[Federal Register Volume 61, Number 246 (Friday, December 20, 1996)]
[Notices]
[Pages 67356-67363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32288]


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POSTAL RATE COMMISSION

[Order No. 1145; Docket No. C96-1]


Complaint of Coalition Against Unfair USPS Competition; 
Declaratory Order Finding Complaint to be Justified and Providing For 
Further Proceedings

    Before Commissioners: Edward J. Gleiman, Chairman; H. Edward 
Quick, Jr., Vice-

[[Page 67357]]

Chairman; George W. Haley; and W.H. ``Trey'' LeBlanc III
December 16, 1996.

I. Introduction and Procedural History

    This somewhat unusual proceeding concerns a complaint lodged by 
private-sector competitors of the Postal Service against the Service's 
provision of a packaging service which it is offering under the name 
``Pack & Send.'' This service, which is performed by Postal Service 
personnel for postal customers according to a variable schedule of 
fees, has never been submitted for the Commission's consideration and 
possible recommendation in a mail classification or rate change 
proceeding. Thus, it is not a service recognized within the 
comprehensive Domestic Mail Classification Schedule which officially 
codifies all services provided in the Nation's postal system, and the 
fees charged by the Postal Service have never been reviewed or 
recommended. On this basis alone, the Complainant asks the Commission 
to find that the Postal Service is charging rates which do not conform 
to the policies and requirements set out in Title 39 of the United 
States Code.
    This docket was initiated by a Complaint filed by the Coalition 
Against Unfair USPS Competition (CAUUC) on May 23, 1996. Complainant 
identifies itself as a coalition consisting of organizations and 
individuals doing business in the Commercial Mail Receiving Agency 
(``CMRA'') industry, and states that ``[e]ach of the individual stores 
offer pack and send services as part of the overall retail value-added 
services provided in these stores.'' Complaint at 2. Inasmuch as the 
Postal Service is rendering a packaging service without first having 
requested a recommended decision on the service and its rates from the 
Commission, Complainant alleges that the Postal Service is charging 
rates which do not conform to the policies of the Postal Reorganization 
Act. Additionally, the Complaint alleges, by offering the Pack & Send 
service the Postal Service ``is in effect going into direct competition 
with the CMRA industry * * *.'' Ibid.
    Accompanying the Complaint are several attachments intended to 
document particulars of the Pack & Send service, its competitive 
purpose, and the terms under which it is being offered. Complaint, 
Attachments 2-3, 5. Also included is an affidavit reporting the 
experience of an individual customer who purchased Pack & Send service 
in a Postal Service retail store in Anchorage, Alaska. Id., Attachment 
4.
    The Postal Service responded to the Complaint in an Answer filed on 
June 24, 1996. The Answer denies most of the Complaint's allegations, 
but concedes that the Service ``has begun to offer packaging on an 
experimental basis at a few selected retail outlets.'' Answer at 2. The 
Service also denies that Pack & Send is a ``bundled'' service that 
necessarily entails mailing, but admits that the packaging service has 
not been the subject of a rate or classification proceeding pursuant to 
39 U.S.C. 3622 or 3623 respectively, and that the Domestic Mail 
Classification Schedule does not include a separate classification for 
packaging. Id. at 2, 5 and 7. However, the Postal Service also takes 
the position that the Complaint is not properly before the Commission, 
on the grounds that Pack & Send is no more than a ``limited parcel 
packaging trial,'' (id. at 8), and that it ``is not a postal service, 
within previous interpretations of the term.'' Id. at 9.
    Three days after filing its Answer, the Postal Service submitted a 
motion to dismiss the proceeding with prejudice ``on the grounds that 
the subject matter of this proceeding does not fall within the scope of 
39 U.S.C. 3662.'' Motion of the United States Postal Service to Dismiss 
Proceeding, June 27, 1996, at 1. The Service argues that Pack & Send is 
a service that properly belongs in the category of ``non-postal'' 
services, over which the Commission exercises no jurisdiction, and 
relies on Commission precedent and judicial authority for support.
    In Order No. 1128, issued July 30, 1996, the Commission denied the 
Service's motion to dismiss, finding that some of the information 
proffered by Complainant would tend to support an inference that Pack & 
Send is a postal service. In light of its tentative conclusion that 
available facts did not warrant a summary determination, and that the 
Complaint might be justified, the Commission decided to conduct formal 
proceedings in conformity with 39 U.S.C. 3624, established a deadline 
for filing notices of intervention, and appointed W. Gail Willette, 
Director of the Commission's Office of the Consumer Advocate, to 
represent the general public in the proceeding. Complainant was also 
directed to provide a statement estimating the amount of time it would 
require to develop and file a direct case. PRC Order No. 1128 at 13. On 
the same date, the Chairman issued a notice designating Commissioner 
George W. Haley to serve as Presiding Officer in the docket.
    On September 13, the Complainant proffered its direct case, 
accompanied by a Motion for Summary Judgment,1 and a supporting 
memorandum. Recognizing that disposition of Complainant's motion could 
``involve a final determination of the proceeding[,]'' (39 C.F.R. 
3001.27(a)(7)), the Presiding Officer certified it to the full 
Commission on the same date. P.O. Ruling C96-1/2 at 1.
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    \1\ Complainant Coalition Against Unfair USPS Competition's 
Direct Case; Motion of Complainant for Summary Judgment, September 
13, 1996. On September 16, Complainant filed a related motion which 
sought to compel additional responses by the Postal Service to 
Complainant's discovery requests in the event its Motion for Summary 
Judgment was denied. Complainant Coalition Against Unfair USPS 
Competition's Alternative Motion to Compel Discovery, September 16, 
1996.
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    In Order No. 1135, issued October 4, 1996, the Commission noted the 
parties' consensus that only one issue--namely, the ``postal'' 
character of Pack & Send--requires resolution by the Commission, and 
that this consensus greatly simplifies the case. However, the 
Commission found that it would not be appropriate to conclude the 
proceeding by granting Complainant's motion, in light of the existence 
of genuine issues of material fact and the requirements of procedural 
fairness. Consequently, the Commission declined to curtail the 
opportunities of the Postal Service or any other interested party to 
develop further relevant and material information for inclusion in the 
record of the proceeding, but appropriately limited that evidence to 
factual matters that bear directly on the ``postal'' or ``non-postal'' 
character of the Pack & Send service. Although the Commission found 
that the procedural status of CAUUC's complaint made it inappropriate 
to reach the merits on the CAUUC Motion for Summary Judgment, it stated 
an expectation that the Presiding Officer would expedite the initial 
phase of Docket No. C96-1 in light of the urgent considerations of 
competitive harm cited by Complainant. PRC Order No. 1135 at 4-7.
    A prehearing conference was held in this docket on October 8, 
1996.2 In accordance with the procedural schedule established in 
P.O. Ruling C96-1/6, an opportunity was provided for a hearing on 
Complainant's direct case. However, the Postal Service and all other 
parties declined the opportunity to conduct oral cross-examination. The 
Presiding Officer extended the deadline for filing rebuttal testimony 
to November 1, 1996, in granting a Postal Service motion in part. P.O. 
Ruling C96-1/7. The deadline was further extended as requested in a 
second Postal Service motion. P.O. Ruling C96-1/8. A hearing was

[[Page 67358]]

conducted on the rebuttal testimony of Postal Service witness Patricia 
M. Gibert on November 12, 1996.3
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    \2\ See Transcript Volume 1.
    \3\ See Transcript Volume 2.
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    Initial briefs were filed by the Complainant, the Postal Service, 
and OCA on November 22, 1996. The same parties submitted reply briefs 
on November 27, 1996.
    In light of the foregoing proceedings, the central issue posed by 
the Complaint is now ripe for determination.

II. Criteria for Distinguishing ``Postal'' From ``Non-Postal'' 
Services

    As all parties to this proceeding recognize, a determination of the 
merits of the instant Complaint depends upon applying legal criteria 
for distinguishing ``postal'' from ``non-postal'' service to the facts 
contained in record evidence. Thus, it is appropriate to begin with a 
review of these criteria and the history of their application in prior 
proceedings.

A. Early Institutional History

    In the first and second omnibus rate proceedings before the 
Commission, the Postal Service did not include any proposed changes in 
fees for special services in its requests.4 Shortly after filing 
its request in Docket No. R76-1, the Postal Service gave separate 
notice of its intention to increase fees for 11 special services after 
a period for submission of written comments, and provided details of 
these changes to the Commission for informational purposes only. A 
mailer organization, Associated Third Class Mail Users (ATCMU), filed a 
suit in U.S. District Court to enjoin implementation of the changes in 
special service fees, arguing that fees could not be changed without 
submitting a request to the Commission. The District Court agreed with 
ATCMU, finding with respect to the 11 special services at issue:
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    \4\ See PRC Op. R71-1, June 5, 1972; PRC Op. R74-1, August 28, 
1975.

    It is clear that nearly all of these other services are very 
closely related to the delivery of mail. The single possible 
exception is the selling of money orders, since they can be used 
equally as well without being delivered by mail. But it does seem 
that the vast majority of money orders sold at post offices are 
actually sent by mail. Therefore, it appears safe to say that all of 
these services would be considered ``postal services'' in ordinary 
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parlance.

Associated Third Class Mail Users v. Postal Service, 405 F.Supp. 1109, 
1115 (D.D.C. 1975). The court also observed that ``the fees set for 
these services have substantial public effect[,]'' (ibid.), which 
apparently reinforced its conclusion that the services were ``postal'' 
in nature. It then went on to reject the Postal Service's claim of 
unilateral authority to change fees applicable to the special services, 
concluding from its analysis of the Reorganization Act, ``that the 
Postal Rate Commission has jurisdiction over changes in the fees for 
the services at issue here. Therefore, * * * the Postal Service cannot 
increase its fees for these services until it has complied with the 
[formal rate-change procedures] of Chapter 36 of the Act.'' Id. at 
1118.
    On review, the Court of Appeals affirmed the District Court's 
judgment, without adopting all of its reasoning. The court said:

    Giving ``postal services'' a plain meaning, all of the services 
here at issue may reasonably be so classified. With one possible 
exception, each clearly involves an aspect in the posting, handling 
and delivery of mail matter. (citation omitted) * * * As for the one 
possible exception--money orders--it is undisputed that the great 
majority of these are sent through the mail and that therefore the 
provision of money orders may itself reasonably be viewed as 
intimately a part of postal services * * *
* * * * *
    In sum, we agree with the district court that a plain reading is 
the proper reading of section 3622: ``postal services'' as used 
there is a generic term and was meant to include all the special 
services here at issue.

National Association of Greeting Card Publishers v. Postal Service, 569 
F.2d 570, 596-97 (D.C. Cir. 1976), vacated on other grounds, 434 U.S. 
884 (1977) (commonly known as ``NAGCP I''). (Emphasis added.)
    In Docket No. R76-1, after the Postal Service had supplemented its 
initial rate request to include special services in response to the 
District Court's decision in ATCMU, the Commission addressed the 
question of which services are within its jurisdiction for ratesetting 
purposes, and which are not. In the Commission's view, a number of the 
services furnished by the Postal Service in addition to the actual 
collection, transmission, and delivery of mail ``are clearly nonpostal 
in character.'' PRC Op. R76-1, Vol. 1, at 266. The Commission discussed 
the principles governing its determinations of ratesetting jurisdiction 
for individual special services in an appendix to its opinion,5 
but also stated as its general conclusion:
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    \5\ See PRC Op. R76-1, Vol. 2, Appendix F.

    Special postal services--that is, those which fall within the 
ambit of section 3622--are services other than the actual carriage 
of mail but supportive or auxiliary thereto. They enhance the value 
of service rendered under one of the substantive mail classes by 
providing such features as added security, added convenience or 
speed, indemnity against loss, correct information as to the current 
address of a recipient, etc. We believe that this standard is 
consistent with the decision in Associated Third Class Mail Users, 
supra, that special postal fees are within the jurisdiction of the 
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Commission.

Id. at 266-67. (Footnotes omitted.) (Emphasis added.)

B. Subsequent Developments

    There have been few subsequent disputes regarding the ``postal'' or 
``non-postal'' character of service innovations adopted by the Postal 
Service.6 However, one area in which a ``postal'' versus ``non-
postal'' dispute has been litigated recently concerns the Postal 
Service's provision of philatelic services.
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    \6\ More commonly, litigation has involved claims that a service 
change contemplated or implemented by the Postal Service is a 
``change in the nature of postal services'' requiring the submission 
of a proposal to the Commission under section 3661; the ``postal'' 
quality of the service has not been in controversy. The first 
dispute of this type was litigated in Buchanan v. United States 
Postal Service, 375 F.Supp. 1014 (N.D. Ala. 1974), affirmed in part, 
508 F.2d 259 (5th Cir. 1975), in which a Postal Service nationwide 
plan to reconfigure retail facilities was found to be a ``change in 
the nature of postal services,'' thus requiring a request and 
proceedings under section 3661. The Postal Service subsequently 
filed a complying request, and proceedings were held in Docket No. 
N75-1.
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    The Postal Service is explicitly authorized ``to provide philatelic 
services'' in a provision that is separate from the grant of power to 
provide all aspects of mail service. 39 U.S.C. 404(a)(1), (a)(5). 
Courts presented with controversies regarding philatelic services have 
generally interpreted these portions of the Reorganization Act to mean 
that the Postal Service has authority to exercise broad and unilateral 
discretion over philatelic operations.7 They have also found that 
the rights and procedural safeguards provided for users of the mail in 
the Reorganization Act do not extend to users of philatelic 
services.8 On these grounds, courts have found that philatelic 
customers have no enforceable right of action against the Postal 
Service for allegedly improper philatelic activities.9
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    \7\ Morris et al. v. Runyon et al., 870 F.Supp. 362, 368-69 
(D.D.C. 1994), appeal dismissed, No. 94-5344 (D.C. Cir. 1994).
    \8\ Unicover et al. v. United States Postal Service, 859 F.Supp. 
1437, 1446 (D. Wyo. 1994), appeal dismissed, No. 94-8085 (10th Cir. 
1994). See also Morris, supra, at 368-69.
    \9\ Morris, supra, at 370-71; Unicover, supra, at 1446.
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    In the single Commission complaint proceeding that has involved 
philatelic services, the disposition is consistent with the judicial 
treatment described above. In Docket No. C95-1,

[[Page 67359]]

complainant David B. Popkin challenged planned increases in the 
shipping and handling charges for orders placed with the Postal Service 
Philatelic Fulfillment Service (PFSC) catalog sales program. The Postal 
Service moved to dismiss the proceeding, primarily on the ground that, 
``the subject matter * * * concerns philatelic services which are not 
within the scope of 39 U.S.C. 3662.'' Motion of the United States 
Postal Service to Dismiss Proceeding, April 13, 1995, at 2. (Footnote 
omitted.) The Service also claimed that the absence of the word ``fee'' 
from section 3662 should be construed to preclude adjudication of 
complaints concerning fees for postal services, as distinguished from 
rates. Id. at 3, n. 3.
    In Order No. 1075, the Commission rejected the latter argument, 
concluding that, ``complaints concerning fees for postal services do 
fall within the scope of section 3662[.]'' PRC Order No. 1075, 
September 11, 1995, at 5. However, the Commission concurred with the 
Postal Service's primary jurisdictional argument, based on an 
application of the District Court's standard in the ATCMU decision:

    Applying the rationale of the District Court to the facts 
involved in the present complaint, the Commission finds that the 
services involved--the handling and shipping of catalog orders 
placed with the Philatelic Fulfillment Service Center--are not 
closely related to the delivery of mail and, therefore, the charges 
for such services do not constitute ``fees for postal services'' 
within the scope of section 3662 of title 39, United States Code.

Ibid. Having reached this conclusion, the Commission dismissed the 
complaint.10
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    \10\ Complainant subsequently petitioned for reconsideration of 
the Commission's determination to dismiss the Complaint. The 
Commission denied his motion in Order No. 1088, issued November 15, 
1995.
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III. Applying the Criteria to the Facts

A. Which Test or Tests Should Apply?

    Determining whether the Pack & Send service is ``postal'' or ``non-
postal'' in character is complicated by a disagreement among the 
parties in this case regarding which legal standard or standards should 
govern that determination. Among other arguments they present, both 
Complainant and the OCA claim that the Pack & Send service should be 
deemed ``postal'' on the same basis on which the ATCMU and NAGCP courts 
found money orders to constitute a postal service: the ``great 
likelihood'' that use of the service will be coupled with mailing of 
the parcel so prepared. OCA Initial Brief at 6; CAUUC Brief at 12-13. 
The Postal Service argues against use of this so-called ``statistical'' 
test, citing misgivings expressed in the R76-1 opinion regarding its 
application to money orders, and stating that it would be ``unwise for 
the Commission now to rely on allegations concerning the proportion of 
postal-packaged parcels that are also mailed in determining whether 
packaging service is a postal service.'' Postal Service Initial Brief 
at 16. The Postal Service argues for application of a ``structural'' 
analysis of the Pack & Send service, which it claims the Commission 
applied to certain special services in the R76-1 opinion, and under 
which the Service argues that Pack & Send is ``non-postal'' in 
character. Id. at 9-17; Postal Service Reply Brief at 3-5. Both 
Complainant and the OCA challenge the validity of the Postal Service's 
``structural'' standard.
    It is understandable that each party would advance the standard 
which it considers to provide the strongest support of its position on 
the ``postal'' or ``non-postal'' nature of Pack & Send. However, from 
the Commission's perspective, it is neither necessary nor productive to 
canonize any one particular test in preference to, or to the exclusion 
of, every other potentially applicable criterion. The courts have 
stated that the fundamental inquiry to be made is whether the service 
under scrutiny is a ``postal service'' in ordinary parlance, the 
``plain meaning'' of which is established by reference to the routine 
postal functions of accepting, handling and delivering mail matter. 
ATCMU, supra, at 1115; NAGCP, supra, at 596-97. It is also appropriate 
to consider the extent to which fees set for the service have 
``substantial public effect,'' as suggested in the ATCMU opinion. As 
the Commission has recognized in prior proceedings, most notably Docket 
No. R76-1, there are a variety of analytical lenses through which 
potential relationships to customary postal functions may be usefully 
viewed. PRC Op. R76-1, Appendix F, passim.11 Accordingly, in 
considering the ``postal'' or ``non-postal'' character of the Pack & 
Send service, the Commission will assess the utility and persuasive 
force of all the theories and interpretations of the factual record 
advanced by the parties to this proceeding.
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    \11\ The Postal Service summarizes some of these considerations 
in its Initial Brief at 10-12.
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B. Relationship to Non-Postal Statutory Functions of the Postal Service

    As was noted in the earlier review of criteria for distinguishing 
``postal'' from ``non-postal'' services, one conclusive basis on which 
a service can be found to be ``non-postal'' applies where the service 
pertains exclusively to performance of a statutory function of the 
Postal Service that is distinct from the carriage of mail. Philatelic 
sales and services, performed pursuant to the separate grant of 
authority in 39 U.S.C. 404(a)(5), exemplify such statutorily non-postal 
services.
    The Postal Service makes no such claim regarding the Pack & Send 
service. Instead, the Service characterizes the service as ``an 
enhancement to the retail sale of packaging materials[,]'' which is 
intended ``to provide a higher level of service that our existing 
customers have requested.'' Rebuttal Testimony of Patricia M. Gibert, 
USPS-RT-1, at 3. Consequently, as Complainant has argued, the Pack & 
Send service is unlike the Postal Service's sale of migratory waterfowl 
stamps or distribution of information pertaining to civil service 
examinations, which fulfill a distinctly governmental, non-postal 
function. Therefore, the Pack & Send service cannot be found ``non-
postal'' on this particular ground.

C. Intrinsic and ``Structural'' Features of the Pack & Send Service

    Although there appears to be little disagreement regarding the 
basic factual details of the Pack & Send service, the parties 
characterize the service, and portray its relationship to mailing, very 
differently. The Service espouses what might be called a ``free-
standing'' view of Pack & Send: a mere extension of the sale of 
packaging materials, with no relation to any aspect of mail service nor 
to any operational objective or benefit of the Postal Service. USPS-RT-
1 at 3-4; Initial Brief at 5-7, 11-17. By contrast, Complainant and the 
OCA present a perspective in which the Pack & Send service transaction 
is intertwined with mailing. OCA argues that the service is postal in 
character because ``packing'' and ``sending'' are integrated in a 
``seamless'' operation that intermingles packaging and mailing 
activities, in a transaction throughout which the Postal Service 
retains custody of the item tendered by the customer for service. OCA 
Initial Brief at 1-4.
    In the Commission's opinion, the Postal Service's characterization 
of the Pack & Send service is seriously flawed in several respects. 
Moreover, it is fundamentally at odds with the significance of adding a 
parcel

[[Page 67360]]

packaging service to the current array of services offered at postal 
facilities.
    First, the Commission rejects the Postal Service's blanket 
assertion that Pack & Send service ``is not an aspect of the 
acceptance, handling, or delivery of the mail[.]'' Postal Service 
Initial Brief at 6. The record clearly establishes that Pack & Send 
service is an optional aspect of the acceptance of parcels for mailing. 
A postal customer may either tender a finished parcel to a window clerk 
for mailing, or purchase the Pack & Send service for packaging the 
contents. In either case, the criterion of mailability applies; the 
Postal Service will not provide Pack & Send service for non-mailable 
contents. USPS-RT-1 at 6, n. 2; Exhibit USPS-1B. In response to a 
question from Chairman Gleiman, witness Gibert testified: ``The first 
question [Postal Service employees] are trained to ask is, is the item 
mailable?'' Tr. 2/204. When asked why this determination is important, 
the witness stated, in part, ``[b]ecause a significant number of the 
pieces that will be packed will also be sent via Postal Service[.]'' 
Id. at 205. Thus, acceptability for mailing applies equally to finished 
parcels and materials tendered for Pack & Send service.
    Second, the Commission finds no persuasive force in the Postal 
Service's arguments that Pack & Send service does not achieve any 
operational objective of, or confer any operational benefit upon, the 
Postal Service. As an initial matter, these assertions are unproven on 
the record and far from self-evident. For example, by complying with 
packaging requirements prescribed in a Postal Service Training Manual, 
see Tr. 2/72, a parcel prepared in a Pack & Send transaction would be 
unlikely to suffer damage to the contents or cause damage to postal 
equipment,12 and thereby confer an operational benefit to the 
Service. More importantly, operational objectives and benefits would 
not appear to be particularly useful reference criteria for 
establishing that a given service is non-postal. By restricting 
scrutiny to considerations internal to the Postal Service, employing 
these criteria would neglect the needs of, and potential benefits to, 
postal customers. Moreover, it is unlikely that several current special 
services subject to the Commission's mail classification and rate 
jurisdiction would pass muster as ``postal'' under such criteria. As 
witness Gibert confirmed in response to a question from Chairman 
Gleiman, ``[i]n the case of certificate of mailing [service], it 
appears that the benefit is to the customer.'' Id. at 233.
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    \12\ As witness Gibert illustrated this point, in ``follow[ing] 
our own packaging requirements'' a Postal Service employee 
``wouldn't use string'' in securing the parcel, because ``[i]t could 
get hung up in machinery.'' Tr. 2/239.
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    Finally, the Commission is in fundamental disagreement with the 
Postal Service's characterization of the Pack & Send service and its 
significance in the universe of postal and non-postal services. 
Contrary to the Service's formalistic insistence on brief that 
packaging ``cannot properly be called `mail preparation' '' because the 
latter is a term of art ``not applied to the non-technical activities 
that every mailer must undertake to enter an item into the mail,'' 
Postal Service Initial Brief at 5, n. 1, the Commission concludes that, 
in ordinary parlance, Pack & Send service constitutes mail preparation 
for a fee. It also constitutes an entirely new form of access to the 
parcel services offered by the Postal Service, which allows a potential 
parcel mailer to tender the items they wish to send, rather than 
finished packages. For this reason, Pack & Send can properly be viewed 
as a value-added special service for parcels; the added value results 
from the alternative form of acceptance it makes possible.
    For these reasons, the Commission concludes that the Pack & Send 
service is both structurally related to mailing in the acceptance 
function, and intrinsically postal. The ability of Pack & Send 
customers, who are so disposed, to purchase the packaging service 
without also purchasing a category of parcel delivery service does not 
alter these conclusions.

D. Correlation Between Use of Pack & Send Service and Use of the Mail

    Both the Complainant and OCA argue that the Pack & Send service 
should be found to be ``postal'' on the same ground that the ATCMU and 
NAGCP courts found the sale of money orders to be ``postal'': that the 
vast majority of transactions lead to actual use of the mail. 
Complainant cites the Postal Service's rebuttal testimony as 
establishing that a typical Pack & Send transaction involves the 
purchase of postage. CAUUC Brief at 9. CAUUC also presents the 
affidavits of Michael L. Phillips and Edward N. Frye, both of whom 
testify that only a very small percentage--1 percent or less--of the 
parcels packed by their stores will not be mailed or shipped by those 
stores. Tr. 2/82, 88; CAUUC Initial Brief at 5. Citing the same 
affidavits and witness Gibert's concession that ``the likelihood of 
[Pack & Send customers] mailing is fairly high[,]'' OCA argues that the 
``great likelihood that Pack and Send will be coupled with mailing 
would constitute a dispositive tendency * * *'' toward a finding that 
the Service is ``postal'' under the ATCMU court's standard. OCA Initial 
Brief at 5-6.
    The Postal Service argues that CAUUC's and OCA's invocation of the 
test it labels ``statistical'' is both inconsistent with the 
``structural'' standard it espouses and flawed. The first flaw in the 
approach, the Service argues, ``is that the record is devoid of this 
statistic.'' Postal Service Reply Brief at 5. The Service characterizes 
the Phillips and Frye affidavits as ``an attempt to fabricate an ersatz 
statistic'' because the record is devoid of evidence that would support 
an analogy between the packaging operations in affiants'' stores and 
the Postal Service's implementation of Pack & Send service. Id. at 5-6. 
Additionally, the Service argues that the record rebuts CAUUC's and 
OCA's conclusion that the sale of Pack & Send is combined with the sale 
of postage for accounting purposes, because a separate Account 
Identifier Code (AIC) has been established for Pack & Send 
transactions. Id. at 6-7.
    Notwithstanding the Postal Service's arguments against application 
of what it calls the ``statistical'' standard, the Commission agrees 
with Complainant and the OCA that the available information regarding 
Pack & Send service indicates a high correlation between purchase of 
the Pack & Send service and use of the mail for the parcel so prepared. 
The Postal Service concedes it has no records that would indicate how 
many Pack & Send transactions to date have culminated in a parcel 
mailing, Reply Brief at 6, but witness Gibert's best ``judgmental 
answer'' is that ``a fairly high proportion are shipped.'' Tr. 2/189. 
Furthermore, while the Phillips and Frye affidavits submitted by 
Complainant report experience in private stores, not Postal Service 
operations, they serve to confirm the common-sense expectation that a 
customer who brings an unpackaged item into a facility that offers both 
packing and shipping services is likely to use both. Therefore, in the 
Commission's view, the available facts justify a reasonable degree of 
certainty that the Pack & Send service would satisfy the standard 
applied by the ATCMU court to money orders. The Commission agrees with 
OCA that the likely coupling of the service with parcel mailing 
establishes a ``dispositive tendency'' toward a finding that the 
Service is ``postal.''

E. Public Representations and Public Effect

    The record of this proceeding is replete with public declarations 
of the Postal Service, and inducements to

[[Page 67361]]

potential customers, that present Pack & Send service conjunctively 
with the mailing of parcels, or in the context of the parcel mailing 
services it offers. The Report of the Postmaster General for 1995 
describes Pack & Send as ``a value-added service designed to strengthen 
the Postal Service's retail parcel service while adding an important 
convenience to customers.'' Tr. 3/264. See also Tr. 2/38, 2/227. Part 
of a written response of the Postmaster General to Chairman McHugh of 
the Subcommittee on the Postal Service of the House Committee on 
Government Reform and Oversight describes Pack & Send as ``[a] value 
added service that allows customers to bring items to selected post 
offices and have them packaged and mailed.'' Tr. 3/271. Internal 
communications of the Postal Service have contained similar 
characterizations. Tr. 2/36, 43, 49, 51-52. Advertising has urged 
potential customers to ``Let Us Box, Pack and Ship Your Gifts,'' and 
offered the inducement of discount coupons applicable to the cost of 
packing material and labor. Tr. 2/45, 42, 55, 59-60.
    All these materials would lead an objective observer to conclude 
that the Pack & Send service is a new feature and an enhancement of the 
Postal Service's pre-existing parcel delivery services, and that in 
offering Pack & Send the Postal Service is pursuing both potential 
users of the service and additional use of parcel services. The Postal 
Service does not dispute the authenticity of any of these 
materials.13
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    \13\ However, witness Gibert did testify that, ``we have 
subsequently said no promotional materials may be produced in this 
regard unless they get cleared by my organization, because of some 
of the issues around wording in the coupons.'' Tr. 2/228.
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    The public effect of offering the Pack & Send service appears to be 
minor to date, as witness Gibert testifies that the ``current sales 
average is about one parcel packaging transaction per business day per 
Pack & Send site.'' USPS-RT-1 at 4. However, should the Postal Service 
decide to expand the availability of the service significantly, the 
potential competitive injury anticipated by CAUUC could occur, 
depending on the Service's success in attracting Pack & Send customers. 
The Phillips and Frye affidavits establish that a customer for a 
store's packaging service will almost certainly purchase shipping in 
the same transaction. Therefore, diversion of a potential packaging 
customer from a store to the Postal Service would represent not only 
the loss of the packaging business, but also whatever revenue would be 
associated with the shipping transaction. This being the case, the 
levels of fees charged for Pack & Send service are likely to have a 
significant public effect, particularly on stores in the Commercial 
Mail Receiving Agency industry.

F. General Conclusion

    Application of the legal standards that have been employed in prior 
decisions to distinguish ``postal'' from ``non-postal'' services leads 
the Commission to conclude that the Pack & Send service is definitely 
``postal'' in character. By offering postal customers a parcel 
preparation service for items they bring to retail facilities, the 
Postal Service has introduced a wholly new method of accepting mailable 
items for ultimate delivery as parcels. Thus, Pack & Send service has a 
direct structural relationship to the provision of postal services. 
Intrinsically, it is a value-added service available for the categories 
of parcel service provided by the Postal Service; the locus of the 
added value is the alternative form of acceptance it provides. For this 
reason, Pack & Send is a service ``other than the actual carriage of 
mail but supportive or auxiliary thereto[,]'' which ``enhance[s] the 
value of service rendered under * * * substantive mail classes[,]'' and 
thus satisfies the general criterion for ``postal'' services formulated 
by the Commission in Docket No. R76-1. PRC Op. R76-1 at 267. In common 
parlance, as well as under these more analytical legal tests, it is a 
postal service.
    In addition, as might reasonably be expected, there is a high 
correlation between a postal customer's use of the Pack & Send service 
and mailing of the finished parcels it produces. This is the very 
response that the Postal Service's public representations outside this 
proceeding anticipate, and that the Service's advertising to the public 
seeks to produce. Furthermore, because of this effective linkage 
between parcel preparation and mailing, the availability of the Pack & 
Send service and the level of its fees have the potential for causing a 
significant impact on competing stores in the private sector that offer 
packaging service and access to alternative means of shipping parcels.
    For all these reasons, the Commission finds that the Pack & Send 
service is ``postal'' in character, and that establishment of the 
service and recommendations concerning its fees are functions that the 
Postal Reorganization Act contemplates to be within the jurisdiction of 
the Postal Rate Commission.

IV. Allegations Regarding Pack & Send Costs and Pricing

    While the parties apparently concur that the costs of providing the 
Pack & Send service and the levels of the fees set for it by the Postal 
Service are matters of secondary importance in this proceeding, in 
comparison with a determination of the service's postal or non-postal 
character, they have been subjects of controversy. CAUUC's Complaint 
alleges that, ``the Postal Service is not pricing this service based on 
any attribution of costs[,]'' but instead on ``what our competitors 
charge.'' Complaint at 3. In her rebuttal testimony, witness Gibert 
testifies that the price set for the Pack & Send service is based on 
the cost of packaging material, together with the cost of the labor 
time involved in performing the packaging service, plus a markup of 
approximately 60 percent. USPS-RT-1 at 2; Tr. 2/133-34. Regarding the 
prices charged for the service, which are not uniform for all locations 
that offer it, witness Gibert testifies that the Service selects 
``prices in the upper end of the local market'' for privately-offered 
packaging services. USPS-RT-1 at 2-3. On brief, the Postal Service 
claims that it ``has applied appropriate, generous markups in 
calculating the prices for its packaging service,'' and also ``has 
affirmatively priced its packaging service * * * to avoid underpricing 
with respect to alternative sources.'' Postal Service Initial Brief at 
17. (Footnote omitted.)
    Both Complainant and the OCA argue, to the contrary, that the 
Postal Service has set the prices for Pack & Send service at levels 
that are unlikely to recover the average costs of providing the 
service. Both parties argue that, at the reported average labor cost of 
$3.24 per Pack & Send transaction, a labor rate of $29.04 per hour, and 
a 60 percent markup of the labor cost, the average Pack & Send 
transaction would have to be accomplished in 4.2--minutes which CAUUC 
characterizes as ``unbelievable'' (Initial Brief at 14) and OCA as 
``preposterous'' (Initial Brief at 9). Based on the reported costs of 
administering the service (Tr. 3/271), CAUUC also calculates an average 
of $7.22 per transaction, which would also require that labor time be 
``minimal.'' Initial Brief at 14.
    Finally, both Complainant and the OCA argue that Pack & Send prices 
are likely to be set too low in their respective markets in light of 
the higher wage rates paid by the Postal Service to its unionized work 
force. CAUUC Initial Brief at 14-15; OCA Initial Brief 10-13. On the 
basis of these analyses and

[[Page 67362]]

considerations, OCA claims ``that the Postal Service is offering Pack 
and Send at predatory prices.'' Id. at 7.
    In its reply brief, the Postal Service denies the claims of 
predatory pricing and cross-subsidization, and challenges the 
calculations on which CAUUC and OCA base their arguments that Pack & 
Send prices are not likely to be compensatory. The Service notes that 
the parties' calculations used the retail prices of packaging material, 
rather than their costs to the Postal Service, and that substituting 
the latter would leave enough labor cost to allow for almost 7 minutes 
of clerk time per transaction. Postal Service Reply Brief at 9-10. 
Additionally, the Service argues that the parties' calculations fail to 
take into account that the average hourly rate for labor used in Pack & 
Send transactions is likely to be lower than the average hourly rate 
for window and window distribution clerks, who are generally senior 
employees, because in some instances the packaging service is performed 
by part-time or lower-wage postal employees. Id. at 10-11. To 
illustrate these points, the Service appends a table which purports to 
demonstrate that the average Pack & Send charge could cover costs and 
bear some markup with varying amounts of labor per transaction. Id., 
Table 1.
    After examining the scant record evidence available on these 
issues, the Commission concludes that it is simply impossible to reach 
any informed conclusion regarding the costs of providing the Pack & 
Send service, or whether the fees charged by the Postal Service are 
compensatory. Apparently the prices charged for the service have not 
been uniform across all areas where Pack & Send has been 
offered,14 and comprehensive volume and revenue information is 
unavailable. While the Postal Service purportedly begins with labor 
cost in arriving at Pack & Send prices, that figure (or range of 
figures) has not been quantified on the record of this 
proceeding.15 As CAUUC and OCA point out, costs recovery would 
depend on the duration of the transaction, and data on this critical 
operational question are likewise unavailable. Finally, there is no 
information concerning price levels that prevail in the Commercial Mail 
Receiving Industry for competing packaging services. These are all 
matters that would either require or warrant exploration should the 
Pack & Send service be considered on its merits in a proceeding 
conducted pursuant to sections 3622 and 3623.
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    \14\ In response to a question posed by Commissioner LeBlanc, 
witness Gibert testified that ``different prices have been tested in 
different markets.'' Tr. 2/213.
    \15\ The Postal Service states that Pack & Send prices are 
intended to recover a variety of associated costs in addition to 
window transaction labor cost, but that: ``Our analysis has not yet 
extended to determining the associated cost segments and 
components.'' Tr. 3/273.
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V. Disposition of the Complaint and Provision For Further 
Proceedings

    Having found that the Complaint of CAUUC is justified, the 
Commission must decide on an appropriate course of action. Complainant 
asks the Commission to declare its finding that Pack & Send is a postal 
service being offered in violation of the Reorganization Act, and to 
commence a second phase of this docket which would consider the Pack & 
Send service on its merits pursuant to sections 3622 and 3623. CAUUC 
Initial Brief at 16. Similarly, OCA argues that the Commission should 
issue a threshold jurisdictional order now, and simultaneously initiate 
a second stage of this proceeding to establish classification 
provisions and rate levels for the Pack & Send service. OCA Initial 
Brief at 14-16. However, the Postal Service argues that the procedures 
suggested by OCA would be inconsistent with the statutory scheme of the 
Reorganization Act, the terms of section 3662, and section 3001.87 of 
the Commission's rules of practice. Postal Service Reply Brief at 16-
18. Should the Commission find the Complaint to be justified, the 
Postal Service argues that the Commission ``should only issue a 
recommended decision to the Governors to that effect.'' Id. at 17.
    In a typical proceeding under section 3662 concerning rates or fees 
charged by the Postal Service, the Commission would issue a substantive 
recommended decision pursuant to section 3662 and section 87 of the 
rules of practice. For example, if the Commission found justified a 
Complaint that the rates for a subclass of mail were no longer 
compensatory, the Commission would recommend appropriate adjustments in 
those rates after a proceeding conducted pursuant to section 3624. 
Similarly, if the Commission found justified a Complaint that the 
Postal Service was applying rates in a preferential or unduly 
discriminatory manner, the Commission would issue a decision 
recommending appropriate changes in Postal Service rate application 
practices.
    However, in this case there is no substantive recommendation for 
the Commission to make under section 3622 or section 3623. The Postal 
Service contends that as it has never requested that a rate be set for 
the Pack & Send service, the Commission is not authorized to make a 
substantive recommendation pursuant to section 3622.16 Even if it 
were, for reasons presented above the Commission would lack an 
evidentiary basis on which to make findings concerning costs, volumes 
and revenues for Pack & Send service. There is a similar dearth of 
evidence on which the Commission could base substantive findings on the 
merits of Pack & Send service as a potential mail classification, in 
response to the criteria of section 3623(c). Furthermore, a recommended 
decision simply declaring that Pack & Send is a postal service, and 
thus subject to the Commission's jurisdiction, would be a hollow vessel 
lacking any recommendation of substance upon which the Governors could 
act under section 3625.
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    \16\ ``Congress made the deliberate decision to confer rate 
origination authority solely upon the Postal Service.'' Dow Jones & 
Co. v. United States Postal Service, 656 F.2d 786, 790 (D.C. Cir. 
1981).
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    For this reason, the Commission will issue a declaratory order, as 
suggested by Complainant and the OCA. However, the Commission will not 
initiate a second stage of this proceeding sua sponte, as these parties 
request, in order to accommodate the considerations cited by the Postal 
Service:

    In this regard, if only as a practical matter, but also as a 
matter related to the relative responsibilities of the Commission 
and the Postal Service, if the Commission concludes that Pack & Send 
is a postal service, it should defer to the Postal Service's 
determination as to whether it should seek authorization to continue 
the service by filing a request for a recommendation from the 
Commission.

In the footnote to this sentence, the Service states:

    As an additional practical matter, until such time as the Postal 
Service has developed and documented the data needed to support a 
rate or fee, it would be unwise and inefficient for a proceeding to 
go forward.

Postal Service Reply Brief at 17-18 (footnote omitted) and 18, n. 16. 
Therefore, further proceedings in this docket shall be held in abeyance 
pending the filing of a Request of the Governors of the United States 
Postal Service for establishment of Pack & Send service as a mail 
classification and for the recommendation of rates for that service, or 
the filing of a notice by the United States Postal Service to the 
effect that Pack & Send service has been discontinued. The Commission 
expects that postal management will devote its prompt attention to 
reaching a decision on this matter, and will collaborate with the 
Governors to achieve an expeditious resolution.

[[Page 67363]]

    It is ordered: 1. Having conducted hearings pursuant to 39 U.S.C. 
Sec. 3662 for the purpose of considering the Complaint of the Coalition 
Against Unfair USPS Competition, filed May 23, 1996, the Commission 
finds that Complaint to be justified.
    2. For the reasons set out at length in the body of this Order, the 
Commission finds the Pack & Send service currently offered on a limited 
basis by the United States Postal Service to be a postal service 
subject to the Commission's ratemaking jurisdiction pursuant to 39 
U.S.C. 3622 and its mail classification jurisdiction pursuant to 39 
U.S.C. 3623.
    3. Further proceedings in this docket shall be held in abeyance 
pending the filing of a Request of the Governors of the United States 
Postal Service for establishment of Pack & Send service as a mail 
classification and for the recommendation of rates for that service, or 
the filing of a notice by the United States Postal Service to the 
effect that Pack & Send service has been discontinued.
    4. The Secretary of the Commission shall notify the Complainant, 
the Postal Service, and all other parties to this proceeding of the 
actions taken in this Order, as well as the Governors of the United 
States Postal Service, and shall submit it for publication in the 
Federal Register.

    By the Commission.
Margaret P. Crenshaw,
Secretary.
[FR Doc. 96-32288 Filed 12-19-96; 8:45 am]
BILLING CODE 7710-FW-P