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

52 . Implications of Electronic Mail and Message Systems
the Postal Rate Commission (PRC). The
primary fixed costs were estimated by
PRC to be $5.8 billion for USPS institu
tional costs (e.g., headquarters, postmas
ters, inspection service) and $1.8 billion
for service related fixed costs that could
be assigned to various mail classes.'
"Revenue and Cost Per Piece. The 1980
PRC rate case was also used as the basis
for determining revenue and variable cost
per piece. For first class mail, the per
piece revenue and variable costs were 20(
and 13(, respectively.2The 20C/piece rev
enue estimate assumed an 18( first class
stamp.
* Economies of Scale. OTA assumed that
USPS is still operating with economies of
scale, so that mail volume reductions
would tend to increase the per piece cost
of the remaining mail. If mail volumes
reached or exceeded the optimal capacity
of the system, then volume reductions
might actually reduce rather than in
crease the per piece cost.
* Inflation. Clearly, inflation will cause
postal costs to rise, and presumably rate
increases will be necessary to keep up
with inflation (to the extent that increased
costs are not offset by improved produc
tivity). For the purposes of this analysis,
future revenues and costs are expressed
'Postal Rate Commission, Opinion and Recommended Deci-
sion, docket No. R 80 1, p. 222.
Ibid., app. G, schedule 1, p. 1.

for the U.S. Postal Service

in "constant dollars. " Changes, too, are
expressed in so called "real" revenues or
"real" costs net of changes due to infla
tion.
* Public Service Subsidy. For the purposes
of this analysis, the postal public service
subsidy level was held constant at the
$692 million level assumed by PRC in the
1980 rate case.'At the present time, there
are no proposals to increase the subsidy;
in fact, the Omnibus Budget and Recon
ciliation Act of 1981 has reduced the
authority for such appropriations to zero
by fiscal year 1984.
* Productivity. In terms of costs, any over
all productivity improvements with re
spect to conventional mail were assumed
to be offset by increases in the cost of cap
ital and increases in real wages. Produc
tivity gains due to the introduction of
EMS were considered as part of the rev
enue/cost model for electronic mail.
* Use of the Model By using the 1980 esti
mates of per piece first class mail cost and
applying this to future projections of
USPS volumes for conventional first class
mail, future costs were calculated in 1980
dollars. Likewise, by using the 1980 esti
mate of per piece first class revenue and
applying this to projected mail volumes,
future revenues were calculated in 1980
dollars.
'Ibid.

USPS Revenue/Cost Model for
First-Class Electronic Mail

In addition to a projected volume of conven
tional mail, USPS will deliver some volume of
electronic mail (defined as Generation II EMS
hardcopy). Thus, it was also necessary to de
velop revenue and cost assumptions for USPS
electronic mail services. The cost consists of
two parts: the cost for the USPS electronic
portion of the system (including printing and
enveloping), and the USPS mainstream cost of
delivering the hardcopy.

For the mainstream portion, OTA assumed
a cost displacement of 5C/first-class piece,
based on 1980 PRC estimates of the cost
displacement for Mailgram.4 That is, the
mainstream cost of Generation II would be 8,
'lbid; according to Frank Heselton, USPS Manager of Rev
enue and Cost Analysis, the 8t/piece Mailgram cost includes
only delivery and administrative costs. When the cost of op
erating Mailgram teleprinters is included, the per piece cost in
creases to about 24e.

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 23, 2014.