September 23, 2000
SECTION: BUSINESS; Vol. 32, No. 39
LENGTH: 1931 words
HEADLINE: Rain, Sleet ... And Network Crashes?
BYLINE: Mark Francis Cohen
BODY:
As congressional appearances go, Deputy Postmaster General John
Nolan's was masterly. In mid-September, Nolan sat center stage
before a Senate Governmental Affairs subcommittee that has been
peering into the U.S. Postal Service's various Internet projects,
and he gave many onlookers good reason to believe the agency had
nothing to hide or fear.
Rather than sticking to prepared testimony-as committee
witnesses almost always do-Nolan's remarks for the most part were
improvisational and off-the-cuff. He was, by turns, funny ("If
this was a $ 64,000 question, we wouldn't be here. Hopefully, it's
a, ha, ha, lot bigger than a $ 64,000 question!"); philanthropic
("We have the opportunity to bridge the digital divide-to make
sure that no one is left out of the opportunities of the
Internet"); pugnacious ("We believe in competition. Our
competitors should believe in competition, too"); and proud ("We
(want) to be the best organization in the world in protecting
people's privacy. That's an important part of our brand. It is
not something we're playing games with.").
Some committee members were clearly charmed by Nolan's
performance. But his glibness couldn't make a blue-covered report
ordered up by the subcommittee disappear. According to that
report, the handiwork of the General Accounting Office,
government auditors had found that the Postal Service embarked
upon various electronic commerce activities in a rather haphazard
manner. Agency officials could neither sufficiently explain why
they were rolling out some of these ventures-such as online bill
payment-nor produce the proper documentation on how much these
ventures cost, would cost, or would be paid for. What's more, the
line of decision-making from conception to approval for these
business enterprises was blurry. When were these electronic
businesses thought of and who signed off on them and what kind of
money could be made from them?
While electronic commerce has helped fuel America's
economic boom, it hasn't boosted the Postal Service's prosperity-
it could finish the fiscal year $ 30 million in the red. The Web
economy is gradually obviating the communication network that the
Postal Service once provided exclusively. The Internet is
"disruptive in the sense that it's going to tear away significant
portions of our current volume at some point in the future, and
we have to deal with that," Nolan conceded during his appearance
on the Hill.
What's more, the GAO-though it foresees a modest rise in
postal volume until 2002-projects the volume of first-class mail
(with which the post office essentially still earns its keep)
will drop 2.5 percent annually from 2003-08 because of
competition from online communications. The decrease is
anticipated because more people will presumably pay their bills
online, deliver documents over the Internet, and forsake snail
mail for e-mail. But the Postal Service is taking its greatest
hit from direct marketers (read junk mailers). About 60 percent
of the service's mail flow comes from direct marketers, but junk
mailers are migrating to the Internet and posting e-mail
promotions (read spam), Web site advertising, and Web links.
Facing an unprecedented shortfall and insipid sales
during a sizzling economy, Postal Service executives have been
dreaming up ways to get in on the Internet joyride. Separately,
Postmaster General William J. Henderson-in a Hill appearance on
Tuesday-was closely questioned about the service's talked-about
package-delivering partnership with FedEx Corp.
Oddly enough, much of the Postal Service's scrambling for
new sources of cash is federally mandated. The 1970 Postal
Reorganization Act demanded that the agency be entirely self-
sufficient-which is to say, its revenues must equal expenses.
Postal Service executives say they are doing what's necessary to
maintain financial equilibrium. When they say they are looking
for "alternate sources of revenue" as mail volume declines, they
are doing this because they must-not because of the pathology of
the monopoly.
The GAO pinpointed seven different businesses the Postal
Service is currently offering or intends to offer on the
Internet. Many were initiated in the last six months. They are:
online stamp sales, online bill payments, electronic document
delivery, electronic signatures, change-of-address and other
relocation services, electronic certified mail, and online-to-
offline direct marketing. In addition, the Postal Service has
embarked on three additional online services. One of these is PC
Postage, which allows companies, such as Stamps.com, to sell
software that makes printers work like stamp machines. In
addition, the Postal Service is considering other ventures, such
as assigning e-mail addresses in much the same way that it
assigns mailing addresses and controls mailboxes: The Postal
Service would issue every physical mailing address in the country
an e-mail address, and it would orchestrate the flow to and from
those e-mail accounts.
Not surprisingly, competitors and critics argue that the
chief responsibility of the Postal Service-essentially, universal
mail service-has nothing to do with the Internet. Government,
they say, should not compete with private companies, much less
fledgling dot-coms. Critics also snipe that all of the Postal
Service's e-commerce ventures duplicate services already provided
by private companies; it is not swooping in to fill some vacuum
or assist citizens who can't, or won't, be served by a profit-
hungry private sector.
Some see the Postal Service's alliances with private
companies to launch e-businesses as destabilizing. The imprimatur
of the Postal Service is valuable, and none of these partnerships
are put out for bid. For instance, the Postal Service plucked
CheckFree and Bank of America to help it conduct its online bill
payment service, eBillPay.
"We object very much to what the Postal Service is
doing," says Jason Mahler, vice president of the Computer and
Communications Industry Association. "They were created to
deliver the mail. It's not necessary to expand the mandate of a
government agency to deliver e-mail. They're trying to create a
need where none exists."
All this points out how schizophrenic an entity the
Postal Service has become since 1970. It enjoys many of the
benefits of a government department, but it acts as though it
were a lean, mean delivery company, information conduit, and
business incubator. As an independent establishment of the
executive branch, it has its own police force, regulatory powers,
and myriad exemptions from tax laws that private firms must abide
by. It is also ubiquitous: It assigns almost every business and
home in the country a mailbox, and its carriers visit every one
of those mailboxes almost every day. At the same time, it has to
submit to congressional oversight and scrutiny. And getting a
stamp-rate hike is a long, protracted process that requires the
recommendation of the separate and independent Postal Rate
Commission.
For its part, the Postal Service almost certainly tries
to dress itself up as more private-sector company than public
agency. Consider its relentless advertising campaigns (the latest
is to the tune of "Fly Like an Eagle"), its overnight and
express-delivery offerings, its money-wiring and money-order
services, and its recent Web address change from www.usps.gov to
www.usps.com. Officials warmly refer to themselves in vogue terms
as a brand. Yet, the point of this brand, which is often ascribed
some kind of public good, is ambiguous-at least as described by
agency officials themselves. They say these operations conform to
their missions of "binding the nation together through
correspondence,... moving money, merchandise, and messages," and
"acting as a neutral party that protects the privacy of
customers' information with in-house law enforcement personnel."
But such vast underpinnings could be used to start providing,
say, long-distance telephone service or checking and savings
accounts. Would such businesses be appropriate for the Postal
Service? Detractors contend that the agency is moving into e-
commerce-and not telecommunications or banking-merely because the
barriers to entry are so low.
Because these projects aren't stamp-related, the service
doesn't believe there is a government agency or congressional
committee from which it must get approval. There is, it suggests,
no controlling legal authority, so to speak, because the federal
statutes never accounted for a Postal Service entangled in
activities of the "electron" variety.
Currently, the service is wrestling with the Postal Rate
Commission over the type of monitoring the Postal Service should
acquiesce to. At the Senate hearing, the Postal Rate Commission's
chairman, Edward J. Gleiman, said he had doubts about whether the
Postal Service had the authority to cultivate these projects and
whether they would make any money. He also warned that if the
Postal Service's e-commerce projects are deemed outside the rate
commission's jurisdiction, there will be a "gap in regulatory
oversight." In a related matter, United Parcel Service has filed
a complaint with the commission about the Postal Service's online
document-delivery business. UPS argues that document delivery is
a postal function and should be subjected to review and analysis
by the Postal Rate Commission. That is, this venture should be
regulated no differently than if the Postal Service were asking
for a stamp hike. Currently, the commission is reviewing the
complaint.
To be sure, the Postal Service is in many ways just
another mega-company. It takes in more than $ 50 billion a year in
revenues, has accumulated $ 6 billion in profits during the past
five years, and has 900,000 employees. But by the standards of
mega-companies, the Postal Service has floundered. Outside of
first- and third-class mail, for which it has no competition,
services have often bled money. For instance, a GAO report
revealed the agency lost $ 84.7 million on 19 of its extramural
products and services from 1995-97.
No wonder some question the purpose and benefit of the
agency's continued attempts to compete with private industry. For
that matter, very few Internet companies are making money today.
There's good reason to assume the Postal Service's electronic
projects will likely burn up cash, at least for the short term,
too. And it doesn't necessarily follow that the agency will ever
squeeze the kind of profits out of these ventures to counteract
the coming decrease in first-class mail.
"The Postal Service has a dismal record of going into
nonmonopoly, free-market ventures," says Rick Merritt, the
executive director of Postal Watch, an independent monitoring
group. "If we look at e-commerce, we have private-sector
companies burning up cash and dropping like flies. What makes us
think the Postal Service is going to be successful? What makes us
think the Postal Service is not going to waste millions of
dollars?"
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