[Senate Hearing 106-762]
[From the U.S. Government Publishing Office]
S. Hrg. 106-762
E-COMMERCE ACTIVITIES OF THE U.S. POSTAL SERVICE
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HEARING
before the
INTERNATIONAL SECURITY, PROLIFERATION, AND
FEDERAL SERVICES SUBCOMMITTEE
of the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 7, 2000
__________
Printed for the use of the Committee on Governmental Affairs
U.S. GOVERNMENT PRINTING OFFICE
67-998 cc WASHINGTON : 2001
_______________________________________________________________________
For sale by the Superintendent of Documents, Congressional Sales Office
U.S. Government Printing Office, Washington, DC 20402
COMMITTEE ON GOVERNMENTAL AFFAIRS
FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut
TED STEVENS, Alaska CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey
THAD COCHRAN, Mississippi MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania JOHN EDWARDS, North Carolina
JUDD GREGG, New Hampshire
Hannah S. Sistare, Staff Director and Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
Darla D. Cassell, Chief Clerk
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INTERNATIONAL SECURITY, PROLIFERATION, AND FEDERAL SERVICES
SUBCOMMITTEE
THAD COCHRAN, Mississippi, Chairman
TED STEVENS, Alaska DANIEL K. AKAKA, Hawaii
SUSAN M. COLLINS, Maine CARL LEVIN, Michigan
PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey
ARLEN SPECTER, Pennsylvania MAX CLELAND, Georgia
JUDD GREGG, New Hampshire JOHN EDWARDS, North Carolina
Mitchel B. Kugler, Staff Director
Richard J. Kessler, Minority Staff Director
Julie A. Sander, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Cochran.............................................. 1
Senator Edwards.............................................. 25
Prepared Statement:
Senator Akaka................................................ 2
WITNESSES
Thursday, September 7, 2000
Bernard L. Ungar, Director, Government Business Operations
Issues, U.S. General Accounting Office......................... 3
John Nolan, Deputy Postmaster General, U.S. Postal Service....... 10
Edward J. Gleiman, Chairman, Postal Rate Commission.............. 12
Robert E. Rider, Vice Chairman, Board of Governors, U.S. Postal
Service........................................................ 17
Alphabetical List of Witnesses
Gleiman, Edward J.:
Testimony.................................................... 12
Prepared statement........................................... 56
Nolan, John:
Testimony.................................................... 10
Prepared statement........................................... 49
Rider, Robert F.:
Testimony.................................................... 17
Prepared statement........................................... 72
Ungar, Bernard L.:
Testimony.................................................... 3
Prepared statement........................................... 35
APPENDIX
Karla W. Corcoran, Inspector General, U.S. Postal Service,
prepared statement with attachments............................ 76
GAO report entitled ``U.S. Postal Service: Postal Activities and
Laws Related to Electronic Commerce,'' dated September 2000.... 90
Copy of a study submitted by Mr. Gleiman entitled ``Postal
Enterprise: Post Office Innovations with Congressional
Constraints, 1789-1970,'' by Richard B. Kielbowicz, Associate
Professor, School of Communications, University of Washington,
Seattle, WA, dated May 30, 2000................................ 168
E-COMMERCE ACTIVITIES OF THE U.S. POSTAL SERVICE
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THURSDAY, SEPTEMBER 7, 2000
U.S. Senate,
Subcommittee on International Security,
Proliferation, and Federal Services,
of the Committee on Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:38 a.m. in
room SD-342, Senate Dirksen Building, Hon. Thad Cochran,
Chairman of the Subcommittee, presiding.
Present: Senators Cochran and Edwards.
OPENING STATEMENT OF SENATOR COCHRAN
Senator Cochran. The Subcommittee will please come to
order.
I want to welcome everybody to our hearing that we have
convened today. Our Subcommittee is here to review a report
that has been compiled by the General Accounting Office on the
electronic commerce activities of the U.S. Postal Service.
The Postal Service has been aware that the growing use of
the Internet and electronic technologies is a new problem for
it as it tries to deal with challenges that are presented with
these new alternatives to traditional services that have been
performed and provided by the Postal Service. At a hearing we
had earlier this year, the Postmaster General said that
information showed that these factors will cause a drop in mail
volume and revenue for the Postal Service.
For some time now we have been working to help ensure that
the Postal Service conducted its business so that it wouldn't
have to rely upon the infusion of Federal tax dollars to
subsidize its operation. The Postal Service has done a very
good job in recent years in achieving that result--operating
without the benefit of direct subsidies from the Federal
treasury. And so this new development is one that presents both
problems and challenges for the Postal Service, according to
information that has come to the attention of our Subcommittee
in previous hearings.
So the Postal Service, in searching for ways to continue to
react to the demands of the American public and businesses, is
trying to decide how it can reduce costs, increase revenues,
and develop a range of e-commerce products and services that
supplement its traditional mail services to the public. One
question that has arisen from competitors who are also
embarking upon new business ventures in these areas is whether
or not this is appropriate competition for the Postal Service
to embark upon, and whether or not it is consistent with
existing laws and regulations on the subject.
To try to answer these questions, our Subcommittee asked
the General Accounting Office to look into these issues and
give us a report so that we could better understand the legal
issues that arise from these activities. So that's why we are
here today. We have an opportunity today to examine the results
of the GAO's review and its report, which I hope will serve as
a foundation for continuing oversight of the Postal Service and
its activities.
On our first panel today is a witness who is representing
the General Accounting Office. He is Bernard Ungar, Director of
Government Business Operations Issues, who will present the
GAO's report. Then we will hear from a panel of witnesses that
includes John Nolan, Deputy Postmaster General of the U.S.
Postal Service; Ed Gleiman, Chairman of the Postal Rate
Commission; and Robert Rider, Vice Chairman of the Board of
Governors of the U.S. Postal Service.
We welcome all of our witnesses and we appreciate very much
your providing us with prepared statements which we will
include in the record in full. And we encourage you to proceed.
Before proceeding, let me point out our distinguished
Ranking Member of the Subcommittee is not able to join us
today. Senator Akaka, from Hawaii, has just recently undergone
replacement hip surgery. He is doing well but the physicians
suggested that he not yet embark upon a long flight from
Honolulu to Washington. So he is not here. We do have a written
statement from him which will be placed in the record at this
point.
[The opening statement of Senator Akaka follows:]
PREPARED STATEMENT OF SENATOR AKAKA
Thank you, Senator Cochran for your leadership and direction in
holding today's hearing on a topic of great importance to the American
public: The Postal Service's E-commerce Activities. As the Ranking
Member of this Subcommittee, I am a strong advocate of the U.S. Postal
Service and understand why Headquarters is pursuing electronic commerce
initiatives. We are witnessing dramatic changes in government and
business because of the profound technological transformation of our
society and world. The ability of the Postal Service to meet these fast
paced challenges in a highly complex and competitive environment, while
sustaining its commitment to providing universal service, highlights
the dedication and professionalism of the more than 800,000 Postal
Service employees. I hold them in the highest regard and commend their
exemplary service to our Nation.
Today's hearing focuses upon the legality, propriety, and
advisability of the Postal Service's development, implementation, and
expansion of e-commerce initiatives. There is no question that the
Postal Service is a leader in utilizing the latest technology and the
best logistical and marketing strategies to sustain and improve the
core services. The innovative range of e-commerce initiatives
implemented and planned by the Postal Service is impressive. There is
great debate, however, about whether these enterprises are consistent
with the laws and regulations under which the Postal Service operates
and whether the Postal Service's entry into the e-commerce arena best
serves the public interest.
As the Postal Service becomes more involved in e-commerce
activities, I want to know how the Postal Service plans to safeguard
its customers' personal and financial information. This is a growing
concern of the American public. In recent polls, nine of ten Americans
expressed concern about threats to their personal privacy and eight of
ten believe they have lost control over how companies use their
personal information. There are a number of privacy related bills
pending in Congress to address this rising concern. It is my hope that
the Postal Service is employing the strongest safeguards available. Our
citizens believe in the Postal Service and entrust the Postal Service
with a wide range of personal information for safe and secure
transmittal through the mails. I know the Postal Service wants this
trust to extend into its e-commerce activities, and I look forward to
working with postal officials to guarantee the highest level of
electronic privacy standards.
I am also interested to find out what steps the Postal Service is
taking to remedy the inconsistencies turned up by the Government
Accounting Office's audit of the processes for review and approval of
postal e-commerce initiatives. There appears to be unreconciled
accounting of how an e-commerce activity is approved, as well as
concerns that some e-commerce initiatives fall outside the realm of
approved postal services.
The exponential growth of the Internet, e-commerce, and electronic
communications will impact the Postal Service's ability to maintain
universal service at reasonable rates. It is interesting to note that
the two highest volume areas--bill presentment and payments and
advertising mail, are also the most vulnerable to electronic
alternatives. Without adapting to change, and quickly adopting
strategic solutions, the Postal Service risks the possibility of loss
of market share and erosion of its core business. I believe the key
question we need to answer is how the Postal Service should implement
change in the 21st century. I look forward to working with the Postal
Service and GAO in this endeavor.
Thank you, Mr. Chairman.
Senator Cochran. Now, Mr. Ungar, we welcome you
specifically and encourage you to proceed to present the
report.
TESTIMONY OF BERNARD L. UNGAR,\1\ DIRECTOR, GOVERNMENT BUSINESS
OPERATIONS ISSUES, U.S. GENERAL ACCOUNTING OFFICE
Mr. Ungar. Thank you, Mr. Chairman. We are pleased to be
here today to help the Subcommittee in its oversight efforts
with respect to the Postal Service's e-commerce initiatives.
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\1\ The prepared statement of Mr. Ungar appears in the Appendix on
page 35.
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With me are the staff who worked on our assignment. They
assure me they are right behind me--I think they are way behind
me--Teresa Anderson, Ken John, Casey Brown, Angela Davis, and
Hazel Bailey, who I would like to thank very much.
Our report,\2\ which was done at your request and at the
request of the House Subcommittee on the Postal Service, was
issued today, as you know. What I would like to do is summarize
briefly four issues that we discuss in this report. Before I do
that though, I would like to provide some context for those
issues to be discussed within.
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\2\ The GAO report entitled ``U.S. Postal Service: Postal
Activities and Laws Related to Electronic Commerce,'' dated September
2000 appears in the Appendix on page 90.
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The Postal Service, like many other organizations today,
both government and in the private sector, is in the early
stages of actually formulating and developing its e-commerce
program. A number of initiatives have been undertaken by the
Postal Service over a several year period, in fact, going back
even into the 1980's, on an individual case-by-case basis. But
it has just been in the last several months that the Postal
Service has been trying to put together a program of
initiatives.
It has been in the process, again in the early stages, of
sorting through that, trying to identify and define these
initiatives, trying to organize and get a strategy laid out.
And it has made progress in a number of respects. It has
defined in the last several months some very broad goals for
this program. It has identified some strategies that it wants
to pursue. It has identified certain expected results it would
like to see from some of these initiatives. It has set up an
organizational structure to specifically review and approve e-
commerce initiatives, and it has set up a separate review
process for them.
At the same time, it is still in the process of making lots
of decisions and trying to see which initiatives it wants to
pursue and not pursue. And it has still not yet developed an
overall strategic plan for this area, but it is in the process
of doing that.
With that backdrop, the first issue that I would like to
discuss has to do with a number of e-commerce initiatives that
the Postal Service has underway currently.
According to the Postal Service, the number is seven, and
we have outlined those both in our statement and in our report.
However, the Postal Service identifies these seven within a
framework of a broader category that it has labelled
``eBusiness'' which constitutes a whole variety of different
initiatives or efforts, some of which the Postal Service has
talked about as infrastructure, meaning enablers, to provide
the Postal Service with the technological capability, for
example, to do some of these, and some of these are service
enhancements.
The Postal Service has come up with a definition of e-
commerce which is basically the use of the Internet to generate
revenue, in a simplistic fashion. Unfortunately, what we found
during the course of our work was that the Postal Service had
not consistently applied this definition to the seven
initiatives. For example, it has identified Stamps Online as e-
commerce, but an eBay auction of stamps was not e-commerce. So
we had a great deal of difficulty trying to determine exactly
what the number of e-commerce initiatives is, and we were not
able to do that. I would point out again that it is evolving
and, hopefully, soon it will be a little clearer as to which
initiatives are e-commerce and which are not. And that is
important because it has a lot of implications in terms of
tracking revenues and expenses and the ratepayers.
The second issue that I would like to talk about is the
approval process that the Postal Service has set up. It
actually has two processes: One, a new products approval
process that has been in place for some time; and a separate
process it set up for electronic commerce, which was recently
implemented in May. Of the five initiatives, these are the five
initiatives of the seven that were either fully or partially
implemented during the course of our review or as of our
review, the Postal Service could not provide documented
evidence that these five initiatives went through all the
required steps in its process. For example, the electronic
postmark, according to the Postal Service, was implemented in
April 2000, yet the documentation provided showed it had not
been approved by the special panel it had set up for approving
these types of initiatives until July after the initiative had
been implemented.
The third issue, and what I think is one of the most
important issues for a number of reasons, is the financial
issue. This has to do with the revenue/expense data that the
Postal Service has pulled together for its e-commerce
initiatives. During the course of our review, it has been a
real challenge for both us and the Postal Service to get a
handle on this. The Postal Service did provide us a number of
sets of data during the course of the review, and, as I
indicated, of course their initiatives are evolving. But
nonetheless, for each set of data that we had been given we
found a number of inconsistencies associated with the data,
some incomplete information, and a lot of problems, to the
point where we really did not feel comfortable that we could
rely on that data.
Problems existed both in the revenue data and the expense
data. For example, almost all the revenue that the Postal
Service identified associated with its e-commerce initiatives
to date had been generated from its Stamps Online and its
MoversNet initiatives, which basically get back to the
traditional hard copy documents as opposed to the more e-
commerce type or electronic initiatives. On the expense side,
similarly, we also found a number of problems. For example, the
data that the Postal Service provided to us was somewhat
different from the data that was provided to the Postal Rate
Commission for the Mailing Online initiative. It also excluded
some of the expenses that had been incurred associated with
some of the discontinued initiatives.
The Postal Service has been quite receptive and quite open
to the recommendations that we have made to it with respect to
these issues I just mentioned. During the course of our review
we did have a few disagreements with the Postal Service, I
guess largely in the contextual or perspective area. But I
think the Postal Service recognized that it has got some
growing pains associated with the e-commerce initiatives and,
as I indicated, has been very willing to listen to our
suggestions, and, in fact, has already begun to implement them,
actually before we completed our review.
The last item that I would like to talk about deals with
legal issues associated with the e-commerce initiatives. And as
I am sure everybody is aware, the information in the paper
today about the Federal Express proposed alliance I am sure
falls into this area of interesting legal issues. With respect
to e-commerce, however, the Postal Service believes that it has
broad authority to introduce new e-commerce products and
services. We have not specifically assessed that due to the
shortness of time available to us. But a couple of years ago we
did look at its authority overall to introduce new products and
found that it did have fairly broad authority both in the
postal and non-postal area, although there are some
constraints, of course. One of the key ones is how closely do
these new initiatives relate to its basic mission as it is set
out in statute.
The Postal Service believes that some laws generally do not
apply, such as consumer protection laws or antitrust laws, and
some laws do apply to the Postal Service. And it gets to be a
very complex issue. There is certainly a lot of controversy
over this and certainly a lot of questions that are being
raised over whether or to what extent the Postal Service has
authority to get into some of these areas, and, if so, on what
sort of specific framework it can undertake some of these
initiatives. We have not evaluated that. But it is certainly an
issue that is going to be debated for some time.
One of the key issues I would just like to mention briefly
has to do with privacy. A lot of people are concerned about the
privacy issue associated with e-commerce. The Postal Service
has told us and told others that it believes that its mandate
basically under the Privacy Act and under the Postal
Reorganization Act, as well as some other legislation, enables
it to provide more protection, and will enable it to provide
more protection in the privacy area to its customers than some
of its private sector competitors have. And this was certainly
a controversial area.
But one issue that I would like to raise is that we have
had a long-standing disagreement with the Postal Service with
respect to the privacy of information that customers provide
for changing addresses. And it is a little difficult for us to
reconcile this issue with the Postal Service's broad policy
statement on protecting the privacy of the information. In a
nutshell, the disagreement centers around whether or not the
information that postal customers give the Postal Service for
address changes can be used by its licensees or their customers
to create new movers lists, which is a marketing area that
involves sending solicitations and advertisements to people who
just moved.
We feel very strongly, and have felt very strongly, that
this is not a purpose that would be authorized without the
individual's permission. The Postal Service seems to have a
disagreement with that. And the question that we raise is what
implications does this have for other initiatives that the
Postal Service is going to venture into with that kind of a
position. It is something that the Subcommittee may want to
pursue as it looks into a number of the issues that surround
electronic commerce.
With that, I would like to end my summary and be available
for any questions.
Senator Cochran. Thank you very much, Mr. Ungar. You
mentioned at the outset of your statement that there were four
issues discussed in your report. I was trying to keep up with
each one. You mentioned e-commerce initiatives that have been
started by the Postal Service, and then I have the legal issues
that are involved, the definition of the legal authority of the
Postal Service to engage in these, and then the privacy issue.
Have I missed one? What was the other one?
Mr. Ungar. I sort of categorized them a little differently.
I had the first issue as how many e-commerce initiatives are
there--identification. The second was the review and approval
process that the Postal Service has set up. The third is the
reliability of the financial information associated with that.
And the fourth one was the whole umbrella of legal issues, I
just happened to choose one.
Senator Cochran. All right. In the case of the seven new
initiatives that have been undertaken by the Postal Service,
you said five have been fully or partially implemented. What
are the other two that are still under consideration?
Mr. Ungar. There are two. They are in the report. They are
NetPost.Certified and MoversNet.Com enhancements.
Senator Cochran. OK. Well, in connection with the process
that has been established by the Postal Service for approving
these initiatives, we will hear later from representatives of
the Postal Service who are knowledgeable about that process,
but as far as your review that was undertaken, you said you
discovered that some of these initiatives have not really been
approved by the process that has been established. To what
extent is this, in your view, a problem? If the Postal Service
is trying to identify a procedure to review to see that these
are consistent with the legal authority and that it is
something that is appropriate for the Postal Service to do,
what is the risk to the public or what is the reason for
highlighting that as a matter of concern?
Mr. Ungar. Mr. Chairman, I think it is important for a
number of reasons. One is that the Postal Service argues, and
probably rightfully so, that while it is not subject in its
view to a number of statutes that would apply to the operations
of some of its private sector competitors, there are a number
of protections built in to the Postal Reorganization Act and
one of those is review and approval by the Board of Governors
of the general activities of the Postal Service. So to the
extent that there has not been an appropriate review of some of
the initiatives, it certainly would suggest that if there are
public interest concerns--possible competition or fairness of
competition issues, or pricing issues, to the extent that some
of these are real initiatives as opposed to enhancements to
existing services--the Board should weigh in.
I might add that there is some question--the Postal Service
believes that it had approved the initiatives, although, again,
it could not provide us the documentation for that. Since our
review has started, though, the Postal Service now has a new
procedure in place we understand, which we think is good,
whereby the Board of Governors is going to review on a
quarterly basis the e-commerce initiatives that are being
proposed and undertaken, and if things apparently come up in
between those quarters, I think they are going to ask to have
information on them. So I think they have recognized that this
was something that they needed to address and have taken
action.
Senator Cochran. We know that there are legal parameters
for the Postal Service's operations set out in the statute
creating the Independent Postal Service, Board of Governors,
Rate Commission, and the rest. What remedies are available, if
any, under the Postal Reorganization Act to those who feel
aggrieved or harmed by extending activities beyond the legal
authorities that the Postal Service has?
Mr. Ungar. Sir, I believe one remedy would be to file a
complaint with the Postal Rate Commission if a party believes
that there is some unreasonable initiative or unfair price. I
think one of the big issues that seems to exist here has to do
with recovery of cost and are some of the items or services
going to be underpriced. In other words, the services will not
cover their direct/indirect cost and make a contribution to
overhead. Another question is whether the Postal Service is
using its position as a monopoly provider to its advantage or
in an unreasonable way.
I presume that parties who feel that this might be a
problem could go to the Rate Commission. I presume they could
go directly to the Board of Governors if they feel there is a
problem. They could certainly come to Congress, as I am sure
they often do, and raise a concern.
Senator Cochran. One of the questions that occurred to me
was whether or not there have been any instances where there
has been litigation or an effort to actually test some of these
authorities in court. Do you know of any, or did your review
involve looking at whether or not there were cases that had
been brought?
Mr. Ungar. I don't recall looking at any cases. I do not
think we did. There is a complaint pending with the Rate
Commission on the PosteCS initiative. But we did not do a
search to see if there were any cases. My recollection is that
this is pretty uncharted territory when it comes to testing in
court. There may have been some cases.
Senator Cochran. One of the observations you made about the
data review that you undertook to try to determine what kind of
revenue was being generated by these new eBusiness activities
and what some of the expenses were that were being incurred in
developing these initiatives, you said that these were
difficult to isolate and verify. Has that been cured in any
way, or do you think there have been changes in the accounting
processes to permit you to have a better degree of certainty
about the expenses and the revenues that have been generated by
these activities?
Mr. Ungar. Mr. Chairman, not as of the time we completed
our work, in August. I think even the most recent set of data
that we got we found some problems with. I know the Postal
Service is certainly concerned about this as well. And one of
the problems it has is that these initiatives are being done in
different parts of the organization and different parts are not
necessarily seeing things in the same way. Based on the last
set of data that we got, we still think there is a lot of work
to be done by the Postal Service to really get a good handle on
these revenues and costs and make sure that it is allocating
these costs and assigning them in an appropriate manner.
Senator Cochran. Well one of the issues involved in
connection with that is that under the Postal Reorganization
Act, the charges that are made for services by the Postal
Service cannot be subsidized by any other activity.
Mr. Ungar. Right.
Senator Cochran. Is that the relevant issue that is
involved--that they have to be able to allocate these costs to
a particular kind of service that is being provided?
Mr. Ungar. Yes, sir. That is one of the major issues.
Certainly, this gets back to why it is important to define e-
commerce initiatives consistently. Because if it is a true new
product or service, then it needs to be able to stand on its
own and be able to recover its costs. I know there are a lot of
issues surrounding that. But it certainly needs to be able to
stand on its own over some period in time. I think we would
recognize that any new business is not necessarily going to
make a profit when it first introduces a product; so, there is
going to be some period of time where it probably will not. But
on the other hand, the Postal Service certainly needs to have
good accounting of both the revenues and expenses so one can
determine whether direct and indirect costs are really being
attributed, are they being recovered, and is some contribution
being made to overhead. So that is a very important issue.
The other relevance of that is that, to the extent that
they are not being properly accounted for, then there are a
couple of issues that arise. One is, is there cross-
subsidization inappropriately taking place, and second, are
these initiatives successful or not. No one could ever tell.
Right now, we would have to say we cannot tell where the Postal
Service is because of the problems with the accounting that
exists.
Senator Cochran. Were there any guidelines that the GAO
suggested to determine when an activity had to be considered
profitable or not being successful enough to stand on its own
two feet and would have to be abandoned by the Postal Service?
Were any guidelines like this discussed?
Mr. Ungar. No, Mr. Chairman. We did not get into a specific
timeframe. We have not really researched in terms of, for
example, the private sector, what is the common practice. I
know that the Postal Service has discontinued a number of the
initiatives that it had begun because they were not bearing
fruit. So it is certainly not a case where the Postal Service
has just initiated these and let them go on. But in terms of a
precise timeframe, we are not in the position to say at this
point.
Senator Cochran. Were you able to draw any conclusions
about the overall question, sort of the big question, are these
or are these not compatible with the Postal Service's
authorities under existing law?
Mr. Ungar. That is the $64,000 question, or maybe million
dollar question in these times. But, no, Mr. Chairman, we
really did not look at any particular initiative in the context
of is it appropriate or not. We identified in the report a lot
of the factors that would be considered. But it is really going
to boil down to, I think, a public policy question that perhaps
in the end the Congress or maybe the court is going to have to
decide.
The Postal Service, as I mentioned, believes that it does
have quite broad authority, and in a lot of cases it does. Now
where that gets tricky is how close are some of these products
and services to the mission of the Postal Service. I think as
an enhancement of an existing service, for example, being able
to track and trace priority mail, I do not think a lot of
people would argue that it is not connected with the mail or
the Postal Service. But some of the other things, eBillPay, for
example, may be a little further away, and some of the other
initiatives could be, too. So I guess it is a question of how
closely do these relate to the basic mission of the Postal
Service, and how comfortable from a public policy standpoint is
the Congress with the Postal Service venturing into areas that
the private sector also is already into.
Senator Cochran. I think this is very helpful and a good
starting point for our discussion with the representatives of
the Postal Service about their practices and about their views
of what they are doing and what safeguards have been put in
place to make sure that the things that are being undertaken
are consistent with their authorities, and that they have
procedures in place to review these and be sure that they are
being conducted in a way that is consistent with the law.
So we appreciate this. We will look at the report in more
detail now that we have it. And we appreciate very much your
being here and starting off our hearing today, Mr. Ungar.
Mr. Ungar. Thank you, Mr. Chairman, appreciate it.
Senator Cochran. Thank you.
We will now hear from our next panel. John Nolan, Ed
Gleiman, and Robert Rider, all of whom are here in their
capacity as officials, one way or the other, of the Postal
Service or the Rate Commission or the Board of Governors. We
have each of these entities represented by high ranking
officials, and we appreciate their presence and cooperation. We
have statements from these witnesses which we will put in the
record, and would encourage them to make any summary comments
or read excerpts from their statements as they choose.
Mr. Nolan, let's start with you. Please proceed.
TESTIMONY OF JOHN NOLAN,\1\ DEPUTY POSTMASTER GENERAL, U.S.
POSTAL SERVICE
Mr. Nolan. Thank you, Mr. Chairman. I had to chuckle a
little bit when Bernie said this was the $64,000 question and
then corrected himself. If this was the $64,000 question, we
would not be here. Hopefully, it is a lot bigger than a $64,000
question.
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\1\ The prepared statement of Mr. Nolan appears in the Appendix on
page 49.
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The world is changing. That is no news flash. It has gone
global, and it has gone Internet. Change is not new, but the
rate of change continues to be new. And the acceleration of
that change is a challenge for everybody.
Some things have not changed, though--the need for the
Postal Service and the importance of postal services to the
American public. Also, the need for the Postal Service, and
businesses in general, to adapt to changing customer needs and
technology opportunities.
The Internet is both a supportive and a disruptive
technology. It is supportive in the sense that it is going to
enable us to offer our products and services that we have
historically offered in a more seamless, easier, fuller, and
richer manner. It is disruptive in the sense that it is going
to tear away significant portions of our current volume at some
point in the future and we have to deal with that. So our facts
that we understand are that volume has been impacted somewhat
by the Internet and will be impacted a lot more. The question
really is not will it impact, it is to what extent and when.
Affordability is at risk. That is a fact. We know we have
to shrink our organization as mail volume goes away, regardless
of whether or not we get into the Internet. As volumes go away,
we cannot have a featherbedding environment where we continue
to keep people, guaranteeing full employment for all employees.
We have to shrink our organization as volume declines. But the
problem is that if you have a letter carrier going up to the
front door of a house and yesterday it was with ten pieces of
mail and today it is with five, I still need that letter
carrier and each piece of mail is going to have to carry a
higher cost burden. Likewise, we have post offices throughout
the country in every nook and cranny and the cost of
maintaining that has to be borne by a smaller number of pieces
of mail. And that is the question, can we remain affordable?
We have been delivering money, messages, and merchandise
for this country for over two centuries. We have accepted the
challenge of change over the years and have always been
effective users of technology. And that use has always been
questioned. It is funny, if we were sitting here in 1910 or
1911, the big debate at that point was whether or not the
Postal Service should be allowed to use air transportation for
the carriage of mail. And there are some interesting quotes
from that time, because for three straight years the use of air
travel was disapproved, with statements such as: ``A useless
expenditure of money.'' ``The Postal Service and Post Office
have been up in the air much too long and it is time to get
back on terra firma.'' ``There is no need or demand for this
experiment.'' And one of my favorites, ``Along with the
spineless cactus, the motherless chicken, and the seedless
raisin, do we really want trackless travel now?''
So we have always been controversial. We are very big, we
understand that. But we have always used technology. We have
been a technology user and the country has benefited from that
use.
Our Internet strategy is both simple and comprehensive. We
want to use the Internet for internal efficiencies, like any
company would. We need to add value to our core products and
services through the richer, more effective channels through
which you can reach us. And finally, we want to introduce e-
commerce initiatives.
E-commerce initiatives, as Mr. Ungar indicated, are those
products that require the Internet to do business and that
generate revenue to the Postal Service through either user
charges or licensing fees. That is the definition that we have
set and that is the way we are approaching this. And while to
many businesses the exact definition would be an arbitrary and
unnecessary thing to discuss, we know it is important in this
space because we know that there are issues of cross-
subsidization and other things that have to be dealt with. So
we are not trying to hide from that. We are trying to very
carefully define it. The audit that GAO did helped us to
understand better how to package those things so that we will
have an ongoing ability for them to review what we are doing
and to keep an eye on us, so to speak, because we know that is
important.
We are in e-commerce for several reasons. Customer demand,
a number of our customers have come to us and said we need you
in this space. And part of the reason for that is because
people trust us. When our partners in this space have gone out
to the public to ask them who do you trust, like that old TV
show, the Postal Service comes up at or near the top. And
finally, because we are everywhere. We have the ability to
offer services in a more effective manner for several
offerings, and an opportunity to bridge the digital divide to
make sure that no one is left out of the opportunities of the
Internet because all of the competitors are not going
everywhere. We think we can offer something that will make sure
no one is left out.
If you ask me for just a couple of words about how our
services would be categorized in e-commerce, its security,
privacy, and customer choice. Nothing that we are doing here is
going to force anyone to use us to the detriment of any
competitors. We believe in competition. Our competitors should
believe in competition too.
Also in this space what you can expect to see is a lot of
partnering on our part. While we are heavy technology users, we
have also proven over the years that we are effective partners
with technology experts. We are not technology experts in this
space. But we are partnering with a lot of companies that are
the best and the brightest. They enable us to move quickly,
they enable us to use the best technology, and they are putting
up a lot of their own money to make sure that we do not have to
put up a lot of money to help begin to fund some of these
things. We believe all of these initiatives in e-commerce will
generate a positive contribution to the bottom line or we would
not be able to offer them.
We strongly support GAO's recommendations. We have no
problem not only supporting them but embracing them. This was
not an easy audit for them or anyone else. This is a whole new
area. Not many audits I am sure have been done in this country
on e-commerce initiatives within companies. So they were
charting new ground and we were struggling along with them to
try and figure out how to categorize various things and
allocate costs. So the fact is it is a new and developing area.
We have control over project approval and project costs at
this point. The time of the audit was at the early stages of
our growth and showed some of our growth pains, as Mr. Ungar
indicated. In the first 30 days after I arrived, we instituted
this e-Business Opportunity Board to set up a more rigorous
structure. In my last 11 years of business I've had experience
with profit and loss statements for individual entities and I
believe in controlling costs, understanding costs, and being
able to demonstrate those costs and revenues. Our Board of
Governors is being briefed on all initiatives. One slight
modification to what Mr. Ungar had said. When an initiative
comes up that requires Board review, that does not have to wait
for a quarterly report. We will go right to the Board to notify
them of that. What the Board has requested, and we certainly
support, is on a quarterly basis, for each initiative, however,
we will be providing status on where exactly each of these
stands so that there is a clear understanding of that.
Part of the confusion with the numbers and status dealt
with how to categorize the projects, in my opinion, and how to
separate out those costs. But we are very confident that we
have set in process a new accounting system so that each
initiative will have its own finance number, own accounting so
that we will be able to tightly control it.
We will fully meet the GAO recommendations. And the use of
the Internet will enable us to be a better and more relevant
Postal Service in the future, we believe. We also believe we
will not only be better able to serve our customers through our
involvement, but also to ensure that the trust in and
utilization of the Internet will also be a beneficiary of this
endeavor on our part. Thank you, Mr. Chairman.
Senator Cochran. Thank you, Mr. Nolan. Let's now turn to
the Postal Rate Commission and its representative here today,
Ed Gleiman.
TESTIMONY OF EDWARD J. GLEIMAN,\1\ CHAIRMAN, POSTAL RATE
COMMISSION
Mr. Gleiman. Thank you, Mr. Chairman, for the opportunity
to provide testimony today. I want to make clear at the outset
that the views I am expressing today are my own rather than
those of the Commission as an institution. While the majority
of my colleagues on the Commission would probably agree with
many of my comments, they have not participated in developing
this testimony.
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\1\ The prepared statement of Mr. Gleiman appears in the Appendix
on page 56.
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As the GAO report demonstrates, there is a lot of
uncertainty about the direction, financing, oversight, and even
the extent of these initiatives. The report paints a seemingly
accurate, albeit somewhat surreal, picture of the state of
current Postal Service activities in the current e-commerce
area.
Mr. Chairman, your letter inviting me to appear as a
witness asked me to address ``the application of major Federal
laws and regulations to the e-commerce initiatives of the
Postal Service'' in my testimony. I will do so, but with some
trepidation, because of two concerns. First, I understand that
the applicability of current laws to such services is largely
uncharted territory, and there are few, if any, settled legal
doctrines to be found in Federal court decisions or other
authoritative sources. Second, as the General Accounting Office
report notes, there is a pending complaint proceeding before
the Commission that concerns the legal status of PosteCS
service. Because of the extent of the Commission's jurisdiction
over this initiative is a major issue to be resolved in this
case, I must refrain from offering comments that could be
misconstrued as prejudging the issue. Nevertheless, I will try
to address the question generally.
The Postal Service's position is that several provisions in
the Postal Reorganization Act grant general authority broad
enough to encompass e-commerce activities, in addition to its
specific power to provide ``special nonpostal or similar
services.'' However, the Postal Reorganization Act's statement
of general duties of the Postal Service found in section 403(a)
must also be kept in mind. This provision obliges the Postal
Service to offer efficient, reasonably priced postal services
for the conveyance of ``written and printed matter, parcels,
and like materials'' and ``such other services incidental
thereto.'' Likewise, section 101 declares that the Postal
Service's basic function is the fulfillment of an obligation to
provide postal services ``to bind the Nation together through
the personal, educational, literary, and business
correspondence of the people.''
It is really hard to see a telecommunications or Internet
horizon in this legal guidance. Now I agree that Title 39 does
not contain language specifically prohibiting the Postal
Service from offering nonpostal services, but I am not
convinced that Congress intended the absence of a prohibition
to be interpreted as broad authority to compete with private
businesses.
The regulation of the Postal Service e-commerce initiatives
is also a question to which there is no clear answer. Chapter
36 of Title 39 requires the Postal Service to file a request
with the Postal Rate Commission prior to establishing any new
mail classification for postal services. The Postal Service
currently argues that as long as the new service manipulates
electrons and does not produce hard copy, that service is not
postal and therefore is none of the business of the Postal Rate
Commission. The Commission has not yet explicitly accepted or
rejected that argument. I will note, however, that if the
Postal Service position is correct, there may be a gap in
regulatory oversight.
The Postal Service offers several rationales for its entry
into e-commerce, and I will attempt to address each of these.
Before doing so, I would like to pose two basic questions:
First, is there some compelling need for the Postal Service to
do that? If some current or potential customer of the Postal
Service has been clamoring for new non-postal e-commerce
services, I am not aware of it. The evidence I am aware of
suggests that demand for electronic initiatives is limited to
those that would make improvements in or provide additional
support for core Postal Service business.
Second, is there some compelling justification for any
government monopoly to compete with private enterprise in this
arena? Put another way, if the Postal Service had not taken the
initiative to develop e-commerce products, would Congress pass
legislation directing the establishment of a government-owned
start-up, funded by users of the Postal Service, to compete
with private Internet business firms?
Returning to the rationale set forth in the GAO report, the
Postal Service cites four bases for viewing e-commerce products
as appropriate for serving its institutional purposes. One
rationale is that such services, in combination with its other
functions and activities, should help to ``bind the Nation
together,'' in keeping with the basic function prescribed in
Section 101 of Title 39.
This is a plausible rationale, but only if you overlook the
fact that the United States is already ``bound together''
electronically by the private sector--initially by telegraph
and telephone but now by an ever-expanding variety of
telecommunications media, including the Internet.
A second but related rational is the Postal Service's
suggestion that, since ``binding the Nation together'' is part
of its basic function, initiatives such as e-commerce serve an
appropriate objective in their own right by fostering national
communications. This justification provokes another question:
At some point, would pursing the objective of binding the
Nation together through new media change the Postal Service
from a delivery company to a communications company? There is
evidence that this may be what the Postal Service has in mind.
Looking at the Postal Service's website the other day, I
came across the Frequently Asked Questions section devoted to
PosteCS service. Here is a question and answer that I found
particularly interesting. Question: ``How does PosteCS fulfill
Postal Service's primary mission?'' The first sentence of the
answer: ``PosteCS fulfills the Postal Service's mission to
`bind the Nation together through its communications'.'' I do
not know what or whom this answer intended to quote, but it
certainly is not Section 101 of Title 39. In any event, the
diversification of the Postal Service from what has been a
nationwide delivery service into a communications company would
represent a major change in national policy.
A third rationale offered by the Postal Service identifies
technological improvements such as the Internet as sources of
``opportunities for improved interaction between the postal
system and its customers.'' The Postal Service says the
particular electronic services it has chosen to introduce
``serve as logical, supporting, ancillary, incidental
enhancements of the postal system for the benefit of our
customers.''
Evolution of the postal services through the adoption of
new technologies is well-established in historical precedent.
As long ago as 1877, the Supreme Court recognized the power of
the national postal service included employing ``new agencies''
or ``instrumentalities of commerce'' to ``keep pace with the
progress of the country, and adapt themselves to the
developments of time and circumstance.'' However, one question
posed for the Postal Service's future is the following: If
entry into e-commerce and other electronic initiatives is an
appropriate evolutionary development for the national postal
system, should current forms of oversight, governance, and
regulation evolve as well?
The fourth rationale offered by the Postal Service notes
that the current services are ``deeply rooted in the traditions
of this country and embedded in the current economic and social
fabric,'' and it invokes the authority to take advantage of
such technologies as e-commerce to meet challenges to ``improve
and build upon the services, capabilities, role, and customer
relations that it already maintains.''
I agree that some electronic initiatives can fairly be
viewed as extensions and enhancements of Postal Service core
business. For example, mentioned earlier, Delivery Confirmation
that makes use of the Internet to enhance priority mail and
parcel post delivery. But other current initiatives do not
build on any pre-existing traditional service offered by the
Postal Service. Illustratively, eBillPay does not improve nor
build on any service currently offered. Instead, it offers a
potentially all-electronic substitute for the current bill
paying transactions.
My point here is not that the Postal Service should be
precluded from offering services that are categorically
different from anything they have done before, although
historically the Congress did preclude the pre-Reorganization
Act Post Office Department from extending the scope of its core
businesses by competing in the new media such as telegraph and
telephone services. The point to be made here is that the
Postal Service forays into services with no clear connection to
its core business raise important policy issues that ought to
be considered in a forum beyond Postal Service headquarters and
beyond meetings of the Board of Governors.
And while I am on the subject of traditional postal
services, let me say a few words about the privacy
traditionally and legally accorded to mailers and mail
recipients. The GAO report noted my comments earlier this year
about the breadth of disclosure of customer information allowed
by the Postal Service's Privacy Act statement for the eBillPay
service. The Postal Service has since revised that Privacy Act
statement. As a general matter, the Postal Service is quoted as
saying that it can protect the privacy of the Postal Service e-
commerce customers better than private sector providers because
of the Federal privacy laws.
Nevertheless, I remain concerned that personal information
about the users of e-commerce services might be disclosed
pursuant to permissible so-called ``routine uses'' under the
Privacy Act of 1974. As evidenced by the Postal Service's
initial eBill Privacy Act statement, Federal agencies have
broad administrative discretion when it comes to sharing
personal information, more perhaps than many of the proposals
currently under consideration which would impose restrictions
on the private sector.
One practical reason that has been advanced for the Postal
Service's entry into e-commerce is reaction to the new
competitive challenges that may lead to a substantial decline
in first class mail volume and result in an erosion of the
Postal Service's ability to fulfill its universal service
obligation. Under this rationale, the Postal Service must
invest in developing e-commerce activities as a means of
cultivating new revenue streams.
The rationale of income replacement raises serious
questions. First, who would finance the Postal Service's e-
commerce initiatives? The Postal Service has no sources of risk
capital except its revenue from monopoly ratepayers. And if it
fails to earn the expected return, there are few adverse
consequences.
Because the Postal Service can easily obtain risk capital
from monopoly ratepayers, it may be tempted to make imprudent
guarantees to other vendors when it enters the e-commerce
market. Frequently, partners and contractors require guaranteed
revenues. This happened in the market test for Mailing Online
service. In exchange for low printing rates, the Postal Service
guaranteed its printing contractor a minimum revenue of
$325,000. At the end of the test, only about $23,000 had been
spent on printing services. The Postal Service reportedly has
had to pay more than $250,000 to the contractor with no
additional services being rendered, and as of February of this
year there was an outstanding remaining payable balance. The
potential size of guarantees in the e-commerce arena may be
much, much larger and should be given some attention.
And this raises a question. Who is going to manage and
audit the service, the cost and revenues of these initiatives?
This is a significant consideration because of the potential
financial impact on monopoly ratepayers and other users of
conventional postal services.
GAO's sense of confusion about the Postal Service's
division of its e-commerce activities, which I share,
highlights the importance that the Postal Service not bury
significant development costs of e-commerce products in product
lines that fall outside of e-commerce. Moreover, while the
Postal Service states it intends to recover direct and indirect
costs of its e-commerce products, I believe that products
should satisfy the more appropriate standard of covering
incremental costs.
Then there is the pragmatic, bottom-line issue of whether
e-commerce products can reasonably be expected to produce
significant amounts of revenue to support the Postal Service.
All things considered, I would have to say that the signs are
not encouraging. As someone close to the issue, and sitting
close to me, said recently, ``While the Postal Service may wish
for a golden spike out there in the realm of e-commerce to
produce huge revenues, the immediate prospects are much more
modest.''
To summarize, from my perspective, the issue of the Postal
Service's participation in e-commerce is a difficult one
involving many uncertainties. The sources and extent of the
Postal Service's authority to mount such initiatives
unilaterally is not clear in the Postal Reorganization Act.
Further, the applicability of existing regulations and
requirements is likewise uncertain.
On the merits of embarking on e-commerce initiatives, some
of the rationales the Postal Service offers appear to rest on
questionable legal or practical assumptions. There is no
apparent legal mandate, or compelling need, for broadening the
mission of this government enterprise to include
telecommunications services generally. In addition to the
effects on private competition, postal ratepayers would have to
fund such initiatives, and the net financial returns to the
Postal Service may not justify the outlays.
Of course it makes sense for the Postal Service, like any
good business in the current era, to adopt available new
technologies into its operations to enhance productivity and to
add value to its core services. But pursuit of e-commerce for
its own sake may only serve to distract postal management and
divert resources from the critical demands of performing its
public mission in a challenging new century.
Mr. Chairman, I have a copy of a study that I would like to
provide to the Subcommittee, by Professor Richard B.
Kielbowicz, that was prepared for the Commission, entitled:
``Postal Enterprise: Post Office Innovations with Congressional
Constraints, 1789-1970.'' \1\ This study will also soon be
posted on our web page.
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\1\ The copy of a study by Professor Kielbowicz appears in the
Appendix on page 168.
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I want to thank you for the opportunity to share my
thoughts with you on this important matter. And if there are
questions, I would be pleased to answer them.
Senator Cochran. Thank you very much. We appreciate your
statement and the study that you have provided the
Subcommittee, which we will carefully consider.
We will now turn to Mr. Rider, who represents the Board of
Governors. We appreciate your presence. You may proceed.
TESTIMONY OF ROBERT F. RIDER,\2\ VICE CHAIRMAN, BOARD OF
GOVERNORS, U.S. POSTAL SERVICE
Mr. Rider. Thank you, Mr. Chairman. I welcome this
opportunity to discuss with you the electronic commerce
activities of the Postal Service. I appreciate your interest in
the Postal Service and your insights as we grapple with the
unprecedented complexities of the 21st century communications
marketplace. I would also like to recognize the hard work of
the General Accounting Office and thank them for their
recommendations, which incidentally dovetail with our own
thinking.
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\2\ The prepared statement of Mr. Rider appears in the Appendix on
page 72.
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The Governors of the Postal Service have broad oversight
over the expenditures, practices, and policies of the Postal
Service. It is our responsibility to ensure that the strategic
direction of the organization is sound and to judge the overall
implementation and performance of programs put in place to
carry out that strategy. As a practical matter, the Governors
are not involved in day-to-day operations or the thousands of
daily decisions that are required to manage such an extensive
operation. That responsibility rests with a highly dedicated
team of professional managers, represented here today by Deputy
Postmaster John Nolan. Therefore, I will address the broader
questions of our e-commerce strategy and my view of
management's implementation and overall performance.
Our overall Internet and e-commerce strategy is based on
the fundamental principle that our actions must be consistent
with our historic traditions of public trust and fairness, and
with our mandate to operate according to the highest standards
of business and of public service. Consequently, our e-commerce
initiatives should be supportive of our universal service
mission and the need to bring electronic commerce to those who
cannot afford it. They should foster economic growth by
enabling greater public confidence and trust in Internet
communications and commerce. The new e-commerce services should
respond to customer needs and be managed with appropriate
business discipline so as to become self-supporting within a
reasonable period of time.
The Governors are supportive of management's efforts to
embrace the Internet. For the most part, these efforts
represent an ongoing evolution to improve the management of the
mail system through the use of modern information technology.
To the average household customer, the Postal Service is
represented by the individual clerk who sells them stamps or
the neighborhood letter carrier that stops by their mailbox
each day.
In reality, the Postal Service is a complex, interdependent
network that each day coordinates the movement of nearly 700
million pieces of mail, on more than 15,000 commercial air
segments, between 38,000 post offices and 800,000 employees,
who serve more than 134 million delivery points. Our success in
managing this network is directly related to infrastructure
improvements that allow us to rapidly transmit critical
information to employees, to customers, and to suppliers in
many platforms.
Today, the postal retail customers enjoy the convenience of
credit and debit card purchases. Major retailers schedule their
shipments and make payments electronically. Letter carriers
track packages and important documents with computerized hand
scanners that uplink into a national data network. And
sophisticated logistical systems keep the mail flowing
economically by ground, rail, and air between our plants and
our post offices.
Over the past few years, as citizens and business have
embraced the Internet, the Postal Service has migrated some of
these information systems onto the Internet. We expect this
trend to continue. Today, millions of household customers visit
our web sites every day. Large mailers use the Internet to
coordinate their operations with ours. And the postal intranet
has become a primary tool to manage operations and share ideas
among functional units dispersed all across the country. The
result has been a more efficient and productive organization
that provides better service and value to our customers. Postal
management has done a commendable job in managing these
extensive information programs, which have involved substantial
expenditures and resulted in better productivity, service, and
value for our customers.
So, in many ways, the Internet has been a blessing. It has
enabled the Postal Service to perform its historic mission with
modern precision and efficiency. However, the Internet has also
demonstrated an ability to alter entire industries and offer
new business models. We have seen examples of this in the
retail and software sectors. We are aware that similar
potential exists for the mailing industry. E-mail, Internet
banking and bill payment, and electronic catalogs and
merchandising are directly competitive with the mail. The GAO
has warned that the Postal Service may be nearing the end of an
era due to these and other competitive pressures. The truth is
we do not know how fast or how much the Internet will change
the Postal Service's business model. What is clear is that the
stakes are high and we cannot wait to be certain before we act.
This year marks a turning point for the Postal Service's e-
commerce program. In the latter half of the 1990's the Postal
Service began to explore the potential of e-commerce. The last
couple of years, however, were also occupied with updating our
computer system for the year 2000, Y2K. This year, we are
bringing new focus to our development efforts and formalizing
our processes based on what we have learned. We have also
launched several new products and are testing them in the
marketplace.
The Board of Governors has encouraged and enthusiastically
supported these developments. The Governors have discussed or
reviewed some aspect of e-commerce at virtually every board
meeting this year. On June 5, the Board established a quarterly
review procedure by which management will provide regular
reports on the current status of existing e-commerce
initiatives. The board also has established the means by which
significant new types of e-commerce initiatives will be
presented to the Board before being launched. These measures
reinforce the framework created by management for developing
and managing e-commerce initiatives, which are Mr. Nolan's
responsibility and which he has discussed in some detail with
you.
It is difficult to assess the effectiveness of the Postal
Service's e-commerce initiatives thus far. As the GAO has
noted, the program is in its very early stages. It is also hard
to establish meaningful benchmarks in an industry that is in
its infancy. Nevertheless, management has proven its ability in
other challenging modernization efforts, and the Board expects
no less in this difficult area.
Thank you, Mr. Chairman, that concludes my remarks.
Senator Cochran. Thank you, Mr. Rider. Thank you all for
your interesting statements and your cooperation with our
Subcommittee's effort to review this issue.
In connection with the GAO's findings, there were several
points made in the testimony and in the submitted statement by
GAO about the process that is in place for reviewing and
approving initiatives in this area by the Postal Service.
Mr. Nolan, is it your view that this procedure and process
that has been established now is one that will provide a clear
impression of what e-businesses are being undertaken by the
Postal Service and a certainty that these activities have been
approved by the Board of Governors?
Mr. Nolan. Yes, sir, I do. I think the early initiatives
and structure that the Postal Service used in fact was to try
and set up competing groups within the Postal Service to see
who could develop some of these areas, and also to make use of
existing talent. For example, our treasurer was a natural to
take a look at e-payments. The time has come though, and in my
discussions with Bill Henderson as I was coming on board, to
try and put those into a more logical structure and a more
streamlined structure.
That is exactly what we have done. The creation of an e-
Business Opportunity Board gives the Postal Service the
opportunity to bring people together from different
organizational functional areas, everything from our consumer
advocate, to finance, to operations, to take a look at new
initiatives at their very inception to determine whether or not
it is worth pursuing those things and then to regularly review
them. Because on the Internet there are a lot of good ideas or
things that seem good on day-1 that by day-31 do not seem quite
as good. And yet, in a lot of organizations those things would
continue on because they got started and inertia is going to
keep it moving. Well, we cannot afford to let that happen.
So the review process that we have is a very rigorous one.
And at critical points it involves our communications with the
Governors, reviewed by the Governors, so that we are sure we
are on solid ground. But as we move ahead, and this is where
the GAO study comes in, we can improve something, move forward
on it, we have got to have goals, we have got to articulate
those goals, we have got to track performance against those
goals, and, as they say, fish or cut bait down the line
someplace if we are not achieving those goals, to either fix it
and achieve the goals or to stop it. And I am confident that
the process we have set in place will do that.
Senator Cochran. There was also a question raised about the
transparency of the revenue and expense data for those who were
reviewing these activities. Are you confident at this point
that you have a system in place that permits a review by an
investigative body like GAO or the Congress that will be able
to determine what the revenue and expense data really are for
these new e-business activities?
Mr. Nolan. I think we are, Mr. Chairman. I am hesitating
because we have just recently instituted some of these things.
As I mentioned before, we have a certain accounting process
that we have set up, very early on, to track each individual
cost. To be able to go back in time through some earlier
initiatives that changed directions several years ago is
obviously difficult. But I am confident that costs that we have
going forward are going to be tightly controlled.
To me, it is not just a matter of getting it right, getting
the numbers accurate so that they are auditable, but the ease
of the audit is also what I am concerned about. I do not want
it to be a torture going forward, because we know we are going
to have reviews like this. Part of the way we should be
measured is not only are the data accurate, but how easy it was
to get to. Because if we are not reviewing that data regularly,
then we are missing what we should be doing. And so, if we are
reviewing it regularly, it ought to be very easy for a GAO
audit or any other audit to find that. That is the standard
that we are trying to hold ourselves up to.
Mr. Rider. Mr. Chairman, I just wanted to add that the
Governors endorse having a profit center for each one of these
initiatives, and we will have. Each one will stand on its own.
Senator Cochran. I see. There have been several references
to specific activities that are now being initiated or have
been initiated by the Postal Service in this area. One was
buying stamps over the Internet.
Mr. Nolan. Stamps Online, yes.
Senator Cochran. Stamps Online, you call it. Another one
talked about is being challenged now before the Postal Rate
Commission. I think that was referred to as the PosteCS case.
Mr. Nolan. Electronic courier service, yes, sir.
Senator Cochran. Now what is that?
Mr. Nolan. It is a service which enables people to send
highly confidential documents in a very secure manner over the
Internet, again, electronic to electronic, no hard copy
involved. I should add it is not only designed for domestic
use, but also to enable us to transmit those documents across
borders. The interesting thing of course is that if we did not
get into this business, you could have the Costa Rican Post
coming in and offering the same thing within this country,
because it is a service that is very important we believe.
Senator Cochran. By across borders, you are talking about
national borders?
Mr. Nolan. Yes, to Europe, to the Far East.
Senator Cochran. International.
Mr. Nolan. Yes.
Senator Cochran. What are some of the other business
activities that you are now undertaking that you think are
going to be long-term and are classified by you as e-business?
Mr. Nolan. E-commerce I think is----
Senator Cochran. E-commerce, yes.
Mr. Nolan. E-commerce is a part of e-business. E-business
includes things that we would do within our organization to
streamline it as well as to add value to our existing core
products and services, like a return merchandise service on the
Internet that enables you to bring packages back. That would be
building on our core products and services.
E-commerce would include, in addition to the Stamps Online
and the PosteCS that you have mentioned, our Mailing Online
initiative, which is really a hybrid service. It starts off as
an Internet service and that people will send us files, and we
will transmit those files to a destination print site where it
gets printed and inserted and mailed. So it is both hard copy
and Internet. The reason why we have included it as an Internet
is because we get user fees for the Internet portion of that,
and that is why we have included it. The other area that we
have got that is moving from hard copy to the Internet is our
Movers Guide and the MoversNet.com where people will be able to
update their changes of address not only in hard copy but via
the Internet. Our Electronic Postmark enables people to
indicate when they have mailed something and then we can
certify when they have transmitted it via the Internet, and we
can also ensure that there was no tampering of that document
going forward to destination.
Senator Cochran. Is this like a return receipt requested
that you used to use?
Mr. Nolan. In a sense it is in that it will indicate who
shipped it, when it was shipped, and when it was received. In
addition, it will indicate whether or not it was tampered with
in process, both to the shipper and the receiver.
Finally, the other area, that we have not made a formal
announcement about, but that we are working very closely on
with HCFA and Social Security, is our NetPost.Certified. This
is an interesting area where, for example with HCFA, you have
got a lot of doctors that have to communicate tons of paperwork
to HCFA in order to get reimbursements. That agency, along with
Social Security and others, is trying desperately to streamline
their operations to reduce the cost of doing business, make
more efficient what they are doing. And they have asked us, and
we have readily agreed, to get into the space, whereby we could
authenticate the shipper of that information and provide secure
transmission of that, to, again, take the cost out of that
transaction and to speed it along so that everyone benefits in
the space. Again, the fact that we are located everywhere
certainly helps that authentication and makes sure that
everyone can avail themselves of that.
Those seven are--I don't know if we should call them the
Magnificent Seven right now--but there are seven initiatives
that at the present time are the ones that we are pursing
aggressively and we believe represent areas of opportunity to
serve the public better.
Senator Cochran. There was a reference made earlier today
about a new initiative--it was in the paper and I have a copy,
I guess it is the Washington Post edition this morning--that
the Postal Service and Federal Express Corporation are
negotiating a strategic alliance and could complete a deal by
next month under which the Postal Service would deliver many
FedEx packages to homes across the Nation while using FedEx's
air transportation network to move priority and express mail
around the world. Is this another example of e-commerce or e-
business?
Mr. Nolan. No, sir. This does not involve Internet.
Obviously, in the exchange of information on package status,
etc., we, like Federal Express, like UPS, certainly use the
Internet to be able to track packages and provide information.
But we are doing that separately. This represents an effort on
our part to--we are one of the largest users of contract
transportation in the world and Federal Express is one of the
most efficient airlines in the world. Certainly, the
opportunity to make use of their airline capacity to augment
what has been increasingly non-available private carrier
capacity that we have been using should enable us to enhance
service and keep our costs down.
In the process of doing that examination for our air
transportation, we obviously began to look at other areas where
we could use our ubiquity, our resources that are out there to
the best possible use. And so, we are looking at contact points
and where we have some synergy where we can enhance the
functions of both companies to better provide services to the
American public.
Senator Cochran. There is some question about the fact that
if you do not get into some areas such as you have described
here you are going to have to raise rates for the delivery of
mail and the other services that you have traditionally
provided. To what extent has that provided an incentive for the
Postal Service to look for new revenue sources, and are these
going to provide the revenue sources you need in order to keep
from having to raise rates in the future?
Mr. Nolan. Yes, and I hope so. Certainly, this disruptive
technology that is having an impact on our volume--our volume
is not declining yet, Mr. Chairman. But in a period of
significant economic boom, to only have the kind of growth
rates that we are having is unprecedented for us. Normally, you
would see far greater increases in volume during a period of
economic strength that this country is seeing. So we know that
the Internet is going to have dramatic impact, as has other
technology had an impact, on our revenues.
There has been a lot of discussion about the ratepayers
here. If we are not careful, we may significantly impact the
ratepayers with higher rates and the inability to provide
universal service if we do not find alternate sources of
revenue to enable us to keep this infrastructure which has
served the public so well for so many years. Our concern is
that in a declining revenue period, while we certainly have to
cut costs, we are going to be faced with an infrastructure that
the country and our ratepayers cannot afford. And just as when
Mary Smith or John Doe place a phone call, if you ask them the
question, would you like the phone company to be investing in
new technologies? They might say, no, let's keep our rates low.
But the fact is that without that investment, the opportunity
to take advantage of new technologies, to offer new products
and services to enhance the lifestyles, the businesses in this
country would be very limited.
Senator Cochran. Mr. Gleiman, during your comments I was
interested in your assessment of these e-commerce activities as
possibly outside the realm of authorized activity by the Postal
Service. What will a prohibition against e-commerce, if
Congress decides to legislate a prohibition against e-commerce
activity by the Postal Service, what impact will that have, in
your opinion, on postal rates?
Mr. Gleiman. Senator, postal rates are likely to go up
whether Congress enacts legislation prohibiting the Postal
Service from being involved in e-commerce or not. And postal
rates are likely to go up whether the Postal Service is
involved in e-commerce or not.
You have heard a bunch of interesting words today.
Augmentation is one that I especially like--we want to augment
our revenue. If you do not realize net profit from a new
activity, then the augmentation is not worth very much. If I
could give you a simple mathematical example. It involves the
Postal Service's eBillPay, at least as far as I understand it.
A first-class stamp that you and I put on a bill when we
pay it is 33 cents. Roughly 18 cents of that 33 cents goes
toward covering the cost of actually handling that piece of
mail, and the other 15 cents goes towards contributing to
institutional overhead of the Postal Service. Now, if I do not
send that envelope with a 33 cent stamp on it and decide to use
eBillPay instead--and I can be corrected, and would be
delighted if I am wrong here to be corrected--the Postal
Service is going to get 10 cents from its eBillPay partner
CheckFree for each electronic bill payment. Now remember the
numbers I gave you. We started with a 33 cent stamp, there were
18 cents in costs, and 15 cents in institutional contribution.
The 10 cents that the Postal Service is going to get from
CheckFree is not going to cover the institutional cost. They
are still short 5 cents on the institutional cost. And unless
the Postal Service can figure out how to shed the 18 cents of
cost that it currently incurs for handling the piece of hard
copy mail, they have got to cover that, too.
So when you talk about eBillPay or e-commerce being a
savior for the Postal Service, you really have to look hard at
the numbers. The bottom line is going to be the bottom line.
And I am really pleased to hear Mr. Nolan say that his attitude
is you have got to fish or cut bait. My concern is when you cut
bait, who pays for the bait you just lost? It is going to be
the monopoly ratepayer and the other captive users of the
service. So I am not sure that it is going to make all that
much difference in the final analysis if the Postal Service
gets involved or not.
Mr. Nolan mentioned downsizing, cutting costs, and there
has been a lot of talk about the universal service obligation
of the Postal Service. I am going to commit an act of heresy
here that is likely to get me in a little bit of hot water, but
it will not be the first time. Perhaps in addition to
considering cost-cutting and downsizing, the Postal Service and
the Congress ought to be looking at the current universal
service obligation. Maybe, if a lot of the hard copy mail is
going to find its way into electronic media, there will not be
the need to deliver to every place 6 days a week. If the mail
is not there, maybe we ought to have a different type of
service than we now have. And there are other aspects of
universal service that ought to be examined that also would
come into play or should come into play.
I want to make clear though there is a distinction:
Activities that are above and beyond what the Postal Service
now does that are more in the communications area, as they make
them out to be, as opposed to those that enhance their core
products. And I think they ought to charge out into the sunset
and take care of enhancing those core products. They are doing
a good job in that area and they ought to continue it.
Senator Cochran. I am going to ask you one other question,
and then I am going to yield to my friend from North Carolina
who has joined us at the hearing. You mentioned this PosteCS
case, the fact that it is pending before the Postal Rate
Commission, and that you would not be able to comment on it.
Nor should you, on the merits at all. But tell us what is the
issue that has been raised by that case exactly.
Mr. Gleiman. Well, the Postal Service's position is that
since what is involved here is a point-to-point electronic
transmission, it is not postal in nature, it is nonpostal in
nature. Another aspect of the Postal Service's initial defense
against the complaint was that this was an international
service. I was interested to find out just a moment ago that in
fact it was designed for domestic use as well. But the key
issue here is whether the Postal Rate Commission has
jurisdiction over something that is a point-to-point electronic
transmission.
Senator Cochran. OK. Who brought the complaint?
Mr. Gleiman. The United Parcel Service filed the complaint.
Senator Cochran. OK. I am going to yield to my friend from
North Carolina.
Mr. Gleiman. If I could just add, because I think it is
relevant to a comment that was made by Mr. Nolan in response to
a question a moment ago.
Senator Cochran. Yes. Go ahead.
Mr. Gleiman. If the Postal Service did not offer PosteCS or
eBillPay or Electronic Postmark, does anyone really believe
that there is no one else out there that would offer these
services, or perhaps people are not already offering these
services? I see news clips and read trades and it seems to me
that every day there is a new entity out there that is offering
something akin to what the Postal Service says if they do not
put it out there it is just not going to be available.
Senator Cochran. The Senator from North Carolina, Senator
Edwards.
OPENING STATEMENT OF SENATOR EDWARDS
Senator Edwards. Thank you very much, Mr. Chairman. Good
morning.
Mr. Nolan, I want to ask you a few questions about a
subject that is of interest and concern to me, which is
privacy, specifically, the approach the Postal Service takes
with respect to its privacy policy with respect to the eBillPay
program. Let me ask you first just generally, would you agree
that the Postal Service's approach to privacy is to try to
incorporate the fair information practices of notice, choice,
access, and security, is that something that you all try to
meet and comply with?
Mr. Nolan. Yes, sir.
Senator Edwards. OK. We've got a copy, and I think you have
a copy in front of you and there is a copy up on the easel over
here, of the Privacy Act statement of the Postal Service.
First, with respect to the notice consideration and giving
people notice of what your privacy policy is and what you do to
protect people's privacy, let me just ask you a couple of
questions about this Privacy Act statement, if I can. It uses
language, and I am referring now under the Privacy Act
statement to the second sentence, that says ``The information
may be disclosed,'' and then there are a number of enumerated
categories. Let me ask you, do you disclose information that
are not in one of those categories?
Mr. Nolan. I am sorry, I am not sure I----
Senator Edwards. If you look under the Privacy Act
statement, second sentence. It says ``The information may be
disclosed'' and then you have got a list of several categories.
I guess what I am asking you is, are those the exclusive
categories, circumstances under which information can be
disclosed, or are those just examples of categories where it
can be disclosed?
Mr. Nolan. It was designed to be all-encompassing.
Senator Edwards. OK. So what you intend to tell folks there
is that the only way in which their information will be
disclosed is if it falls within one of these categories. Is
that correct?
Mr. Nolan. Yes.
Senator Edwards. OK. Well, I am not sure that is clear when
you say ``may be disclosed.'' It might be a good idea to tell
people that these are the only ways it can be disclosed.
Mr. Nolan. I think that is a very good comment. I think the
statement was designed to show that one or more of these may
apply in a given situation. But we should say that they are the
only situations under which circumstances may require us to
issue information.
Senator Edwards. OK. I think that is a good policy and I
think it is important for people to know that is what it means.
Mr. Nolan. I agree.
Senator Edwards. Let me ask you a couple of follow-up
questions about the specific categories that you have here. You
say, under subsection (a), ``to an appropriate government law
enforcement agency pursuant to a Federal warrant.'' Do you have
any policy or provision that allows the people whose
information is being provided to contest the warrant if it is
something they think should not be complied with?
Mr. Nolan. To tell you the truth, I do not know the answer.
I will be glad to look it up and get back to you on that. I am
not sure. I think from the law enforcement standpoint, that
notifying someone that their information is being examined and
having them contest it may wind up being a problem. But I do
not know the answer and I will get back to you on that.
[The information to be provided follows:]
INFORMATION PROVIDED
This is the manner in which the Postal Service intends to
treat customer information acquired in its eBillPay service
offering.
Privacy Act Statement: The information you provide will be
used to provide you with electronic billing and payment
services. The information may be disclosed (a) to an
appropriate government law enforcement agency pursuant to a
Federal warrant; (b) in a legal proceeding to which the Postal
Service is a party or has an interest when such information is
relevant to the subject matter of the proceeding; (c) to a
congressional office at your request; (d) to an independent
certified public accountant during an official audit of Postal
Service finances; (e) to the service provider under contract
with the Postal Service to provide eBillPay service; (f) to a
payee or financial institution for purposes of resolving
payment-posting questions or discrepancies regarding status of
electronic bill payment; (g) to a credit bureau for the
purposes of verifying identity and determining risk limits; and
(h) pursuant to a Federal court order. The provision of
information for eBillPay service is voluntary. However, if the
information is not provided, we will be unable to provide you
with our eBillPay service. The collection of information
required for this service is authorized by 39 U.S.C.
Sec. Sec. 401 and 404.
Senator Edwards. Is that something that you think folks
ought to have a right to do? If you get a warrant from a law
enforcement agency saying they want this information, I assume
you notify the people who are involved that you are about to
provide this information. Is that right?
Mr. Nolan. That is what I am not sure about. I need to find
out that information. I am not sure of the implications, again
from a law enforcement standpoint, at what point people should
be notified, be given the opportunity. So I would need to
provide that information to you. I am just not aware of that.
Senator Edwards. OK. Would you find that out for me and let
me know that, please.
Mr. Nolan. Absolutely.
[The information supplied follows:]
INFORMATION SUPPLIED FOR THE RECORD
1. Can the eBillPay's Privacy Act statement be amended to clearly
state that information will be disclosed exclusively for the
specifically listed purposes?
So long as our Privacy Act statement is consistent with the
current system of records for eBP, the statement may be amended at any
time. It would be consistent with the soon to be published revised
eBillPay system of records to state that ``[a]s a routine use, the
information may only be disclosed outside the Postal Service (a) . . .
.''
In publishing the Privacy Act statement, the Postal Service is
meeting its obligation under the Privacy Act. Disclosures of the
information within the agency for the purpose of providing and
monitoring the service should reasonably be within the expectations of
a customer of this service. Furthermore, the sentence preceding the
introduction of the routine uses states that ``information you provide
will be used to provide you with electronic billing and payment
services.'' As the Postal Service seeks to set a standard for
electronic commerce notification and protection, we will consider
whether this sentence might also be amended to clarify internal
releases as well.
2. Is there a mechanism that would allow an affected person to
challenge the issuance of a warrant before the Postal Service discloses
information in response to receiving a warrant?
No. The Privacy Act provides that the general prohibition
against disclosure of Privacy Act records does not apply to
disclosures:
Lto another agency or to an instrumentality of any governmental
jurisdiction within or under the control of the United States for a
civil or criminal law enforcement activity if the activity is
authorized by law, and if the head of the agency or instrumentality has
made a written request to the agency which maintains the record
specifying the particular portion desired and the law enforcement
activity for which the record is sought;
L5 U.S.C. Sec. 552a(b)(7). A Federal search warrant would
certainly fall within the definition of a criminal law enforcement
activity authorized by law.
The Privacy Act does provide that an agency maintaining such
records shall ``make reasonable efforts to serve notice on an
individual when any record on such individual is made available to any
person under compulsory process when such process becomes a matter of
public record.'' 5 U.S.C. Sec. 522a(e)(8). This provision does not
require advance notice, but rather only reasonable efforts to notify
once a disclosure is made.
There has been little litigation concerning this ``reasonable
notice'' provision. Taking the language at face value, it would not be
``reasonable'' to tip the subject of a criminal investigation that he
or she is such a target. The purpose of search warrants, and the reason
they are subject to specific judicial scrutiny prior to execution, is
that they are used to seize records and evidence of criminal activity
before the subject of the investigation has the opportunity to
``cleanse'' those records. Where the element of surprise is not
important, Section 522a(e)(8) makes provision for notification after
release of the records.
Title 18, U.S.C. Sec. 41 establishes the procedures for the
issuance and execution of a search and seizure warrant. Rule 41
requires that notice of the execution of a warrant be left with the
custodian of the items seized. Postal Service regulations interpreting
this requirement provide that, when live mail is seized, the Postmaster
receives a copy of the warrant, not the addressee or sender of the
piece seized, unless the sender has requested a return receipt, in
which case notice and a copy is sent to the sender after execution of
the warrant. Administrative Support Manual (ASM) 274.62 and 274.63.
In the context of the seizure of personal information stored
in electronic communications (it appears that eBillPay customer
transactions would fall within this definition) there are specific
requirements, and exemptions, for prior notification in the Electronic
Communications Privacy Act, 18 U.S.C. Sec. Sec. 2701-2711. The ECPA
requires that law enforcement entities obtain a warrant for certain
stored electronic communications, and specifies notification
requirements to the subject of the request. However, 18 U.S.C. 2705
makes clear that a court shall grant a request for the delay of
notification to the subject of the warrant. Similarly, when records
that are subject to the Right to Financial Privacy Act, 12 U.S.C.
Sec. 3401, et seq. are seized pursuant to warrant, the RFPA specifies
notice requirements within 90 days of execution of the warrant. Again,
however, the RFPA provides that, upon request, the notice requirement
may be postponed where such notice could interfere with an ongoing
investigation. 13 U.S.C. Sec. 3406.
There does not appear to be any mechanism that allows the
subject of a search and seizure warrant to challenge the release of
information prior to the execution of that warrant. Certainly, however,
any attempt to use the evidence seized as a result of a warrant is
subject to potential challenge on a host of procedural and
constitutional grounds.
Senator Edwards. And if you look under subcategory (d), it
says ``to an independent certified public accountant during an
official audit of Postal Service finances.'' Do you have any
provision or contractual obligation with the CPAs that may
conduct an audit that provides that they cannot provide the
information to somebody else? In other words, at that point
does the customer who is involved, do they lose control over
their private information?
Mr. Nolan. Well, I should add two things. One is, there is
a lot of information that is collected about transactions,
these kinds of things that would have nothing to do with a
person's personal information. The need for an auditor to look
at personal information--your Social Security number, or your
address or what have you--would be extremely remote, and I
cannot even think of an instance at this point. It was designed
more to indicate that looking at reams of data that would be
available about transactions, volumes, revenues might be
required. But it probably would not touch on an individual's
personal information. However, should for some reason that come
in contact with that auditor, they would absolutely be
controlled by us from providing that information to anyone
else.
I should add one thing. Again, given our concern about
privacy, and yet being in an area where privacy has been a
concern, not because of the Postal Service but everyone in this
space, what we are doing is convening a panel of privacy
experts, people interested in the whole privacy field later
this month to begin the process to have them understand what it
is that we are trying to accomplish, how we are trying to
accomplish it, to offer us the best possible information on
ways to ensure that we are the best organization in the world
in protecting people's privacy. That is an important part of
our brand. It is not something we are playing games with. And
we want to make sure we get the best information from experts
in the field, not one time but on a continuing basis, to make
sure that we are enhancing that space.
Senator Edwards. And when is this panel convening?
Mr. Nolan. It is later this month. I am not sure of the
exact date, September 21 strikes me. I will let you know about
that.
Senator Edwards. Good. I am glad to hear that. And I am
glad to hear your description of your attitude toward
protecting people's privacy.
One of the concerns I had is, not that brevity is
necessarily a bad thing, but your privacy statement is
relatively short and simple. And when I compare it to privacy
policies of organizations like Bank of America, which I have in
my hand here, which goes on for several pages and are very
specific about the things that they are protecting, there
obviously is a difference between the two. So I think it is a
good idea for you all to be examining----
Mr. Nolan. There are other web pages as well that describe
in a lot more detail some aspects of our privacy and uses, etc.
So there is a lot more than just this. We are trying to make it
understandable. And we probably need to do that better and will
continue the process to do that.
Mr. Gleiman. Senator, if I may.
Senator Edwards. Sure.
Mr. Gleiman. Since I cut my teeth working on the Federal
privacy law way back in the 1970's when I was an aide to
Congressman Richardson Pryor----
Senator Edwards. From Greensboro, North Carolina.
Mr. Gleiman. Yes, sir. I thought I might add some insights.
First, an earlier statement that the Postal Service published
was far more onerous, and I think they are to be complemented
for narrowing the routine uses that they will make of this
data.
Senator Edwards. You mean it was broader in terms of who
they could disclose to?
Mr. Gleiman. Yes, sir. And I think they have done a nice
job in narrowing down and addressing this concern.
Second, with respect to your question about pre-
notification. In the Federal Privacy Act, in order to avoid the
onerous requirement that people be notified, and in some cases
the counter-productive notification, pre-notification before
the release of information, as might be the case when there was
a criminal investigation, the law has a provision that permits
agencies to establish ``routine uses,'' which are what you were
seeing up there. The law does not require that individuals be
notified before disclosure pursuant to published routine uses,
only that an accounting of the disclosures be kept.
I might add that while this statement is an improvement,
there is nothing that precludes the Postal Service, or any
other Federal agency, from coming up with additional routine
uses that would broaden out the availability of data. But I
take Mr. Nolan and others at the Postal Service at their word
in that they are concerned and that this is an issue that they
use as a selling point.
Senator Edwards. Also, I am not sure we want to be bound by
existing law, since it is to a large extent not existent. One
of the things I think Mr. Nolan was saying is you want to go
far beyond the existing law in protecting people's privacy, is
that right, Mr. Nolan?
Mr. Nolan. Yes, sir.
Senator Edwards. Let me ask you just a couple of follow-up
questions. You use a company called CheckFree to handle your
electronic bill payments. They have a privacy statement,
CheckFree, that says ``We do not share your personal
information with other companies, the government, or any third
party. Your personal information is kept strictly
confidential.'' In other words, they have no subset categories
of circumstances under which they disclose the information.
Which privacy policy controls, CheckFree's privacy policy or
the Postal Service's privacy policy, to the extent there is a
conflict between them? Because theirs seems very absolute, ``We
do not share your personal information with other companies,
the government, or any third party.''
Mr. Nolan. Well, I have not seen theirs. But, obviously, if
a warrant was issued for information there, they would be
required by law to give it up. So I am not sure that--there is
no absolute there. But one of the reasons why we chose
CheckFree, frankly, was their attitude about data and the
sanctity of the data very much was in line with ours. And this
is a company that has been in business for a long time and
knows that if they are going to stay in business they have got
to respect privacy. So I would say that we are looking to make
our privacy policies and actions as rigid as we possibly can
for the benefit of the consumer. Because that benefits our
brand, our activity in the space, and, frankly, benefits the
Internet in general. So we think it is just a sound business
practice. So to the extent that we can, we want to make it as
rigid as possible, recognizing that we, as private companies,
have obligations under law to release information if we are
given a warrant or whatever.
Senator Edwards. One thing, when you convene your panel
later, you may want to look at making sure that your privacy
policy is consistent with organizations, like CheckFree, that
you do business with. I think that would be important.
I am very pleased to hear your description and your
attitude about privacy and the fact that you are convening this
panel. I think those all say very good things. And I agree with
you that the Postal Service in fact should be the model of the
kind of privacy protection that people in this country should
expect.
Mr. Nolan. The way that people have come to us, a lot of
customers have come to us is saying to us that people trust
you. As Mr. Gleiman indicated, there are other people who can
offer these services. This is not a monopoly. Why do people
want to come to us? Why do they want us in this space? Because
they trust us. Frankly, our hard copy business is our bread and
butter, will continue to be our bread and butter. To do
anything that would damage that bread and butter in an area
that is a new initiative would be ridiculous for us to do. So
we take that very seriously.
Senator Edwards. Good. Thank you very much, Mr. Nolan.
Mr. Chairman, thank you.
Senator Cochran. Thank you, Senator.
Mr. Rider, there was some conversation with our GAO
representative, Mr. Ungar, about the documents that were needed
by GAO to verify that the Board of Governors had actually
approved some of these e-commerce initiatives. According to the
GAO report, the Board of Governors did not have documentation
showing that it had approved but one of the seven e-commerce
initiatives before they were launched.
What is your response to that? Is that a problem? Has that
been corrected? Do you intend to ensure that there will be
documentation of the actions of the Board in the future on
these issues?
Mr. Rider. Senator, there were seven endeavors there. The
first one we will discuss is ePayments. This was approved in
the April Board of Governors meeting.
NetPost Mailing Online was approved in our August meeting.
The Board of Governors approved the PRC decision authorizing
the pilot of this. That was done in August.
With respect to Internet change of address and move-related
products and Movers Guide, a proposal was presented to the
members of eBob, which is our Business Opportunity Board, on
April 13, 2000. The Governors were sent a letter on May 31
informing them of all the proposed enhancements to this
program.
The next one is NetPost.Certified. The eBob approved it in
August and the Board of Governors were briefed on this at our
September board meeting.
PosteCS--The Board of Governors were briefed on the launch
of PosteCS in April, and in August the eBob approved the
business plan.
Stamps Online--The Board of Governors' approval was not
necessary because of the minimal development expenditures and
because it is an enhancement of our stamp selling process.
Electronic Postmark--The Board of Governors was notified of
that program in April 2000, and eBob approved the business plan
in August 2000.
Senator Cochran. Do you think it would be helpful in the
future for the Board of Governors to have some documentation
about the basis for its decisions on e-commerce initiatives on
the record so that people who are interested, stakeholders
particularly, can understand why they are deemed appropriate
and in the public interest?
Mr. Rider. Yes, sir, I certainly do. And the eBob committee
was just formed, I think, in April and they will be reporting
to the Board every quarter on their progress, and in every
board meeting we expect to review any new initiatives.
As far as the public notification, Senator, the Board of
Governors' public notification complies with the provisions of
the Sunshine Act and all of the presentations to the Board of
Governors are documented. The minutes of our meetings are open
to the public for their review. What I have told you on each
one of these initiatives and the dates I have told you are
gleaned from our records.
Senator Cochran. Mr. Gleiman, there was a case recently
entitled Mailing Online. Could you tell us how the Postal Rate
Commission handled that and the issue, particularly of fair
competition.
Mr. Gleiman. Yes, sir. First off, it is important for you
to know that the Commission is covered by the Administrative
Procedures Act when it has a case before it, and, in keeping
with that Act, we have hearings on the record where parties,
both the Postal Service and others, can come in and make their
case before the Commission and rebut one another's cases before
the Commission. So we had an evidentiary record that we looked
at.
In examining the information that the Postal Service
provided, we concluded that some of their costs were not
calculated correctly. We made adjustments in the costs and also
in the mark-up over cost of that product. The result was, for
example, that a two-page black and white document, as proposed
by the Postal Service would have cost 38 cents, and under the
recommendation of the Rate Commission, which was accepted by
the Governors, it would cost 41 cents. But that was one aspect
of trying to protect competition, by not allowing a rate that
was unreasonably low that would put the Postal Service at an
unfair competitive advantage.
Another aspect of that case involved an agreement that was
reached, ostensibly through negotiations between the Postal
Service and the parties who had intervened in the case, to
ensure that all parties who offered similar services, and there
is some language in the decision to describe the nature of
similar services, would have available to them the reduced rate
for the hard copy portion of mailing online that the Postal
Service had requested from us and that we had approved. So that
also kept the field level and did not give the Postal Service
an advantage in the hard copy end.
Senator Cochran. Mr. Nolan, the Postal Service has said it
has identified an electronic mailbox, which is a concept in the
development stage that could link electronic and physical
addresses. Can you explain how an electronic mailbox would
work. Would every American, for example, get one?
Mr. Nolan. Again, Senator, as you indicated, we are in the
conceptual development phase of the electronic mailbox. But
every American could get one if they wanted, if we wind up
offering the service. It is not something that we have secretly
got a number for everybody and it is there and you have to use
it.
One of the things that becomes very obvious in the Internet
is the value of information that has existed forever but was
not able to be captured. So, for example, if you ordered
something from a catalog or an e-tailer and were to receive
delivery, would it be of value to you to know when that package
was going to be delivered by the Postal Service so that you
could be sure to be home, or ask the Postal Service not to
deliver it that day, or to deliver it at a certain time? If we
had the ability to take that physical address as we are
scanning it through our normal process and be able to know what
your E-mail address is to trigger an information notice to you
that a package was coming, where would you like it, when would
you like it, we think that would have value.
We think there are other products and services in similar
fashion that could also have value for consumers and they may
very well appreciate receiving the information that way. We may
find that people involved in our bill payment service would
like to receive their bills in a special place, as opposed to
their normal mailbox, that is less open to the public, more
restricted in who they provide that information to. They might
find a value in that particular space. So we are examining all
those possibilities. We have not made any decisions yet. But it
seems to us to be an area of opportunity that we are in fact
investigating.
Senator Cochran. One concern that has been brought to my
attention is that this could possibly be used to send out
unsolicited advertising. Is that expected or foreseen by you?
Mr. Nolan. Absolutely not. To the contrary, it is because
of concerns about spamming that this kind of thing would
actually be of benefit. In this model, the sender pays. And so,
as is true in the spamming environment when people are spamming
individuals, they do not pay an intermediate body like the
Postal Service for delivery of that spam message. In this
particular kind of situation, if we offered the opportunity for
customers to receive mail in their mailbox, the payment through
us to that mailbox would be by the sender. That would tend to
dissuade people from spamming.
In our current mailbox we act as an agent, in the hard copy
mailbox, the box at the curb or your front door, we act as an
agent of the sender and the receiver. If you want to send mail,
we are duty-bound to deliver it to that box. So what goes into
that box is not your choice as the owner of the box, it is the
choice of the sender. In the space on the Internet, we view the
electronic mailbox as something that is controlled by the
receiver. So only that which the customer wants to get in that
box gets there.
That is the model that we are using conceptually as we are
developing that. It is designed specifically to ensure that the
Postal Service is not a party to any kind of spamming situation
or loss of privacy for the individual. So we are really turning
that whole thing on its head in our conceptual phase as we are
developing it right now.
Senator Cochran. Some have suggested that the Postal
Service, since it has law enforcement responsibilities for e-
commerce products and services, is positioned to compete
unfairly just as a matter of fact with other competitors. How
do you respond to that concern?
Mr. Nolan. We pay for our Inspection Service. It is borne
by our ratepayers. If individuals play games on the Internet,
break the law on the Internet, the FBI, the Justice Department,
there are a lot of law enforcement agencies which in fact can
be brought to bear to find and convict those people committing
those crimes. We have received a Memorandum of Understanding
that enables our Inspection Service to delegate that authority
to get involved in those kinds of activities where there is a
postal nexus. But the fact is that we are interested, as is the
Inspection Service, in enhancing the security on the Internet
and so we work very closely with other law enforcement
agencies. But we pay for that postal service.
I appreciate the fact that people view it as a premier law
enforcement agency. We are proud of that fact. It did not come
as a result of statute; it came as a result of the way we do
business. And to the extent that the way we do business gives
people confidence in our abilities to maintain privacy and
security, we are pleased with that. But our ads, everything we
do does not tout the Inspection Service as much as it touts the
fact that you are doing business with the Postal Service and
the benefits from doing that.
Senator Cochran. Another concern that has been brought to
my attention is that because of the legal and regulatory
framework that is used to create the Postal Service, that you
are positioned to compete unfairly with others in these e-
commerce areas. What is your response to that? Is it unfair?
Mr. Nolan. I would love to have the playing field that our
competitors have. I think that the restrictions placed on the
Postal Service far outweigh any benefits that exist for us to
be able to compete. I think that what we are faced with here is
an organization that is meeting a need within this country, and
we think we have done it fairly well, hoping to do it better
all the time. But to the extent that by doing the job we do
everyday it enables us to offer products and services that
satisfy the needs of customers, I think that is good news. But
I think that in terms of restrictions that we have, again, if I
were a competitor choosing whether to take my restrictions or
their restrictions, I do not think anybody in their right mind
would choose mine.
Senator Cochran. I appreciate very much this panel's
participation in the hearing. We have votes occurring on the
floor and I have to go back over there and cast my vote. But I
think we have had an excellent overview of the situation here
with the e-commerce strategy and initiatives of the Postal
Service being reviewed by the General Accounting Office and its
report being presented to the Subcommittee today.
We are going to undertake a careful review of all the
information that has been provided to us today and are hopeful
that the work of our Subcommittee will contribute to the
overall understanding of the legal situation. And if there are
indications that changes should be considered, we will be glad
to hear from other Senators and those who are interested in
this issue as well.
The hearing is adjourned.
[Whereupon, at 12:30 p.m., the Subcommittee was adjourned,
to reconvene at the call of the Chair.]
A P P E N D I X
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