Impact of the New Pricing Regulations Stephen M. Kearney Vice President Pricing and Classification November 7, 2007

Impact of the New Pricing Regulations Top 10 Changes 1.No more rate cases  No more revenue requirement and break-even rule  Contentious, “zero-sum game” replaced with after-the-fact review  Decrease in the conflicting needs of different customer groups  Postal Service and customer resources can be directed at growing business  International mail regulated  Inbound mail and services from Posts are products

Impact of the New Pricing Regulations Top 10 Changes 2.Streamlined price changes  Market-dominant products (mailing services)  90% of revenue – 45 days review  Future price increases capped at CPI for each class  Individual prices within a class may vary  Competitive products (shipping services)  10% of revenue – 30 or 15 days notice  Prices set by Governors  Minimum cost floor to prevent cross subsidy  Minimum contribution to institutional cost

Impact of the New Pricing Regulations Top 10 Changes 3. Predictability  Price changes will be annual  Market dominant price changes will be within CPI  No more big changes every 2-4 years  Postal Service will provide at least 90 days notice prior to implementation  Strategies can be implemented gradually over a number of years

Impact of the New Pricing Regulations Top 10 Changes 4. Cost-based ►Market-driven  No longer cost-plus regulation  Consider how market will respond  Need to identify new products opportunities to generate profit  Profit incentive means incentive to innovate to meet customer needs  Greater customization  More market testing

Impact of the New Pricing Regulations Top 10 Changes 5. Encourage or limit customized agreements?  Law and regulation specifically provide for negotiated, customer-specific prices  Product definition requirement is somewhat vague and open-ended  New product proceedings could include discovery or evidentiary hearings  Postal Service and customers will need to weigh use of resources for customized agreements

Impact of the New Pricing Regulations Top 10 Changes 6. Speed to market  After the fact review allows rapid product innovation  Ability to improve response to changing business environment  45 and 30 days notice requirement

Impact of the New Pricing Regulations Top 10 Changes 7. Customer communication paramount  Increased communication between Postal Service and customers  Advance notice of price and product changes  Greater use of customer data and needs in product and pricing changes

Impact of the New Pricing Regulations Top 10 Changes 8. Accountability and transparency  Complaint process  Annual compliance review  Service for price more visible  Transparent and increased communication between Postal Service and PRC regarding prices and products

Impact of the New Pricing Regulations Top 10 Changes 9.Profits fund capital and infrastructure  Growing network and infrastructure requirements  Must fund through profits  Future success linked directly to present performance

Impact of the New Pricing Regulations Top 10 Changes 10. Annual profit or loss  No more break-even  Improve product management and development  Focus on opportunities to provide profitable products  Reduce costs while providing service  Entire organization re-oriented toward profits and growing business

Impact of the New Pricing Regulations Top 10 Changes 1.No more rate cases 2.Streamlined price changes 3.Predictability 4.Cost-based ►Market driven 5.Encourage or limit customized agreements? 6.Speed to market 7.Customer communication paramount 8.Accountability and transparency 9.Profits fund capital and infrastructure 10.Annual profit or loss