Good morning, Mr. Chairman and members of the Subcommittee. I appreciate your interest in the revenue generation activities of the Postal Service as that has been the primary focus of my work since joining the Postal Service. Before I begin discussing the topic at hand, I would like to recognize Congress’ active support of the Postal Service this past year, especially your understanding of the urgency behind changing the retiree health benefits payment structure for fiscal year 2009. Your active leadership allowed the Postal Service to meet its financial obligations, as well as meet the retiree health benefit needs of its current and future retirees for 2009. On behalf of the Postal Service, thank you all for your support and your commitment to the Postal Service.

Today, I will share strategies employed by the Postal Service to generate revenue. Our strategies have expanded with the enactment of the Postal Accountability and Enhancement Act of 2006, which provided additional management flexibility through a new regulatory structure, and product and pricing freedoms. In addition, I will discuss some of the initiatives and ideas that the service has planned for the future. Finally, as requested, I will address the barriers or limitations imposed by this Act on the Postal Service. I welcome this opportunity to continue to discuss additional steps needed to ensure the Postal Services’ ability to finance universal service for today and into the future.

I would like to begin by providing some context for our current situation. For almost four decades, the United States Postal Service (USPS), an independent establishment of the executive branch of the U.S. government, has relied on the sale of its products and services, not taxpayer dollars, to generate revenue and cover the costs of providing universal service to the increasing number of addresses in the United States.

The USPS is at the heart of the domestic mailing industry. The mailing industry employs 8 million Americans, represents nearly 7.5 percent of the gross domestic product and is the conduit for roughly $1 trillion in commerce annually. If the USPS were ranked in the Fortune 500, its revenue would rank among the top 25 companies. On average, eight to ten million people visit a Post Office each day and over one million visitors view the USPS website daily. In short, the mail drives American commerce and, in turn, America’s commerce drives the mail.

The Postal Service is a very successful organization. Consumers rank the Postal Service as the most trusted government agency and one of the top three most trusted businesses in the United States. We deliver over 40 percent of the world’s mail. Even with our sharply reduced resources, our service performance reached an all-time high level last year. Considering that we are talking about delivering to 150 million addresses six days a week, one can understand why our employees are proud to say they work for the Postal Service.

Our employees are one of the key reasons the Postal Service is so successful. The USPS is the second largest civilian employer with approximately 623,000 career employees. Not only are these employees proud of their work but they are also dedicated to serving the postal needs of the American people. One of the first things that impressed me when I joined the Postal Service was the universal commitment of its employees to provide extraordinary customer service. Whether satisfying the needs of an individual customer or helping a small business or a large mailing partner, postal employees strive to meet their customers’ mailing needs.

Postal employees have continually innovated and adjusted to take advantage of the technologies and resources available to efficiently and effectively deliver the mail. This reliance on innovation has enabled the Postal Service to continue to improve the speed and efficiency of mail and package delivery. The flexibility of the Postal Service to adapt to the changing times is a key component of our success throughout our 234-year-history. We are depending on continued flexibility and our ability to innovate to continue to finance universal service for the next 200 plus years.

We are all aware that the past year has been particularly challenging due primarily to the economy. As this Subcommittee and its Members well know, the state of the economy and the Postal Service are intertwined. The Postal Service, like all businesses in America, has developed mitigating strategies to survive the most severe economic downturn this nation has witnessed in more than half a century. Advertising mail, which accounts for more than half our volume and almost a third of our revenue, declined in double digits for fiscal year 2009. In response to the severe economic conditions, companies cut spending and one of the first things cut was advertising spend. Despite the decline in revenue, industry analysts are predicting a growth in share of advertising dollars for USPS advertising mail. While we believe some volume will return as the economy improves, we do not expect volume to rebound to previous levels.

Like our competition, we plan to change prices for our shipping services products in January 2010. These changes were announced just yesterday. However, as we announced in October, we do not plan to increase mail service prices in 2010 and expect that this will stimulate some level of growth for those products.

A second challenge having a direct negative effect on postal volume is the continued diversion of hard copy communications to electronic alternatives. We feel the effect today, predominantly in the steady loss of First-Class transaction mail, most notably in bill payments. We are keenly aware that some of our largest customers are encouraging faster diversion of payments to electronic form in an effort to save on their administrative costs in this severe economic environment. In addition, bill presentment has recently begun to move online. Beyond bills, fewer Americans send personal letters, as the use of mobile phones, text messaging and email has increased. Some long-running popular magazines are losing circulation as more and more Americans are reading their news online. However, the package delivery market has grown and will continue to grow providing an opportunity for revenue growth.

Our auditors are currently reviewing our fiscal year 2009 financials with a final annual report expected later this month. While I cannot give you the precise figures, I can say that we expect our mail volume decline to be approximately 26 billion pieces of mail and, despite 2009 cost reductions of over $6 billion, we expect our net loss to be over $7 billion prior to accounting for recent legislation. The Postal Service will suffer this loss and be unprofitable despite heroic cost reduction initiatives by our operations team that eliminated approximately 114 million work hours this year. To the best of our knowledge, this is the single largest cost-cutting initiative undertaken by any company in our country this year. While we are proud of these cost-cutting results, we recognize that even more needs to be done to close the financial gap resulting from the steep decline in 2009 volumes.

As this hearing takes place, postal stakeholders are engaged in a rigorous debate regarding potential future mail volumes as the country’s economy rebounds. There is no certainty whether mail volume levels will recover from 2009 levels or whether they will continue to decline, being replaced with other forms of communication. Without significant changes, the potential exists for similarly large losses in the foreseeable future. What we can say with certainty is that we are actively engaged in a four pronged effort to correct USPS finances.

The first and most obvious approach is to continue to aggressively bring down our costs. The USPS has set very aggressive 2010 cost reduction targets. A change in delivery frequency and modification of retiree health benefits fund payments are both integral elements of our second strategy. The third and fourth paths are the subjects of today’s hearing, to be equally aggressive in our efforts to grow revenue within the law and to change the law to provide greater product and pricing flexibility.

Since the enactment of the Postal Act of 2006, the Postal Service has worked to put in place a strong revenue generation organizational structure. I joined the Postal Service in June 2008 and, at that time, we furthered that effort by creating a customer facing organization that aligns with operations and supports partnerships with affiliates, to attract new and retain existing customers (See chart 1 below).

Some of the changes to the organization that will support ongoing revenue generation are:

1. The addition of Business Units to focus on products and services.
2. The reorganization of channel specific groups to focus on sales and customer service.
3. The refocusing of support functions as shared services.

We are in the process of reorganizing one of the support functions – the Sales Organization – to better serve customers and grow revenue. The USPS has two very different customer groups with vastly different needs, large customers and small customers. On average, our large business customers generate 8,000 times more revenue than our average small customer. Large businesses that rely on the mail have staffs who study postal rules and regulations. Their needs are generally operational in nature, scheduling mail entry and fulfillment of their equipment needs. We meet these needs through the use of customer service experts. In addition, our sales people will visit these businesses when an opportunity exists to help the business grow or take advantage of a workshare opportunity. The USPS has millions of small customers who use the mail on a less frequent basis. Our efforts to support this group occur in our over 30,000 retail outlets, online, via a call center or through our letter carriers while they are on their routes. An important segment of this group is small businesses. Since small businesses rarely have dedicated mailing and shipping staff, these channels are designed to answer their questions and encourage their use of the mail.

Priority Mail is an excellent example of how we have employed the full range of strategies available to us to successfully compete and generate revenue. We have managed to avoid the double-digit revenue declines in the expedited market by being aggressive. We attribute this to the pricing freedoms provided to us under the Postal Act of 2006, proven advertising and outstanding customer service.

A positive aspect of the Postal Act of 2006 was that it gave us the ability to offer contract pricing to commercial customers. Before the act, everyone paid the same price whether they shipped one package or one million. Private sector businesses don't price their services that way, and in today's world, it didn’t make sense for us either. With contract pricing, we can now compete somewhat more effectively with private carriers on price, which has allowed us to grow our profitable package business. So, contract pricing has become a key strategy for us to grow our commercial business with large and medium sized customers.

These pricing freedoms have had a positive effect on our organization. The ability to offer contracts means that we are now able to pursue the shipping dollars of the largest businesses in the country. The new package volume we've won through contract pricing involves the largest commercial and retail entities in the U.S. It's a real contribution to our bottom line, and the successes we have seen with these contracts, despite a challenging economy, tells us that customized pricing agreements should bring even more revenue from our competitive products as the economy starts to turn around.

But these pricing freedoms fall short of the freedoms our competitors enjoy in the private sector and matching the private sector freedoms would be appropriate. In the private sector, while contracts are carefully crafted and negotiated, each contract is not scrutinized by a regulator, which is what is required for each postal contract before it can be signed. For the Postal Service, every contract is considered a new product and must be approved by our regulator in advance of implementation. While the Postal Regulatory Commission (PRC) is very diligent about meeting a 15 day turnaround on these contracts, those 15 days can give our competition sufficient time to match or beat our offer and seize on a potentially lucrative contract that was initially ours. Short of full pricing freedom comparable to the private sector, there are other alternatives that would improve the contract pricing process and provide effective oversight. These include after-the-fact review of each contract by the regulator, pre-approved thresholds or limits to protect against substantial pricing risks, and broader definitions of a product so that each individual contract for the same or similar product does not require a before the fact review. We believe that these enhanced freedoms would enable us to capture more revenue opportunities with sufficient oversight to limit risk.

To have an equally impactful program for our small business and individual consumers, we turned to research. We discovered the difference between those who used the USPS for their expedited services and those who did not was the knowledge and understanding of our products and services. So we set out to build product awareness and usage.

Our popular Priority Mail Flat Rate Box promotional campaign was introduced in May 2009, and will be extended through this year’s Holiday season. The campaign offers customers a simple, economic way to ship goods using our Priority Mail Flat Rate Boxes. We funded the campaign by using already existing marketing dollars and redirected them to a highly integrated media plan incorporating TV, direct mail, print and digital advertising. In addition, the integration extends across channels so that retail clerks, letter carriers and others also actively participate in and support the Priority Mail Flat Rate Box Campaign.

To optimize our chances of success with this campaign, we have done extensive consumer and customer testing to ensure the clarity, appeal and persuasiveness of our message. This advertising campaign is perhaps our best ever, attaining the highest commercial scores ever tested for any company offering shipping products and services. To date, our website directing customers for fulfillment or more information has received more than two million hits, and a couple of award nominations for our use of innovative online tools. The sales results are above expectations.

Other examples of how we utilized our pricing freedoms enabled by the Postal Act are evident in the work of our Business Units. Business units focus their energies on optimizing products and services to generate revenue. Our Marketing Mail Business Unit was searching for ways to respond to the needs of Standard Mail users who were particularly affected by this economic downturn.

Working with the PRC, we developed the Summer Sale concept with a 30 percent price discount on incremental volume of advertising mail for three months this summer. We are still evaluating this program but preliminary information suggests that customers mailed a significant number of incremental pieces of Standard Mail to help stimulate the economy. Over 400 of our largest customers participated in a program that would not have been possible without the pricing flexibility of the Postal Act. I would like to give a special note of thanks to the Postal Regulatory Commission for its quick and thorough review of this proposal. Without this expeditious review, we could have missed our window of opportunity.

Our customers continue to face economic challenges in their businesses. We saw initial interest with the Standard Mail Summer Sale, and we wanted to continue the momentum started by this program as our customers’ sales remain sluggish with no appreciable increases in marketing spending anticipated for calendar year 2009. At the Postal Service, we believe we can and should continue to find ways to help our customers increase their use of advertising mail for brand-building, customer acquisition, and customer retention. The success of the Summer Sale led to the additional stimulus program, the First-Class Fall Incentive. We want to ensure customers know that they matter to us and we want their business.

Our customer focus is also the reason we established channel groups in our organization. Our Retail, Internet and Call Center groups each focus on how we interact with customers and consumers, and what forms of our products and services to offer to meet the particular needs of the channel user while optimizing utilization of our assets.

The Retail Channel has benefited from flexibility of the Postal Act while also realizing some of its limitations. With the largest retail network in the U.S. and probably the world, the Postal Service sees an average of 9 million visitors a day at our retail outlets. Yet, despite these impressive statistics, the Postal Service has a surprisingly small revenue base in non-postage products, averaging less than $15 in sales per location per day. While we offered a broad range of products in a wide selection of categories, only a few products represented the bulk of the sales.

We took on the task of defining a retail strategy and focused on offering only those products that facilitate our customers’ mailing and shipping activities while promoting our brands. As a result, we streamlined the product selection and reduced the product offering from about 4,000 items to about 300 items, maintaining only those products that were preferred by our customers. Today, in limited pilot locations, customers can see the new product selection including an assortment of seasonal and everyday greeting cards for sale. We would like to publicly acknowledge the participation of the Greeting Card Association in this endeavor.

We know by featuring top-selling mailing and shipping supplies, philatelic products and mail-related tools such as scales and stamp coil holders, that our retail associates will be able to better assist customers with their mailing needs. To further enhance sales, we have coordinated our retail merchandising with our advertising to prominently feature the Priority Mail Flat Rate Boxes and our “Simpler Way to Ship” message.

We worked within the interpretation of the Postal Act, guided by the PRC, for a product selection that is consistent with our strategy, in this case, as we were already selling USPS branded items, mailing and shipping supplies, and greeting cards. While still employing a “Fewer, Bigger, Better” strategy, we see an opportunity to expand our retail offerings with the addition of other consumer products, such as stored value gift cards, which the PRC did not approve as a “grandfathered” service. We could offer a wider variety of office supplies, vending and printing services with expanded freedoms as well. We plan to carefully research and evaluate other product and service options appropriate for consumer product sales before recommending them for retail sales.

One challenge facing us is how to optimize the strength of our retail network. If we don’t expand the products and services sold at retail, we may be forced to close underutilized facilities. The policy choice for our country may come down to “use it or lose it.”

This year, the Postal Service also initiated a multichannel integration project to update and improve the system architecture supporting our channels. With this project, a customer will be able to buy postal products in the way they prefer – at retail, online, or by phone. This will bring a virtual Postal Office to any home or office.

Today, about 29 percent of retail revenue is generated through alternate postal product and service access channels. We will continue to work on “bringing the Post Office to your fingertips” which is one of the strategic guiding points offered by Congress in the Postal Act of 2006. Our near term goal is to move up to 50 percent of sales to alternate access sources such as the internet, phone, automated postal centers and alternate access channels. As more customers embrace alternate access channels for small, simple transactions, such as stamp purchases, the Postal Service can optimize its retail assets with the sale of more complex transactions.

As part of this multichannel integration project, we have introduced the three most requested postal service functions on mobile devices. Beginning last month, customers can now track and confirm packages, locate a Post Office, and find ZIP Codes on their mobile phones. In the near future, unique applications will be available on smart phones such as the iPhone and Blackberry.

Currently, our website is one of the busiest in the nation with some 30 million visitors each month, and we know from customer feedback that they are delighted with the ease and convenience of buying stamps, printing shipping labels or locating ZIP Codes online. Our multichannel integration project, which includes an update of our usps.com website, will provide customers with one postal account, a complete transaction history and new payment methods, bringing our e-commerce capabilities in-line with, and even slightly ahead of other major online retailers. More and more, customers will be able to manage their postal transactions online or via phone as well as at our retail outlets. In the future we will have the potential to offer new services that had not been contemplated at the time the current law was enacted.

The U.S. Postal Service, like the rest of American industry, has come a long way since the dot.com era in providing online access and offering ecommerce options. With Postal Service employees working hand-in-hand with global partners recognized for their expertise and experience in these areas, the Postal Service’s capabilities are growing by leaps and bounds. Our Multichannel Integration project will result in a cutting edge system which represents the best practices of today. Progress is already evident in the introduction of the mobile access channel, the innovative augmented reality tools for Priority Mail, and continued nominations and awards recognizing the leadership qualities of the Postal Service’s websites.

These new programs, the Summer Sale, Priority Mail Campaign and Contracts, Consumer Products at retail and the Multichannel Integration project are all underway, already taking advantage of the flexibility afforded by the Postal Act. As noted, some have already generated incremental revenue and others are just hitting the marketplace. All of these projects are designed to retain or extend our core business and all are happening now.

What I would like to address next are three other initiatives that are still in the planning stages and are designed to extend the core business or transform the business by expanding core capabilities into new business areas. These are just a few of the many initiatives under evaluation currently by Postal Service business unit and channel managers and its partners and affiliates.

One of these planned activities is product samples that generated significant revenue for the Postal Service in the past but as previously offered became cost prohibitive. This project is a renewed approach to product samples using different business models. With our shipping service capabilities and our ability to reach every household in America, we are properly positioned to partner with the private sector and provide marketers and advertisers with more ways to create demand for new products in an efficient and effective way. An initiative like this, to grow product samples, is part of the Postal Service legacy of contributing to the growth of commerce and innovation in our country.

I also want to talk about potential transformational ideas or ideas that could take the Postal Service into new businesses that may offer revenue generation opportunities by combining the core competencies of the Postal Service with new technologies. We are exploring these ideas to determine whether they will generate new revenue. The first initiative that falls under this umbrella is a pilot program to determine what type of secure enrollment or credentialing could be done on behalf of other government entities at postal facilities. This idea follows along the successful business partnership we have with the Department of State.

Since 1975, the Postal Service has accepted passport applications at postal facilities. Today, 6,300 Post Offices accept passport applications nationwide. Our retail presence across the country and the high level of trust consumers have in the Postal Service, along with the increased significance of swearing an enrollment oath in front of a Federal employee, all have provided an effective customer access solution to the State Department for obtaining passports.

As the need for enhanced credentialing increases for Federal and State government agencies, the Postal Service is evaluating the development of a full range of enrollment services that will enable agencies to work with us as a trusted Federal partner. This would require expanded enrollment services, beyond today's passport enrollment including building a full web-based pre-enrollment capability, and capturing other important data in person.

Currently, our team is identifying and meeting with prospective Federal agencies in need of such secure credentialing processes and is examining the revenue potential of such an initiative. The geographic retail ubiquity, consumer trust, and binding nature of taking an oath in front of a Federal employee differentiates the Postal Service from any other potential enrollment services provider. Our team also is analyzing the type of training and infrastructure requirements that would be necessary for the Postal Service to provide enrollment services either on-site or via mobile facilities.

The second transformational project underway is the exploration of hybrid mail, or mail that is either sent, delivered, or both in digital format. This is not a new idea. Many forms of hybrid mail exist today. An example is sending an electronic file to a printer to be printed, addressed, sorted and mailed as an advertisement or direct mail piece for that business. Hybrid mail is a fast-growing marketplace and unlike a purely physical distribution model, the geographic boundaries are easily crossed. Many posts around the globe are already involved in hybrid mail solutions that bridge the digital and physical mailing options.

Today we are exploring options to utilize the assets and intellectual property of the Postal Service, in partnership with affiliates in the private sector, to continue to provide trusted mail service to our customers in a more electronic world. We feel this is critical to our long term viability in an environment in which our young people grow up immersed in the digital world where electronic communication and commerce are the norm, not the add-on or exception that they have been in the past.

While we are working diligently to find new revenue generation opportunities, we are finding that there may be unintended consequences to the requirements of the Postal Act because the flexibility we need is either lacking or unclear. You have heard before that we have the largest retail network in the world. As the Postmaster General is fond of saying, our retail network has more locations than McDonalds, Starbucks and Wal-Mart combined. We truly are ubiquitous in our nation. Yet we do not have the flexibility we need to generate sufficient value from these retail assets. Everyone wants to keep his or her local Post Office, often despite our inability to generate a reasonable economic return from that site. Having the flexibility to offer more complementary services at our retail locations would significantly enhance our ability to optimize these retail assets. Some examples of the kinds of services we could offer are a wider variety of office supplies, gift cards, vending and printing services to name just a few.

Again, we do not believe that the Postal Act was passed to limit our growth, profitability or leadership in the role of commerce and communication. We have a proud history of postal leadership and innovation in the field related to the execution of our mission. Specifically addressing these possible unintended consequences would go a long way to not only opening the door for incremental revenue generation, but in stemming what is inevitably a precipitous decline in revenue with these limitations.

Since the time of Ben Franklin and throughout our 234-year history, the Postal Service has taken advantage of changes in technology to improve the delivery of communication and commerce. The Postal Service has been flexible in both creating new products and rapidly adapting to new innovations resulting from technology advances. As the steward of communication and commerce for the American people, the Postal Service provided mail subsidies and at times investments to further the development of transportation systems via stagecoaches, railroads, steamboats, ships, and most significantly the American aviation industry. The Postal Service was an early adopter of each of these transportation modes with the aim of moving mail more quickly, reliably, and securely throughout the country and to other nations.

In 1863 the Postal Service acted with Congress to offer free delivery of mail directly to the door instead of to a central Post Office in order to “greatly accelerate deliveries, and promote the public convenience.” Our rural free delivery service brought rural America into full marketplace participation, extending and growing American commerce. From 1911 through 1967, our Postal Savings System provided secure, accessible depositories for small savers. Created in the early 1960s, ZIP Codes were designed to help speed mail, while over time they have become a marketing and demographic mainstay. In 1970, our expedited Express Mail service was a Postal Service innovation. In 2006 we worked with our customers to develop the latest innovation, Intelligent Mail with improved barcodes for tracking mail within the postal system. All of these are innovations by the Postal Service that used our flexibility to take advantage of new or emerging technologies and have been or are a benefit to the Postal Service customers.

We encourage you to remember the value of flexibility to the U.S. Postal Service. We have a mission of universal service to the American population that we take very seriously. Our ability to adapt in changing environments has enabled us to stay strong and viable for over 230 years while delivering on our mission.

One of the purposes of today’s hearing is to examine the constraints that hold the Postal Service back from moving forward. I don’t have all the answers to give to you today with respect to the additional product freedoms sought by the Postal Service. Instead, as many of you are aware, the Postal Service has begun a conversation on what functions the Postal Service should offer five, ten or fifteen years from now. This hearing is a part of that conversation.

One of the first rules of business is to keep costs in line with revenues. In the current economic recession, the Postal Service is projecting a loss despite significant cost cutting measures. We believe there are two real solutions to this issue and both are within your control. The first is restructuring the retiree health benefits funding requirement and the second is the five-day delivery change. As discussed earlier, addressing these two issues would be the primary first step to putting the Postal Service back on a profitable footing. It is unrealistic to believe that revenue generation initiatives could close the gap independent of retiree health benefit pre-payment relief and a five-day delivery option. To the best of our knowledge, no company in the history of our country has ever closed a $6 billion earnings gap solely by revenue generation initiatives.

In recent weeks, the Postmaster General has stated that in order to better support its universal service obligation, the Postal Service will need additional statutory flexibility to pursue additional revenue generating activities. This is necessary because presently the existing statutory authority is either lacking or unclear. One specific change that we would like to suggest is an expansion of the authority granted to the Postal Service in Title 39 (section 411) United States Code which currently permits the provision of (and remuneration for) a wide variety of services to “Executive agencies with the meaning of section 105 of title 5, and the Government Printing Office.”

The authority of the Postal Service to cooperate with and provide services to state and local authorities is not specifically set out in the current law. We would like to have clear authority to cooperate with all governmental authorities. This authority is what we are seeking for a program such as the enrollment services initiative described earlier, which could potentially be used to assist states with enrollment services for various benefits programs or for a wide variety of other initiatives where the ubiquity of the Postal Service’s retail and other facilities would be of value.

Another area in which the Postal Act of 2006 could be modified is in its definition of services the Postal Service is allowed to provide. Currently, the law contains a definition of postal services that is limited to “the delivery of letters, printed matter, or mailable packages, including acceptance, collection, sorting, transportation, or other functions ancillary thereto.” While the Postal Service understands that this definition generally is descriptive of the core function that it has served in our country’s history, the lack of explicit authority to provide purely electronic equivalents of the traditional physical services could place a cloud over the Postal Service’s ability to bind the nation together in the electronic age. It also is inconsistent with the definition of postal services adopted by the former Postal Rate Commission prior to the passage of the Postal Act of 2006, which explicitly included electronic services. Although the Postal Regulatory Commission has indicated that under the Postal Act of 2006 certain purely electronic services, such as international electronic funds transfers are permissible extensions of existing hardcopy services, the authority to provide all such services should be set out explicitly in the law.

Further modification to the Postal Act would benefit the revenue generation capabilities of the Postal Service by providing more freedoms to leverage our existing assets, such as our retail outlets. We already sell money orders and international wire transfers. The Postal Service would like to explore whether it would be feasible to provide new non-postal products and services directly or in partnership with private sector entities. For example, if we were to lease out space to a private company for the sale of complementary products, such as flower bouquets, under current law our employees could not ring up the private company’s customers’ purchases without inviting a dispute as to the Postal Service’s authority to do so. Therefore, the business economics simply would not work.

Beyond these specific suggestions, the Postal Service is interested in exploring whether, like other postal administrations around the globe, our core operations could be supported by revenue generating activities that dovetail with the Postal Service core competencies. For example, the Postal Service is interested in exploring whether the provision of logistical, financial, real estate management, and services to underserved rural and inner-city markets might be a sound means to secure revenues needed to support universal service.

If you look around the world today, you will find that international posts are facing the same mail volume declines as the Postal Service due to the economy and electronic diversion. Posts worldwide are offering banking, insurance, and telecommunication services. While we are not advocating any of these services specifically, we are advocating the ability to explore new possibilities to position the Postal Service for the future, so that we can continue to provide outstanding universal service to the American people.

We cannot assume that mail volumes will return to their historic levels. We have to be positioned to use every asset available to us – be it our 36,000 retail outlets or our ability to reach 150 million household, business, and P.O. Box addresses. The communications evolution continues at a rapid pace and the world’s markets remain in an extremely volatile state. In this rapidly changing world, this is not a good time to be standing still. In fact, standing still is the equivalent of moving backwards in this period of rapid progress in communication options.

In summary, I speak for the Postal Service leadership team when I say that we are very proud of our accomplishments in meeting the communication and commerce needs of the country. We have achieved record-level cost reductions, record-high service levels and early successes on new initiatives for incremental revenue generation. But we recognize that without the help of Congress we cannot close our significant profitability gap and adequately meet our universal service obligation.

As I identified, the effort to correct the Postal Service’s finances is a four pronged effort. As the first prong, we are actively working to continue to reduce costs and we have a very aggressive target for fiscal year 2010.

The second prong encompasses the two most critical changes necessary to close the gap: a change to a five-day delivery schedule and a restructuring of the retiree health benefits prefunding schedule. These changes would enable the Postal Service to reestablish a firm foundation for strong and profitable growth. Without these two changes, we do not anticipate the possibility of closing the earnings gap even with aggressive revenue generation initiatives.

The third prong is an aggressive focus on those revenue generation initiatives allowed by law. We have already begun to see an effect from these efforts as I discussed with the Priority Mail and Summer Sale examples and have others in early implementation or planning stages. However, even at a 15 percent pre-tax margin, it would take the profit generated by almost $45 billion in new revenue to fill the earnings gap if we employed this prong alone. This is clearly not realistic.

Fourth, we request changes to the Postal Law in areas of revenue generation as outlined earlier in my testimony. In combination, these four prongs provide a framework for the Postal Service to be self-sustaining while fulfilling our universal service obligation at service levels the country has come to expect.

In short, we are urging this Congress to join the Congresses of the past, that have enabled growth and innovation in commerce and communication for the citizens of the United States, by providing flexibility to the U.S. Postal Service to capitalize on emerging trends to the benefit of our country.

In closing, I would like to thank this Subcommittee for holding this hearing today. I would like to close by reaffirming my personal commitment to working with each of you to ensure a Postal Service that meets the mailing and shipping needs of the American public.

Thank you. I would be pleased to respond to any questions you may have.