Implications of Electronic Mail and Message Systems for the U.S. Postal Service

Ch. 4-Market Penetration Results .45

stimulation, Generation II volume would be
greater through about 1996. But if Generation
III came 3 years sooner than assumed in the
base case, Generation II would never exceed
Generation III. Even in the peak year (1995)
for Generation II, Generation III EMS vol
ume would be more than four times larger. By
2000, Generation 111 would be about 56 billion
pieces (or messages) and rising rapidly, while
Generation II would be about 9 billion pieces
and declining.
As a result, the USPS delivered mail volume
would be less compared to the base case, since
there would be less Generation II EMS hard
copy delivery to offset reductions in conven
tional mail delivery. As a consequence, by
1990 total USPS delivered mail volume would
fall below the current 1981 level of 110 billion
pieces. By 2000, USPS delivered mail volume
would be down to about 81 billion, a reduction
of about 27 percent from 1981. Thus, accelerat
ing Generation III creates a worse case (in
terms of USPS mail volume) than the base
case.
Second and Third Class Mail Losses to
Alternative Delivery. As discussed earlier
and presented in figure 4, first class volume
for the base case declines significantly as a
percentage of total USPS delivered mail. This
is because first class mail is most susceptible
to diversion to EFT or Generation III EMS.
Other classes of mail, primarily second and
third classes, show very little decline over the
next 20 years. The reduction in first class mail
might lead to a substantial increase in costs
(and rates) for other classes of mail, since these
other classes would have to cover a larger per
centage of USPS fixed institutional costs.
Rate increases could in turn lead to additional
losses of second and third class mail.

In order to test the sensitivity to such
losses, OTA conducted a run of the market
penetration model assuming a 3 percent an
nual reduction in second class mail and a
2 percent annual reduction in third class mail.
While these assumptions are fairly extreme,
fourth class mail has been declining annually
by an average of 3 to 4 percent over the last
few years. In contrast, third class mail has in
creased significantly in recent years. However,
both second and third class mailers are in
creasing their use of alternative means of
distribution. For example, some third class
mailers are shifting to newspaper inserts.
These are identical in purpose, content, and
appearance to items commonly carried as bulk
third class mail and are much cheaper on a per
piece basis than bulk third class. In the 1980
rate case filings before the Postal Rate Com-
mission, many mailers indicated that they are
close to the limit in terms of absorbing higher
mail rates. The rates for second and third
class mail have already risen by about 400 per
cent since 1970 as a result of steps required
by the Postal Reorganization Act of 1970 to
bring rates for all classes of mail in line with
costs,
The impact of these assumptions is dra
matic. USPS delivered mail volume (conven
tional plus Generation II EMS) would start
declining right away, and by 2000 would fall
to about 63 billion pieces, about 43 percent
below the 1981 mail volume. Conventional
mail would decline to about 50 billion pieces,
more than 50 percent below the current 110
billion pieces. Thus, this level of second and
third class diversion clearly leads to the worst
case scenario with respect to USPS mail vol
ume.

Comparison of Alternative Generation II
EMS Growth and Timing Estimates

Up to this point, all market penetration
results have been for the baseline EMS alter
native, which assumes a high but plausible

rate of Generation II EMS development. In
other words, for the base case as well as the
various sensitivity runs, the Generation II

United States. Congress. Office of Technology Assessment. Implications of Electronic Mail and Message Systems for the U.S. Postal Service. UNT Digital Library. http://digital.library.unt.edu/ark:/67531/metadc39480/. Accessed July 31, 2014.