Mitchell_spyros-first-class.txt

TRENDS IN FIRST-CLASS MAIL VOLUMES WITH EMPHASIS ON
BILL/PAYMENT AND ADVERTISING MAIL1
Spyros S. Xenakis

Office of Rates, Analysis and Planning
U.S. Postal Rate Commission
1 July 1999
The paper was presented to the Commission in December 1998 and
was revised in June 1999 to include the data from the Household
Diary Study conducted in 1997.

HIGHLIGHTS AT A GLANCE




Household and Business Mail


•
The share of First-Class Mail sent by businesses is
increasing while the share sent by households is
decreasing.


•
The Postal system is increasingly becoming a medium for
business transactions rather than personal exchange.




Bill/Payment Mail


•
Household bill/payment mail has started losing volume;
but the number of pieces lost, so far, is too small to have any
material impact on First-Class volume.


•
Payments are declining faster than bills; households are
now making less than one payment by mail for every two bills
received in the mail.


•
The loss of household bill/payment mail is having more
impact on First-Class single-piece than presort mail.




Advertising Mail


•
First-Class household advertising mail is growing
fast.


•
First-Class advertising mail growth could offset some of
the loss in bill/payment mail.


•
Standard A mail is also growing fast.


•
In 1998, the Postal Service delivered at least 1.5
billion more pieces of advertising than non-advertising
mail.



HIGHLIGHTS



Household and Business Mail


•
The volume of First-Class personal (HH-to-HH) mail
continues to decline. Between 1990 and 1997, it decreased at a rate
of 1.7 percent annually. Its share of total First-Class Mail has
dropped from 8.1 in 1990 to 6.4 percent in 1997. One of the factors
cited for the decline in personal mail volume is falling long
distance telephone rates which have made telephone communication
more affordable and fostered substitution of telephone calls for
personal mail.


•
Business (NHH-to-NHH) mail is the only sector of
First-Class mailstream that has experienced healthy growth in the
90s. Between 1990 and 1997, its volume grew at a rate of 4.8
percent annually, 3.0 times higher than total First-Class Mail. Its
share increased from 34.4 percent in 1990 to 42.7 percent in 1997.
The prevailing view is that the high growth of business mail
reflects the healthy growth of the U.S. economy.


•
The share of First-Class Mail sent by businesses (i.e.,
NHH-to-HH and NHH-to-NHH mail) is increasing while the share sent
by households is decreasing. In 1997, businesses originated 84
percent of First-Class Mail, up from 77 percent in 1990.


•
The above trends support the observation that the Postal
system is increasingly becoming a medium for business transactions
rather than personal exchange.




Bill/Payment Mail


•
Household bill/payment mail, as defined in this analysis,
includes both the household payment mail (i.e., First-Class Mail
used by households to pay their bills) and the household bill mail
(i.e., First-Class Mail used by businesses to send bills to
households). The volume of business bill/payment mail (i.e., mail
used by businesses to pay their bills and send bills to other
businesses) is unknown and is not covered in this
analysis.


•
In 1997, household bill/payment mail totaled 24.8 billion
pieces or 24.9 percent of First-Class Mail. Of those, 7.5 billion
pieces were payments and 17.3 billion pieces were bills.



•
Household bill/payment mail is now declining. Its annual
growth has dropped from

8.0 percent in 1987-90 to 0.3 percent in 1990-93 and further to
negative 1.3 percent in 1993-97.


•
So far, however, the number of bill/payment pieces lost
is too small to have any material impact on First-Class volume.
Payment mail is declining fast while bill mail is still increasing,
though at a falling rate. Between 1990 and 1997, the number of
payments made by households declined by 2.5 billion pieces but the
number of bills received increased by 1.4 billion pieces. As a
result, the total bill/payment mail decreased by only 1.1 billion
pieces in seven years.


•
So far, it seems that households are converting from
paying by mail to other methods of payment at a faster rate than
businesses are converting their methods of sending bills.
Consequently, the ratio of payments made by mail to bills received
in the mail has dropped from 62.7 percent in 1990 to 43.1 percent
in 1997. On average, households are making less than one payment by
mail for every two bills received in the mail.


•
Payment mail is all First-Class single-piece
non-presorted letters, while bill mail consists mostly of presorted
letters. So far, the former has been more vulnerable to diversion
than the latter. Thus, the diversion of bill-paying by mail to
other methods of bill-paying is having more impact on First-Class
single-piece than presort mail.




Advertising Mail


•
Household advertising mail, as used in this analysis,
includes only First-Class stand-alone advertising mail that is sent
by businesses to households. It does not include advertising
stuffers (i.e., advertising mail sent enclosed with other items
such as bills). Moreover, the volume of business advertising mail
(i.e., advertising mail sent by businesses to other businesses) is
unknown and, thus, it is not addressed in this analysis.



•
In 1997, First-Class household advertising mail amounted
to 9.9 billion pieces or

9.9 percent of First-Class Mail.


•
First-Class household advertising mail is growing fast.
Between 1987 and 1997, it grew at a rate of 6.6 percent annually.
Its volume almost doubled in ten years. It grew from 5.2 billion
pieces in 1987 to 9.9 billion pieces in 1997. If this trend
continues, First-Class advertising mail growth may offset the loss
in bill/payment mail, allowing First-Class Mail to maintain its
current growth.


•
If we subtract the 9.9 billion pieces of First-Class
household advertising mail, reported for 1997, from 1998
First-Class volume and add them to Standard A mail volume, we
obtain the following figures for 1998: (a) 91.3 billion pieces of
nonadvertising mail; and (b) 92.8 billion pieces of advertising
mail. Thus, in 1998, the Postal Service delivered at least 1.5
billion more pieces of advertising than nonadvertising mail.
(Because of lack of data for 1998, we have assumed that First-Class
advertising mail volume stayed constant between 1997 and
1998).


•
The high growth rates of both First-Class advertising and
Standard A mail have contributed to shifting the balance in favor
of more advertising than nonadvertising mail in the Postal Service
mailstream. In the last two years, 1997 and 1998, Standard A mail
grew at a rate of 7.5 percent annually, five times higher than
First-Class Mail.


•
With First-Class household advertising and Standard A
mail growing at high rates, it is expected that the trend of more
advertising than non-advertising mail in the Postal Service
mailstream will continue for the years to come. This may have
serious political implications for the legal protection of the
Postal Service monopoly on letter mail. The public and the Congress
may question such protection when they learn that the Postal
Service is increasingly becoming an advertising medium.



ANALYSIS



Introduction
The focus of this paper is First-Class Mail. First, we identify
the sectors or flows of First-Class Mail and evaluate their volume
growth. Then, we turn our attention to First-Class household mail
and evaluate the growth of two of its uses: bill-paying and
advertising. As far as I know, this is the first time the growth
rates of First-Class Mail sectors and uses have been analyzed.
For the purpose of this analysis, bill/payment mail is broadly
defined as First-Class Mail used by households to pay their bills
as well as First-Class Mail used by non-households to send bills to
households. On the other hand, advertising mail is narrowly defined
as First-Class stand-alone advertising mail, i.e., First-Class Mail
used exclusively for advertising. Because of their importance, we
will revisit these definitions later during the review of
bill/payment and advertising mail data.


Household Diary Study
All data used in this analysis come from a market research study
called the Household Diary Study (HDS). Thus, before we turn to the
data, I would like to review some highlights related to this
study.
HDS is financed by the Postal Service and is conducted annually
by Chilton Research Services, a market research firm located in
Radnor, Pennsylvania. The study was first conducted in 1987. The
last data report available to us is for 1997. Thus, we have
household diary data for ten years, which we use for this
analysis.2
HDS collects data on mail either sent or received by households.
The analysis of these data provides a detailed description of the
household portion of the Postal Service mailstream. HDS does not
collect any information on mail sent from non-households to other
non-households. Thus, the non-household or business portion of the
mailstream is not analyzed by the study.
The data are collected on a fiscal year basis. HDS is designed
so that data collected in a given year can be compared with data
collected in preceding or subsequent years. This allows us to make
inter-temporal data comparisons and develop volume growth rates.
The Postal Service and the Commission have been using HDS data for
volume forecasting and ratemaking purposes during rate cases.
Additionally, the Postal Service uses the data for planning and
marketing purposes.
In 1977, the Survey Research Center of the University of
Michigan conducted two studies on behalf of the Postal Service: the
Household Mailstream Study (HMS) which, like HDS, analyzed the
household mail; and the Non-household Mailstream Study (NMS), which
analyzed the business portion of the mailstream. These studies
were, however, conducted only once. Thus, we do not have data for
the years between 1977 and 1987 for annual comparisons.
HDS collects information on household mail by surveying a random
sample of 5,300 households per year. Each household is surveyed for
a randomly selected week. During the first 14 and final four high
volume weeks of the postal fiscal year, 200 households are surveyed
per week; for the remainder of the year, 50 households are surveyed
weekly.
After an entry interview and training, selected members of the
household are asked to keep a diary of every mail piece sent or
received by the household during the sample week. The entry
interview provides mainly information on household demographics,
like the size and income of the household, and the education and
employment of the head of the household. The interviewer also
collects information about the household's attitudes and
responsiveness regarding mail.3
The data used in this analysis are mostly collected by the
week-long diary of household mail. The diary mainly collects
information on: the class and subclass of mail sent or received by
households, the sector or flow of this mail, the content or use of
it, and the industry source of household mail originating in
non-households.


Sectors or Flows of First-Class Mail
Table 1 shows the breakdown of First-Class Mail by sector or
flow for FYs 1987, 1990, 1993 and 1997. The first row of the table
identifies the First-Class Mail in the HH-to-HH
(Household-to-Household) sector. This mail, also called personal
mail, is sent by households to other households and includes mainly
holiday greeting cards like Christmas cards, other cards, letters,
and invitations like a wedding invitation. This sector does not
include bill/payment or advertising mail.
A subject that is discussed during the entry interview is the
household's reaction to advertising mail. The respondents are
asked, among other things, if they read advertising mail and if
they find it useful. Surprisingly, in 1997, 69 percent of the
respondents said that they read or look at advertising mail, and 60
percent said that they find it useful or interesting.


1/ Personal Mail: First-Class Mail sent by households to other
households (e.g. holiday greeting cards, other cards, letters, and
invitations). This sector does not include bill/payment or
advertising mail.
2/ First-Class Mail sent by households to non-households (e.g.
payments made to utility and credit card companies; and orders
placed or payments made in response to advertising). About 81
percent of HH-to-NHH mail contains some type of payment and is
classified as bill/payment mail. This sector does not contain any
advertising mail.
3/ First-Class Mail sent by non-households to households (e.g.
utility, credit card, insurance and medical bills as well as
advertisements from credit card companies, publishers, leisure
services and banks). This sector is the only source of advertising
mail shown in Table 2.
4/ Household Mail: First-Class Mail either sent or received by
households.

5/ Business Mail: First-Class Mail sent by non-households to
other non-households. This mail is not subject to HDS.
The second row of the table is devoted to First-Class Mail in
HH-to-NHH (Household-to-Non-household) sector. This mail is sent by
households to non-households and includes mainly payments made to
utility and credit card companies as well as orders placed or
payments made in response to advertising. About 81 percent of this
mail contains some type of payment and is classified as
bill/payment mail. This sector does not contain advertising
mail.
The third row shows the First-Class Mail in the NHH-to-HH
(Non-household-to-Household) sector. This mail is sent by
non-households to households and includes utility, credit card,
insurance and medical bills as well as advertisements from credit
card companies, publishers, leisure services and banks.
The fourth row, labeled "Subtotal" shows the First-Class
household mail as the sum of mail in the above three sectors. This
is the First-Class Mail either sent or received by all households
and is subject to analysis by HDS.
The fifth row is devoted to First-Class Mail in NHH-to-NHH
(Non-household-to-Non-household) sector. This mail, also called
business mail, is sent by non-households to other non-households.
HDS does not survey this mail, and thus, we practically know
nothing about its uses. More importantly, we do not know how much
of business mail is used for bill-paying or advertising. Thus, the
First-Class bill/payment and advertising mail volumes presented in
this analysis do not include the business bill/payment and
advertising mail.
The sixth row, labeled "Unknown" shows some First-Class Mail
that cannot be identified with any of the aforementioned four
sectors. This mail is insignificant, except for FY 1987, the first
year the study was conducted. Finally, the last row, labeled
"Total" is devoted to total First-Class Mail.
Now let us turn to columns in Table 1. Columns (1), (3), (6),
and (9), labeled "Volume" show, in millions, the total First-Class
Mail pieces broken-down by sector for FYs 1987, 1990, 1993 and
1997, respectively. For example, the first number in Column (9)
shows that in FY 1997 the HH-to-HH or Personal Mail volume was 6.4
billion pieces. Similarly, the last number in Column (9) shows that
the total First-Class volume was 99.7 billion pieces in FY
1997.
Columns (2), (4), (7), and (10), labeled "Share of Total" show
the volume share of each sector in total First-Class Mail for the
aforementioned fiscal years. For example, the first number in
Column (10) shows that in FY 1997, the volume of mail sent by
households to other households represented 6.6 percent of total
First-Class volume.
Finally, Columns (5), (8), and (11), labeled "Annual Growth"
show the annual volume growth rates of all sectors and total
First-Class Mail for the time periods 1987-90, 1990-93 and 1993-97,
respectively. For example, the first number in Column (11) shows
that, between 1993 and 1997, personal mail volume declined by 2.0
percent annually. Similarly, the last number in Column (11) shows
that for, the same time period, total First-Class Mail volume
increased by 2.0 percent annually. It should be noted that the
numbers in Columns (5), (8), and (11) are average annual growth
rates. If someone wants to estimate the cumulative volume growth
for a period, she has to multiply the annual growth rates in
Columns (5), (8), and (11) by the number of years in the
period.
Now let us evaluate the historical volume data in Table 1. In
the 90s (1990-97), only NHH-to-NHH (business) mail has experienced
healthy volume growth. All other sectors and total household mail
have suffered either volume decline or anemic growth rates.
HH-to-HH (personal) mail is the smallest sector of First-Class
Mail. Its annual growth rate fell from 0.6 percent in 1987-90 to
negative 1.4 percent in 1990-93 and further to negative 2.0 percent
in 1993-97. Its volume declined from 7.2 billion pieces in 1990
to
6.4 billion pieces in 1997. Finally, its share of total
First-Class Mail dropped from 8.1 percent in 1990 to 6.4 percent in
1997. One of the factors cited for the decline in personal mail
volume is falling long distance telephone rates which have made
telephone communication more affordable and fostered substitution
of telephone calls for personal mail.
The HH-to-NHH sector, which consists mainly of payment mail, has
experienced a steeper volume decline than personal mail in the 90s.
Its average annual growth rate fell from 9.9 percent in 1987-90 to
negative 1.6 percent in 1990-93 and further to negative
6.8 percent in 1993-97. Its volume declined from 12.8 billion
pieces in 1990 to 9.3 billion pieces in 1997, a drop in volume of
3.6 billion pieces. Finally, its share of total First-Class Mail
dropped from 14.4 percent in 1990 to 9.3 percent in 1997. As we
will see in Table 3, the decline in HH-to-NHH volume is mostly
attributed to the decline of this sector's household payment
mail.
In the 90s, the volume of NHH-to-HH sector has increased, but
its annual growth rate has been falling. Its volume increased from
38.2 billion pieces in 1990 to 40.8 billion pieces in 1997. Its
annual growth rate, however, fell from 6.7 percent in 1987-90 to
1.9 percent in 1990-93 and further to 0.2 percent in 1993-97.
NHH-to-HH mail is now the second largest sector of First-Class
Mail. Its share of total First-Class Mail has declined from 42.8
percent in 1990 to 41.0 percent in 1997. The NHH-to-HH sector
includes both bill and advertising mail. As we will see later, the
volumes of both bill and advertising mail, included in this sector,
have increased in the 90s. However, the annual growth rate of bill
mail is declining, whereas the annual growth rate of advertising
mail is increasing fast.
Household mail is defined as the sum of mail in the above three
sectors and is shown as "Subtotal" in Table 1. Its annual growth
rate fell from 6.6 percent in 1987-90 to 0.7 in 1990-93 and further
to negative 1.4 percent in 1993-97. Its volume declined by 1.9
billion pieces between 1990 and 1997; and its share of total
First-Class Mail decreased from
65.3 percent in 1990 to 56.6 percent in 1997.NHH-to-NHH
(business mail) is the only sector of First-Class Mail that has
experienced healthy growth in the 90s. Its annual growth rates were
as follows: 2.2 percent in 1987-90; 1.7 percent in 1990-93; and 7.1
percent in 1993-97. Its volume grew from 30.7
billion pieces in 1990 to 42.6 billion pieces in 1996, an
increase in volume of 11.9 billion pieces. Finally, its share of
total First-Class Mail increased from 34.4 percent in 1990 to
42.7 percent in 1997. The prevailing view is that the high
growth of business mail reflects the healthy growth of the U.S.
economy. In Docket No. R97-1, referring to period 1977-95, Postal
Service volume witness Tolley first observed that "the general
trend has been a decrease in the share of First-Class letters sent
by households and an increase in the share sent by
non-households."4 He then testified that the increase in
non-household originated mail "reflects the importance of mail as
an input in the production of goods and services in the economy,
with mail volume being associated importantly with growth in output
of goods and services in the economy and in demands for
communication in production."



Bill/Payment and Advertising Mail
Table 2 has the same format as Table 1 and shows the breakdown
of First-Class Mail by use. The first row labeled "Personal Mail"
and the sixth row labeled "Business Mail" are identical to first
and fifth rows in Table 1, respectively. The second, third, and
fourth rows labeled "Bill/Payment," "Advertising," and "Other HH
Mail" identify the uses of HH-to-NHH and NHH-to-HH mail reported in
second and third rows of Table 1.
Bill/payment mail includes both the household payment mail
(i.e., First-Class Mail used by households to pay their bills) and
the household bill mail (i.e., First-Class Mail used by
non-households to send bills to households). On the other hand,
advertising mail includes only First-Class stand-alone advertising
mail (i.e., First-Class Mail used exclusively for advertising) that
is sent by non-households to households. Advertising mail does not
include advertising stuffers, i.e., advertising mail sent enclosed
with other items such as bills. Neither does it include the mail
sent in response to advertising. A large portion of
response-to-advertising mail involves a payment and is included in
bill/payment mail. If the response-to-advertising mail were also
added to advertising mail it would have resulted in double
counting.
The volume of letters sent by households or household originated
mail can be obtained from Table 1 by adding the volumes of HH-to-HH
and HH-to-NHH mail. In 1997, households originated only 16 percent
of First-Class mail, down from 23 percent in 1990. The volume of
letters sent by non-households or nonhousehold originated mail can
also be calculated from Table 1 by adding NHH-to-HH and NHH-to-NHH
volumes. In 1997, non-households sent 84 percent of First-Class
Mail, up from 77 percent in 1990.


1/ Bill/payment mail includes both the household payment mail

(i.e., First-Class Mail used by households to pay their bills) and
the household bill mail (i.e., First-Class Mail used by
non-households to send bills to households). The volume of business
bill/payment mail (i.e., mail used by non-households to pay their
bills and send bills to other non-households) is unknown and is not
included in bill/payment mail.
2/ Advertising mail only includes First-Class stand-alone
advertising mail that is sent by businesses to households. It does
not include advertising stuffers (i.e., advertising mail sent
enclosed with other items such as bills). Moreover, the volume of
business advertising mail (i.e., advertising mail sent by
non-households to other non-households) is not known and, thus, it
is not included in advertising mail. Finally, it does not include
the mail sent by both households and non-households in response to
advertising.
3/ Other HH mail is the residual household First-Class Mail with
the following major uses: financial statements,
announcements/meetings, notices of order, request for and
confirmation of donations, tax forms, education acceptances, and
insurance policies.
It should be noted that the figures of bill/payment and
advertising mail presented in Table 2 account only for the
First-Class household mail and, thus, represent the lower bound of
First-Class bill/payment and advertising mail volumes. The volume
of business bill/payment mail (i.e., mail used by non-households to
pay their bills and send bills to other non-households) is unknown
and, thus, it is not included in bill/payment mail figures
presented in this table. Likewise, the volume of business
advertising mail (i.e., advertising mail sent by non-households to
other households) is not known and, thus, it has not been added to
advertising mail.
In 1997, household bill/payment mail amounted to 24.8 billion
pieces or 24.9 percent of First-Class Mail; and First-Class
household advertising mail amounted to 9.9 billion pieces or 9.9
percent of First-Class Mail.
The growth of bill/payment mail has slowed down significantly in
the 90s. Its average annual growth rate dropped from 8.0 percent in
1987-90 to 0.3 percent in 1990-93 and further to negative 1.3
percent in 1993-97. Its share dropped from 29.1 percent in 1990 to
24.9 percent in 1997. So far, however, the number of mail pieces
lost to alternative bill-paying methods is too small to have any
material impact on First-Class volume. Between 1990 and 1997,
bill/payment volume declined by only 1.1 billion pieces. These
represent an average loss of 160 million pieces or less than 0.2
percent of First-Class Mail annually.
Advertising mail has experienced high growth rates in all
periods. In 1987-90, it enjoyed a very high growth rate of 15.3
percent annually; in 1990-93, its growth slowed down to a healthy
3.0 percent annually; and in 1993-97, it grew by 3.3 percent
annually. Its volume almost doubled in nine years. It grew from 5.2
billion pieces in 1987 to 9.9 billion pieces in 1997.
In 1997, the volume of total First-Class Mail was 99.7 billion
pieces and the volume of Standard A mail (which is mainly
advertising mail) was 77.3 billion pieces. If we subtract the 9.9
billion pieces of First-Class advertising mail from First-Class
volume and add them to Standard A mail volume, we obtain the
following figures: (a) 89.8 billion pieces of non-advertising mail;
and (b) 87.1 billion pieces of advertising mail. Thus, in 1996, the
Postal Service delivered 2.6 billion fewer pieces of advertising
than non-advertising mail.
Now, if we perform the same exercise using the actual FY 1998
First-Class and Standard A volume figures of 101.2 billion and 82.9
billion pieces respectively, and assuming that First-Class
advertising mail volume has not changed between 1997 and 1998, we
obtain the following figures for FY 1998: (a) 91.3 billion pieces
of nonadvertising mail; and (b) 92.8 billion pieces of advertising
mail. Thus, in 1998, the Postal Service delivered 1.5 billion more
pieces of advertising than non-advertising mail.
It should be pointed out that high growth rates of both
First-Class advertising and Standard A mail have contributed to
shifting the balance in favor of more advertising than
non-advertising mail in the Postal Service mailstream. In the last
two Fiscal Years, 1997 and 1998, Standard A mail grew at an average
annual rate of 7.5 percent, five times higher than First-Class
Mail.5
With First-Class advertising and Standard A mail growing at high
rates, it is expected that the trend of more advertising than
non-advertising mail in the Postal Service mailstream will continue
for the years to come. This may have serious political implications
for the legal protection of the Postal Service monopoly on letter
mail. The public and the Congress may question such protection when
it becomes common knowledge that the Postal Service delivers more
"junk" than other letter mail.


Sources of Bill/Payment Mail
Bill/payment mail can originate either in households or
non-households and its source can be anyone of the following three
sectors: HH-to-NHH, NHH-to-HH, and NHH-to-NHH. Table 3, which has
the same format as the previous two tables, shows the sources of
total First-Class bill/payment mail reported in Table 2.
The first row shows the bill/payment mail that comes from the
HH-to-NHH (Household-to-Non-household) sector. This is the payment
mail, i.e., mail used by households to pay their bills. In 1997
payment mail was 7.5 billion pieces or 30.1 percent of bill/payment
mail. The total household bill/payment mail, which was first
presented in the second row of Table 2, is now reported in the
fourth row of this table. In 1997 its volume was 24.8 billion
pieces.
The second row shows the bill/payment mail that comes from the
NHH-to-HH (Non-household-to-Household) sector. This is the bill
mail, i.e., mail used by non-households to send bills to
households. Bill mail was 17.3 billion pieces or 69.9 percent of
bill/payment mail in 1997.
The third row is devoted to bill/payment mail that is part of
the NHH-to-NHH (Non-household-to-Non-household) sector. This is the
business bill/payment mail (i.e.,
In FY 1997 and FY 1998, Standard A mail grew 7.8 percent and 7.3
percent respectively. First-Class Mail grew 1.5 percent in both
years.

10
mail used by non-households to send and pay bills to other
non-households). No figures are reported on this row because the
volume of business bill/payment mail is not known to the
Commission6.
Household payment mail has been declining. Its annual growth
rate dropped from positive 9.9 percent in 1987-90 to negative 1.6
percent in 1990-93 and further to negative
5.9 percent in 1993-97. Its volume declined from 10.0 billion
pieces in 1990 to 7.5 billion pieces in 1997, a drop of 2.5 billion
pieces. This drop in payment mail volume accounts for 69 percent of
the decline in the volume of HH-to-NHH sector, amounted to 3.6
billion pieces between 1990 and 1997 (see Table 1).
The growth rate of household bill mail is also declining but its
volume has increased in the 90s. Its annual growth rate dropped
from 6.9 percent in 1987-90 to 1.4 percent in 1990-93 and further
to 1.0 percent in 1993-97; but its volume increased by 1.4 billion
pieces between 1990 and 1997. This increase in the volume of bill
mail offsets more than half of the decline in the volume of payment
mail allowing bill/payment mail to decline by only 1.1 billion
pieces between 1990 and 1996. As said before, the decline in
household bill/payment volume, so far, amounts to a very small
portion of First-Class volume.
There is another observation that can be made based on household
bill/payment volume figures reported in Table 3. Although both
payments and bills seem to have been affected by the diversion from
payment by mail to other methods of payment, the effect of
diversion is more pronounced on payment mail. As a result, the
ratio of the number of payments made by mail to the number of bills
received in the mail has dropped from 62.7 percent in 1990 to 43.1
percent in 1997. Thus, in 1997, on average, households made less
than one payment by mail for every two bills received in the
mail.
Finally, payment mail is all First-Class single-piece
non-presorted letters, while bill mail is mostly presorted letters.
So far, the former has been more vulnerable to diversion than the
later. Thus, the diversion of bill-paying by mail to other methods
of bill-paying is having more impact on single-piece than presort
First-Class Mail.


First-Class Per-Household Volumes
One of the factors affecting the demand for mail services is the
number of households. Households send and receive mail and their
number is expected to affect the demand for mail services in a
positive way. An increase in the number of households is expected
to cause an increase in mail volume.
For building "H.R. 22" Model, the Postal Service has assumed
that in 1998 business bill/payment mail was about 20.0 percent of
First-Class Mail or 20 billion pieces. If the 20 percent figure
were also true for 1997, then 46.8 percent of business mail would
have qualified as bill/payment mail in that year and total (i.e.,
household plus business) bill/payment mail would have been 44.7
billion pieces or 44.9 percent of First-Class Mail. The Postal
Service did not tell the Commission where this 20 percent figure
comes from.
As we have seen, Tables 1, 2, and 3 show the breakdown of total
demand for First-Class Mail by sectors and uses for FYs 1987, 1990,
1993, and 1997. Now, if we assume that the volume of all sectors
and uses in Tables 1, 2, and 3 have an elasticity of one with
respect to the number of households (i.e., every one percent
increase in the number of households has yielded exactly a one
percent increase in all annual mail volumes and for all years in
Tables 1, 2, and 3), we can, then, divide the annual volume figures
by the number of households in the respective year to obtain annual
volume figures per household. This process eliminates the effect of
household growth on mail volume and allows an analysis of the
volume behavior at the household level. However, when we analyze
the per-household volume figures, we have to remember that, for the
purpose of developing those figures, we made the aforementioned
assumption about the relationship of mail volume and number of
households and this assumption may not hold true for some or all
sectors (or uses) and for some or all years in Tables 1, 2 and
3.
Tables 4, 5 and 6 display First-Class per-household annual
volumes. They are identical to Tables 1, 2 and 3 respectively,
except that the total annual volumes in Tables 1, 2 and 3 have been
replaced with per-household annual volumes in Tables 4, 5 and 6. A
comparison of figures in Tables 4, 5, and 6 with the corresponding
figures in Tables 1, 2 and 3, respectively, shows that the
replacement of total by per-household volume figures leaves the
shares of sectors and uses in total First-Class Mail volume
unchanged. However, because the number of households has been
increasing every year, the replacement of total by per-household
volume figures produces annual growth rates which are lower than
those shown in Tables 1, 2 and 3. That is, the positive annual
growth rates in Tables 1, 2 and 3 shrink in Tables 4, 5 and 6 and
the negative rates augment in absolute terms.
For example, if we compare the annual growth rates of mail
volume for period 1993-97 shown in Column (11) of Tables 1 and 4 we
can see that: (a) the 2.0 percent annual decrease of total HH-to-HH
volume in Table 1 has been augmented to a 3.3 percent annual
decrease of per-household volume in Table 4; (b) the 6.8 percent
annual decrease of total HH-to-NHH volume in Table 1 has been
augmented to a 8.0 percent annual decrease of per-household volume
in Table 4; (c) the 0.2 percent annual increase of total NHH-to-HH
volume in Table 1 has shrunk to a 1.2 percent annual decrease of
per-household volume in Table 4; and (d) the 7.1 percent annual
increase of total NHH-to-NHH volume in Table 1 has shrunk to a 5.7
percent annual increase of per-household volume in Table 4.
Similarly, a comparison of annual growth rates for the same
period in Table 2 with those in Table 5 reveals the following: (a)
the 2.0 percent annual decrease of bill/payment volume in Table 2
has been augmented to a 3.3 percent annual decrease of perhousehold
volume in Table 5; and (b) the 3.3 percent annual increase of total
advertising mail volume in Table 2 has shrunk to a 1.8 percent
annual increase of per-household volume in Table 5.
Finally, a comparison of annual growth rates for 1993-97 in
Table 3 with those in Table 6 shows the following: (a) the 5.9
percent annual decrease of the total number of payments in Table 3
has been augmented to a 7.2 percent annual decrease of the number
of payments per household in Table 6; and (b) the 1.0 percent
annual increase of total number of bills in Table 3 has shrunk to a
0.3 percent annual decrease of the number of bills per household in
Table 6.


1/ Personal Mail: First-Class Mail sent by households to other
households (e.g. holiday greeting cards, other cards, letters, and
invitations). This sector does not include bill/payment or
advertising mail.
2/ First-Class Mail sent by households to non-households (e.g.
payments made to utility and credit card companies; and orders
placed or payments made in response to advertising). About 81
percent of HH-to-NHH mail contains some type of payment and is
classified as bill/payment mail. This sector does not contain any
advertising mail.
3/ First-Class Mail sent by non-households to households (e.g.
utility, credit card, insurance and medical bills as well as
advertisements from credit card companies, publishers, leisure
services and banks). This sector is the only source of advertising
mail shown in Table 2.
4/ Household Mail: First-Class Mail either sent or received by
households.

5/ Business Mail: First-Class Mail sent by non-households to
other non-households. This mail is not subject to HDS.
14


1/ Bill/payment mail includes both the household payment mail
(i.e., First-Class Mail used by households to pay their bills) and
the household bill mail (i.e., First-Class Mail used by
non-households to send bills to households). The volume of business
bill/payment mail (i.e., mail used by non-households to pay their
bills and send bills to other non-households) is unknown and is not
included in bill/payment mail.
2/ Advertising mail only includes First-Class stand-alone
advertising mail that is sent by businesses to households. It does
not include advertising stuffers (i.e., advertising mail sent
enclosed with other items such as bills). Moreover, the volume of
business advertising mail (i.e., advertising mail sent by
non-households to other non-households) is not known and, thus, it
is not included in advertising mail. Finally, it does not include
the mail sent by both households and non-households in response to
advertising.
3/ Other HH mail is the residual household First-Class Mail with
the following major uses: financial statements, announcements/
meetings, notices of order, request for and confirmation of
donations, tax forms, education acceptances, and insurance
policies.
15


1/ First-Class household payment mail (i.e., First-Class Mail
used by households to pay their bills). 2/ First-Class household
bill mail (i.e., First-Class Mail used by non-households to send
bills to households). 3/ First-Class business bill/payment mail
(i.e., mail used by non-households to pay their bills and send
bills to other
non-households). The volume of business bill/payment mail is
unknown. HDS does not study the NHH-to-NHH sector of the
mailstream.
16