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

Ch. 5-Revenue/Cost Model and Results .53

SC/piece less than the mainstream cost of con
ventional mail. The 5C/piece cost displacement
is also reasonably consistent with estimates
made by RCA for a USPS electronic system
(specifically the electronic message service sys
tem (EMSS) concept).'
For the electronic portion, OTA did not in
dependently verify either the RCA estimates
for EMSS or the USPS estimates for electron
ic computer originated mail (E-COM). There
fore, cost estimates were developed only for
'RCA Government Communications Systems Division,
EMSS System Analysis Task AB, VOL II, Cost and Service
Impact of System Decentralization, October 1977.

USPS delivery of Generation II first class
hardcopy output.
For average revenue per piece of Generation
II EMS hardcopy output delivered, OTA as
sumed that the "markup" of per piece revenue
over the per piece cost for EMS must be the
same as the markup for the corresponding
classes of conventional mail. Analysis of the
1980 PRC rate case indicated that the average
per piece revenue level for first class mail was
roughly 50 percent higher than the per piece
variable cost. This 1.50 factor was used to esti
mate a 12/piece revenue for USPS delivery
of Generation II EMS hardcopy output.

Results of the Revenue/Cost
Analysis for First-Class Mail

Given the first class mail volume projections
from chapter 4 and using the revenue and cost
models (for both conventional and USPS deliv
ery of Generation II developed above), the
financial impacts on USPS for first class mail
can be projected.
Figure 9 summarizes the results for the
years 1995 and 2000 for each of the four Gen
eration II EMS alternatives under the baseline
assumptions (2 percent underlying mainstream
growth). The results are also shown for each
alternative under the alternative revenue/cost
assumption alone and in combination with the
100 percent EMS stimulation assumption.
The tabular data in figure 9 gives the mail
volumes for conventional first class and Gen
eration II EMS first class with USPS delivery
of industry hardcopy output. The revenues
and costs for these volumes are indicated
along with the contribution of each to USPS
fixed costs. USPS is not allowed to make a
profit overall, but individual classes and sub
classes of mail do make varying contributions
to fixed costs. First class mail historically has
made the largest contribution of any class of
mail, and thus the continuing ability of first
class mail volumes to generate a substantial
contribution appears to be very important to

overall USPS financial stability. In fiscal year
1980, the first class mail contribution to USPS
fixed costs was about $4.2 billion, based on an
actual volume of 60 billion pieces and assum
ing 20C/piece revenue and 13C/piece variable
cost.
Basically, the results indicate that by 2000,
for the baseline assumptions, USPS delivered
first class mail is projected to contribute be
tween $1.25 billion (for the slow Generation
II EMS growth alternative) to about $1.5 bil
lion (for the very high, high, and moderate
growth alternatives) less to USPS fixed costs
than in fiscal year 1980. Thus, in 2000, for the
high but plausible Generation II EMS growth
alternative, the first class mail contribution is
projected to be about $2.76 billion, which is
$1.44 billion less than the contribution in 1980.
If a 3 percent underlying mainstream rate is
assumed, in 2000 the net reduction in first-
class mail contribution for the high but plausi
ble growth alternative would be less but still
significant. As shown in figure 10, under the
3 percent growth assumption, the first class
mail contribution is projected at $3.46 bil
lion, which is about $750 million below the
1980 contribution. With a 1 percent underly
ing mainstream growth, the first class mail

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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 September 1, 2014.