While in little immediate danger, the U.S. Postal Service faces an uncertain and possibly grim financial future in the burgeoning age of electronic communication and commerce, the General Accounting Office said yesterday.

In testimony delivered before a House subcommittee, GAO analyst Bernard L. Ungar highlighted figures provided to GAO by the USPS indicating that the service expects first-class mail volume to begin decreasing in 2003 at an average annual rate of 2.5 percent through 2008, the first such decrease in Postal Service history.

Any decrease in first-class mail volume would be particularly troubling because in the last fiscal year, revenue from such mail covered about two-thirds of the agency's total costs, he said.

To offset drops in first-class mail without dramatically raising the price of the standard stamp, the Postal Service would have to find ways to trim costs, including reducing staff and cutting work hours, according to GAO and Postal Service officials.

"Our bottom line is that the U.S. Postal Service faces a very precarious situation in the future, even though right now things look pretty good," Ungar said in an interview yesterday.

"If competition continues to increase and expand into the Postal Service's product lines, and if electronic commerce continues to grow and be used as expected, it's certainly going to put the service in a difficult position," he said.

Postmaster General William J. Henderson also testified yesterday, acknowledging the dangers of the predicted decline in first-class mail volume but pointing out that, so far, one potentially key challenge facing the agency--online bill payment--has yet to materialize in the fashion predicted by some Internet enthusiasts.

"There are a lot of people who are going after bills and payments electronically," Henderson said in an interview after his testimony. "But currently less than 1 percent of Americans pay electronically, and the turnover [to electronic payments] is less than 2 percent per year."

But online bill payment is not the only threat.

Advertisers, who account for a large portion of the first-class mail stream, are increasingly looking to the Internet to tout their products, eliminating the cost of expensive mass mailings. And some analysts predict that once the feared year 2000 computer crisis passes early next year and computer security systems are upgraded, the "adoption curve" of people paying their bills online will skyrocket.

While the outlook for first-class mail volumes and revenue generation is generally bleak, the Postal Service's current revenue situation is relatively good. The Postal Service is predicting a net income of $200 million for fiscal 1999 and $100 million for fiscal 2000, modest numbers compared with the $1 billion profits of the past few years.

USPS numbers provided to the GAO also indicate that the Postal Service may hit an all-time high for on-time delivery of overnight and two-to-three-day mail in 1999.

"There are potential dark clouds on the horizon," Henderson said. "The scene painted today, the worst-case scenario, would require fairly dramatic cuts in the postal service the likes of which we have never seen."

CAPTION: Postmaster General William J. Henderson testified in the House.