing this trend, periodical
mailers in a cost- based rate environment would almost certainly enjoy the rate
benefits of declining costs. Under H.R. 22, however, there would be no incentive
for the Postal Service to allow that result, and every incentive to secure
maximum permissible revenues from this mail over which it has a de facto
monopoly.
In sum, ABP has for many years devoted substantial resources to
protect its members against unwarranted postal rate increases and has done so
first before Congress and, since 1970, in the crucible of rate cases before the
Postal Rate Commission. We have not yet seen a better system. If this Committee
believes that the possibility of electronic diversion and the alleged need of
the Postal Service to be more responsive to competition for that small portion
of its business that is truly competitive require far reaching structural
changes, we will work with you to accomplish statutory solutions to these
specific problems. But we urge you to carefully consider not destroying the
mechanisms that have worked well in those areas of the Postal Service's business
that are still a monopoly, such as periodicals.
I appreciate the opportunity
to appear before you.
END
LOAD-DATE: March 6,
1999 
