The Postal Service has advised it will examine approximately 3,200 postal stations and branches nationwide for possible closure or curtailment and that an additional 1,600 stations and branches could likewise be reviewed depending on the outcome of the initial examination.

The Commission proceeding provides a transparent on the record process to ensure that any nationwide changes in postal service are consistent with the Postal Service’s obligation to provide prompt, reliable, and efficient postal services to customers in all areas and to all communities.

The Commission invites interested parties to participate in the process in accordance with CFR 39 §3001.20(b). Requests are due on or before July 28, 2009. A prehearing conference is scheduled for July 30, 2009, at 9:30 a.m. in the Commission’s hearing room.

In addition, the company points out that Netflix mailers are routinely processed manually:

GameFly is not the only mailer to experience significant DVD breakage rates on automated mail processing equipment. In response to this phenomenon, the Postal Service has adopted a practice of manually culling out the DVD mailers of two high-volume shippers of DVDs, Netflix and Blockbuster, for special processing.

A report by the Postal Service’s Office of Inspector General in November 2007 found that 70 percent of the two-way DVD mailers from one unnamed DVD rental company received manual processing for this reason. USPS Office of Inspector General, Audit Report No. MS-AR-08-001, Review of Postal Service First-Class Permit Reply Mail (November 8, 2007).

The Postal Service’s practice of giving manual processing to DVDs from certain large mailers has continued since the OIG report. On routine visits to multiple Postal Service facilities, GameFly’s employees have observed that a large percentage of mail pieces from Netflix and Blockbuster are culled from the automated letter processing stream.

GameFly has asked the Postal Service to give GameFly’s DVD mailers processing on terms and conditions comparable to the terms and conditions offered to two larger DVD mailers, Blockbuster and Netflix. The Postal Service has not done so.

The issue has taken on additional urgency for GameFly because of Blockbuster’s entry into the game rental market:

Until recently, none of the larger-volume DVD rental companies offered video games. On February 11, 2009, however, Blockbuster, which hitherto had offered only movie DVDs (which GameFly does not offer), announced that Blockbuster was expanding its DVD rental service to include video games in the second quarter of 2009.

As a result of this initiative, GameFly now faces direct competition from a rival that is larger and longer established—and which, because of the preferential treatment given by the Postal Service, enjoys a substantial cost advantage in the distribution of its DVDs to consumers.

The company says it has attempted to work out an agreement with the Postal Service, but that the USPS has ignored its requests to discuss the issue.

Commissioner Ruth Goldway dissented from the PRC opinion- here’s some of what she had to say:

It strikes me that there are close parallels between what is happening to the Postal Service financially, and what has been happening to the banking industry. The banking industry was given wide discretion to lend how and on what terms it chose. The assumption was that this was safe because the managers’ discretion would be bounded by certain basic principles (e.g., that investors would have knowledge of the kind of securities marketed, and the risks would be publicly known either through an SEC filing or prospectus) and accountability would be provided by a diligent board of directors.

It is now clear that these basic principles and institutional safeguards were allowed to become mere window dressing. I fear this to be the direction in which postal regulation is headed. Congress intended that there be a certain economic “rhyme and reason” to both class prices and product discounts; hence, provisions such as section 3622(c)(2) (attributable cost floor) and section 3622(e) (discounts match avoided costs).

Are these on the way to becoming window dressing? The uneconomic approach to rate setting can be a factor contributing to the Postal Service slide into financial distress. If the Postal Service is to be excused again for violating 39 U.S.C. § 3622(e), the reasons given must be carefully chosen so that the Postal Service, and the postal community, do not get the impression that there is not now, and never will be, any enforceable standard for workshare pricing.

The text of the 8K report:

The U.S. Postal Service (USPS) previously announced a loss for the quarter ending December 31, 2008, in an 8K filed on February 9, 2009. USPS discloses that its unaudited January 2009 financial results were an estimated $5.80 billion in revenue and $6.55 billion in expenses, resulting in an estimated net loss of $751 million. This loss compares to a loss of $44 million in January 2008, which resulted from total revenue of $6.58 billion and total expenses of $6.62 billion. Mail volumes declined by over 16% in January 2009 from January 2008. The January results continue to illustrate that the downward pressure on the Postal Service business continues into 2009.

“The United States Postal Service will soon announce its official financial results for the fiscal year that ended on September 30, and the figures are projected to show an alarmingly high deficit in excess of $2 billion dollars. The agency will likely experience additional losses in the coming months because of the nation’s faltering economy and the ongoing diversion of First-Class and other mail to electronic alternatives.

These challenges have forced the Postal Service to seek new revenue sources, including royalties for products branded with the USPS logo. These products include some items that are currently being sold by Postal Service customers. This action by the Postal Service has lead to a series of motions filed this month with the Postal Regulatory Commission by postal customers and by numerous mailing associations.

Therefore, we encourage the Postal Service to publish a complete list of any new products it plans to introduce. But as important, regardless of specific provisions of the Postal Accountability and Enhancement Act, we hope that when planning new products and services, the Postal Service carefully considers whether the potential revenue they attain will be worth the business damage done to their current valued business partners.”

“Ann will build on the work that Commissioner Langley started when the Commission first established this office last year,” said Chairman Dan G. Blair. “Ann has been a valuable member of the Commission’s senior staff and I look forward to her efforts in representing the Commission to the public, the media and Capitol Hill.”

Fisher moves to the post after having served as Chief of Staff to Commission Chairman Dan G. Blair. Fisher had served in that position since January 2007. Previously, she had served as Deputy Staff Director for the Senate Committee on Homeland Security and Governmental Affairs.
Assisting Fisher in the PAGR Office is Annie Kennedy, who joined the Commission in August 2008 to serve as Consumer Relations Specialist. Previously, Ms. Kennedy had served as a Government Relations Representative at the United States Postal Service.

The Office of Public Affairs & Government Relations serves as the public face of the Commission. The Office is the Commission’s primary resource in support of public outreach and education; media relations; and liaison with Congress, the United States Postal Service, and other government agencies. PAGR advises the Commissioners and staff on legislative issues and policies related to the Commission and the Postal Service in addition to coordinating the preparation of both Congressional testimony and Congressional inquiries concerning Commission policies and activities.

Capital One says it filed its motion after it learned that a USPS employee it seeks to question in the case is retiring this Friday. The bank accuses the USPS of subterfuge and acting in bad faith in the case. The USPS filed a response denying the charges.

Over the past year, Capital One Services, Inc. (Capital One), faced with the competitive advantage conferred on Bank of America by the NSA, has repeatedly asked the Postal Service for a similar NSA. Indeed, it has even proffered a substantively identical agreement “to use the vast array of the specified processes on the vast majority of its qualifying mail for the full NSA term, as done by BAC.”10 The Postal Service, however, has refused, and has insisted on mailer-specific baselines and reduced per-piece discounts in an attempt to enforce true “pay-for-performance” conditions that were never imposed on Bank of America.

Capital One submitted what it claims to be an proposal identical to the BAC agreement, which the complaint says was rejected by the USPS. When asked to specify which provisions of the proposed NSA needed to be changed, Capital One’s Director of DM Operations, Ben Lamm, says the USPS declined, and suggested a face to face meeting. Lamm says he met with USPS VP Stephen Kearney on June 9:

During that meeting, Mr. Kearney explicitly stated that the Postal Service would not offer the same NSA to Capital One that it offered to Bank of America, and, more specifically, that, rather than the 1998 industry-average baselines offered to Bank of America, Capital One would have to use mailer-specific baselines. In addition, the per-piece discount rates would have to be reduced to reflect that Capital One was not the “first” adopter. Mr. Kearney argued that the changes in the baselines and discount schedules were justified by changes in circumstances. When asked whether those changes had occurred since the date of implementation (April 1, 2008), he said that they had not.

If there is any benefit to the Postal Service from Bank of America’s adoption of the technologies specified in its NSA, those same benefits should accrue if Capital One is given the opportunity to participate in a similar NSA. If not allowed that opportunity, however, our Company is placed at a real competitive disadvantage, making it relatively more expensive for us to conduct our business by millions of dollars.

Capital One has asked the PRC to expedite the processing of its complaint, contending that the information to decide the case already exists in the record. The PRC has opened docket C2008-3 to consider the complaint.

In preparing its report, the PAEA requires the PRC to “consult with the Postal Service and other Federal agencies, users of the mails, enterprises in the private sector engaged in the delivery of the mail, and the general public”. Further, the legislation requires the Commission to address in its report any written comments that it receives. As part of its effort to fulfill these obligations, the Commission is initiating this docket to solicit comments on universal postal service and the postal monopoly.

Initial comments are due 60 days after publication of the notice in the Federal Register. Reply comments are due 90 days after publication of this notice in this Federal Register. All comments and suggestions received will be available for review on the Commission’s website at www.prc.gov.

In addition to this solicitation of comments, the Commission intends to hold several public hearings at locations outside of Washington, D.C., in order to hear from a broad cross section of the mailing public. The dates and locations for those hearings are as follows:

May 21, 2008 (2 pm):
Flagstaff City Hall
211 West Aspen Avenue
Flagstaff, AZ 86001

June 5, 2008 (10 am):
City Hall/Court House Building
City Council Chambers, 3rd Floor
15 Kellogg Boulevard
St. Paul, MN 55102

June 19, 2008 (2 pm):
City Hall
1 Junkins Avenue
Portsmouth, NH 03801

Additionally, the Commission intends to sponsor an open workshop in Washington, D.C. during May 2008, to receive public comment.

Further details on the field hearings and other steps to be taken in this docket will be posted on the Commission’s website at www.prc.gov.

Yesterday the PRC denied the USPS motion, pointing out that under the law, the Commission must either dismiss or take action on complaints within 90 days. Since that time period will expire on April 2, the USPS’s suggested deadline of April 4 for its statement on the complaint was not acceptable. The PRC denied the USPS motion, and ordered it to issue a statement on the complaint no later than March 7.