Product Redesign Update MTAC August 6, 2003

1. Product Redesign Update MTAC August 6, 2003

2. PRODUCT REDESIGN Impact of CSRS Overpayment Legislation • Rates Do Not Increase Before 2006 • Rethink Product Redesign Assumptions, Priorities, and Schedule • Window of Opportunity Before Next Omnibus Case • Focus On Cost Savings Before 2006 to Mitigate Future Rate Increases

3. PRODUCT REDESIGN Window of Opportunity • What Can We Do Before Omnibus Case Without Raising Rates? • Offer Options Through NSAs and Niche Classifications for New Worksharing Discounts Financed by New Savings • No Push-up on Rates for Non-participants • Send Signals for Future Changes to Encourage More Efficient Behavior • Continue to Look for Other Cost-Saving Opportunities Within Framework of Current DMCS

4. PRODUCT REDESIGN Meetings Subsequent to May 6-8 MTAC Meeting • May 16/19, June, July: Steering Committee Planning Telecons/Meeting • How to Proceed Before Omnibus Rate Case: Focus on Key Ideas and Communicate With Work Group Participants • June 25: Cost-based Rates Meeting with Periodicals and Standard Mail Industry Representatives • Look for Some Alignment on How to Pursue Concept • Achieve More Efficient Mail Preparation Behavior Before and/or In Conjunction With Omnibus Rate Case • July 15: General Meeting of Product Redesign Work Groups

5. PRODUCT REDESIGN Meetings Subsequent to May 6-8 MTAC Meeting • July 15: General Meeting of Product Redesign Work Groups • General Session: Product Redesign Background and Current Status of Major Ideas and Themes • Concurrent Breakout Sessions: More Detailed Discussion of Status of Ideas Developed in Work Groups • First-Class Mail • Periodicals • Standard Mail • BPM/Package Services • Address Quality

6. PRODUCT REDESIGN Work Group Breakout Sessions: FIRST-CLASS • Shape-based Rates • Biggest Opportunity To Take Costs Out of System is Conversion of Lightweight Flats to Letters • Members Generally Supportive; Had Numerous Opinions & Ideas • USPS Should Begin Sending Shaped-based Message to Customers to Change Behavior • Make Consumer Rates Simpler • USPS Preparation Rules Inhibit More Workshare • Change Preparation Rules on Combining Flats • Match Mail Preparation to Outgoing USPS Processing • Have Parallel Preparation Rules For Letters And Flats • Major Consideration: No Rate Increase Before 2006

7. PRODUCT REDESIGN Work Group Breakout Sessions: FIRST-CLASS (cont’d) • Business Reply Mail: Development Plan & Revised Product Offering • Provide Better Service and Create More Competitive Product • Leverage Technology • Automated Accounting • Website Access • Some Issues Raised by Work Group: • Is BRM Going Away (e.g., Companies Send People to Website vs. Using BRM) • How Would Customers Receive Images from Reply Card Scanning • Remittance Mail: USPS Research to Evaluate Present Remittance Mail System & Make Recommendations for Improvements • Aug./Sept. 2003

8. PRODUCT REDESIGN Work Group Breakout Sessions: PERIODICALS • Remove Forwarding Costs From Base Price & Charge for Each Piece Forwarded using ACS • Group Sees Great Potential • Short Term: Possible Niche Classification • Cost-based Rates • Most See Logic in Concept, But Don’t Agree on Proceeding • Some See Idea as Entirely About “De-averaging” • How to Mitigate Rate Increase for Small Volume Mailers • Time-sensitive Publications: Added Costs? • Contentious Issue for Dailies & Weeklies • Mailer Adherence to CET May be Key • No Separate USPS Costing Data on Issue

9. PRODUCT REDESIGN Work Group Breakout Sessions: STANDARD MAIL • Address Quality Standards: Potential Changes To Reduce UAA Mail (e.g., Require Move Update, More Frequent Address Matching) • Group Agreed No Additional Requirements Should be Added Until Cost Studies Are Completed to Determine Value • Cost-based Rates • Most Agreed on Importance of Identifying Opportunities to Create Incentives For More Efficient Mailer Behavior • Reduce Costs and Mitigate Future Rate Increases • Support Higher 5-Digit Bundle Minimums • Saturation Mailers: Cost-based Ideas Relate More to Upstream Mail Processing Costs and Do Not Address Their Issues and Ideas • Market Issues; Opportunities For Savings at DDUs; and Opportunities For Volume Growth • Consider Potential for NSA/Niche Classification

10. PRODUCT REDESIGN Work Group Breakout Sessions: STANDARD MAIL (cont’d) • Consolidation of Flats Mailstreams Through Co-palletization and Co-mailing: Standard, Periodicals & Bound Printed Matter Under Current Rate Structure • Co-palletization • Build on Periodicals Experiment • Group Indicated There May Be Little Mailer Participation Without Further Incentives • Co-mailing Mixed Classes in Bundles • More Complex, But More Opportunity • Continue Discussions Regarding Implementation in MTAC Flats Optimization Work Group • Small Volume Mailing Simplified Preparation • USPS Conducting Market Research; Idea Worth Pursuing

11. PRODUCT REDESIGN Work Group Breakout Sessions: BPM/PARCELS Ideas Currently Being Pursued • Return Service For Parcel Post & BPM • Experimental Parcel Return Case filed @ PRC 5/28/2003 • e-VS to Simplify Parcel Verification Process • “Machinable” Container For Small Parcels – 5D Sort • Co-palletization Of BPM Catalogs with Standard Mail and Periodicals Flats • MTAC Parcel Select Work Group Formed to Address Service Improvement Issues

12. PRODUCT REDESIGN Work Group Breakout Sessions: BPM/PARCELS (cont’d) Short-Term Considerations: Prior to Omnibus Case • Priority Mail Drop-ship “Open & Distribute” Discount • Standard Parcels: Examine Drop-ship Incentives • Drop-ship Incentive For Media Mail • Examine Internal Processing of Priority and First-Class to Eliminate Parallel/Redundant Networks • Review Carrier Release Endorsement • Customers Could Use Web to Provide Delivery Instructions When They Are Not Home • New Ancillary Endorsement for Refused/Returned BPM • Route Through CFS Units Work Group Members Requested Schedule and Update From USPS on Short-term Projects

13. PRODUCT REDESIGN Work Group Breakout Sessions: ADDRESS QUALITY • Matrix: Discount Rate Structure Recognizing Different Levels of Mailer Contribution to Address Quality • Work Group Raised Several Issues but Agreed Matrix Should Continue to Be Developed • USPS Cost Study Under Design • Pursuit of Specific Proposals Will Depend on Cost Study Results and Opportunities That are Identified • Work In Conjunction with MITF: Federal Register Notices • Move Update (MU) For All Classes Within 95 Days of Mailing • Address Matching Processing Within 95 Days of Mailing • Use of Monthly (instead of bimonthly) Directories Work Group Agrees That Changes and Timing Dependent on Completion of UAA Cost Study • No Sooner Than 18 Months From Final Rule

14. Current Status PRODUCT REDESIGN • Market Research Underway (Qualitative): • Shape-Based First-Class Rates • STD Mail Small Volume Mailings, Simplified Prep Option • Cost Analysis Underway: • Preliminary Analysis Of Piece/Bundle/ Container Costs For Periodicals & Standard Flats • Other Cost Analysis Under Development: • Address Quality (UAA Mail Study) • Small Parcels • Standard Mail Characteristics Study Underway • Updated Periodicals Mail Characteristics Study Under Development

15. How To Proceed PRODUCT REDESIGN • To Be in Position for Possible January 2006 Omnibus Rate Case Implementation, USPS Could File With PRC Late 2004 • Window For Filing Product Redesign Initiatives Is Not That Big • Also Need to Consider USPS Constraints on Increasing Rates in Response to Passage of CSRS Legislation • Will Look At Filing Several Smaller Cases that May be Class or Service Specific • No Push Up On Any Rates, But Indicate Direction For the Future • Other Changes Could be Folded into Omnibus Case • Continue to Make Changes That Reduce Costs Within Current DMCS Framework