Some U.S. Postal Service officials are describing it as a "fist fight between two of the biggest kids on the block."
Since last November, when USPS announced that it wanted to increase mail rates, the newspaper industry and direct mail companies have been battling over how high third-class rates should be.
The stakes for both are high.
Whatever the USPS board of governors decides in the next few months will make a difference in what share they earn of the expanding preprinted advertising market worth $2.8 billion last year.
The American Newspaper Publishers Association, which represents 90 percent of the nation's newspapers, including The Washington Post, contends that third-class rates are being subsidized by the public.
The Direct Marketing Association, whose 7,000 members deliver advertising and catalogues through the mail at those rates, insists that, if anything, they should be lowered.
Preprinted advertisements are the colorful ads, often including coupons, inserted into newspapers or sent by direct mailers to homes.
Low third-class rates would give direct mailers a competitive edge in winning preprinted advertising contracts, just as high rates would benefit newspapers.
Newspapers dominated the preprinted advertising market until 1971, when the debt-ridden Post Office Department was revamped into the quasi-public Postal Service. The agency soon began offering incentives to increase the volume of third-class mail and help keep USPS in the black.
The most important incentive was a reduced rate for presorted pieces. It now costs 20 cents to mail a first-class letter and 11 cents to send a piece by third-class mail. But if a mailer presorts third-class bulk mail by its zip code, the cost drops to 9.3 cents per piece. If it is presorted to an individual carrier's route, it costs 7.4 cents per piece.
The Postal Service also promised to deliver third-class mail, when feasible, on the days requested by mailers. This was important because many advertisers had refused to use third-class mail because they were afraid the Postal Service might not get around to delivering their ads until after their sales were over.
Third-class mailers also were allowed to send up to 3.9 ounces per piece without paying extra charges, enabling them to package ads together. Rates for all other classes of mail vary by fractions of ounces.
The incentives made it possible for direct-mailers to compete with newspapers and outraged the ANPA.
"Hundreds of millions of advertising dollars, just like the ducks in the fall, are migrating from newspapers to mailboxes in many markets," Otto Silha, chairman of an ANPA postal task force, warned his colleagues in January. "Never before have we seen a situation where a government agency has embarked on a policy which will affect advertising linage of newspapers of every size."
But Richard A. Barton, a spokesman for the Direct Marketing Association, contends that the newspapers haven't been hurt. "Third-class mail may be getting a bigger percentage of a growing market, but there is certainly no evidence that newspapers are suffering unduly because of low third-class rates," Barton said.
Citing figures from the Newspaper Advertising Bureau, Barton said that newspaper inserts have increased steadily since 1970. In 1982, he said, there were 29.9 billion inserts; in 1983, 35.7 billion. He said revenues for all forms of newspaper advertising increased 16 percent in 1983.
The ANPA won the first round of the rate war last November when the Postal Service announced that it would seek a 21-percent increase in third-class rates as part of a general rate request.
But the independent Postal Rate Commission, which determines whether a rate increase is needed, instead recommended a 13-percent increase for third-class mail.
A 21-percent increase would cost direct mailers about $700 million more a year than current rates while a 13-percent increase would cost $400 million more.
USPS's 11-member board of governors now must decide whether to accept or reject the recommendation, or ask the commission to reconsider it. The governors can modify the recommendation, but only by a unanimous vote.
Jerry W. Friedheim, the ANPA's executive vice president, has urged the governors to do just that.
"First-class mail is paying and would continue to pay a grossly disproportionate share of Postal Service costs" under the commission's recommendations, Friedheim said, "while third-class mail benefits from artificially depressed prices."
Friedheim said the commission did not explain why a piece of first-class mail should contribute more than 2 1/2 times as much to cover Postal Service overhead as a piece of third-class mail.
This "gap" is particularly unfair, said Sharon L. Chown, an analyst hired by the ANPA, because third-class mail often "moves through the system in the same manner as preferential first-class mail."
Friedheim also said the Postal Service should not continue to allow third-class mailers to send up to 3.9 ounces without paying extra charges for weight.
Barton said Friedheim's arguments have a "superficial credibility" but "a closer analysis . . . indicates serious flaws."
"Because first-class rates are so much higher than third-class rates, there is always a nagging suspicion that first class is subsidizing other classes of mail," Barton said. "Third-class mail not only demonstrably pays all costs which can fairly and accurately be attributed to it, but it also pays a substantial markup to cover its share of institutional or overhead costs." He said current third-class rates generate 28 percent more income than costs.
Barton also denied that third-class mail receives the same treatment as first-class. He said tests made by Reader's Digest show that third-class mail takes an average of 9.2 days to reach its destination compared with 4.5 days for first class. Unlike first-class mail, third-class mail can be inspected by anyone, is not forwarded free of charge and is discarded by the Postal Service if it cannot be delivered.
Barton also said there is no "significant factual evidence" that shows it costs the Postal Service more to deliver a half-ounce, presorted third-class packet than one weighing 3.9 ounces.