Tuesday, January 22, 2008

The Level Playing Field

Last week, the Federal Trade Commission (FTC) issued the report "Accounting for Laws that Apply Differently to the United States Postal Service and its Private Competitors." The report concluded that "from the USPS's perspective, its unique legal status likely provides it with a net competitive disadvantage versus private carriers." This conclusion runs counter to the arguments made by the USPS's competitors and could put to rest arguments that private sector firms need protection from the USPS.

From a personal perspective, this report confirms the conclusions in the paper, "Who has the Advantage? Evaluating the Playing Field Facing Parcel Competitors in the United
States." that Krisshawn Stanley and I presented at the 10th Rutgers Conference on Postal Economics in Potsdam Germany in 2002. (Copies of the paper are available by writing to the e-mail listed on this blog.) In that paper, we wrote
Answering the question of who has the advantage involved evaluating the benefits in one area relative to disadvantages in others. Unfortunately for the Postal Service, it operates within a legal framework that places it at a disadvantage in regards to economic regulation, labor and employment law, and business operation law. The advantages of holding a letter monopoly and being exempt from state and local laws and certain taxes pale in comparison with all of the other disadvantages.

An uneven playing field does not serve the customers of the parcel market, employees of the Postal Service, or the holders of Postal Service liabilities well. The current playing field does provide some significant protection for private sector competitors. Policy makers must weigh the interests of postal customers, employees, management and competitors in changing that playing field. Like the debate changing the competitive balance in telecommunications, parties will be actively promoting changes that promote their own interests or promoting the status quo to maintain the protections that now exist.

Most of the press reports on the FTC Report focus on detailing the financial advantages and disadvantage that the different legal frameworks place on the USPS. However, the FTC had some additional conclusions that are worth noting as they have broader policy implications for the USPS, the Postal Regulatory Commission, and potential legislative action. These conclusions are:

  • From a market-wide perspective, the federally-imposed restrictions that impose
    economic burdens on the USPS and the implicit subsidies that provide the USPS an
    economic advantage should be viewed as two distortions that compound each other and
    negatively affect the provision of competitive mail products.
  • Congress may wish to consider acting to reduce the constraints on the USPS’s
    competitive products operations.
  • At the same time, the PRC may wish to consider requiring the USPS to account for its
    implicit subsidies when making pricing and production decisions.
  • Worksharing and recent PRC regulations requiring contribution to institutional costs
    may reduce any advantage the USPS’s postal monopoly provides it in the delivery of
    competitive products.
  • In the longer term, a variety of options exist to eliminate the legal differences between
    the USPS and its private competitors:
    • Congress and the PRC may wish to consider whether relaxing the current
      mailbox monopoly to allow consumers to choose to have private carriers deliver
      competitive products to their mailboxes would create net benefits for
    • Congress may wish to consider whether the scope of the postal monopoly could
      be narrowed to allow greater competition while still maintaining universal
    • Establishing the USPS’s competitive products division as a separate corporate
      entity – with either private or governmental ownership – arguably would
      eliminate many of the major remaining major legal differences between the
      USPS and its private competitors. (FTC Report, pages 8-11)
The FTC focused strictly on identifying how the USPS's legal framework put it at a disadvantage in regards to provision of competitive services. As such, its general recommendations about postal policy only identified changes that are needed to even the playing field for competitive products and ignored how the legal framework may affect stakeholders in the Postal Service's monopoly products.

Soon, all postal stakeholders, including those who use services that are still covered by the monopoly, will need to think about these policy issues when the Postal Regulatory Commission asks for input about whether the future of the Postal Service requires rethinking current definitions of the universal service obligation, the delivery monopoly, and the mailbox monopoly. As such, readers of the FTC study should take a broader view of the conclusions on the Postal Service's legal framework and ask:
  • Do the advantages and disadvantages that the FTC identified raise the costs of the Postal Service in the provision of monopoly services?
  • Does the legal structure prevent the USPS from maximizing the advantages of its "monopoly" hard-copy delivery services in competition with other methods of delivering documents and advertising including physical, broadcast, and electronic delivery?
  • Does the legal structure increase the difficulty of providing a customer-focussed approach to the provision of "monopoly" services?
  • Does the legal structure bias the USPS toward outsourcing activities or encouraging worksharing that would be provided in-house at a lower cost under a different legal structure?
  • Does the legal structure prevent the USPS from providing all customers as high a quality of retail or delivery service as customers or postal policy makers may desire?
  • Could the common carrier obligation under which the private carriers operate provide a framework for ensuring that senders of mail receive the services that they require without placing additional financial burdens on the USPS to provide services that customers do not use?
Now is the time to start thinking about these and other questions as stakeholders begin the process of evaluating the impact of The Postal Accountability and Enhancement Act and begin looking at whether further changes are required to ensure that policy goals are met.

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