In a report mandated by Congress to ascertain whether or not the USPS is at competitive disadvantage in competing with private carriers the FTC says "yes.
Here is a summary of the conclusions of the Federal Trade Commission Report:
Based on the comments received in response to the FRN, our consultations with various governmental agencies and interested private entities, and a review of the relevant public material, the Commission offers the following conclusions:
From the USPS's perspective, its unique legal status likely provides it with a net competitive disadvantage versus private carriers:
Federally-imposed restraints on the USPS's operations increase its costs to provide competitive products by an estimated $330-$782 million a year.
Because of its status as a federal governmental entity, the USPS has legal and political restraints on its operations that reduce its efficiency in providing competitive products. Our analysis of data from the USPS shows its economic burdens ranged from $330 million to $782 million in FY 2006 (4-9 percent of competitive products revenue), depending on how costs are allocated to competitive products operations. The largest of these estimated constraints are those related to managing labor costs, which the USPS estimates account for $306 - $724 million in additional costs, or 3-8 percent of competitive products revenue. Further, the universal service obligation and other constraints on optimizing its operations network require the USPS to establish its network in a way that may increase both institutional costs and costs directly attributable to competitive products.
However, because the USPS is a federal government entity, the USPS's competitive products operations enjoy an estimated implicit subsidy of between $39-$117 million a year.
By virtue of its status as a federal governmental entity, the USPS is able to avoid costs associated with various federal, state, and local legal requirements that its private competitors incur. The USPS also avoids costs through preferential interest rates on its debt. Based on the information we received, we estimate the value of these implicit subsidies ranged from $39 million to $117 million in FY 2006 (.6% - 1.8% of competitive products revenue), depending on how they are allocated to the USPS's competitive products operations. In addition to these avoided costs, the USPS enjoys other less quantifiable advantages, such as the power of eminent domain and limits on the extent to which it can be sued. Although earning a return on equity is not a legal 41 requirement, we estimate that the USPS's competitive operations would have to more than double the current net income those operations produce to earn a rate of return equal to the average return on equity of its private competitors.
From a market-wide perspective, the federally-imposed restrictions that impose economic burdens on the USPS and the implicit subsidies that provide the USPS an economic advantage should be viewed as two distortions that compound each other and negatively affect the provision of competitive mail products.
The USPS's burdens cause it to utilize more resources than necessary to produce competitive products. Its implicit subsidies partially mask these inefficiencies from consumers, creating incentives for consumers to purchase more competitive mail products from the USPS than they otherwise would if the products were priced based on their full costs. The net economic effect of these two factors is to divert some portion of sales from lower-cost suppliers of competitive mail products or other communications media to the USPS, which produces competitive products at a higher cost due to its economic burdens. These distortions reduce overall economic efficiency because more resources are used to produce the current volume of competitive products than is necessary.
Congress may wish to consider acting to reduce the constraints on the USPS's competitive products operations.
Congressional action would be required to reduce the USPS's legal constraints. Elimination of these constraints, especially with respect to the ability to manage labor costs and configure its network, would help the USPS to reduce its costs of providing competitive products. Not only would this action reduce the economic burdens associated with USPS production of competitive products, but it also may enhance competition and consumer welfare by making the USPS a more efficient competitor.
At the same time, the PRC may wish to consider requiring the USPS to account for its implicit subsidies when making pricing and production decisions.
The PRC could take action to require the USPS to account for its implicit subsidies pursuant to its oversight authority to assure that competitive products are not subsidized. Subsidies artificially reduce the USPS's costs of supplying competitive products. Although these subsidies represent only a small portion of total competitive products revenue, because net income from competitive products is relatively small and competitive products as a group must cover at least 5.5 percent of the USPS's institutional costs going forward, accounting for implicit subsidies may have an impact on the solvency of the Competitive Products Fund. We estimate that accounting for implicit subsidies results in negative net income for competitive products under some scenarios. Consequently, the USPS may charge prices for competitive products that are lower than they would be if it were to account for its quantifiable advantages, such as the power of eminent domain and limits on the extent to which it can be sued. Although earning a return on equity is not a legal 41 requirement, we estimate that the USPS's competitive operations would have to more than double the current net income those operations produce to earn a rate of return equal to the average return on equity of its private competitors.
From a market-wide perspective, the federally-imposed restrictions that impose economic burdens on the USPS and the implicit subsidies that provide the USPS an economic advantage should be viewed as two distortions that compound each other and negatively affect the provision of competitive mail products.
The USPS's burdens cause it to utilize more resources than necessary to produce competitive products. Its implicit subsidies partially mask these inefficiencies from consumers, creating incentives for consumers to purchase more competitive mail products from the USPS than they otherwise would if the products were priced based on their full costs. The net economic effect of these two factors is to divert some portion of sales from lower-cost suppliers of competitive mail products or other communications media to the USPS, which produces competitive products at a higher cost due to its economic burdens. These distortions reduce overall economic efficiency because more resources are used to produce the current volume of competitive products than is necessary.
Congress may wish to consider acting to reduce the constraints on the USPS's competitive products operations. Congressional action would be required to reduce the USPS's legal constraints. Elimination of these constraints, especially with respect to the ability to manage labor costs and configure its network, would help the USPS to reduce its costs of providing competitive products. Not only would this action reduce the economic burdens associated with USPS production of competitive products, but it also may enhance competition and consumer welfare by making the USPS a more efficient competitor.
At the same time, the PRC may wish to consider requiring the USPS to account for its implicit subsidies when making pricing and production decisions. The PRC could take action to require the USPS to account for its implicit subsidies pursuant to its oversight authority to assure that competitive products are not subsidized. Subsidies artificially reduce the USPS's costs of supplying competitive products. Although these subsidies represent only a small portion of total competitive products revenue, because net income from competitive products is relatively small and competitive products as a group must cover at least 5.5 percent of the USPS's institutional costs going forward, accounting for implicit subsidies may have an impact on the solvency of the Competitive Products Fund. We estimate that accounting for implicit subsidies results in negative net income for competitive products under some scenarios. Consequently, the USPS may charge prices for competitive products that are lower than they would be if it were to account for its implicit subsidies. The interference with normal market forces caused by these subsidies, however, results in price signals that convey the wrong information about relative scarcities in the market for competitive mail products, which leads to inefficient marketplace decisions and reduced consumer welfare.
Worksharing and recent PRC regulations requiring contribution to institutional costs may reduce any advantage the USPS's postal monopoly provides it in the delivery of competitive products.
The USPS has developed transportation, processing, delivery, and retail networks to provide products reserved to it under the postal monopoly. The USPS also uses these networks to provide its competitive products, which likely allows it to generate economies of scope. Its competitors cannot generate similar scope economies because they are legally prohibited from delivering products that are covered by the postal monopoly. If the postal monopoly is necessary to provide the current form of universal service or if universal mail service is a natural monopoly, then any scope economies that the USPS enjoys may naturally flow from market conditions relating to universal mail service. To the extent that the USPS's scope economies in delivering competitive products are not a result of market forces in the presence of the current universal service requirement, its effects on competition are uncertain. First, through workshare rates, the USPS's competitors purchase access to certain parts of its networks. Further, the PRC has promulgated rules that require the USPS's competitive products collectively to cover 5.5 percent of the USPS's institutional costs. To the extent that these institutional costs represent shared network costs, the USPS's competitive products currently must contribute revenue to maintain these networks.
In the longer term, a variety of options exist to eliminate the legal differences between the USPS and its private competitors:
Congress and the PRC may wish to consider whether relaxing the current mailbox monopoly to allow consumers to choose to have private carriers deliver competitive products to their mailboxes would create net benefits for consumers.
The statutorily-provided monopoly on mailbox access limits consumer choice and artificially increases the costs of private carriers to deliver the subset of competitive products that otherwise could be delivered to consumers' mailboxes. Relaxation of the mailbox monopoly, however, also raises issues related to privacy and the enforcement of laws that protect the integrity of the mail.
Congress may wish to consider whether the scope of the postal monopoly could be narrowed to allow greater competition while still maintaining universal service.
In general, competition provides consumers lower prices, better quality, and more variety. Therefore, restrictions on competition should be put in place only when they are necessary to provide consumers a benefit that the market cannot. Such restrictions, moreover, should be narrowly drawn to displace competition only as much as needed to provide this benefit. Allowing competition over a larger variety of mail is likely to benefit consumers with lower prices and increased quality. After completion of the PRC's study on the universal service obligation and the postal monopoly, Congress may wish to consider whether the scope of the postal monopoly could be narrowed to allow greater competition while still maintaining universal service.
Establishing the USPS's competitive products division as a separate corporate entity - with either private or governmental ownership - arguably would eliminate many of the major remaining major legal differences between the USPS and its private competitors. Corporatization raises a host of issues beyond the scope of this report. Upon completion of GAO's study of the future business model of the USPS, however, Congress may wish to consider this option.
The two Democrats on the FTC,