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

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

2. 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 RegulationsTop 10 Changes

3. 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 RegulationsTop 10 Changes

4. 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 RegulationsTop 10 Changes

5. 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 RegulationsTop 10 Changes

6. 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 RegulationsTop 10 Changes

7. 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 RegulationsTop 10 Changes

8. 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 RegulationsTop 10 Changes

9. 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 RegulationsTop 10 Changes

10. 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 RegulationsTop 10 Changes

11. 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 RegulationsTop 10 Changes

12. No more rate cases Streamlined price changes Predictability Cost-based ►Market driven Encourage or limit customized agreements? Speed to market Customer communication paramount Accountability and transparency Profits fund capital and infrastructure Annual profit or loss Impact of the New Pricing RegulationsTop 10 Changes