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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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