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

Ch. 7-Telecommunication and Computer Industries, EMS Privacy and Security, and USPS Long-Term Viability .75

argued that this constitutes an unfair public
subsidy to the USPS. However, the revenue
forgone subsidy is intended to reimburse the
USPS for the revenue given up or "forgone"
as a result of providing mail service free (for
the blind and handicapped) or at a reduced rate
(e.g., for library materials, nonprofit bulk mail,
and classroom publications), as required by the
Postal Reorganization Act.
Likewise, the public service subsidy is in
tended to reimburse USPS "for public service
costs incurred by it in providing a maximum
degree of effective and regular postal service
nationwide."'In any event, the public service
subsidy was reduced from $828 million in fis
cal year 1980 to approximately $468 million
in fiscal year 1981. * The fiscal year 1982 con
tinuing resolution provided a public service ap
propriation of about $221 million, and the Om
nibus Budget and Reconciliation Act of 1981
reduced the public service authorization to
$100 million for fiscal year 1983 and $0 for fis
cal year 1984. The phasing out of the public
service subsidy minimizes or eliminates any
competitive advantage this may have given
to USPS. DOJ and some private firms have
expressed concern that there is nothing to pre
vent a future administration and Congress
from reinstituting the subsidy, thereby pos
sibly resulting in a significant USPS advan
tage over private industry in any competitive
activity.
The USPS cost and ratesetting process is
admittedly complex, which has led some pri
vate firms to be concerned about possible hid
den cross subsidies. These firms are particular
ly concerned about cross subsidies from con
ventional mail services to EMS services; that
is, the use of revenues from conventional mail
to subsidize EMS costs which would keep
down the rates for EMS services. OTA has not
independently verified USPS costs and reve
nues by class of mail. However, the Postal Re
organization Act generally prohibits cross
subsidization between classes of mail and in
'1 bid., p. 20.
*$1,25 billion continuing appropriation to USPS for fiscal year
1981 less $782 million revenue forgone subsidy.

cludes the requirement that "each class of mail
or type of mail service bear the direct and in
direct postal costs attributable to that class
or type plus that portion of all other costs of
the Postal Service reasonably assignable to
such class or type."
In addition, all USPS rate requests are sub
ject to usually extensive and lengthy hearings
conducted by the Postal Rate Commission
(PRC) at which all postal rates (for all classes
of mail and service) normally are considered.
Many USPS competitors and mail users par
ticipate in these hearings, along with USPS,
PRC and the Officer of the Commission
(charged with representing the interests of the
general public), and occasionally other Govern
ment agencies (such as, in the E COM proceed
ing, the Departments of Commerce and Jus
tice). Given the statutory requirements and
the adversary regulatory process in which all
interested parties are represented (and which
itself is subject to judicial review), postal
cross subsidies would seem to be rather dif-
ficult to hide. Nonetheless, there is no absolute
guarantee against cross subsidies since the al
location of indirect and institutional costs is
always somewhat arbitrary (in any organiza
tion), and the statutory criteria included in the
Postal Reorganization Act may not be neces
sarily as applicable or appropriate now as they
were when it was enacted in 1970. Some pri
vate firms are concerned that the rates initial
ly set for E COM service do not fully reflect
the actual costs, and that at the present time
there may be a hidden cross subsidy of E COM
by other classes of mail. OTA has not inde
pendently evaluated this concern. However,
the public record indicates that the PRC ap
proved the E-COM rate of 26( based on an es
timated capital cost of $7.4 million and first
year volume of 12.5 million messages (240,000
per week). In comparison, the actual capital
cost of E-COM is apparently close to $39 mil
lion, with volume averaging about 25,000 mes
sages per week for the first 6 months of 1982.
'39 USC 3622(b)(3). Institutional costs are also apportioned
by class or service based on statutory criteria.

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 14, 2014.