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

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

tided at reduced rates, primarily nonprofit sec
ond class mail, nonprofit bulk rate third class
mail, library materials, and free mail for the
blind and handicapped) alone was $0.782 bil
lion. And the incremental cost of delivery 6
days per week compared to 5 has been esti
mated by USPS to be about $0.65 billion.
In other words, the projected reduction in
first class mail contribution in 2000 is roughly
equivalent, under the baseline assumptions,
to the combined 1980 public service and reve
nue forgone appropriation, or to the revenue
forgone appropriation plus the cost of Satur
day delivery, or the equivalent. Under the
3 percent mainstream growth assumption, the
reduction in first-class mail contribution is
roughly equivalent to the 1980 public service
subsidy, or the revenue forgone appropriation,
or the cost of Saturday delivery.
In general, as long as Generation II first
class costs less per piece than conventional
first class but has the same markup of revenue
over cost per piece (50 percent), the first class
mail contribution to USPS fixed costs will de
cline as Generation II volume increases (as
suming Generation II EMS costs USPS less
than conventional.) Thus, as indicated in figure
9, the first class contribution is greater for the
slow Generation II EMS growth alternative
than for the high or very high growth alterna
tives.
The financial contribution of Generation II
EMS could be increased if the rate for USPS
delivery of EMS hardcopy output were the
same as the rate for conventional mail deliv
ery. Up to this point in the analysis, OTA as
sumed that all cost savings from EMS would
be passed on directly to the EMS user (i.e.,
whoever is paying the postage). Thus, the rela
tionship between EMS first-class mail per
piece revenue and cost was assumed to be the
same as for conventional first-class mail. In
other words, cost savings from EMS were re
flected in lower EMS rates rather than in lower
rates for other classes of mail or the mail
stream as a whole. As a result, USPS could
not obtain any greater return ("markup" or

contribution to fixed costs) from EMS than
from conventional mail.
Under the alternative revenue/cost assump
tion tested by OTA, EMS first-class rates
were assumed to be the same as conventional
first class mail rates. In this scenario, USPS
would, in effect, be pricing Generation II EMS
first class mail to contribute a higher percent
age (or markup) to fixed costs than would con
ventional mail. Thus, a revenue per piece of
20@ was used for EMS instead of 12C. As
shown in figure 9, when using the alternative
revenue/cost assumption, the high, very high,
or moderate growth alternatives would result
in an additional first class mail contribution
of roughly $1 billion in 2000 (compared to the
projected contribution under the baseline as
sumptions). This level would still be a few hun
dred million dollars below the current first-
class mail contribution to fixed costs. Note
that the analysis also assumed no loss in EMS
volume due to the higher USPS rates. If EMS
users were sensitive to the increase from 12
to 20C/piece (for USPS delivery of Generation
II hardcopy output), then the increased reve
nue from higher rates might be offset by re
duced revenue from lower volume.
If 100 percent EMS stimulation is also as
sumed (each Generation II message stimulates
an additional new message), the first class mail
contribution to fixed costs in 2000 would be
significantly higher than the 1980 contribu
tion, by as much as $1 billion for the high and
moderate growth alternatives and $1.5 billion
for the very high growth alternative. These
projections are included in figure 9. This
scenario would enable USPS to use net rev
enues from Generation II EMS to help keep
down overall rates for conventional mail, even
in the face of the declining conventional mail
volumes projected for 2000. However, as noted
in chapter 5, the 100 percent EMS stimulation
assumption is considered speculative at this
time.
Under current USPS pricing policies, to the
extent that private firms transmit Generation
II messages and present them to USPS for

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 30, 2015.