A Little Context, Please

Some postal policy discussions often seem particularly narrow and divorced from a framework that might generate more imaginative solutions.

Land Line Telephony and the Withdrawal of Universal Service

Land land line service providers are in deep trouble. Little Context 1 Many people have become “untethered” and use mobile devices exclusively (about 4 in 10 of all households, according to recent findings by the Center for Disease Control). Others use both services. About 9 percent of household are dependent on landlines alone. About 2.5 percent of all households (about 5 million adults and 2 million children) do not have telephone service at all, despite the “Universal Service Tax” on telecommunications bills to their customers.  

Phone companies are pushing to end the requirement to provide universal service. Some states have already repealed this obligation. Firms are offering three approaches. First, cell phones. Providers say they would offer limited “life line” services to poor subscribers. However, cell phones do not work in all areas. The second alternative would be Internet calling, which requires access to broadband service, and is usually bundled with multiple services. It is generally very expensive, and the costs are increasing. The third choice would be satellite service, but this requires a computer and also suffers from service disruptions.

Airline Profitability and Fees

Little Context 2Domestic airlines have gone through a series of mergers that have reduced some infrastructure costs, but some fear that competition has been reduced as well. There are fewer flights to some locations. The recovering economy is also improving industry revenues, leading to small improvements in profitability. Airlines have become very sophisticated at pricing schemes to extract the maximum revenue from air travelers and ticket prices continue to increase.

However, almost all the profits can be attributed to the increase in fees most airlines charge for a wide variety of ancillary services. The industry is also concerned that the government is adding costs through fees for security services and for other services in support of airline infrastructure development (airports, air traffic control).

 

Infrastructure Investment and Pension Smoothing

The roads and bridges in the United States are falling into disrepair.Little Context 3 The funding device, the Highway Trust Fund – fed by taxes on gasoline – has not been raised since 1993 and the fund is about to go broke. So Congress adopts the concept of “pension smoothing”, a device they have used previously. It is an accounting gimmick that permits companies to postpone contributions to their pension funds. This means that their tax deductions for pension contributions are lower now, but the actual pension obligations don’t change, so contributions later will have to be higher—by the same amount plus interest. It should be noted that this is the exact opposite of the demand by Congress for the Postal Service to pre-fund its retiree health benefits.

So What Would the Private Sector Do?

A newspaper editor recently asked about the recently announced plan to close a number of mail processing plants. He asked, “What would the private sector do?”

Of course a private sector operator would close a processing facility that was no longer necessary. Look at the abandoned shopping malls in communities around the nation.Little Context 4 They might first ask for special consideration from local governments in the forms of subsidies, incentives, and government-funded improvements, the way some sports teams and auto factories do now.

They might replace unionized workers with minimum wage part-time employees with few or no benefits. They would certainly reduce the delivery service commitment, adopting the five-day model of FedEx and UPS. They would raise basic rates (currently about half of what postal services in other nations charge) and develop sophisticated pricing schemes aligned with the cost of each service and route, perhaps adding fees and surcharges to customers who were expensive or unprofitable to serve. They would not subsidize special classes of mail.

Nor would they be willing to pay for governmental functions such as the Postal Regulatory Commission, the Office of the Inspector General, and the Postal Inspection Service. They would lobby for the reduction and even elimination of regulations, and would demand the right to provide new services and enter new businesses.

Simple Solutions

The first and most basic requirement would be find a responsible way to fund the Postal Service’s pension and health care obligations. There are reasonable solutions that have been but forward.

The second requirement is to determine a more reasonable set of universal and public service requirements and how to fund them.

The third is to encourage the Postal Service and the mailing industry to create a collaborative platform that encourages innovation and profitable growth.

Then, some of the current infrastructure reduction efforts that are causing key stakeholders so much pain will be a bit less necessary.

By Kent Smith

Kent Smith is Research Director, Ursa Major Associates / Postal Vision 2020. His 38 year career in the Postal Service included Rate Classification Research, Market Research, and Strategic Planning. Ursa Major Associates / Postal Vision 2020 is dedicated to taking a broader, longer-term perspective on the future of the mailing industry ecosystem. The thoughts expressed in this “Point of View” are his own.

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