Snailmail struggles in an electronic world

U.S. Postal Service officials ended an online payment service earlier this month that had been offered since April 2000. The e-commerce service, which lets citizens pay their bills electronically rather than mailing checks, was profitable, USPS officials said. But they decided to pull the plug because the online service appeared unable to meet growth expectations.

The decision to drop a profitable e-commerce service comes amid growing pressure on Postal Service officials from business interests to stay out of e-commerce.

In the past few years, USPS officials have ventured into online services to replace lost income from first-class mail service, which continues to drop as more citizens use the Internet to send communication instead of mailing bills and letters.

But opposition from business interests has largely frustrated efforts of USPS officials to find new sources of income from e-commerce to help pay for universal mail service — affordable mail delivery six days a week to 140 million homes and businesses. Despite declining income from first-class mail, the Postal Service must increase mail service to about 1.8 million new addresses each year.

The Bush administration and Congress have shown a strong interest in solving the Postal Service's financial dilemma. In 2003, the President's Commission on the U.S. Postal Service recommended substantial changes in the agency's business model. This month, committees in the House and the Senate introduced bills to restructure the agency, which receives no appropriations from Congress.

The proposed legislation would create a new set of rules by which the Postal Service can offer e-commerce services. How those rules will play out if the legislation passes remains to be seen, but some legal experts say they would welcome a field with clearly marked guideposts.

A case before the Postal Rate Commission, which regulates postal prices, illustrates the legal ambiguity regarding the Postal Service's role in e-commerce. In January, officials at DigiStamp Inc., a small business in Colleyville, Texas, claimed that the Postal Service had violated its charter by not seeking prior approval from the Postal Rate Commission before offering an online service called Electronic Postmark.

The underlying complaint from DigiStamp executives is a concern that the Postal Service is competing unfairly against small businesses that offer a similar Internet service. The Electronic Postmark service, which the Postal Service offers through AuthentiDate Inc., offers time stamps and digital signatures to certify that a digital document is authentic and has not been tampered with or altered.

Officials at the Social Security Administration use the Electronic Postmark service for about 35 daily transactions to exchange vital records, Social Security numbers and new federal employee information with other federal and state agencies, according to SSA officials.

The Postal Rate Commission, which has jurisdiction over U.S. postal services, must decide whether Electronic Postmark is a postal service, said Steve Sharfman, the commission's general counsel. "If it is a nonpostal service, then there is some apparent legal ambiguity as to whether the Postal Service is authorized to offer it," he said.

In addition to the DigiStamp complaint, the commission is dealing with a complaint from Consumer Action, a San Franciscobased consumer lobby group. Consumer Action officials have raised questions about 14 services offered by the Postal Service — not all of which are online services, Sharfman said. One of the e-commerce services named in the Consumer Action complaint was the Postal Service's online bill payment service.

With so many items pending, the commissioners have decided to make two new rules before proceeding to hear the DigiStamp and Consumer Action complaints. The first rule will be an attempt to define a postal service, Sharfman said. "That term [is] so loose...that it was felt that trying to do a complicated hearing involving 14 distinct items would be hard, and that the first thing to do would be to get a definition," he said.

With the second rule, he said, the postal commissioners will set public reporting requirements for services deemed not to be postal services. According to law, the Postal Service is allowed to compete with private businesses as long as it does so fairly, Sharfman said. The commission's role, he said, is to ensure that competition is fair.

"The online issue has focused a lot of attention on the proper role of the Postal Service," Sharfman said. "Prior to the Postal Service's entry into some of these [online services], there was less concern."

Future legislation could supersede any definition of postal service devised by commission members. "If legislation passes that clarifies this issue, then that will be the definitive word," Sharfman said.

Meanwhile, the future of the Postal Service's online bill payment service has been decided. USPS officials dropped the service they offered through CheckFree Corp. after concluding

that online payments are growing more slowly than they had

anticipated.

"The growth has really been on what is known as the biller direct side," said Christine Ray, manager of financial services for USPS product development and marketing. Rather than pay a monthly fee to the agency to handle all of their monthly bills electronically, consumers seem to prefer paying their bills online directly to the companies they owe money, she said. Or they use the online bill payment services that a growing number of banks offer without charging a fee.

"It's just an additional feature of a checking account, as opposed to being a money-making product on its own," Ray said.

Consequently, it did not matter that the bill payment service was profitable at the time USPS dropped it. "It wasn't still growing and meeting the expectations that we had," Ray said.

Both recent cases involving Electronic Postmark and online payment services underscore the difficulties in finding new sources of income so USPS can continue to offer universal mail service. The proposed legislation makes it even clearer that e-commerce will be ruled out as a source.

"It sounds like they're going to go back and really concentrate on their core mission and not get into competition with the private sector, all of which we find to be just great news," said Dan Johnson, technology counsel for the Computer and Communications Industry Association, a trade group. "That is what we have lobbied for and argued for."

Rick Merritt, executive director of PostalWatch, a group representing small businesses, agrees that e-commerce is unlikely to play much of a role in the future of the Postal Service. "I believe it was the intent of the drafters of the [House] legislation to preclude the Postal Service from offering anything that is not explicitly defined in a different part of the bill as being a postal service — none of which is e-commerce."

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