U.S. POSTAL

SERVICE

Postal Activities and

Laws Related to

Electronic Commerce

United States General Accounting Office

GAO Report to Congressional Requesters

September 2000

GAO/GGD-00-188

United States General Accounting Office General Government Division

Washington, D.C. 20548

Page 1 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

B-285058

September 7, 2000

The Honorable Thad Cochran

Chairman, Subcommittee on International Security, Proliferation, and

Federal Services

Committee on Governmental Affairs

United States Senate

The Honorable John M. McHugh

Chairman, Subcommittee on the Postal Service

Committee on Government Reform

House of Representatives

This letter responds to your requests to review electronic commerce (ecommerce) initiatives of the U.S. Postal Service (USPS). Members of

Congress and postal stakeholders have raised issues related to the merits

of USPS’ development of nonpostal products and services, including those

that are e-commerce related. As USPS has recently developed and

implemented a number of e-commerce initiatives, you requested us to

provide information on the status of USPS’ e-commerce activities and

related legal and regulatory matters. Specifically, our objectives were to

describe USPS’ (1) e-commerce initiatives that have been implemented or

are being developed, (2) goals and strategies for the e-commerce area, (3)

processes for approving these initiatives, and (4) expected performance

and results to date related to e-commerce initiatives. During the course of

our review, we identified areas where USPS can improve its management

of its e-commerce activities, and this report discusses these areas as well.

An additional objective was to describe USPS’ views on how major federal

laws and regulations apply to its e-commerce initiatives and to identify

legal issues that have been raised concerning its e-commerce activities.

USPS is in the early stages of developing its current e-commerce program.

We previously reported on USPS’ new products and services, including

several e-commerce activities piloted or implemented during fiscal years

1993 through 1997.1

 Since then, USPS has discontinued its earlier ecommerce activities, some of which have helped USPS develop new ecommerce-related products and services.

 

1

 U.S. Postal Service: Development and Inventory of New Products (GAO/GGD-99-15, Nov. 24, 1998).
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Page 2 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

To address the objectives of this review, we reviewed USPS documents

and the information available on USPS’ Internet site. We also held

discussions with USPS officials responsible for e-commerce activities. We

reviewed the material obtained for internal consistency and completeness,

but we did not verify the information provided by USPS. We also obtained

legal information and analysis from USPS on laws and regulations that

may apply to USPS’ e-commerce activities. We did not verify or evaluate

the legal information, although we checked the citations to laws and

regulations that were used in this report. A more detailed description of

our scope and methodology for this review is included in appendix I.

We conducted our review at USPS headquarters in Washington, D.C.,

between January 2000 and August 2000 in accordance with generally

accepted government auditing standards. We requested comments on a

draft of this report from the Postmaster General and from the Chairman of

the Postal Rate Commission (PRC). USPS’ and PRC’s written comments

are discussed near the end of this letter.

Since the beginning of 2000, USPS has taken a number of steps to develop

and implement its e-commerce activities. Some key actions included

developing a definition of its e-commerce initiatives, identifying its ecommerce and related initiatives, outlining its overall goals and strategies,

establishing expected performance, and providing some information on

results to date.

How USPS defines its e-commerce activities is fundamental when

determining what USPS is doing in the e-commerce area. USPS defined its

e-commerce initiatives to include products and services that (1) require

the use of the Internet and (2) generate revenues for USPS from user

charges or license fees. USPS defines its e-commerce initiatives as a subset

of its broader eBusiness activities that involve the use of new technology.

USPS identified seven e-commerce initiatives that were either planned or

implemented as of September 2000. These seven initiatives are generally

intended to facilitate the movement of messages, merchandise, and money.

For example, to facilitate the movement of messages, USPS introduced the

PosteCS initiative, an Internet-based global document delivery system

implemented in May 2000. To facilitate the movement of merchandise,

USPS introduced the Stamps Online initiative in December 1998 that

enables customers to purchase stamps, philatelic products, and other

USPS products. USPS also plans to expand this initiative to include a

Virtual Store that would offer USPS merchandise and other stamp

products for sale via the Internet. To facilitate the movement of money,

Results In Brief
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USPS introduced its eBillPay initiative, an electronic bill presentment and

payment service, in April 2000.

USPS also identified three initiatives that it refers to as gray area

initiatives. Gray area initiatives are related to e-commerce initiatives but

either would not generate revenues for USPS from user charges or license

fees or would not require use of the Internet. USPS is also developing

other initiatives, which it refers to as infrastructure initiatives, to support

its e-commerce and related initiatives. For example, USPS has identified

an electronic mailbox, which is a concept in the early development stage

that could link electronic and physical addresses, as an infrastructure

initiative.

USPS outlined the purpose and direction for its eBusiness and e-commerce

areas and stated that its overall goal is to use the best technology,

including the Internet, to provide customers with expanded universal

access and choices on how they do business with USPS. USPS also

explained that the criteria for these initiatives are that they be universally

available, designed to fulfill customer and marketplace needs, offer

customers voluntary choices, be secure and private, provide financial

benefits to customers and USPS, and be consistent with the USPS’

mission. USPS identified eight strategies for accomplishing its eBusiness

goal and its related e-commerce goal. Examples of these strategies were

using the Internet as a cost-effective channel, providing security and

privacy for customers, minimizing USPS investments and risks, and

pursuing partnerships and alliances with industry.

In May 2000, USPS established a management process for reviewing and

approving e-commerce initiatives that is different from the review and

approval process for other new products. The e-commerce review process

was designed to result in quicker approval of initiatives than USPS’ review

and approval process for new products. The new process requires a

business proposal and plan, a public affairs/communication plan, periodic

monitoring, and approval by top management or USPS’ Board of

Governors (BOG). Some e-commerce initiatives were launched before the

new process was introduced and were therefore subject to USPS’ former

approval process. USPS also provided information on its performance

expectations and results achieved for e-commerce initiatives implemented

to date.

During our review, we identified a number of problems and

inconsistencies in the information provided by USPS. We are making

recommendations to USPS that address these issues. First, during the
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course of our review, USPS inconsistently applied its definition of ecommerce in identifying its initiatives and provided inconsistent

information on the status of its initiatives. These inconsistencies made it

difficult to ensure we had a complete and accurate picture of USPS’ ecommerce activities. Second, USPS did not consistently adhere to its

process requirements and did not always document the review and

approval of its e-commerce initiatives. Consequently, it is not clear

whether USPS management properly reviewed and approved e-commerce

initiatives to ensure that they support USPS’ overall mission and goals.

Finally, we identified deficiencies in the financial information USPS

provided for its e-commerce activities that raised concerns about the

accuracy and completeness of USPS’ financial reporting for its ecommerce activities. Further, we do not believe the e-commerce financial

data that USPS provided was sufficiently complete and reliable to be used

to assess USPS’ progress toward meeting its overall financial performance

expectation that revenues generated by e-commerce products and services

in the aggregate are to cover USPS’ direct and indirect costs as well as

make a contribution to overhead.

USPS believes that it has broad statutory authority to offer e-commerce

products and services in ways that it finds appropriate to its assigned

functions and in the public interest. USPS also believes that the law

provides discretion to its BOG to determine whether particular new

services are appropriate and in the public interest. According to USPS,

numerous federal laws and regulations apply to its e-commerce products

and services, but it has a different legal status from its private sector

competitors in some respects. For example USPS has reported that federal

privacy laws afford USPS e-commerce customers greater protection than

is provided for customers of private sector providers. Further, USPS told

us that public interest, universal service, antidiscrimination, and other

policy provisions of the Postal Reorganization Act of 19702

 provide

consumer protections in connection with its e-commerce products and

services, but many other federal consumer protection laws are

inapplicable. However, some federal consumer protection laws may apply

to USPS in certain circumstances, and others may apply to USPS

contractors or financial institutions that help USPS offer e-commerce

products and services. Further, USPS reported that the Postal Inspection

Service, a part of USPS that is responsible for enforcing postal laws, has

authority and responsibility to investigate violations of law that involve

USPS e-commerce products and services. In addition, USPS told us that

the antitrust laws and general competition-related statutes do not apply to

 

2

 P.L. 91-375.
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USPS, with the exception of the advertising and competition provisions of

the Lanham Act.3

 However, USPS stated that the Postal Reorganization Act

of 1970 prescribes competition-related factors that must be considered

with regard to USPS e-commerce activities.

USPS also said that in some cases, major federal regulations apply to its ecommerce products, including regulations adopted by USPS and other

federal agencies, such as Department of the Treasury and Federal Reserve

regulations related to USPS’ eBillPay initiative. However, it also noted that

the ability to make generalizations about how regulations apply to USPS is

somewhat limited. Finally, USPS reported that its activities in the ecommerce area are generally not subject to administration policies that

apply to other executive branch agencies.

We did not evaluate USPS’ legal analysis or attempt to obtain others’ views

within the scope of this review. However, we note that USPS, some

competitors, and other stakeholders have conflicting views on the extent

of USPS’ legal authority to offer e-commerce products and services and

under what circumstances it should offer such services. The appropriate

role of USPS has been debated for many years and continues to be debated

in the context of proposals for comprehensive legislation to reform the

nation’s postal laws. In addition, some specific concerns have been raised

about USPS e-commerce activities that also relate to emerging ecommerce issues, such as the privacy of consumer information and what

new e-commerce products are subject to PRC review.

In commenting on our draft report, USPS generally agreed with the facts

and endorsed the report’s recommendations. However, USPS noted

differences in perspectives related to some of the concerns we discussed.

Specifically, USPS stated that its senior management had reviewed and

approved all of its e-commerce initiatives before implementation. If so,

such approvals were not fully documented. PRC generally agreed with the

report’s analysis of the issues and further commented on USPS’ pricing

policy for its e-commerce initiatives.

We have reported that USPS may be nearing the end of an era as it faces

growing challenges from competition, notably from private delivery

companies and electronic communications alternatives such as the

Internet.4

 USPS and other stakeholders agree that growth in USPS’ core

 3

 15 U.S.C. § 1125(a).

4

 U.S. Postal Service: Challenges to Sustaining Performance Improvements Remain Formidable on the

Brink of the 21st Century (GAO/T-GGD-00-2, Oct. 21, 1999).

Background
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business of delivering First-Class Mail has already been affected by the

rapid growth of the Internet, electronic communications, and electronic

commerce. USPS expects that competition will lead to substantial declines

in its First-Class Mail volume in the next decade and a consequent loss of

revenues. Should this occur, USPS will likely face unprecedented

challenges as it seeks to fulfill its primary mission of providing universal

postal service at reasonable rates while remaining self-supporting from

postal revenues.

Thus, USPS may be at a crossroads in its ability to meet its mission of

providing affordable, readily accessible, universal postal services over the

long term. Although USPS has achieved its best ever financial and service

performance over the past 5 years, it has fallen short of its revenue targets

for the first three quarters of fiscal year 2000. USPS recognizes that it faces

challenges from a dynamic and versatile marketplace, changing customer

demands, and more alternative delivery options that provide greater

choices for customers.

As an example of trends that have affected USPS’ mail volumes, at the

federal level, government agencies are mandated to move as quickly as

possible to reduce paperwork and to adopt electronic billing and payment.

Of the 880 million Social Security checks, tax refunds, and other payments

sent by the Department of the Treasury in fiscal year 1999, 68 percent were

sent electronically, not mailed. According to USPS, this cost $180 million

in lost First-Class Mail revenue. Further, according to a postal operations

survey conducted by the American Bankers Association, the banking

industry reduced its mail volume in 1999 by almost 18 percent compared to

its 1996 level.

Although it is difficult to predict the timing and magnitude of further mail

volume diversion and potential financial consequence, USPS has begun to

plan how it would address such a scenario. The Postmaster General

recently explained that USPS’ strategy to deal with its competitive

challenge is a combination of aggressive cost-cutting and new revenue

generation.5

 According to USPS, in addition to minimizing costs, the

Internet offers unparalleled opportunities to grow long-term revenue

through enhanced and new services.

 5

 The Annual Report of the Postmaster General, Hearing before the Subcommittee on International

Security, Proliferation, and Federal Services of the Senate Committee on Governmental Affairs, July

13, 2000.
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The history of USPS’ involvement in e-commerce related products and

services began with a brief foray in 1982 when it introduced its Electronic

Computer-Originated Mail (E-COM) service.6 However, E-COM generated

much controversy and scrutiny from PRC, the Federal Communications

Commission (FCC), and Congress. In a report by the House Committee on

Government Operations, the oversight committee concluded that the rates

charged did not cover the cost for this initiative.7

 USPS discontinued ECOM service in September 1985. More recently, during fiscal years 1993

through 1997, as noted in our 1998 report, USPS engaged in research and

development efforts related to e-commerce activities.8

 Since our previous

report was issued, the exploratory e-commerce efforts have been

discontinued or evolved into more recent initiatives, which are discussed

later in this report along with other new e-commerce initiatives.9

The nature of the competition that USPS faces in the e-commerce area is

broader than its competition in other service delivery areas, such as for

domestic letter mail and parcels. Not only does competition in the ecommerce area include USPS’ traditional competitors, such as the major

private express delivery companies—FedEx, and United Parcel Service

(UPS)—it also includes such competitors as technology companies,

financial institutions, and foreign postal administrations. Further, within

the e-commerce area, competitors may differ for different types of

services, such as electronic messaging, or e-mail, electronic bill

presentment and payment services, and electronic retail sales involving the

purchase and return of goods. For example, in the electronic bill

presentment and payment area, competitors are numerous and often

include partnerships among financial institutions, billers, consolidators,

and technology companies.

In the retail area, on-line sales are expected to grow substantially over the

next few years, which would entail a dramatic rise in parcel shipments and

returns. Thus, although USPS expects more opportunities to expand in this

 

6

 This service preceded current hybrid mail services, such as Mailing Online, and allowed mailers to

transmit the text of letters over telephone lines to computers located in 25 specially equipped post

offices. The letters were printed, stuffed into envelopes, and mailed as First-Class mail so they could be

delivered within 2 days.

7

 Postal Service Electronic Mail: The Price Isn’t Right, Forty-First Report by the Committee on

Government Operations, House Report No. 97-919, 97th Congress, 2d Session, Oct. 1, 1982.

8

 Our previous report (GAO/GGD-99-15) discussed USPS e-commerce-related initiatives under which

the Electronic Postmark and Certificate Authority systems were developed.

9

 Discontinued e-commerce related initiatives that were described in our 1998 report included the

following: Deliver America, Electronic Commerce Services, Global ePost, Post Office Online, and ,

WEB Interactive Network of Government Services (WINGS).
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Page 8 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

area, it also faces competition from its traditional competitors—FedEx

and UPS—and newly emerging alternative delivery options. For example,

private start-up dot.com companies are also competing for this retail

delivery business by providing same-day delivery, particularly on a

regional basis, for Internet purchases of goods, such as groceries, CDs,

videos, and books. The competitive landscape is very fluid in the ecommerce area, where new competitors may rapidly appear and

disappear.

Another challenge for USPS in the e-commerce area is keeping up with

changing customer demands. USPS’ customers are generally categorized

into two major groups: households and businesses. Although businesses

generate most mail, households are the recipients of most of the mail

generated by businesses.10 USPS recognizes that its customers are

becoming more demanding and selective and are interested in expanding

their access to choice, convenience, service, and value. For example, some

mailers have noted that mail-based billings and payments are more costly

to process than electronic versions.

As the dynamic development of electronic commerce continues to unfold,

consumers, businesses, and governments are working hard to understand

and adapt to the many benefits and challenges associated with the Internet

and related new technology. For USPS, the challenges include providing

more convenient access to its products and services and thus rethinking

how to change the organization to adapt old processes and practices to

new technology, as well as addressing new customer expectations and

greater competition in providing customer services. Congress is closely

monitoring how government organizations adapt in this new environment

and has held numerous oversight hearings to discuss emerging issues,

such as privacy, consumer protection, open access, and competition.

USPS has taken a number of steps since the beginning of 2000 to develop

and implement its e-commerce activities. Some key actions taken include

developing a definition of its e-commerce initiatives, identifying its ecommerce and related initiatives, outlining overall goals and strategies,

establishing processes for approving and implementing e-commerce

initiatives, and providing some information on expected performance and

results to date. How USPS defines its e-commerce activities is fundamental

when determining what USPS is doing in the e-commerce area and what

 10 In 1998, in the United States about 53 percent of mail traffic was from businesses to households, 5

percent from households to businesses, 3 percent between households, and 38 percent between

businesses, according to USPS.

USPS Activities in the

E-Commerce Area
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process is to be followed in reviewing and approving e-commerce

initiatives. The development of goals and strategies is key to

understanding what USPS expects to achieve in this area. The review and

approval processes are to establish accountability for management and

oversight of the e-commerce initiatives. Information on performance

targets and results is to provide a basis for determining if the actual

performance of the e-commerce initiatives is meeting intended targets.

USPS’ definition of its e-commerce initiatives has two components—those

products or services that (1) require the Internet to do business and (2)

generate revenue to USPS through user charges or licensing fees. USPS

defined its e-commerce initiatives as a subset of its broader “eBusiness”

environment, which included other categories of related initiatives that

may involve use of new technology. For example, related initiatives

include “eService” initiatives that are to be value-added services or

enhancements to existing services, and for which revenues are to be

reported with existing products and services. Other related initiatives

referred to as “gray area” initiatives did not meet the requirements of the ecommerce definition. Another category called “infrastructure” initiatives

included information technology systems and other technology initiatives

that are required to support eBusiness initiatives. USPS’ distinctions

among these categories illustrate that USPS activities involving the

Internet include more than just its designated e-commerce initiatives.

In May 2000, USPS provided us the following information on how its ecommerce initiatives relate to its broader eBusiness activities and strategy:

“Our eBusiness strategy is voluntary and is intended to improve capabilities not only for

our customers, but also for our 800,000 employees, business partners, and suppliers, too.

Our eBusiness initiatives will have an ePeople, eService, and eCommerce component.

ePeople efforts will keep employees better informed, provide a full range of ‘self-services,’

reduce administrative tasks, and increase access to development opportunities. eService

initiatives will enhance features, access, and information about core products and services.

eCommerce initiatives are new, Internet-based products and services for consumers,

businesses, and government entities. All will be supported using an infrastructure that will

link our core production processes, equipment and complete the development of a

common information platform.”

In a July 14, 2000, letter to us, the Deputy Postmaster General explained

the category referred to as gray area initiatives as initiatives that “have a

current revenue model or financial arrangement that does not accurately

meet today’s definition for eCommerce.” He stated that “These initiatives

that fall into the ‘gray area’ today may, in response to the changing needs

USPS Definition of ECommerce Initiatives
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of our customers and the marketplace, become clearer as to direct

financial contribution in the future.”

USPS does not consider products and services to be e-commerce

initiatives if they involve use of the Internet but either do not generate

revenues or the revenues generated are related to existing core products

and services. USPS considers these products and services to be valueadded services or enhancements to existing services. For example,

customers can use the Internet to access information about USPS products

and services, look up ZIP codes and post office locations, download labels

for mailing packages, and check the status of certain items mailed without

paying any fees. Customers can also use the Internet as an alternative

channel to access existing core products and services, such as Priority and

Express Mail, to confirm delivery or arrange for package return. The

revenues from these enhancements are to be reported with those from

existing core products and services.

USPS also identified another category of initiatives related to Internet

activities—infrastructure initiatives—which includes information

technology systems or services that are required to support eBusiness

initiatives. One example of a proposed infrastructure initiative would be an

electronic mailbox that could link electronic and physical addresses. This

initiative is currently in the early development stage and is identified by

USPS as an infrastructure, not an e-commerce, initiative. USPS explained

that its proposed electronic mailbox would not generate revenues as a

free-standing service, but it may be offered in conjunction with other ecommerce services in the future.

USPS identified seven e-commerce initiatives as well as three gray area

initiatives planned or implemented as of September 2000 to facilitate the

movement of messages, merchandise, and money in ways that require the

use of the Internet and generate revenues for USPS. Table 1 provides a list

and descriptions of USPS’ e-commerce initiatives as well as gray area

initiatives. As discussed later, however, it appears that USPS may not have

consistently applied its e-commerce definition in identifying those

initiatives.

USPS Identified Seven

Current E-Commerce

Initiatives
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Initiative Description of initiative Intended customers Status

E-Commerce initiatives

Electronic Postmark

(EPM)

Creates a secure electronic time and date stamp for electronic

communications and provides evidence of any tampering.

USPS is seeking business partners to integrate EPM into their

products, services, and systems. Revenue to date has been

generated from businesses that incorporated EPM with their

services. EPM also has been used with the PosteCS initiative.

Financial, legal, medical,

governmental, and

educational organizations

Implemented 4/00.

ePayments Provides integrated ePayment solutions:

(1) eBillPay—consumers paying bills, (2) businesses sending

bills, (3) consumers paying each other, and (4) consumers

receiving financial statements. eBillPay services are currently

offered through a partnership with a private company. The

eBillPay service is to be offered to new customers at no charge

for the first 6 months. Revenue is to be generated by user

fees.

Consumers and

businesses

eBillPay was

implemented 4/00.

The rest of the

services are in the

planning stage.

Internet Change of

Address and MoveRelated Products and

Services (MoversNet)

MoversNet includes three products and services: the hard

copy publications—Movers Guide and Welcome Kit—

and the Internet application called MoversNet.com. Currently

MoversNet.com allows downloading a form for customers to

submit changes of physical addresses and is accessible via

the USPS Web site and via direct link. It is offered through a

strategic alliance with a private company. Future MoversNet

enhancements, which are to involve integration into a

proposed MoversGuide Web site, are to allow additional

services, such as electronic changes to physical addresses,

e-mail addresses, and electronic accounts; ordering various

services (e.g., power, electric, water, cable, newspaper, and

long-distance telephone service); and new security features,

such as credit card verification. Revenue to date has been

generated by commissions from USPS’ partner.

All postal customers MoversNet was

implemented

summer 1996.

Enhancements to

MoversNet were

scheduled for

implementation in

9/00.

NetPost.Certified Is to provide confidential, ensured delivery of electronic

documents to the government. A completed electronic delivery

is to be certified back to the sender via an electronic receipt

containing a USPS electronic postmark that provides legal

proof of filing. Revenue is to be generated from transaction

fees from government agencies.

Organizations that file

information with the

government

Not implemented.

NetPost Mailing Online Is to allow mailers to electronically transmit their documents,

correspondence, newsletters, and other First-Class Mail and

Standard A mail (primarily advertising mail), along with mailing

lists, to USPS. Electronic files would then be securely

distributed to printing contractors who print documents, insert

them into addressed envelopes, sort the mailpieces, and

transport the mailing to post offices for processing and

delivery. Revenue is to be generated by printing and mailing

fees paid by users.

Small Office and Home

Office (SOHO) customers

To be implemented

9/00.

Table 1: USPS E-Commerce and Gray Area Initiatives as of September 2000
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Initiative Description of initiative Intended customers Status

PosteCS Provides a secure, private, Internet-based document delivery

system. Users establish secure links using Secure Socket

Layer (SSL) protocol. They then upload a file(s) to the

PosteCS server using desktop software. To receive PosteCS

messages, the recipients need only to have access to e-mail

and an Internet browser. USPS has joined with Canada Post

and LaPoste of France to provide this service globally. Also,

the EPM initiative was used as part of PosteCS. Revenue is to

be generated by user fees.

Large to medium-size

businesses and SOHOs

Implemented 5/00.

Stamps Online/Virtual

Store

Stamps Online allows the purchase of stamps and other

existing USPS products. After the Virtual Store is implemented,

postal customers are to be able to purchase stamps, philatelic

products, phone cards, and other USPS merchandise via the

Internet, including new products not currently available.

Revenue to date has been generated from the face value of

postage stamps and from other existing USPS products

ordered via the Internet.

All postal customers Stamps Online

implemented 12/98;

Virtual Store

implementation

planned in 2000.

Gray area initiatives

Returns@ease Enables customers to return Internet-purchased merchandise.

Using a Merchandise Return Application Program Interface,

businesses can authorize customers to download a postagepaid label directly from their Internet sites. The program is

designed to make returning items bought via the Internet,

through catalogs, and by phone easier for both buyers and

sellers. Revenue is generated from user fees and postage.

Online merchants Implemented 11/99.

Dinero SeguroTM Allows electronic fund transfers from the U.S. to Mexico.

Dinero SeguroTM, which means “Sure Money,” is a money-bywire service that can be used to transfer money from

designated U.S. postal locations to more than 1,300 Bancomer

Bank branches in Mexico. This initiative uses telephone lines

instead of the Internet and is to become part of a planned Sure

Money® service.a Revenue is generated by Dinero SeguroTM

through money-wire transfer fees.

Americans of Mexican

origin, most recently

immigrants

 Implemented 6/96.

PC Postage Allows customers of private companies to purchase and print

stamps onto labels and envelopes using their computers and

the Internet. Private companies sell PC Postage products after

USPS certifies that these products meet USPS standards.

USPS receives revenue from the face value of postage

stamps.

SOHO market Implemented 8/99.

a

USPS has identified additional target countries, which it plans to include in an expansion effort to this

initiative, referred to as Sure Money®.

Source: USPS documents.
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USPS provided several reasons for its involvement in e-commerce

activities. Some of these reasons are echoed in the overall goals and

strategies that USPS has developed for its eBusiness and e-commerce

areas. To carry out these goals and strategies, USPS has established an

eBusiness Integration team that is responsible for eBusiness

implementation planning and for developing an eBusiness strategic plan.

In addition, the eBusiness Opportunity Board (e-BOB) was established to

provide operational oversight in the eBusiness area and to review the

performance of e-commerce initiatives.

Many postal stakeholders are interested in how USPS sees its e-commerce

activities relating to overall USPS mission and goals. To better understand

USPS’ purpose and expectations for the e-commerce area, we asked postal

officials why USPS is involved in the e-commerce area. USPS officials and

documents cited the following reasons for its participation in the ecommerce area:

“USPS involvement in eCommerce is responsive to its obligations as a public service. Like

other government agencies, it must use information technologies to provide traditional

services to the citizens of the United States more effectively and efficiently.”

“USPS involvement follows from the mission of the United States Postal Service, as

established by the Postal Reorganization Act of 1970 . . . The use of modern

communications technology such as the Internet to provide traditional postal services such

as delivery of bills or messages is little different from adopting the new technologies of the

railroad or the airplane to provide prompt, reliable and efficient delivery services.”

“In addition to gaining new efficiencies, our eCommerce initiatives seek to grow the

revenue of the USPS to replace some of the revenues from traditional mail volume lost to

the competition from technological substitutes. This revenue is essential to maintaining the

ability of the USPS to support the infrastructure developed to provide universal service.”

“USPS participation in this market is seen by many as critical to addressing the issue of the

‘digital divide’, or the significant portion of the American population that will not have

complete access to the Internet. This is the core of the USPS mission of binding the nation

together and providing services to all communities.”

“The Postal Service is a national institution, known and trusted by Americans; it is a neutral

party with a universally understood public service mandate; it protects the privacy of

customer’s information; it is a long-lived, stable institution that can be relied on for the long

term as an EBP [electronic bill payment] provider; and it is known for providing value.”

“The Postal Service is uniquely positioned to preserve the security and privacy of

confidential information. The Postal Service has in-house law enforcement personnel who

can investigate criminal or civil offenses that occur in connection with transactions

sponsored by the Postal Service.”

USPS Goals and Strategies

for E-Commerce Area
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To better understand USPS’ direction for its e-commerce activities, we

asked USPS officials about their goals and strategies for the e-commerce

area. In response, USPS provided us with some general guidance that eBOB had recently approved for the eBusiness and e-commerce areas. In a

June 21, 2000, internal memorandum, the Deputy Postmaster General

outlined the overall criteria, goals, and strategies for USPS’ eBusiness area

as follows:

• USPS eBusiness Criteria: “New USPS initiatives will be universally

available, designed to fulfill customer/marketplace needs, offer customers

voluntary choices, be secure and private, provide financial benefits to our

customers and the USPS, and be consistent with the mission of the Postal

Service.”

• USPS eBusiness Goal: “To increase the value, availability, and affordability

of our products and services for all customers (both senders and

receivers) by continuing to use the best available and emerging

technologies, including the Internet. Provide customers with expanded

universal access and choices on how they elect to interface and do

business with the U.S. Postal Service.”

• USPS eCommerce Goal: “Use the internet channel to offer new and

enhanced products and services that provide the U.S. Postal Service with

revenue such as license fees and user charges.”

• USPS eBusiness Strategies:

1. Develop and implement a customer interface/channel to the USPS,

which provides seamless physical and electronic mailbox coverage.

2. Use the Internet as a cost effective communications channel for

customers, suppliers, business “partners,” and employees.

3. Capitalize on USPS’ tradition of providing security and privacy for

customers.

4. Leverage USPS’ brick and “motor” assets, i.e., 38,000 postal facilities

and 200,000 vehicles, as well as USPS’ daily delivery infrastructure.

5. Pursue eCommerce and eService opportunities that meet USPS criteria

and have the potential for business growth.

6. Minimize (especially in the short term) USPS investments and

financial/business risks.
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7. Pursue partnerships/alliances with industry leaders having “unique”

technology, management, marketing, and sales skills and resources

necessary to be successful in this marketplace, including “Quick to

Market” capabilities.

8. Establish structures to assure that costs and revenues associated with

electronic services and products are tracked and allocated.

To better understand how USPS is implementing and managing its ecommerce activities, we asked how responsibilities were assigned. The

Postmaster General explained organizational responsibilities in a

memorandum dated February 24, 2000, in which he announced that e-BOB

would be responsible for the following:

• reviewing eBusiness opportunities and approving those that meet a set of

established criteria;

• allocating resources against approved eBusiness pursuits;

• ensuring that complete, cross-functional implementation plans are in

place;

• providing oversight by measuring performance against established goals;

and

• seeing that the organization reacts rapidly to changes in the marketplace.

The Postmaster General also announced that the Deputy Postmaster

General would chair e-BOB, and the Chief Technology Officer would serve

as vice chairperson. Several other postal officers with direct e-commerce

responsibilities included the E-Commerce Vice President, the Corporate/

Business Development Senior Vice President, and the Chief Financial

Officer/Finance Executive Vice President. According to USPS, other USPS

officers with responsibilities for core products and services may also be

involved in certain cross-functional activities related to the e-commerce

area.

In May 2000, USPS established an approval and implementation process

for its eBusiness initiatives called the eBusiness Development Review and

Approval process (e-BOB process). This process covers e-commerce

initiatives and is different from the New Products and Service Review and

Approval (New Products) process that is to be used for other new USPS

products and services. The new e-BOB process was established in

recognition of the fast-paced changes in eBusiness and in the e-commerce

marketplace.

USPS Processes for

Approving E-Commerce

Initiatives
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The e-BOB review and approval process was set up as an expedited 120-

day, four-step process under which a sponsoring officer guides the

proposed initiative through the process. The sponsoring officer, in

conjunction with a cross-functional team, is required to develop a business

proposal and business plan for each initiative. The business proposal is to

be reviewed and approved by the sponsoring officer and e-BOB. The

business plan is to be approved by e-BOB and the Management

Committee11 and, when considered necessary, the Board of Governors

(BOG). Final approval of the initiative is determined by e-BOB and the

Management Committee and, when considered necessary, by BOG. In

instances in which a project contains significant capital investments, the

initiative is also to be subject to the headquarters review and approval

process for capital projects, which involves approval, if appropriate, by

area officials, the headquarters Capital Investment Committee, and final

approval by BOG.12

The New Products process was to be used to review and approve new

products, including initiatives to develop new e-commerce products and

services, prior to the establishment of the e-BOB approval process.

According to USPS officials, the principles of USPS’ CustomerPerfect!

Annual Management Cycle guided the development of new e-commerce

initiatives.13 The New Products process required initiatives to have a

business proposition statement—reviewed and approved by the Chief

Marketing Officer (CMO)—and a business plan—reviewed and approved

by the BOG Strategic Planning Committee and the full BOG. Under this

process, initiatives were to undergo a market test. The results of the

market test were to be reviewed by the CMO, the Management Committee,

the BOG Strategic Planning Committee, and the full BOG before the

initiative was implemented.

 

11 The Management Committee includes the Postmaster General, Chief Executive Officer; Deputy

Postmaster General; Vice President, General Counsel; Senior Vice President, Human Resources; Chief

Financial Officer and Executive Vice President,; Senior Vice President, Government Relations and

Public Policy; Senior Vice President, Chief Technology Officer; Senior Vice President, Chief Marketing

Officer; Chief Operating Officer and Executive Vice President; Senior Vice President, Operations; and

the Inspector General.

12 Applies to all capital projects exceeding $10 million in total project costs.

13 The CustomerPerfect! Annual Management Cycle is USPS’ Malcolm Baldrige Award criteria-based

management system. The CustomerPerfect! management cycle of planning, implementation, and

review consists of activities intended to give direction to the organization and to build and sustain

improved performance against set goals. The CustomerPerfect! process is intended to ensure effective

management control through a formalized system of checks and balances that require top management

buy-in at four critical stages: (1) concept stage, (2) business plan stage, (3) test stage, and (4)

implementation stage.
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Table 2 compares the e-BOB process with the New Products process. Both

approval processes are similar in that they require preliminary proposals

for e-commerce initiatives to be presented for approval by USPS officers

before further action can be taken on the initiatives. Differences between

the two processes are primarily in the business plan and market testing

stages. For example, as shown in table 2, under the New Products process,

the preliminary business plan is to be approved by the Management

Committee, the CMO, and finally sequentially by the BOG’s Strategic

Planning Committee and the full BOG. However, under the e-BOB process

the preliminary eBusiness plan is to be reviewed first by a cross-functional

team, the sponsoring officer, and e-BOB, which is to determine whether

Management Committee or BOG action is necessary. In addition, the New

Products process has a formal market testing stage—involving approvals

by the CMO, Management Committee, and BOG—which is not included in

the e-BOB approval process.14

 

14 USPS may conduct research and pilot tests and incorporate the results into the business plan, but

these steps are not required under the e-BOB process.
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eBusiness Development Review and Approval process (5/00)

(e-BOB process)

New Products and Service Review and Approval process

(New products process)

Stage Requirements Approval Stage Requirements Approval

eBusiness

proposal

•Present proposal and

supporting documentation (e.g.,

financial statements/preliminary

break-even analysis) for review

and approval.

•Present proposal and any

recommendations for approval.

Sponsoring

officer

e-BOBa

Business

proposition

statement

•Present proposition for new

initiative to Chief Marketing Officer

(CMO) for review and approval.

CMO

eBusiness plan •Cross-functional team reviews

preliminary business plan,

includes independent

analysis/external consultant

review, if appropriate.

•Plan and supporting

documentation are then revised

and submitted for approval by

(1) the sponsoring officer and

(2) e-BOB.

•As necessary, the

Management Committee

reviews business plan,

supporting documentation, and

e-BOB minutes and determines

whether BOG consideration is

warranted.

Sponsoring

officer

Sponsoring

officer and

e-BOBb

Management

Committee/

BOGc

Business plan •Present preliminary business

plan (with Management

Committee feedback) for review

and approval to Management

Committee.

•Conduct proof of operations test

to validate initiative/present results

to CMO for review and approval.

•Present preliminary plan,

including test results, for

sequential review and approval by

BOG’s Strategic Planning

Committee (SPC) and the full

BOG.

Management

Committee

CMO

SPC/BOG

Not Applicable Market testing •Present results of limited market

test to CMO for approval to

proceed with major market test.

•Present proposal to proceed with

major market test for sequential

review and approval.

•Submit major market test results

for CMO review and approval to

move to initiative implementation.

CMO

Management

Committee/

SPC/BOG

CMO

Public affairs/

communications

event plan

•Follow event planning guide if

announcement or event is to

announce new initiative.

(Minimum of 6 weeks is required

for effective and properly

handled announcement.)

Public Affairs/ eBOB

Implementation

roll out

•Finalize plan using market test

results and Management

Committee feedback.

•Present plan, including test

results, for sequential review and

approval to implement/ roll out.

Management

Committee

Management

Committee/

SPC/BOG

Table 2: USPS’ Processes for Review and Approval of E-Commerce Initiatives
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eBusiness Development Review and Approval process (5/00)

(e-BOB process)

New Products and Service Review and Approval process

(New products process)

Stage Requirements Approval Stage Requirements Approval

Initiative

monitoring

•Track quarterly (or more

frequently if directed by e-BOB);

resulting suggestions and

recommendations will affect

initiative’s future direction.

Initiative

monitoring

•Track continuously against the

business plan, perform annual

reviews, and improve initiative as

indicated.

a

Approval by e-BOB at proposal stage authorizes seed funding for testing, if applicable, and business

plan development.

b

e-BOB is to (1) approve the plan (2) defer for additional information, or (3) disapprove the plan.

c

Generally, eBusiness initiatives, including e-commerce initiatives, are within management’s approval

authority. Therefore, unless specified in the bylaws, these initiatives require only BOG notification or

consideration from an advisory standpoint prior to their contractual commitment or implementation.

Source: USPS documents.

The Deputy Postmaster General explained to us how resource allocation

for e-commerce initiatives was unlike that for all other areas in the USPS

budget. He said that all of the funding for USPS e-commerce activities was

budgeted and kept in one overall fund. He said these funds were not

allocated to specific managers until program managers justified the use of

funds for specific projects.
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USPS provided some information on the performance targets and results

of its e-commerce initiatives to date. USPS also gave us the following

explanation in July 2000 of why performance targets for fiscal year 2001

were not provided:

“It is important to recognize that performance targets provided in business plans, DARs

[decision analysis reports], and business proposals are projections. They are dependent on

Board of Governors’ approval of the FY 2001 budget in October 2000, as well as on approval

of the business plans, where annotated. Until approval occurs, we think that it is premature

to publicly report quantitative plans or targets for the specific initiatives. However, the

aggregate FY 2001 planned revenue for eCommerce initiatives that is being submitted for

approval and to PRC totals $104.0 million. Projected expenses specific to eCommerce

initiatives total $67.2 million. This does not include infrastructure and other costs

associated with eCommerce, which will be calculated as part of our ongoing obligation to

appropriately report those incurred costs. Similarly, it will differ from the total estimate of

$146 million, provided to the Postal Rate Commission, which encompasses our other

eBusiness initiatives.”

Evaluation of the results of USPS’ e-commerce initiatives, according to

USPS, is generally based on the service performance provided to

consumers and businesses and on the basis of revenue, cost, and

contribution to financial performance. Postal officials explained that the eBOB, Management Committee, and depending on the level of investment

or potential liability, the Headquarters Investment Committee and BOG,

are responsible for evaluating the USPS e-commerce program as a whole

as well as the individual initiatives. A BOG resolution adopted in June 2000

specifies that “significant new types of e-commerce initiatives, which have

not been previously presented to the Board [of Governors] for review,

shall be presented to the Board before being launched.” Initiative reviews

by e-BOB are to be conducted on at least a quarterly basis, and quarterly

status reports are to be sent to BOG.

Table 3 includes information on the performance targets and results, when

applicable, for USPS e-commerce initiatives.

Performance Expectations

and Results
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Targets and Performance by Fiscal Year

Initiative

Status of

initiative 1996 1997 1998 1999 2000a

Electronic

Postmark (EPM)

 Target

 Performance

 Implemented

4/00

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

$60,000b

$30,000b

ePayments

 Target

 Performance

 (eBillPay)

 Target

 Performance

Not implemented

(except eBillPay)

Implemented 4/00

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Number of users

Proprietary

MoversNetc

 Target

 Performance

Enhancements to

MoversNet

 Target

 Performance

Implemented

1996

To be

implemented 9/00

Not provided

Not providedd

Not applicable

Not applicable

Net contribution

$6,107,000de

Not applicable

Not applicable

Net contribution

$2,720,000e

Not applicable

Not applicable

Net contribution

$5,458,000e

Not applicable

Not applicable

Net contribution

$11,104,000e

Not applicable

Not applicable

NetPost Mailing

Online

 Target

 Performance

To be

implemented 9/00

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

NetPost.Certified

 Target

 Performance

Not implemented

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

PosteCS

 Target

 Performance

Implemented 5/00

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

$493,000b

Not provided

Stamps Online

 Target

 Performance

Virtual Postal Store

 Target

 Performance

Implemented

12/98

Not implemented

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

Not applicable

$4,000,000 f

$5,710,000 f

Not applicable

Not applicable

$10,158,000 f

$10,561,000 f

Not applicable

Not applicable

Note: “Not applicable” means that the initiative was not implemented.

a

Through February 2000.

b

Revenue.

c

Internet Change of Address and Move-Related Products/Services (MoversNet) included the Movers

Guide, Welcome Kit, and Moversnet.com.

d

Contribution for fiscal year 1996 was included in data for fiscal year 1997.

e

Revenues toward net contribution were generated from two hard copy publications: the Movers

Guide and the Welcome Kit.

Table 3: Targets and Performance of E-Commerce Initiatives, Fiscal Years 1996 Through 2000
B-285058

Page 22 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

f

Revenues generated from postage stamps and other existing USPS products ordered via the

Internet.

Source: USPS documents.

During our review, we identified a number of inconsistencies and other

problems in the information provided by USPS that indicated areas in

which it can improve implementation of its e-commerce initiatives. These

deficiencies indicate that more effective management and oversight is

needed in this area. First, during the course of our review, USPS

inconsistently applied its definition of e-commerce in identifying its

initiatives and provided inconsistent information on the status of its

initiatives. These inconsistencies made it difficult to ensure we had a

complete and accurate picture of USPS’ e-commerce activities. Second,

USPS had not consistently adhered to its process requirements and did not

always document the review and approval of its initiatives. Consequently,

it is not clear that USPS management properly reviewed and approved ecommerce initiatives to ensure that they would support USPS’ overall

mission and goals. Finally, we identified deficiencies in the financial

information provided for the e-commerce activities that raised concerns

about the accuracy and completeness of USPS’ financial reporting for its ecommerce activities.

As a result of inconsistencies in the information provided by USPS, we are

not sure that USPS provided complete and accurate information on the

identification and status of its e-commerce initiatives. Throughout this

review, USPS provided numerous documents related to its e-commerce

initiatives that included conflicting information about the identification

and status of its e-commerce initiatives. USPS was able to reconcile some

of the inconsistencies, but consistency across the organization will be

necessary for USPS to provide accurate and complete information on the

status of its e-commerce initiatives. As previously mentioned, BOG is to

receive quarterly status reports on USPS’ e-commerce initiatives.

USPS has struggled to properly classify its e-commerce and other

initiatives that relate to its broader eBusiness environment. The initial list

of e-commerce and associated infrastructure initiatives that USPS

provided to us in April 2000 included 28 initiatives. As of July 2000, the list

had been reduced to seven e-commerce initiatives. Some of the initiatives

on the initial list were dropped because they were identified as

infrastructure or enhancements to core products and services, and others

are now called gray area initiatives because they did not fit the definition

of e-commerce initiatives. In addition, some initiatives are in various

stages of development, and their classification may change as their

Opportunities for

Improving

Implementation of ECommerce Initiatives

Inconsistencies in

Identifying E-Commerce

and Related Initiatives
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product features evolve. As we discussed the rationale for the

classification of specific initiatives with USPS officials, we noted several

apparent inconsistencies where initiatives that seemed to have similar

characteristics were not treated similarly. Some examples of apparent

inconsistencies in the application of USPS’ e-commerce definition—for

products and services that (1) require the Internet to do business and (2)

generate revenue to USPS through user charges or licensing fees—that we

brought to the attention of USPS officials were as follows:

• GAO: Advertising revenue generated by MoversNet does not appear to be a

user charge or a licensing fee—the two kinds of revenue specifically listed

in USPS’ definition of e-commerce.

• USPS Response: MoversNet is a part of the strategic alliance between

USPS and its partner. The net contribution generated by the strategic

alliance, which is split between USPS and its partner, is treated as revenue

to USPS. USPS currently views and treats this form of revenue as

commissions received from USPS’ partner for this service, which could be

classified as a licensing fee for the use of USPS’ infrastructure, name, and

good will. It has seemed to make sense to manage this initiative as a part

of the e-commerce management process.

• GAO: According to the explanation provided, MoversNet includes the

Movers Guide and the Welcome Kit—traditional hard copy postal products

that do not require use of the Internet. Thus, these components would not

appear to fit the e-commerce definition.

• USPS Response: MoversNet also includes the MoversNet.com application.

The components of all three aspects of MoversNet are related and are

being managed in conjunction with the electronic application. USPS has

found it useful to manage together various aspects of some of these ecommerce initiatives, which are being developed as part of the same

effort, even though some of the subparts might not independently fit the

definition of e-commerce initiatives if considered independently. It makes

internal business sense to proceed in this way. USPS recognizes that

where charges need to be set and revenues and costs reported and

evaluated, care is needed to attribute costs and revenues to the proper

activity.

• GAO: The Stamps Online component of the Stamps Online/Virtual Store

initiative appears to fit the definition of an enhancement—that is,

providing front-end or back-end Internet access to core or existing USPS
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products and services. Revenues from enhancements are to be reported

with core or existing products.

• USPS Response: StampsOnline revenue was previously reported as

revenue diverted from other channels. However, USPS plans to expand

both product lines and product markets through launch of the Virtual

Store. Therefore, USPS continues to include StampsOnline/Virtual Store

with listed e-commerce initiatives.

• GAO: USPS sold philatelic collectibles on the Internet via eBay from July 7

to July 16, 2000. This initiative appears to fit the definition of a USPS ecommerce initiative in that it required use of the Internet and generated

revenue to USPS.

• USPS Response: These are regarded as asset sales rather than user

charges. This program has more in common with other philatelic

initiatives than with electronic commerce initiatives. Accordingly, it is

managed in tandem with other philatelic programs, rather than passing

through the e-BOB and related processes for the management of ecommerce initiatives.

Our questions and comments and USPS’ responses to them illustrate the

potential for differences in interpretation that may occur. In some cases, it

was difficult to understand the rationale for the identification of the

initiatives without more clarification from USPS on how it intended to

treat the revenue from these initiatives. Also, some initiatives were

provided in conjunction with other products and services, and it was not

clear how the revenues would relate to e-commerce versus other core

products or services. Finally, some initiatives were not currently

generating revenues, such as eBillPay, but USPS planned to generate

revenues from these initiatives in the future. USPS’ consistent application

of its e-commerce definitions is important so that it can maintain complete

and accurate information about its e-commerce and related activities.

USPS also provided conflicting information related to the status of certain

e-commerce activities that made it difficult for us to determine when some

of the e-commerce initiatives had been implemented. For example, USPS

documents provided in April 2000 reported that the Electronic Postmark

(EPM) and MoversNet initiatives had been implemented, that is, were

made publicly available. USPS documents provided in July 2000 showed

that EPM had not been implemented, but USPS has since reported that it

was implemented in April 2000. Likewise, the July 2000 USPS documents

showed that MoversNet was scheduled to be implemented in July 2000.
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USPS documents provided on August 4, 2000, stated that MoversNet had

been implemented in the summer of 1996. USPS officials explained that

the MoversNet implemented in the summer of 1996 consisted of access via

the MoversNet Internet site to a form that could be used to order the hard

copy Movers Guide and Welcome Kit and that enhancements to MoversNet

were scheduled to be implemented in September 2000. The July 2000

documents showed that of the seven e-commerce initiatives, only two—

eBillPay and PosteCS—had been implemented. The August 4, 2000, USPS

documents stated that five of its seven initiatives—eBillPay, EPM,

MoversNet, PosteCS, and Stamps Online/Virtual Store—had been fully or

partially implemented. Subsequently, BOG approved implementation for

NetPost Mailing Online to take effect in September 2000. We recognize that

activities in this area continue to evolve. However, USPS has had difficulty

providing complete and accurate information on initiatives that have been

ongoing for some time.

USPS has not consistently followed its current or former processes for

approving and reviewing e-commerce initiatives. Based on information

provided by USPS, none of the five e-commerce initiatives fully or partially

implemented to date have had all of the required documents or formal

approvals from appropriate officials. Without business plans and

documented approvals, USPS cannot ensure that its e-commerce

initiatives are being appropriately planned and reviewed so that they will

support USPS’ overall mission and goals.

Based on the documentation provided by USPS, USPS did not follow all of

the requirements of either the applicable e-BOB or New Products review

and approval processes. USPS initiatives introduced before the new e-BOB

review and approval process was finalized in May 2000 were subject to the

New Products process. Thereafter, the initiatives were subject to the eBOB review and approval process. For example, USPS reported that its

PosteCS initiative was launched on May 9, 2000. The required documents

to approve this initiative prior to implementation, and thus prior to the eBOB review and approval process, should have included a business

proposition statement, preliminary business plan, market test results, and

a finalized business plan. However, the documentation USPS provided to

us for this initiative was a business proposition statement to the CMO in

May 1998, a preliminary business plan in March 1999, and a business

proposal presented to e-BOB for approval in July 2000—after the initiative

was publicly launched in May 2000. Likewise, USPS launched its

Electronic Postmark initiative in April 2000 and provided a business

proposal that was presented to e-BOB in July 2000. Table 4 shows the

USPS Has Not Consistently

Followed its Processes for

Approving E-Commerce

Initiatives
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documentation and approvals USPS provided to us for each of its ecommerce initiatives. However, we did not assess the substance of these

documents.

Initiative

(Date implemented)

Business proposition

statementa

Business plan Market test Implementation

approval

Electronic Postmark

(Implemented 4/00)

Yes – business proposal -

7/00

Not provided Not providedb Not provided

ePayments

• (eBillPay)

 (Implemented 4/00)

Not provided Yes – draft business

plan – 3/00

Not provided Yes – BOG – 4/00

Internet Change of

Address and MoveRelated Products and

Services

• (MoversNet)

 (Implemented 1996);

• Enhancements to

 MoversNet

 (To be implemented

 9/00)

Not provided

Yes — business proposal

presentation to e-BOB –

4/00

Not provided

Not provided

Not provided

Not applicablec

Not provided

Not implemented

NetPost.Certified

 (Not implemented)

Yes – 3/00 Not provided Not applicablec Not implemented

 NetPost Mailing Online

 (To be implemented 9/00)

Not provided Yes – preliminary

business plan – 12/96

Not applicablec Yes – BOG – 8/00

PosteCS

 (Implemented 5/00)

Yes – business proposition

statement to CMO – 5/98;

business proposal to

e-BOB – 7/00

Yes – preliminary

business plan – 3/99;

plan approved by

e-BOB – 8/00

Not providedb Not provided

Stamps Online

 (Implemented 12/98)

Virtual Store

 (Not implemented)

Not provided

Not provided

Not provided

Not provided

Yes –12/97, 7/98, 9/98

Not applicablec

Not provided

Not implemented

a

Business proposition statement required under the New Products process; business proposal

required under the new e-BOB process.

b

No individual market testing was done on EPM, other than USPS offering it in conjunction with

PosteCS. USPS provided an Electronic Commerce Services Product Market Study dated June 1997

prepared by an outside consultant that focused primarily on examining the market potential for an

electronic postmark as well as other electronic commerce services under consideration. According to

USPS’ 1998 Comprehensive Statement on Postal Operations, p. 70, EPM was integrated into one

messaging service and both fully functional services were then to be used in limited market tests.

c

The e-BOB process was applicable in May 2000; thus, market testing was not required for this

initiative.

Source: USPS documents.

Table 4: USPS Documentation of Its Review and Approval of E-Commerce Initiatives
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We requested available data on financial results for fiscal years 1995

through 2000 for USPS e-commerce initiatives as part of our work to

report on results from these initiatives. In response to our request, USPS

provided information on revenues and expenses generated by its ecommerce initiatives, although some did not have reported revenues

because they had not been implemented by USPS’ cut-off date of February

2000. 15 In April 2000, USPS provided data on its revenues and expenses to

date for its current e-commerce initiatives, based on USPS’ list of ecommerce initiatives that was provided at that time. We did not

independently verify or audit the overall integrity of USPS’ data. However,

we examined the data to see whether they appeared to be consistent with

USPS’ e-commerce definition and criteria, clear as to what was included,

and complete. We notified USPS of several concerns we had with the April

2000 data; USPS acknowledged our concerns and provided revised data for

some of its current e-commerce initiatives as well as its discontinued ecommerce initiatives on June 15 and June 27, 2000. We advised USPS of

similar problems with the June data, and USPS provided another set of

substantially revised data in July. However, our review of the July data

continued to raise concerns about their consistency, clarity, and

completeness.

Due to the data deficiencies, we do not have confidence that the revenue

and expense data USPS provided for its individual e-commerce initiatives

are accurate and complete. Consequently, we do not believe the financial

data that USPS provided could be used to reliably assess USPS’ progress

toward meeting its overall financial performance expectation that

revenues generated by e-commerce products and services in the aggregate

are to cover their direct and indirect costs as well as make a contribution

to overhead.

We recognize that USPS has recently implemented many of its current ecommerce initiatives; thus, it may be premature to assess its progress

against its financial goal. As we noted in our 1998 report on new postal

products, it may not be reasonable to expect all new products to become

profitable in their early years, because new products generally take several

years to become established and recover their start-up costs.16 In this

regard, several e-commerce initiatives, such as the Electronic Postmark,

 

15 USPS provided data for current and discontinued initiatives from inception, which predated fiscal

year 1995, through fiscal year 1999 and partial results for fiscal year 2000. The cut-off date in fiscal year

2000 appeared to vary for some initiatives for the data that USPS provided to us in April 2000. In July

2000, USPS provided revised data with a February 2000 cut-off date for revenues and expenses

generated by each e-commerce initiative.

16 GAO/GGD-99-15.

Problems and

Inconsistencies in USPS

Reported Financial Results

for E-Commerce Area
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eBillPay, and PosteCS, were launched earlier this year. USPS’ Virtual Store

and its NetPost.Certified initiatives were not implemented as of August

2000. Nonetheless, without accurate and complete information on the

revenues and expenses associated with USPS’ e-commerce initiatives,

USPS and other stakeholders will not be able to assess progress toward

meeting USPS’ financial goal in the e-commerce area.

We noted apparent inconsistencies in the e-commerce expense data that

USPS provided. For example, problems included apparent inconsistencies

between the data USPS provided to us and to PRC for its Mailing Online

initiative. In July 2000:

• USPS reported to us about $2.2 million in Mailing Online expenses through

fiscal year 1998, up from about $112,000 that was reported to us in April

and June 2000. USPS also reported that there was no available breakdown

of Mailing Online expenses from inception through fiscal year 1998,

although such breakdowns were made for other e-commerce initiatives

(i.e., expenses through fiscal year 1997 and for fiscal year 1998).

• USPS clarified that data for Mailing Online expenses (and revenues) did

not include associated expenses under USPS’ discontinued PostOffice

Online initiative to develop and conduct the first test of Mailing Online. In

this regard, USPS provided data to us on PostOffice Online expenses that

differed from the expense data USPS reported to PRC. For example, on

June 15 and June 27, 2000, and on July 2000, USPS reported to us expenses

for PostOffice Online of $0.8 million for fiscal year 1997, $4.5 million in

fiscal year 1998, and $0 in fiscal year 1999. In comparison, USPS reported

to PRC in April 2000 expenses of $0 for fiscal year 1997, $9.6 million for

fiscal year 1998, and $18.2 million for fiscal year 1999.

• USPS reported to us that capital commitment data were not available for

Mailing Online before fiscal year 2000. Yet, on June 15 and June 27, 2000,

USPS reported to us that its capital commitment for Mailing Online in

fiscal year 1999 was $3.5 million.

Also, in April and June 2000, USPS reported to us that there were no

expenses in some years for certain e-commerce initiatives, even though it

reported that USPS staff had been working on those initiatives in the same

time periods. Conversely, USPS reported no USPS staff had worked on

certain e-commerce initiatives in some years, even though it reported

operating expenses in the same years.
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With respect to revenues, as the examples that follow indicate, we also

have continuing concerns with the completeness and accuracy of these

data, partly because of the substantial revisions that were made from one

report to another. For example:

• USPS substantially lowered reported revenues for its MoversNet initiative

from $41.0 million in its April 2000, June 15, 2000, and June 27, 2000,

reports to $25.4 million in July 2000. USPS provided no explanation for this

revision.

• USPS reported Electronic Postmark (EPM) revenues for fiscal year 2000 of

$90,000 in April 2000, $0 on June 15, 2000, $60,000 on June 27, 2000, and $0

in July 2000. In July 2000, USPS also reported that EPM generated

revenues of $30,000 after the February 2000 cut-off date for fiscal year

2000 data.

• USPS revised reported revenues from its ePayments initiative from $3.8

million in its April and June 2000 reports to $0 in July, apparently because

the revenues that were initially provided for fiscal year 2000 were based on

expected revenues instead of actual revenues.

Without reliable revenue and expense data, USPS and others will not be

able to assess USPS’ progress toward its goal that USPS e-commerce

products and services are to cover their direct and indirect costs. In

addition, in order for such an assessment to be made, additional data

would be needed. For example, data would be needed on expenses

associated with its e-commerce initiatives, such as (1) expenses related to

information systems required to support e-commerce initiatives and (2)

some expenses for other infrastructure initiatives that supported ecommerce initiatives. As USPS recognized in its July 20, 2000, letter to us,

it plans to calculate “infrastructure and other costs associated with

eCommerce . . . as part of our ongoing obligation to appropriately report

those incurred costs.”

USPS provided us in July 2000 with a “Summary of e-Commerce

Initiatives” that included “Total Revenue” of $41.8 million from USPS’

current e-commerce initiatives, “Total Expenses” of $21.1 million from

these initiatives, and “Capital Commitment” of $5.2 million from these

initiatives. However, such data would not be sufficient to tally all revenues

and the direct and indirect expenses needed to calculate the net

contribution to date from USPS e-commerce initiatives. First, these data

do not include $37.4 million in expenses and $1.2 million in capital

commitment reported in July 2000 for discontinued e-commerce
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initiatives.17 Second, 99.8 percent of USPS’ revenues for e-commerce

initiatives reported to us in July 2000—specifically, revenues from Stamps

Online and Movers Net—-appeared to be based on revenue that fit the

definition of revenues generated by core and existing postal products and

services or Internet enhancements to provide front-end or back-end access

to these products and services. As USPS had told us on June 15, 2000, such

revenues are to be included with revenues from the core and existing

products. Specifically:

• Stamps Online: USPS reported in April 2000 that this initiative had

generated $16.3 million in “existing revenue diverted from other USPS

channels,” such as revenue from the on-line sale of hard copy stamps.

However, as we noted to postal officials in July, such revenue appeared to

fit the USPS definition of “our web presence through ‘front-end’ or ‘backend’ internet access to our core or existing USPS service or products that .

. . do not fall within the Postal Service’s definition of ‘electronic commerce

initiatives.’ The resources for these functions are reported with other core

or existing US Postal Services.” In July, USPS revised its data for Stamps

Online to report $16.1 million in “re-channeled” revenue that was included

from hard copy stamps ordered via the Internet in the $41.8 million in total

revenues generated from current e-commerce initiatives. According to

USPS officials, the other $163,000 in Stamps Online revenue was generated

through the sale of existing USPS products ordered via the Internet.

• MoversNet: USPS reported in April and June 2000 that this initiative

generated $41.0 million in revenues from advertising fees paid by

commercial enterprises to have products and services included in

MoversNet. When we questioned the inclusion of the hard copy—Movers

Guide and Welcome Kit—publications, USPS told us that the three

components of this initiative are related and are being managed in

conjunction with the electronic application. However, USPS also said that

these components “might not fit the definition of eCommerce initiatives if

they were considered independently.” In July, USPS reduced revenues

from this initiative to $25.4 million. In August, USPS clarified that these

revenues were generated exclusively by the hard copy publications, which

could either be picked up at postal locations or ordered via the Internet. In

our opinion, revenues generated by hard copy publications that do not

require use of the Internet would be inconsistent with USPS’ definition of

e-commerce. If these publications were ordered via the Internet, they

 

17 These discontinued e-commerce initiatives included Electronic Commerce Services R&D, PostOffice

Online, WEB Interactive Network of Government Services (WINGS), Deliver America, and Global ePost. See GAO/GGD-99-15 for a description of these initiatives. USPS reported expenses through fiscal

year 1998 for these initiatives in June and July 2000. USPS reported no revenues from these initiatives.
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would fit USPS’ definition of front-end or back-end access to an existing

product.

USPS has a unique status as an independent establishment of the

executive branch, and, as such, some laws and regulations may apply

differently to USPS from how they apply to other federal agencies or

private sector companies involved in similar e-commerce activities. To

provide Congress with information on USPS’ legal authority in this

complex and emerging area, we asked USPS a series of questions about

how it views the application of certain laws and regulations to its ecommerce activities. USPS’ General Counsel provided written responses

to our questions. Other postal stakeholders or competitors may have

interpretations different from those of USPS. We did not evaluate USPS’

legal analysis or attempt to obtain others’ views within the scope of this

review.

USPS believes it has broad statutory authority to offer e-commerce

products and services in ways that USPS finds appropriate to its assigned

functions and in the public interest. USPS believes this authority is

grounded in several provisions of the Postal Reorganization Act of 1970,

not just the provision relating to its specific power to offer nonpostal

services. According to USPS, numerous federal laws and regulations apply

to its e-commerce products and services, but it has a legal status that

differs in some respects from the status of its competitors in the private

sector. Appendix II summarizes USPS-provided information on laws,

regulations, and policies, including information in such areas as (1) USPS

statutory authority to offer e-commerce products and services, (2) privacy,

(3) consumer protection, (4) criminal statutes, (5) the application of

regulations, and (6) the possible application of administration policy.

USPS competitors and others have raised questions on the extent of USPS’

legal authority to offer e-commerce products and services and under what

circumstances it should offer such services. To put these concerns into

context, the appropriate role of USPS has been debated for many years

and continues to be debated in the context of proposals for comprehensive

legislation to reform the nation’s postal laws. In addition, some specific

concerns have been raised about USPS e-commerce activities that also

relate to emerging e-commerce issues, such as the privacy of consumer

information.

USPS Views of its

Authority in the

E-Commerce Area
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We have issued reports in three areas that may relate to the application of

laws and regulations to USPS e-commerce activities: (1) USPS’ authority to

develop and market new products; (2) applicable federal privacy laws that

relate to change-of-address information reported by USPS customers; and

(3) proposed postal reform legislation that would change USPS’ current

statutory authority to develop, test, approve, and market new products in a

number of ways. As noted in appendix I, due to time constraints, we did

not update this past work for the purposes of this review, which pertains

to specific USPS e-commerce activities.

We reported in 1998 that “The statutory and regulatory authorities

governing the Postal Service provide the Service provide broad latitude to

develop and market a wide variety of new products, including both postal

and nonpostal products. Under these broad authorities, USPS has

developed an array of new products . . . .”18 However, we also reported that

“Our analysis shows that the Service is subject to at least three constraints

in developing and marketing new products.” These constraints were:

• First, because it is the underlying statutory mission of USPS to provide

postal services to bind the nation together, USPS needs to be able to

explain how any new product it develops will further that mission. Citing

39 U.S.C. § 101, we reported that USPS’ basic mission is to provide postal

services to bind the nation together and provide those services in a

prompt, reliable, and efficient manner, at reasonable rates, to all

communities and patrons.

• Second, under its statutory authority, before marketing (including test

marketing) a new domestic postal product, which necessarily involves

classification19 of mail, USPS must request a recommended decision from

PRC regarding the propriety of USPS’ proposed classification, rates, or

fees for the new product. Prior to issuing its recommended decision, PRC

is required to hold hearings on USPS’ proposal. The Postal Board of

Governors, however, may reject or modify PRC’s recommended decision.

USPS is not required to request a recommended decision from PRC in the

case of nonpostal products, such as telephone cards and retail

merchandise.

 18 GAO/GGD-99-15.

19 Classification refers to a grouping of mail matter for assigning it a specific rate or method of

handling.

Prior GAO Reports That

Discussed USPS Legal

Authority
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• Third, USPS’ ability to market new products can be constrained or

influenced by congressional oversight, restrictions imposed during the

appropriations process, or other legislative actions.

We also reported in 1996 and 1999 that we and USPS have differing

interpretations of federal privacy protections that relate to change-ofaddress information reported by USPS customers.20

• In 1996 and 1999, we reported that through its National Change of Address

(NCOA) program, USPS collects and widely disseminates change-ofaddress information reported by postal customers to a number of private

firms licensed by USPS to provide address correction services. We

reported that postal customers’ change-of-address data are protected from

inappropriate release or use under applicable federal privacy laws.

However, in our view, USPS collects change-of-address information from

postal customers for the limited purposes of address list correction and

mail forwarding, not for the purpose of creating and maintaining newmovers lists. Thus, in our view, use of NCOA-linked data to create or

maintain new-movers lists by USPS licensees, who are viewed under the

Privacy Act as if they were USPS employees, would not be consistent with

the limitations imposed by the Privacy Act.

USPS disagreed with our assessment. USPS officials told us:

• USPS does not provide names to be included on any licensee or customer

lists. NCOA information provided to licensees, and by licensees to their

customers, is limited to the new addresses of persons whose names and

addresses are already on the licensee’s or the customer’s list. Thus, the

NCOA program does not violate the prohibition in the Privacy Act against

unauthorized disclosure of an individual’s name and address.

• Neither the Privacy Act nor the Postal Reorganization Act of 1970 limit in

any way licensees’ and customers’ use of address data that have been

properly updated or corrected through the NCOA service. Releasing the

NCOA file to licensees to provide address-correction services and

licensees’ subsequent release of new addresses of postal customers—

whose names and old addresses are already on a licensee’s or its

customer’s lists—is lawful when done in accordance with the provisions

and conditions of the licensing agreement. After a licensee performs

 20 See U.S. Postal Service: Improved Oversight Needed to Protect Privacy of Address Changes

(GAO/GGD-96-119, Aug. 13, 1996); and U.S. Postal Service: Status of Efforts to Protect Privacy of

Address Changes (GAO/GGD-99-102, July 30, 1999).
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address correction services as a USPS agent, it is then free under the

Privacy Act to use NCOA-linked data to create or maintain new-movers

lists. With regard to the licensees’ customers, USPS has no responsibility

to attempt to restrict the use of NCOA-linked data by a private business

with which it has no legal relationship.

Our 1999 report disagreed with this assessment. It raised as a matter for

congressional consideration that Congress may wish to amend the Postal

Reorganization Act of 1970 to (1) expressly prohibit the use of change-ofaddress data by licensees and their customers in the creation or

maintenance of new-movers lists; or (2) specifically require USPS to have

its licensees and their customers acknowledge in writing that they have

been informed and understand that change-of-address data may not be

used for any purpose not authorized by law, including the creation and

maintenance of new-movers lists. As of August 2000, Congress had not

acted on this matter.

Finally, our 1998 report on new postal products discussed how proposed

comprehensive legislation known as postal reform legislation would have

amended USPS’ current statutory authority to develop, test, approve, and

market new products in a number of ways. 21 The legislation, H.R. 22,

introduced by the Chairman of the Subcommittee on the Postal Service,

House Committee on Government Reform, was based on the premise that

USPS participation in competitive markets should be, to the maximum

extent possible, on the same terms and conditions as those faced by its

private sector competitors. As of July 2000, H.R. 22 was pending in the

House Committee on Government Reform.

USPS told us that it has broad statutory authority to offer e-commerce

products and services in ways that USPS finds appropriate to its assigned

functions and in the public interest.According to USPS, several provisions

of federal law individually and collectively provide the necessary legal

authority for it to offer e-commerce products and services. In exercising its

authority in the e-commerce area, USPS told us that the law provides

discretion to BOG to determine whether particular new services are

appropriate and in the public interest. USPS told us that several provisions

of title 39 of the U.S. Code, which establishes the basic legal framework for

USPS, give it the authority to offer e-commerce products and services.

Specifically:

• Under Section 401, which provides USPS with “general powers” that USPS

described as “broad businesslike powers,” USPS may enter into

 

21 GAO/GGD-99-15.

USPS Reported It Has

Broad Statutory Authority

to Offer E-Commerce

Products and Services
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agreements, make expenditures, obtain property rights, or perform other

transactions useful to accomplish its functions, such as the authority to

contract, expend resources, acquire property, or perform other

transactions useful to accomplish its functions, whether or not involving

the Internet in some respect.

• Section 404 states that without limiting its more general powers, USPS

may exercise certain specific powers, such as handing mail, prescribing

how postage is paid, selling postage, and providing special nonpostal or

similar services. According to USPS, “These provisions are stated in the

language of broad inclusion, rather than of narrow constraint. Where the

Internet would be useful to the Postal Service and its customers in the

performance of its functions, this section does not limit access to that

medium along with other methods for getting the job done.”

• Section 403, relating to “general duties,” outlines mandatory USPS

functions to which USPS may apply its general and specific powers. USPS

stated that most of the Internet-related services that it has considered to

date fall inarguably within the scope of its mandatory general duties. For

the most part, these services involve channels or avenues intended to

make postal services more accessible or convenient for customers who

use the Internet.

USPS specifically stated that three subsections of title 39 are each broad

enough to empower USPS to provide any service, conduct, or activity (not

prohibited elsewhere) that appropriately serves its purposes as reflected in

title 39:

• subsection 401(3), which gives USPS the authority to determine the

character of, and necessity for, its expenditures;

• subsection 401(10), which gives USPS “all other powers incidental,

necessary, or appropriate to the carrying on of its functions or the exercise

of its specific powers;” and

• subsection 404(a)(6), which authorizes USPS “to provide, establish,

change, or abolish special nonpostal or similar services.”

In this context, USPS discussed how it sees e-commerce products and

services as appropriately serving its purposes:

• USPS’ understanding is that section 101(a) of title 39, in describing the

“basic function” of USPS as an “obligation to provide postal services to
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bind the Nation together,” by “postal services” means the postal system as

a whole, not a select group of discrete service offerings in isolation. USPS

uses many means to perform the collection of statutory functions

described in title 39. It has both the “basic function” generally summarized

in section 101(a), and a myriad of supportive functions necessary or

appropriate to its work. All of its functions and activities in concert should

help to “bind the Nation together.”

• Since “binding the Nation together” is part of the basic function of the

postal system as a whole, this is also an appropriate objective to be served

by supporting functions in their own right, where feasible, even though

section 101(a) itself only specifically enunciates this goal in terms of a

“basic function.”

• Technological improvements associated with the Internet offer many

opportunities for improved interaction between the postal system and its

customers. USPS makes no claim that all-electronic products and services,

or any kind of eCommerce products and services, are becoming the “basic

function” of USPS. USPS does consider that the particular electronic

services being introduced have been carefully configured to serve as

logical, supporting, ancillary, incidental enhancements of the postal

system for the benefit of USPS customers, in ways that comport well with

USPS’ basic function. These services help USPS to meet the needs of USPS

customers within the context of the kinds of personal and business

correspondence that USPS has traditionally facilitated for them. USPS

considers that these services are necessary and appropriate incidents to

the performance of postal functions, and are thus within the authority of

USPS.

• The remainder of section 101 and scattered other portions of title 39, such

as Section 2010,22 further define the mission and methods of USPS in terms

emphasizing service, accessibility, efficiency, modernization, and essential

relevance to the needs of customers. Nothing in the law gives any

indication that USPS is intended to neglect any developing new medium,

methods, or technology, or to allow itself to become outmoded,

antiquated, difficult to use, too expensive, or irrelevant to its customers.

To the contrary, any of these outcomes would seem to be inconsistent

with the broad imperatives of service to the public written into the law.

• The Nation’s current postal services are both deeply rooted in the

traditions of this country and embedded in the current economic and

 

22 39 U.S.C. § 2010 states that USPS shall promote modern and efficient operations, among other things.
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social fabric. USPS’ challenge is to improve and build upon the services,

capability, role, and customer relationships that it already maintains, in

sensible, businesslike, appropriate, evolutionary steps. Its authority is to

take advantage of electronic commerce, like other methods and

technology, in ways it finds appropriate to the performance of its functions

and in the public interest.

According to USPS, it has been delegated considerable discretion to apply

its experience and judgment in evaluating what seems appropriate for its

job and in the public interest. USPS reported that there is no bright-line

test of the furthest extent of its authority, but federal law offers a number

of useful indicators or points of reference in this regard. According to

USPS, a product or service is more likely to be appropriate or in the public

interest if the product or service:

• relates to personal, educational, literary, or business correspondence and

communication;

• improves or updates an existing or previous USPS service through use of

more modern evolving methods or technology;

• improves the efficiency, economy, simplicity, speed, consistency, security,

equity, or any other characteristic of its mail or philatelic services so as to

add value for customers;

• enables customers to use mail or philatelic services more efficiently,

economically, or in greater volume, or to any other advantage to them, to

other customers, or to the postal system as a whole;

• is similar, supplementary, integrated or in some way connected to or an

extension of a service USPS already provides or has provided;

• is derived in a logical way from an existing service, property interest,

stamp design, or other attribute belonging to or identified with USPS;

• as a matter of economic reality or good business practice, is well

performed in a multipurpose way in combination with some existing USPS

service or operation;

• makes fuller or more efficient use of property or resources, such as using

excess or unused capacity so that the addition of some lesser, secondary

application would enable the property or resources to be used more

productively;
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Page 38 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

• adds a particular new service to USPS’ menu of offerings, where good

business practice demonstrably counsels such an addition;

• reflects demonstrated demand from the postal customer base;

• is supported by private or international experience in combining or

integrating particular services;

• assists another federal agency to perform its functions; or

• advances the policies of the United States.

USPS stated that none of the above factors would necessarily be the sole

basis for determining whether an e-commerce product or service would be

appropriate or in the public interest. However, USPS noted that the fact

that a service is different from previous services, or is nonpostal, is not in

itself a bar to USPS offering the service, “although we do not think that

means unrelated or inappropriate services are permitted.”

USPS has reported that federal privacy laws afford USPS e-commerce

customers greater protection than is provided for customers of private

sector providers. First, USPS reported that the Privacy Act,23which applies

to USPS and restricts disclosures of private information maintained about

individuals to third parties without their consent, does not apply to private

providers of e-commerce services. Second, under the Electronic

Communications Privacy Act, 24 a “remote computing service”25

—a

description that USPS reported applies to itself and its contractors—may

not disclose stored electronic communications to a governmental entity

without either a search warrant or, under limited circumstances, certain

subpoenas. USPS told us that “The combined effect of the Privacy Act and

the Electronic Communications Privacy Act is to afford customers greater

protection from invasions of privacy than they could expect with a private

sector provider.”

USPS noted that the Privacy Act prohibits it from identifying USPS

customer information to other private companies, such as for marketing or

market research. In addition, USPS told us that its contractors, such as its

 

23 5 U.S.C. § 552a.

24 18 U.S.C. § 2701 et seq.

25 A remote computing service entails providing computer storage or processing services to the public

by means of an electronic communications system. 18 U.S.C. § 2711(2).

Privacy Laws Reportedly

Protect the Privacy of USPS

E-Commerce Customers

More Than They Protect

Customers of Private Sector

Competitors
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business partner in offering eBillPay, are bound by contract to the same

nondisclosure requirements that apply to USPS.

USPS also reported that the Trade Secrets Act26 generally precludes USPS

from releasing certain confidential, business-sensitive information about a

customer from its computer files without the customer’s express

permission. USPS reported that although it is subject to the Freedom of

Information Act (FOIA),27 and private providers of e-commerce products

are not, several specific exemptions to mandatory FOIA disclosures

protect USPS e-commerce information from disclosure.

USPS reported it has adopted specific postal regulations that limit and

govern possible disclosure of its e-commerce customer information under

the Privacy Act. According to USPS, information protected by the Privacy

Act may not be disclosed except in accordance with this act and postal

regulations, which allow disclosure pursuant to “routine uses” for the

system of records as published in the Federal Register.28 USPS said it

discloses such routine uses to its e-commerce customers through Privacy

Act statements placed on its Internet site so they can read the statements

before transmitting information to USPS. For example, USPS eBillPay

customer information could be provided to a payee, a financial institution,

or a credit bureau when necessary to, and as an integral part of, the

eBillPay service being provided, according to USPS.

However, USPS told us that although it is subject to FOIA requests for

information, USPS would not release information collected from ecommerce customers. USPS said that FOIA does not compel disclosure

that is otherwise prohibited by law. Also, FOIA does not compel disclosure

of names and addresses of USPS customers prohibited by law.29 USPS said

that FOIA does not require the disclosure of information of a commercial

nature, whether or not obtained from a person outside USPS, that under

good business practice would not be disclosed.30 In this regard, USPS told

us that “in our opinion, it would not be good business practice to disclose

private information obtained in the provision of electronic services.”

 

26 18 U.S.C. §1905.

27 5 U.S.C. § 552.

28 According to USPS, “Routine uses are those situations in which information may be disclosed to third

parties without the written consent of the subject of the records, but only for a purpose compatible

with the purpose for which the information was collected.”

29 39 U.S.C. § 410(c)(1).

30 39 U.S.C. § 410(c)(2).
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Further, USPS stated that title 39 prohibits USPS and its employees from

making any mailing or other list of names or addresses of postal patrons or

other persons available to the public. 31 On the matter of possible use of

USPS customer change-of-address information, which we have reported

on and is discussed earlier in this report, USPS provided us with this

response:

“USPS will not use address information obtained from its electronic

commerce products and services to compile new movers lists, nor will its

contractors or consultants be authorized to do so. However, change of

address information may be submitted electronically for mail forwarding

and address correction purposes in the near future; this information will

be added to the National Change of Address File in the same way as

changes of address that are submitted in the conventional manner. USPS

adds change of address information to the NCOA file for forwarding and

address correction purposes only when the customer submits a change of

address order for that purpose.”32

USPS told us that the public interest, universal service, antidiscrimination,

and other policy provisions of the Postal Reorganization Act of 1970

provide consumer protections in connection with its e-commerce products

and services, 33 while many other federal consumer protection laws are

inapplicable. However, some federal consumer protection laws may apply

to USPS in certain circumstances, and others may apply to USPS

contractors or financial institutions that help USPS offer e-commerce

products and services. Further, USPS said it administers certain consumer

protection laws relating to U.S. mail, and these laws may be applicable in

some circumstances to USPS e-commerce products and services.

 

31 39 U.S.C. § 412.

32 In July 2000, the USPS Internet site for MoversNet contained a form for customers to submit changes

to physical addresses and also referenced the following: “Privacy Act Note: Filing this form is

voluntary. However, your mail cannot be forwarded without an order. If filed, your new permanent

address will be provided to individuals and companies who request it, but this will occur only when the

requester is already in possession of your name and old mailing address. Use Form 3576 to tell

correspondents and publishers of address changes. Authorized 39 U.S.C. 404.”

33 USPS stated that the Postal Reorganization Act of 1970 is the principal federal consumer protection

law relating to its e-commerce products and services. USPS noted that 39 U.S.C. § 202(a) specifies that

the USPS Governors are appointed by the President to represent the public interest generally; and 39

U.S.C. § 403(a) states, among other provisions, that USPS “shall serve as nearly as practicable the

entire population of the United States.” USPS views of how its public interest, universal service

obligations, and other postal policy provisions of the Postal Reorganization Act of 1970 relate to its ecommerce activities are discussed further in the section of this report on USPS statutory authority in

the e-commerce area. USPS views on the applicability of antidiscrimination provisions are discussed in

the section of this report on competition-related laws.

USPS Reported That Many

Consumer Protection Laws

Do Not Apply to its

E-Commerce Initiatives
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Like other federal activities under the control of presidential appointees,34

many consumer protection laws that address the activities of organizations

outside the controls of federal management do not apply to USPS ecommerce products and services, according to USPS. For example, USPS

noted that some consumer protection laws dealing with debt and credit do

not apply because USPS does not extend credit. However, USPS said that

some federal consumer protection laws might apply to USPS contractors

or financial institutions that work with USPS to help provide USPS ecommerce products and services.

USPS told us that it is charged with enforcing consumer protection laws

known as the “nonmailability laws,”35 which include false representation

and lottery laws, and which incorporate the criminal nonmailability

statutes.36 USPS told us it would be responsible for enforcing the

nonmailability laws to the extent that any USPS e-commerce product or

service could be used to violate them. USPS provided the following three

examples:

• If a USPS e-commerce product or service is the means to promote a

“solicitation of money or property through the mail by means of false

representations” or a lottery (e.g., if remittances were solicited

electronically and received through the U.S. mail), then the nonmailability

laws would apply.

• If a physical product is ordered and paid for electronically, and then

delivered by USPS, the nonmailability provisions relating to hazardous

materials, as well as other restrictions, would apply.

• If a postal e-commerce product is used to both promote and deliver a

product or service that would violate the written, printed, or graphic

matter restrictions, it does not seem that the USPS civil consumer

protection statutes would apply. However, an entirely electronic scheme

 

34 The Board of Governors is the governing body of USPS. It consists of 11 members, including 9

Governors appointed by the president, with the advice and consent of the Senate; the Postmaster

General (PMG), who is appointed by the Governors; and the Deputy Postmaster General, who is

appointed by the Governors and the PMG. By law, Governors are chosen to represent the public

interest and can not be representatives of special interests. See U.S. Postal Service: Issues Related to

Governance of the Postal Service (GAO/GGD-97-141, Aug. 14, 1997).

35 39 U.S.C. §§ 3001-3017.

36USPS said that, in general, these laws limit using the U.S. mail to solicit money or property through

the mails by means of false representation; the conduct of illegal lotteries, sweepstakes, or skill

contests involving written, printed, or graphic matter; or the promotion or distribution of various

physical items, such as hazardous or dangerous items, that are unfit by law to be sent through the mail.
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or device with the fraudulent attributes of a false representations or lottery

scheme would fall under the criminal statutes prohibiting wire fraud.37

USPS reported that the Postal Inspection Service, a part of USPS that is

responsible for enforcing postal laws, has the authority and responsibility

to investigate violations of law that involve USPS e-commerce products

and services. USPS discussed two interrelated matters: (1) which federal

laws define and apply to unlawful activity involving USPS e-commerce

products and services, and (2) how the authority of the Inspection Service

and other federal law enforcement agencies is defined with respect to

enforcing those laws. In addition, USPS reported that the Inspection

Service also has an interest in other crimes that make use of the Internet.

First, USPS reported that a large number of federal statutes, regulations,

and policies are in place to ensure that USPS provides secure and reliable

services that are free of fraud, waste, and abuse. These federal laws

reportedly apply not only to U.S. mail, but also to USPS operations,

equipment, and employees.

Concerning specific USPS e-commerce offerings, USPS told us:

• The USPS Electronic Postmark (EPM) is protected by postal laws and

regulations. Thus, interfering with or misusing the EPM or electronic

documents handled by a private company that incorporates the EPM

would violate the law. However, the EPM does not have the same legal

status as the physical postmark on U.S. mail, which is a byproduct of USPS

processing and indicates USPS possession of an item for handling and

delivery. As evidence that an item is “mail,” the physical postmark may

trigger a number of criminal statutes in the case of obstruction or theft. To

the extent a physical postmark has additional legal significance, such as

indicating the date when an item is deemed to have been delivered, that

effect is the result of nonpostal federal and state laws and regulations, as

well as contracts between private parties.

• PosteCS communications do not have the same legal status as U.S. mail,

because they are not physical mail. Thus, although a number of laws apply

to and protect such messages, other laws applicable only to physical U.S.

mail do not.

• The electronic portion of hybrid mail—which includes the electronic

portion of Mailing Online communications—does not have the same legal

 

37 18 U.S.C. § 1343.

USPS Said It Investigates

Violations Relating to Its

E-Commerce Offerings
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status as physical U.S. mail because it is not yet physical mail. Once it is

converted to physical mail, it would have the same status as physical mail.

While a number of laws apply to and protect such electronic messages,

other laws applicable to physical mail do not.

• If USPS offered a universal “electronic mailbox,” which postal officials

have said might be done in conjunction with some of its e-commerce

initiatives, the electronic mailbox would not have the same legal status as

a physical mailbox because is not a physical mailbox. Thus, although a

number of laws apply to, and protect, an electronic mailbox, others

applicable to physical mailboxes would not apply.38

• If eBillPay bills are presented only electronically, laws protect them in a

different manner from the protections afforded to physical mail. Legal

protections relating to electronic communications would apply. Laws and

regulations that apply specifically to physical U.S. mail, and only to such

mail, would not apply.

USPS told us that the Inspection Service has broad authority to investigate

any criminal or civil offenses that affect the use or delivery of mail, occur

on USPS property, or otherwise impair the efficient operation of USPS.

The authority of the Inspection Service was further enhanced in 1998 by a

delegation of authority from the U.S. Attorney General and MOUs with the

Federal Bureau of Investigation (FBI) and the U.S. Secret Service that gave

the Inspection Service limited jurisdiction to investigate certain crimes

such as wire fraud.39 USPS told us that the Inspection Service’s role in

investigations concerning postal e-commerce products and services

promotes efficient law enforcement and eliminates duplication of efforts,

which was one of the primary purposes of the delegation and the MOUs.

USPS also said that the basis for the delegation and the MOUs was

uncertainty concerning whether the mail fraud statute would apply to

USPS e-commerce products and services, which had not been addressed in

court, but that the wire fraud statute could be assumed to apply on the

 

38 USPS reported that the specific statutes relating to the theft, tampering, or misuse of physical

mailboxes, generally 18 U.S.C. §§ 1705, 1707, and 1708, would presumably not apply. In their place, the

criminal statutes prohibiting electronic tampering, 18 U.S.C. §§ 1029 (access device fraud); 1030

(computer fraud and abuse); 1343 (wire fraud); and 2701(unlawful access to stored communications)

would appear to apply.

39 The delegation of authority gave the Inspection Service a limited delegation of jurisdiction to

investigate violations of 18 U.S.C. §§ 1029, 1030, 1343, and 2701. The delegation of authority recognized

the concurrent jurisdiction of the FBI and the U.S. Secret Service as the principal law enforcement

agencies responsible for the enforcement of 18 U.S.C. §§ 1029 and 1030, and the FBI as the principal

enforcement agency responsible for the enforcement of 18 U.S.C. §§ 1343 and 2701.
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basis of existing case law. The delegation and the MOUs covered the

following:

• criminal conduct in which USPS is an actual or intended victim;

• conduct that directly affects electronic messages conveyed by USPS and

the counterfeiting or misuse of any Electronic Postmarks used by USPS;

and

• criminal conduct directed against any computer, computer system,

communication system, delivery system, payment system, or other similar

property owned or leased by or provided to USPS.

For example, USPS told us that under its recent delegation of authority

from the Attorney General, the Inspection Service would investigate illegal

interception or tampering involving the USPS electronic postmark (EPM),

including cases where the USPS EPM is used by a private company that

recently purchased the EPM for inclusion with some of its electronic

communications. Any such efforts would be based on the provision in this

delegation that specifically defines “criminal conduct that has a

detrimental effect upon the operations of the Postal Service” to mean

“conduct that directly affects the counterfeiting or misuse of any

electronic postmarks used by the Postal Service.” In this regard, USPS told

us that the Inspection Service has no authority to investigate electronic

communications that do not “have a postal nexus.” Finally, USPS said that

violations of federal law relating to electronic communications without the

EPM would be investigated by other federal law enforcement agencies.

In addition to these activities, USPS told us that it has enforcement

interests in other crimes making use of the Internet. For example, USPS

noted its longstanding relationship with the Federal Trade Commission

(FTC) to protect consumers, in which the Inspection Service has

jurisdictional responsibility regarding traditional mail fraud schemes that

originate with an Internet solicitation and result in the mailing of a

payment or merchandise. USPS estimated that currently, roughly 45

percent of Inspection Service consumer fraud cases in which the

underlying offense is mail fraud originate on the Internet.
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USPS told us that the antitrust laws and general competition-related

statutes do not apply to USPS, with the exception of the advertising and

competition provisions of the Lanham Act.40 However, USPS told us that

the Postal Reorganization Act of 1970 prescribes other competition-related

factors that must be considered. Specifically, USPS told us:

• In ratemaking for postal services, the effect of rate increases on

competition is among the statutory factors for consideration, and

competitors have a formal opportunity to question and contest USPS rate

and classification proposals—a right not ordinarily available to USPS with

respect to the prices and services of its competitors.

• Some provisions of the Postal Reorganization Act of 1970 prescribe certain

requirements for USPS that relate to competition, which would apply to

some USPS e-commerce products and services. Specifically, USPS stated

that with respect to “postal” services such as Mailing Online, USPS is

specifically prohibited under 39 U.S.C. § 403(c) from making undue or

unreasonable discrimination among mail users or from granting undue or

unreasonable preferences.

• USPS does not think it could be seriously contended that the public

interest would support the provision of nonpostal services having

unreasonable objectives or applying irrational methods. Accordingly, while

section § 403(c) of title 39 in terms seems inapplicable to nonpostal

services, USPS assumes that general principles akin to those underlying

that section are implicit in the policies of title 39 and thus should be

applied to nonpostal services.

• Competition concerns are taken into account by USPS and its Board of

Governors, who are appointed by the president and who are required by

law to represent the public interest. This control mechanism, which is not

present in private firms, brings to bear in USPS a standard of fairness both

broader and stricter than any fair competition legislation applicable to

private firms. USPS does not conceive of a situation in which the

Governors would let stand a USPS offering of a service on terms

legitimately shown to be contrary to unfair competition requirements

applied in the private sector. In practice, opponents of USPS introduction

of particular new services rarely attempt to establish a violation of

particular fair competition requirements applicable to themselves. Instead,

broad policy arguments are advanced concerning the degree to which

 

40 The Lanham Act, among other things, protects businesses from such anticompetitive acts as false

advertising and false representation about a product or service. 15 U.S.C. § 1125(a).

USPS Reported That

Antitrust and Competition

Laws Generally Do Not

Apply to USPS
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Page 46 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

USPS, uniquely, should refrain from direct competition with private firms.

It is this kind of basic policy issue that the Board of Governors finds it

necessary to evaluate in considering whether to approve a particular

initiative or how it should be structured. In some cases the Board has

found it appropriate and in the public interest, for policy or prudential

reasons, to hold USPS’ activities well short of any considerations that

private firms would observe.

Further, PRC decisions on proposed rates for USPS e-commerce products

that are domestic postal products, such as Mailing Online, are subject to

the requirement that each class of mail or type of mail service bear the

direct and indirect postal costs attributable to it plus that portion of all

other costs reasonably assignable to such class or type.41 Concerning

nonpostal and e-commerce products and services, USPS told us:

• For nonpostal services, failure to cover costs could unfairly shift costs to

users of other services. Further, while section 101(d) of title 39 deals

specifically with mail services, the cost apportionment policy reflected in

that provision42 seems appropriately applied to nonpostal services as well.

USPS believes that it must seek to price its nonpostal services in a fair and

reasonable way, including coverage of attributable costs plus a reasonable

contribution to overhead.

• In providing eCommerce products and services, USPS will ensure that in

the aggregate, the revenues generated by such products and services will

cover their direct and indirect costs as well as make a contribution to

overhead. Further, eCommerce products and services in the aggregate are

to cover their incremental costs and thus not be cross-subsidized. Also, it

is intended that each eCommerce product and service should cover its

costs.

USPS told us that, in some cases, major federal regulations apply to its ecommerce products, including regulations adopted by USPS and other

federal agencies. However, USPS said that the ability to make

generalizations about how the regulations apply to USPS is somewhat

limited. According to USPS, as a general matter, legal relations between

USPS and other agencies are governed by provisions of the Postal

Reorganization Act of 1970. These provisions specify, among other things,

the application of laws to USPS, cooperation between USPS and other

 41 39 U.S.C. § 3622(b)(3).

42 39 U.S.C. § 101(d) states that “Postal rates shall be established to apportion the costs of all postal

operations to all users of the mail on a fair and equitable basis.”

Major Federal Regulations

Apply to USPS E-Commerce

Offerings in Some Cases,

But Not in Others
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Page 47 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

government agencies, and the relationship between USPS and the

Department of the Treasury.43 Further, USPS reported that it has authority

to issue regulations pertaining to its own e-commerce products and

services.

USPS provided the following examples of how the regulatory authority of

other federal agencies applies or does not apply to its e-commerce

products and services:

• USPS eBillPay is generally subject to the jurisdiction of the Department of

the Treasury and the Federal Reserve, because the jurisdiction in question

applies to USPS, its private contractor, or both. The regulations are

extensive and complex.

• Laws and regulations governing Automated Clearinghouse (ACH)

transactions do not apply to USPS, except when USPS chooses to make

financial transactions using the National Automated Clearinghouse

Association (NACHA). In those cases, the NACHA rules apply to the

transactions.

• USPS’ participation in NetPost Mailing Online apparently does not invoke

the jurisdiction of the Federal Communications Commission (FCC). Postal

electronic services do not involve USPS directly in common carriage of

basic electronic information, which is regulated by FCC. Instead, these

services can be classified as “enhanced” services, which currently are not

regulated by the FCC.

• There are no written regulations or guidelines that require USPS to comply

with FTC guidelines. USPS’ established practice is for advertising

initiatives to be reviewed by attorneys within its law department for legal

and public policy advice. USPS may refer to various FTC regulations, for

instance, the use of the word “free” (16 C.F.R. § 251.1) and on pricing

comparisons (16 C.F.R. § 233.1 – 233.5). Also, USPS may go beyond what is

required by FTC guidelines where it seems appropriate to assure fairness

or avoid controversy.

USPS made the following points concerning its regulatory authority:

• Title 39 gives USPS the general power “to adopt, amend, and repeal such

rules and regulations as it deems necessary to accomplish the objectives of

 

43 39 U.S.C. §§ 410(a), 411, and 2006.
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Page 48 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

this title.”44 This general power applies to the exercise of all USPS

functions, including any use made of e-commerce.

• USPS has the authority to issue regulations that define the terms of its ecommerce offerings in the Domestic Mail Manual as appropriate, such as

for Mailing Online, or in other directives.

• USPS’ authority to adopt regulations defining the terms and conditions of

its own nonpostal e-commerce services is functionally similar in most

respects to the authority that any private company would exercise to

prescribe the terms on which it is prepared to deal with its customers and

suppliers.

• USPS has “no authority to act as a regulator over economic activity in

general or over the Internet in particular.”

USPS reported that its activities in the e-commerce area are generally not

subject to administration policies that apply to other executive branch

agencies. USPS observed that:

• According to President Nixon, one of the objectives of the Postal

Reorganization Act of 1970 was that USPS be insulated from the direct

control of the president and the Bureau of the Budget, the predecessor

agency to OMB. USPS is, nevertheless, sensitive to broad administration

policies in this area. President Clinton’s 1999-2001 budget submissions

have included general policy discussions encouraging USPS’ cooperative

efforts with the private sector in promoting the emergence of secure and

reliable electronic messaging networks, and in leveraging its capabilities to

help promote universal access. USPS’ new service offerings are consistent

with those statements.

• The objective of insulating USPS from political control was reportedly

implemented by organizing USPS as an independent establishment of the

executive branch, headed by nine presidentially appointed Governors

whose terms extend 9 years, beyond the term of any single administration.

Since 1970, USPS has consistently maintained the view that executive

orders and OMB instructions, unless grounded in separate statutory

authorization covering USPS or by national security powers, do not apply

as a matter of law, although the Governors, as representatives of the public

interest, may find it appropriate to be guided by certain of them.

 

44 39 U.S.C. § 401(2).

USPS Reported That its ECommerce Activities Are

Generally Not Subject to

Administration Policies
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Page 49 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

• By and large, other federal authorities have respected USPS’

independence, and USPS has also respected the responsibilities of those

authorities and worked closely with them.

• None of the provisions of OMB Circular A-76 regarding “contracting out”

of government services have been adopted. USPS has broad authority to

enter into contracts, and follows the government policies in the Postal

Reorganization Act of 1970 and other authorities incorporated therein.

• With regard to e-commerce, the President has included in his last three

budget submissions a statement of general encouragement for USPS’

cooperation with the private sector in promoting the emergence of secure

and reliable electronic messaging networks and in leveraging its

capabilities to help promote universal access. These presidential

statements do not mention particular services or more specific policies for

which USPS has responsibility.45

USPS competitors and others have raised concerns regarding USPS ecommerce activities. Some of these concerns relate to the broad statutory

authority that USPS asserts it has to offer e-commerce products and

services in ways that USPS finds appropriate to its assigned functions and

in the public interest. Also, some USPS competitors and others have

recently raised concerns that USPS has an unfair competitive advantage

because it is subject to different legal and regulatory requirements than are

its competitors in the e-commerce area. The appropriate role and mission

of USPS continues to be debated, including the extent of USPS legal

authority to offer e-commerce products and services, and under what

circumstances it should offer such services.

Related concerns have been raised in the past. CRS has reported that “ . . .

since early in its post-1970 history, the USPS has been charged with

overstepping its mandate by offering retail and service products that are

not directly related to its primary mission—delivering the mail to all parts

of the country at uniform rates.”46 We previously reported that some

Members of Congress and some private sector companies have said that

USPS is unfairly expanding its product line to compete in nonpostalrelated markets, and they have manifested their concerns in various

 

45 Budget of the United States Government, Fiscal Year 2001, Appendix, 1195-96 (2000); Fiscal Year

2000, Appendix, 1191 (1999); Fiscal Year 1999, Appendix, 1126 (1998).

46 Postal Service Diversification into Non-Mail Activities, Congressional Research Service, May 1, 2000

(RS20567).

Concerns Have Been Raised

About USPS E-Commerce

Activities
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Page 50 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

forms.47 Concerns have continued to be raised with respect to USPS ecommerce products and services. For example:

• Participants in the recent PRC case on USPS’ proposal for a Mailing Online

experiment largely focused their attention on whether USPS’ status as a

statutory nationwide monopoly gave it an unfair advantage as it enters the

mixed electronic/hard copy communications market, and on whether

USPS accurately identified Mailing Online costs. 48 During the case, several

participants reached a settlement agreement with USPS, under which

USPS will allow functionally equivalent, competing electronic/hard copy

services to mail their products at the same postage rates USPS intends to

charge for Mailing Online. According to PRC, this settlement alleviated

much of the concern about unfair competition. However, PRC found that

competition considerations and antitrust laws were relevant to its

decision. On this matter, PRC found that Mailing Online, as recommended

by the terms of PRC decision, would not constitute unfair competition or

result in an unfair competitive advantage for USPS.

• In October 1998, United Parcel Service (UPS) filed a complaint with PRC

that PosteCS has constituted unfair competition and is a class of mail or

type of mail service and thus a domestic postal service that USPS could

legally establish only by requesting a PRC decision on its classification and

rates. USPS disagreed with both charges. USPS stated that PosteCS is a

totally electronic service for documents; does not use USPS’ physical

retail, mail processing, and delivery networks; conducts all transactions

through electronic communications; and is an international service. USPS

also said that PRC had no authority to review USPS’ categorization of

PosteCS as a nonpostal service. However, PRC ruled that it has the

authority to consider the claim that PosteCS is a postal service49 and

directed the complaint case to initially focus on the issue of whether

PosteCS is a postal service. In August 2000, this case remained under

consideration. USPS also told us that PRC does not have authority to

review USPS decisions of what services are postal and nonpostal. In USPS’

view, hybrid service offerings that combine electronic communications

and hard copy mail, such as Mailing Online, are “postal services” that

 

47 GAO/GGD-99-15.

48 Opinion and Recommended Decision, Mailing Online Experiment, Docket No. MC2000-2, Postal Rate

Commission, June 21, 2000.

49 PRC stated that it had the discretionary authority to consider a wide range of rate and service

complaints and thus was obliged to interpret the Postal Reorganization Act of 1970 and its applicability

as part of the complaint process. Order Denying Motion of United States Postal Service to Dismiss

Complaint and Notice of Formal Proceedings, PRC Order No. 1239, Docket No. C-99-1, May 3, 1999.
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involve aspects of the acceptance, processing, or delivery of mail.

Conversely, USPS stated that electronic service offerings that do not

involve an aspect of the acceptance, processing, or delivery of mail are not

“postal services” for purposes of PRC review.

• Concerns have been raised that USPS’ dual role as a competitor and an

entity with law enforcement responsibilities for its e-commerce products

and services is inconsistent with fair competition. The Chairman of the

House Subcommittee on the Postal Service has raised concerns that the

Department of Justice (DOJ) delegation of authority to the Inspection

Service in the e-commerce area gave USPS an unfair competitive

advantage over private sector providers of electronic products and

services who lack similar authority. DOJ defended its delegation of

authority as not inconsistent with current law and stated the consideration

of the issues did not negate the Attorney General’s responsibility to ensure

that the Inspection Service has the enforcement tools it needs to carry out

its federal law enforcement mandate. However, DOJ also said that it

“understands the potential for abuse that exists as a result of the law

enforcement powers and protections assigned to the Postal Service, and

we concede that support for the enforcement activities of the Postal

Inspection Service may be viewed as somewhat incongruous with this

concern.” DOJ said that the drafters of the Postal Reorganization Act of

1970 did not provide safeguards against the possibility of conflicts between

USPS’ goals in managing the Inspection Service and the law enforcement

goals of the federal government.

• In a May 8, 2000, letter to Representative Christopher Cox that was also

circulated to other Members, the Executive Director of the U.S. Internet

Industry Association (USIIA)50 expressed a number of concerns, including

the view that given the entry of USPS into e-commerce, its historic role as

a regulator and its current exemption from antitrust considerations, it

remains to be resolved whether USPS should be permitted to dominate

services it may also seek to regulate. On May 17, 2000, USPS responded in

a letter to Representative John McHugh, Chairman of the House

Subcommittee on the Postal Service, and other House Members rebutting

the USIIA concerns, stating that USPS is not in a position of regulating any

portion of electronic services offered by USPS competitors, nor does it

seek to do so.

 

50 USIIA is a nonprofit trade association that reported its mission is to foster the growth and

development of Internet commerce, content, and connectivity.
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• The President and CEO of the Computer & Communications Industry

Association (CCIA)51 has recently objected to USPS offering competitive ecommerce products and services on the grounds that with an

infrastructure established through taxpayer subsidies and its governmentsponsored postal monopoly, USPS’ entrance into these markets would be

unfair and detrimental to competition and innovation. Similarly, the

Chairman and CEO of UPS has also reportedly said that USPS wants to

dominate the communications end of the e-commerce revolution, doing

things like bill presentment and payment, but that a government monopoly

should not be allowed to use the benefits of its government standing to

attack the private sector.

In addition to these competition-related concerns, some specific concerns

have been raised concerning USPS e-commerce products and services that

relate to emerging e-commerce issues, such as consumer privacy. For

example, USPS’ Privacy Act statement for eBillPay was criticized this

spring by the PRC’s Chairman for permitting overly broad disclosure of

customer information. USPS subsequently revised its eBillPay Privacy Act

Statement to further restrict disclosure of customer information. In

explaining the revisions, USPS noted that it had not provided, and did not

intend to provide, information under its former Privacy Act statement.

During oversight hearings and in the debate over whether the nation’s

postal laws should be reformed, some in Congress have continued to raise

questions about USPS’ e-commerce activities and related legal authority,

due in part to the conflicting views of USPS and some of its competitors

and other stakeholders. Many of the competition-related concerns stem

from the current USPS legal framework, which among other things, grants

USPS a legal monopoly over the delivery of letter mail and requires USPS

to provide service to all patrons in all communities and operate on a

breakeven basis.

In addition, USPS stated that this framework allows USPS to develop new

products and enter into markets currently being served by the private

sector but exempts it from some of the laws and regulations that apply to

private sector businesses. Consequently, some private sector businesses

claim they are placed at a competitive disadvantage. On the basis of these

concerns, some competitors and others contend that USPS should refrain

from entering markets currently being served by the private sector and

should limit its activities to providing hard copy delivery services. In

 

51 CCIA reported that it is an international, nonprofit association of computer and communications

firms as represented by their most senior executives.
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addition, some stakeholders assert that if USPS is to compete in these

markets, the laws should be changed so that USPS must participate on the

same terms and conditions as those faced by its private sector

competitors.

On the other hand, the Postmaster General and some other stakeholders

have said that current laws put USPS at a competitive disadvantage and

have called for changes to give USPS increased flexibility to compete. He

and other stakeholders have called for granting USPS greater pricing

flexibility and more authority to introduce new products. The issue of

USPS’ authority to offer nonpostal products and services and its specific

authority to offer e-commerce products and services continues to be

raised in Congress.

USPS is in the early stages of implementing its current e-commerce

program. Since the beginning of 2000, USPS has taken a number of steps to

develop and implement its e-commerce activities, including developing a

definition of its e-commerce initiatives, identifying its e-commerce and

related initiatives, and establishing an organizational process for approving

its e-commerce initiatives. USPS has identified seven e-commerce

initiatives involving products and services that facilitate the movement of

messages, merchandise, and money in ways that require the use of the

Internet and generate revenues for USPS. USPS has also recently outlined

overall goals and strategies for the e-commerce area and developed some

performance targets for its e-commerce initiatives.

Despite these steps, we have identified three problem areas in which USPS

needs to improve its management of its e-commerce area. These are:

• inconsistencies in identifying e-commerce and related initiatives and in

reporting the status of these activities that made it difficult for us to ensure

we had a complete and accurate picture of USPS’ e-commerce activities;

• inconsistencies in following the required process for reviewing and

approving its e-commerce initiatives; and

• deficiencies in the financial information USPS provided for its e-commerce

activities that raised concerns about the accuracy and completeness of the

financial reporting for e-commerce activities.

Without reliable information, it is difficult to obtain a complete and

accurate picture of USPS’ e-commerce activities. According to documents

provided to us by USPS, some e-commerce initiatives were implemented

Conclusions
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without required business plans and documented approvals, which raises

questions as to whether the initiatives were appropriately planned and

reviewed. Finally, we do not believe the financial data that USPS provided

could be used to assess USPS’ progress toward meeting its overall

financial performance expectation that revenues generated by e-commerce

products and services in the aggregate are to cover their direct and

indirect costs as well as make a contribution to overhead. We are making

several recommendations to USPS that address these key management

deficiencies.

In the legal area, USPS has provided legal information and analysis that

should be a valuable reference to Congress and other stakeholders

interested in the application of laws and regulations to USPS’ e-commerce

activities. USPS reports that its unique status as an independent

establishment of the executive branch gives it broad legal authority and

discretion to offer e-commerce products and services in ways that USPS

finds appropriate to its assigned functions and in the public interest. USPS,

some competitors, and other stakeholders have conflicting views on the

extent of USPS’ legal authority to offer e-commerce products and services,

and under what circumstances it should offer these services. The

appropriate role of USPS has been debated for many years and continues

to be debated in the context of proposals for comprehensive legislation to

reform the nation’s postal laws.

We recommend that the Postmaster General take the following actions to

help ensure more effective management and oversight of USPS’ ecommerce activities:

• take appropriate actions to help ensure that e-commerce and related

initiatives are appropriately identified and maintain accurate and complete

information related to the status of these initiatives;

• follow processes and controls that have been established for developing

and approving e-commerce initiatives; and

• provide complete and accurate information on costs and revenues for the

financial data on e-commerce initiatives.

USPS provided comments on a draft of this report in a letter from the

Deputy Postmaster General dated August 29, 2000. These comments are

summarized below and included as appendix III. We also incorporated

technical comments provided by USPS officials into the report where

appropriate. The Postal Rate Commission (PRC) provided comments on a

Recommendations

Agency Comments and

Our Evaluation
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draft of this report in a letter from the Chairman dated August 25, 2000;

these comments are also summarized below and included as appendix IV.

USPS said that the draft report generally described its e-commerce

program at the time of our review accurately and captured the normal

growing pains that most organizations go through in developing and

beginning to implement something not done before. Further, USPS stated

that it accepted and endorsed the report’s recommendations. However,

USPS noted some differences in perspective, which we discuss below.

USPS said it appreciated our draft report’s candid evaluation and

identification of opportunities to improve how it manages its e-commerce

activities. USPS said that it is already taking the necessary actions to

implement our recommendations within a management structure that will

provide long-term as well as day-to-day oversight of the e-commerce

program. Specifically, USPS said it would more precisely identify its new

e-commerce initiatives and more completely document their review and

approval. USPS also said it will require that complete and accurate cost,

revenue, and performance data be tracked and periodically reported to

senior management so USPS can assess whether its e-commerce program

is meeting its goal in this area.

With respect to USPS’ characterization of differences in perspectives on

the administrative history of USPS’ e-commerce initiatives, this apparently

refers to our concerns about USPS’ inconsistencies in applying its ecommerce definition. We recognize that this is an evolving area and some

differences in interpretation of USPS’ definition of e-commerce initiatives

can exist. However, in some cases, it was difficult to understand the

rationale for the identification of e-commerce initiatives without more

clarification from USPS on how it intended to treat the revenues from

these initiatives. Also, some initiatives were provided in conjunction with

other products and services, and it was not clear how the revenues would

relate to e-commerce versus other core products or services. USPS’

consistent application of its e-commerce definitions is important so that it

can maintain complete and accurate information about its e-commerce

and related activities and has implications for how USPS accounts for its

revenues and expenses from various e-commerce initiatives.

Concerning USPS’ statement that all of its e-commerce initiatives were

thoroughly reviewed and approved by senior management before

implementation; if so, such approvals were not fully documented. Without

documented approvals, USPS management cannot ensure that its e-
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Page 56 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

commerce initiatives are being appropriately reviewed so that they will

support USPS’ overall mission and goals.

USPS commented that it has been challenged by a new and extremely

dynamic marketplace and that its e-commerce efforts are still in the early

stages. USPS noted that its e-commerce program’s most substantial

progress so far has occurred while our review was being conducted this

year. In that regard, USPS commented that even with its more accelerated

approval process for its e-commerce intiatives, it is still carefully

evaluating projects, controlling their use of resources, defining how it will

measure success, and continually measuring performance against those

standards. We believe that these are important steps that need to be fully

and effectively implemented. In this regard, we believe that effective

implementation of our recommendations should aid USPS in improving its

management and oversight in the e-commerce area.

USPS also noted, and agreed with our report, that it needed better

mechanisms to track and report the revenues and expenses of its ecommerce initiatives. Accordingly, USPS said it is already instituting a

standard financial reporting procedure that will allow it to better assess

the progress of each e-commerce initiative toward meeting its expected

performance goals. We believe that the financial data deficiencies we

reported are significant. The steps USPS has reported taking in this area

are important and need to be effectively implemented.

In the comments provided by PRC, the Chairman stated that overall, the

draft report’s analysis of the issues was thorough, well-documented, and

objective in its presentation of USPS views and those of other interested

parties. In addition, PRC commented on one specific feature of our draft

report dealing with USPS’ pricing policy.

As we reported, USPS told us that it must seek to price its nonpostal

services in a fair and reasonable way, including coverage of attributable

costs plus a reasonable contribution to overhead. Also, USPS said that in

providing e-commerce products and services, it will ensure that in the

aggregate the revenues generated by such products and services will cover

their direct and indirect costs as well as make a contribution to overhead.

However, PRC commented that setting fees for e-commerce or other

nonpostal services to achieve a revenue criterion of recovery of direct and

indirect costs, plus some non-zero contribution to overhead, provides no

assurance that the fees would satisfy the incremental cost test, either
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Page 57 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

individually or collectively, and thus generate revenues sufficient to be

free of cross-subsidy.52

PRC also stated that even undertaking to satisfy the incremental cost test

in the aggregate rather than individually could allow some e-commerce

products to be cross-subsidized. Further, PRC said that it is not clear that

it is good policy for a federal agency to offer any competitive product that

is cross-subsidized. In this regard, USPS officials provided clarification

during its review of our draft report that “eCommerce products and

services in the aggregate are to cover their incremental costs and thus not

be cross-subsidized. Also, it is intended that each eCommerce product and

service should cover its costs.”

Although we did not address this issue within this review, these comments

further illustrate the need for accurate financial information. In addition,

some postal stakeholders have raised concerns about the potential for

cross-subsidization of postal e-commerce products from the revenues of

other USPS products and thus are likely to focus attention on USPS’

financial performance in the e-commerce area.

We are sending copies of this report to Senator Daniel Akaka, Ranking

Minority Member, Subcommittee on International Security, Proliferation,

and Federal Services, Senate Committee on Governmental Affairs;

Representative Chaka Fattah, Ranking Minority Member, Subcommittee

on the Postal Service, House Committee on Government Reform; Mr.

William J. Henderson, Postmaster General and Chief Executive Officer,

U.S. Postal Service; Mr. Edward Gleiman, Chairman, Postal Rate

Commission; and other interested parties. We will also make copies

available to others on request.

 52 PRC defined the following criteria for the incremental cost test: “The revenues collected from any

service (or group of services) must be at least as large as the additional (or incremental) cost of adding

that service (or group of services) to the enterprise’s other offerings.”
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Staff acknowledgments are listed in appendix V. If you have any questions

about this report, please contact me on (202) 512-8387.

Bernard L. Ungar

Director, Government Business

 Operations Issues
Page 59 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws
Page 60 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Contents

1 Letter

Appendix I 62

Objectives, Scope, and

Methodology

Appendix II 65

Selected Federal Laws,

Regulations, and

Policies That May

Relate to USPS ECommerce Initiatives

According to USPS

Appendix III 73

Comments From USPS

Appendix IV 75

Comments From PRC

77

GAO Contact 77

Acknowledgments 77

Appendix V

GAO Contacts and

Staff

Acknowledgements

Table 1: USPS E-Commerce and Gray Area Initiatives as

of September 2000

11

Table 2: USPS’ Processes for Review and Approval of ECommerce Initiatives18

Table 3: Targets and Performance of E-Commerce

Initiatives, Fiscal Years 1996 Through 2000

21

Tables

Table 4: USPS Documentation of Its Review and Approval

of E-Commerce Initiatives

26
Contents

Page 61 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Table II.1: Selected Federal Statutes, Regulations, and

Policies That May Relate to USPS E-Commerce

Initiatives According to USPS

65

Abbreviations

DOJ Department of Justice

ACH Automated Clearinghouse

BOG Board of Governors

CCIA Computer & Communications Industry Association

CMO Chief Marketing Officer

CRS Congressional Research Service

eBillPay Electronic Bill Payment Service

eBOB eBusiness Opportunity Board

E-COM Electronic Computer-Originated Mail

EPM Electronic Postmark

FBI Federal Bureau of Investigation

FOIA Freedom of Information Act

FTC Federal Trade Commission

FTCA Federal Tort Claims Act

MOU memorandum of understanding

NACHA National Automated Clearing House Association

NCOA National Change of Address (program)

OMB Office of Management and Budget

PosteCS Postal Electronic Courier Service

PRC Postal Rate Commission

SOHO Small Office and Home Office

SPC Strategic Planning Committee

SSL Secure Sockets Layer

UPS United Parcel Service

USIIA US Internet Industry Association

USPS U.S. Postal Service
Appendix I

Objectives, Scope, and Methodology

Page 62 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

For this report, our objectives were to describe the U.S. Postal Service’s

(USPS) (1) e-commerce initiatives that have been implemented or are

being developed; (2) goals and strategies for the e-commerce area, (3)

processes for approving these initiatives, and (4) expected performance

and results to date related to e-commerce initiatives. During the course of

our review, we identified areas where USPS can improve its management

of its e-commerce activities, and this report discusses these areas as well.

An additional objective was to describe USPS’ views on how major federal

laws and regulations apply to its e-commerce initiatives and to identify

legal issues that have been raised concerning its e-commerce activities.

To describe USPS e-commerce initiatives, we obtained a definition from

USPS of what it considered to be an electronic commerce initiative; USPS’

listing of e-commerce initiatives that was to correspond to this definition;

and a description of each initiative, along with available supporting

documentation. USPS reported e-commerce initiatives that were planned,

piloted, or implemented as of September 2000. We obtained additional

information on USPS e-commerce initiatives from Postal Rate Commission

(PRC) proceedings and other public sources, such as the USPS Internet

site. Further, we attended USPS press conferences on its e-commerce

initiatives and attended a conference that included presentations by USPS

officials that discussed USPS e-commerce initiatives.

We also obtained documentation from USPS on its goals and strategies,

expected performance, and results to date relating to its e-commerce

initiatives. The documentation included, for example, preliminary

performance plans for fiscal year 2001; available performance measures,

targets, and results; documentation of the processes applicable to USPS ecommerce initiatives and the approval of specific initiatives under these

processes; minutes of the USPS eBusiness Opportunity Board and relevant

meetings of the USPS Board of Governors; and available staffing and

financial data. We interviewed USPS officials responsible for USPS ecommerce initiatives including the Deputy Postmaster General, the Chief

Technology Officer, and e-commerce program officials. The USPS General

Counsel and other USPS legal officials also participated in these

interviews. In all cases, we obtained, when possible, documentation to

corroborate oral statements.

In the area of financial results, in response to our request, USPS provided

information on revenues and expenses generated by its e-commerce

initiatives, although some did not have reported revenues because they
Appendix I

Objectives, Scope, and Methodology

Page 63 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

had not been implemented by USPS’ cut-off date of February 2000.1 In

April 2000, USPS provided data on its revenues and expenses to date for its

current e-commerce initiatives, based on USPS’ list of e-commerce

initiatives that was provided at that time. We did not independently verify

or audit the overall integrity of USPS’ data. However, we examined the

data to see whether they appeared to be consistent with USPS’ ecommerce definition and criteria, clear as to what was included, and

complete. We notified USPS of several concerns we had with the April

2000 data; USPS acknowledged our concerns and provided revised data for

some of its current e-commerce initiatives as well as its discontinued ecommerce initiatives on June 15 and June 27, 2000. We advised USPS of

similar problems with the June data, and USPS provided another set of

substantially revised data in July. As with the data previously provided, we

did not independently verify USPS’ data, but examined its consistency,

clarity, and completeness.

Concerning how major federal laws and regulations apply to USPS ecommerce initiatives and relate to emerging e-commerce issues, we did

preliminary research on applicable sections of the U.S. Code, USPS

regulations, federal regulations, PRC decisions and proceedings, relevant

court decisions, Office of Management and Budget (OMB) Circulars, and

administration policies relating to electronic commerce. We also reviewed

information on USPS e-commerce initiatives and other relevant literature,

such as our related reports, stakeholder correspondence and press

releases, and other articles in the trade press. We then obtained written

responses from USPS regarding the applicability of federal laws,

regulations, and policies to USPS e-commerce products and services. We

also summarized our past findings on how relevant federal laws apply to

USPS from our 1998 report on USPS new products and services2

 and our

1996 and 1999 reports that discussed federal privacy protections that relate

to change-of-address information reported by USPS customers.3

 Due to

time constraints, we did not update this past work for the purposes of this

review. We also reviewed our 1995 report on government corporations4

 as

 

1

 USPS provided data for current and discontinued initiatives from inception, which predated fiscal

year 1995, through fiscal year 1999 and partial results for fiscal year 2000. The cut-off date in fiscal year

2000 appeared to vary for some initiatives for the data that USPS provided to us in April 2000. In July

2000, USPS provided revised data with a February 2000 cut-off date for revenues and expenses

generated by each e-commerce initiative.

2

 GAO/GGD-99-15.

3

 GAO/GGD-96-119, GAO/GGD-99-102.

4

 Government Corporations: Profiles of Existing Government Corporations (GAO/GGD-96-14, Dec. 13,

1995).
Appendix I

Objectives, Scope, and Methodology

Page 64 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

it related to the descriptions cited in appendix II of selected laws,

regulations, and policies that may apply to USPS e-commerce activities.

Further, we determined the views of some stakeholders on legal issues

relating to USPS e-commerce initiatives based on public materials such as

relevant PRC decisions.

We conducted our review at USPS headquarters in Washington, D.C.,

between January 2000 and August 2000 in accordance with generally

accepted government auditing standards.
Appendix II

Selected Federal Laws, Regulations, and

Policies That May Relate to USPS ECommerce Initiatives According to USPS

Page 65 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Citation(s) Description USPS Comments

Selected statutes relating to USPS authority to offer e-commerce products and services

Postal Reorganization Act

39 U.S.C. § 101(a)

Directs that USPS be operated as a basic and

fundamental service provided to the people.

Provides generalized guidance about what

USPS is intended to accomplish and is not

intended as a comprehensive statement of

powers and limitations.

States that the basic function of USPS is the

provision of postal services to bind the nation

together through the personal, educational,

literary, and business correspondence of the

people.

The postal system as a whole is to bind the

nation together. This includes the basic function

of the carriage of goods, as well as supporting,

ancillary, and nonpostal services.

Directs USPS to provide prompt, reliable, and

efficient services to patrons in all areas and

render postal services to all communities.

This subsection applies to the postal system as

a whole. USPS services should collectively

provide services to all areas and communities.

Postal Reorganization Act

39 U.S.C. § 401(3)

Grants USPS powers to enter into and perform

contracts, execute instruments, and determine

the character and necessity of expenditures.

In conjunction with §§ 401(10), 403(a), and

404(a)(6), this subsection provides sufficient

authority for USPS to offer e-commerce

products and services.

This subsection and §§ 401(10) and 404(a)(6)

are each broad enough to empower USPS to

provide whatever service or conduct whatever

activity (not prohibited elsewhere) that

appropriately serves the purposes set forth in

law for USPS.

Postal Reorganization Act

39 U.S.C. § 401(10)

Grants USPS all other powers incidental,

necessary, or appropriate to the carrying on of

its functions or the exercise of its specific

powers.

In conjunction with §§ 401(3), 403(a), and

404(a)(6), this subsection provides sufficient

authority for USPS to offer e-commerce

products and services.

This subsection and §§ 401(3) and 404(a)(6)

are each broad enough to empower USPS to

provide whatever service or conduct whatever

activity (not prohibited elsewhere) that

appropriately serves the purposes set forth in

law for USPS.

Postal Reorganization Act

39 U.S.C. § 403(a)

Directs USPS to provide other services, as it

finds appropriate to its functions and in the

public interest, incidental to the receipt,

transmittal and delivery of mail.

In conjunction with §§ 401(3), 401(10), and

404(a)(6), this subsection provides sufficient

authority for USPS to offer e-commerce

products and services.

However, this subsection is a summary of USPS

duties rather than its authority.

Table II.1: Selected Federal Statutes, Regulations, and Policies That May Relate to USPS E-Commerce Initiatives According to

USPS
Appendix II

Selected Federal Laws, Regulations, and Policies That May Relate to USPS E-Commerce

Initiatives According to USPS

Page 66 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Citation(s) Description USPS Comments

Postal Reorganization Act

39 U.S.C. § 403(b)

Directs USPS to maintain an efficient

system of collection, sorting, and

delivery of the mail.

A service ordinarily will be appropriate to the

functions of USPS if it will aid USPS to improve,

among other things, the efficiency or any other

characteristic of one or more of its mail or

philatelic services so as to add value for

customers.

Postal Reorganization Act

39 U.S.C. § 404(a)(6)

Grants USPS the power to provide, establish,

change, or abolish special nonpostal or similar

services.

In conjunction with §§ 401(3), 401(10), and

403(a), this subsection provides sufficient

authority for USPS to offer e-commerce

products and services.

This subsection and §§ 401(3) and 401(10) are

each broad enough to empower USPS to

provide whatever service or conduct whatever

activity (not prohibited elsewhere) that

appropriately serves the purposes set forth in

law for USPS.

Postal Reorganization Act

39 U.S.C. § 404(a)(5)

Grants USPS the authority to provide philatelic

services.

The USPS provision of services other than the

carriage of “letters” does not signify that such

other services are necessarily outside the scope

of the postal laws. As an example, philatelic

services are not mail but have the protection of

some postal laws.

Postal Reorganization Act

39 U.S.C. § 2010

Directs USPS to promote modern and efficient

operations, and refrain from engaging in any

practice that restricts the use of new equipment

or devices that may reduce the cost or improve

the quality of postal services.

Efficiency is one factor for consideration when

determining if a service is appropriate to USPS

functions.

Selected Privacy Related Statutes and Regulations

Privacy Act of 1974

5 U.S.C. § 552a

Limits the collection, maintenance, use, and

dissemination of personal information by

agencies and grants individuals access to

information about themselves.

Applies to USPS, including USPS e-commerce

products and services.

Freedom of Information Act

(FOIA)

5 U.S.C. § 552

Provides persons with the right of access to a

broad range of records and materials related to

the performance of agency activities, other than

those specifically excluded by the act.

Applies to USPS, with some exceptions, such

as those stated in 39 U.S.C. § 410(c)(1) and (2).

Right to Financial Privacy Act

12 U.S.C. § 3401 et seq.

Prohibits federal agencies from accessing

financial institution customer records unless

authorized by the individual or authorized under

the law for specific judicial and law enforcement

purposes.

USPS does not act as a financial institution

within the meaning of this statute.

Children’s Online Privacy

Protection Act of 1998

15 U.S.C. § 6501 et seq.

Prohibits unfair and deceptive acts and

practices in connection with the collection and

use of personal information from and about

children on the Internet.

USPS considers that it should follow the

standards adopted by the Federal Trade

Commission for child-oriented Web pages.
Appendix II

Selected Federal Laws, Regulations, and Policies That May Relate to USPS E-Commerce

Initiatives According to USPS

Page 67 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Citation(s) Description USPS Comments

Trade Secrets Act

18 U.S.C. §1905

Prohibits disclosure of information by federal

employees made with knowledge that

information is confidential and its disclosure is

forbidden by official agency policy, regulation,

or law.

Applies to USPS, including USPS e-commerce

products and services.

Generally precludes USPS from releasing

certain confidential, business-sensitive

information about a customer from its computer

files without the customer’s express permission.

Electronic Communications

Privacy Act

18 U.S.C. § 2701 et seq.

Prohibits the disclosure by certain computer

storage or processing service providers of

private electronic communications to a

governmental entity without a search warrant

or certain subpoenas.

Applies to USPS, including USPS e-commerce

products and services.

Applies to USPS-maintained e-commerce

information prohibiting its disclosure to other

federal agencies, including the Bureau of the

Census and the National Archives and Records

Administration.

Postal Reorganization Act

39 U.S.C. § 410(c)(1)

Exempts from FOIA disclosure the name or

address, past or present, of any postal patron.

Applies to USPS, including USPS e-commerce

products and services.

Postal Reorganization Act

39 U.S.C. § 410(c)(2)

Exempts from FOIA disclosure information of a

commercial nature that would not be disclosed

under good business practice.

Applies to USPS, including USPS e-commerce

products and services.

Postal Reorganization Act

39 U.S.C. § 412

Prohibits the disclosure of lists of postal patrons

or other persons by USPS employees or

officers.

Applies to USPS, including USPS e-commerce

products and services.

Selected Consumer Protection Related Statutes

Fair Credit Reporting Act

15 U.S.C. § 1681 et seq.

Protects individuals from inaccurate or arbitrary

information in credit reports that is used to

determine eligibility for credit, insurance, or

employment.

This statute does not apply on its own terms

since USPS is not a consumer reporting agency

within the definition of the act.

Equal Credit Opportunity Act

15 U.S.C. § 1691 et seq.

Prohibits the denial of credit based on race,

color, religion, national origin, sex or marital

status, age, or because the applicant receives

public assistance.

Since USPS does not extent credit, this act

does not apply to USPS e-commerce products

and services. However, USPS considers itself

bound not to discriminate in its programs.

Fair Debt Collection Practices

Act

15 U.S.C. § 1692 et seq.

Prohibits abusive debt collection practices by

debt collectors.

This act is meant for debt collection agencies

and excludes debt collection by government

employees. Since USPS does not extend

credit, this act does not apply.

Electronic Fund Transfer Act

15 U.S.C. § 1693 et seq.

Establishes a framework of rights, liabilities,

and responsibilities for consumers and other

participants in electronic fund transfers.

Given the current form of USPS e-commerce

programs, most of the act does not apply to

USPS because fund transfers for USPS ecommerce services are currently not done by

USPS or its agent.

Magnuson-Moss Act

15 U.S.C. § 2301 et seq.

Sets federal minimum standards and rules for

the content and disclosure of warranties.

This act probably does not apply to USPS and

USPS e-commerce products and services,

which under this act do not seem to be

consumer products. Under the act, “consumer

product” means any tangible personal property

which is distributed in commerce and which is

normally used for personal, family, or household

purposes.
Appendix II

Selected Federal Laws, Regulations, and Policies That May Relate to USPS E-Commerce

Initiatives According to USPS

Page 68 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Citation(s) Description USPS Comments

Gramm – Leach – Bliley Act

(also referred to as Financial

Services Modernization Act)

Pub. L. No. 106-102, Nov. 12,

1999, to be codified at 15 U.S.C.

§ 6801 et seq.

Obligates financial institutions to protect and

preserve the confidentiality of customers’

nonpublic personal information.

Any financial institutions contracting to assist

USPS in the provision of any of its services

would be covered by this legislation.

Title III of the Omnibus Crime

Control and Safe Streets Act of

1968

18 U.S.C. § 2510 et seq.

Prohibits electronic surveillance by the federal

government except under carefully defined

circumstances and only after securing judicial

authority.

Applies to USPS, including USPS e-commerce

products and services.

Bank Secrecy Act

31 U.S.C. § 5311 et seq.

Requires financial institutions to report the

import and export of monetary instruments for

purposes of acquiring information for criminal

investigations.

Applies to USPS, including USPS e-commerce

products and services.

However, none of USPS e-commerce products

and services currently trigger the reporting

requirements in the act, except for Dinero

Seguro, involving money sent to Mexico. (See

table 1 for more information on this initiative.)

Postal Reorganization Act

39 U.S.C. § 101(d), 202(a), 403(a)

Establishes postal policies, such as apportioning

postal costs to all mail users on a fair and

equitable basis; provides that USPS shall be

directed by Board of Governors chosen to

represent the public interest; and mandates

USPS to provide postal services to all

communities and serve as nearly as practicable

the entire population of the United States.

Incorporates elements of consumer protection

through issues of postal policy, the appointment

of a Board of Governors that represents the

public interest, and the mandate to provide

universal service.

Postal Reorganization Act

39 U.S.C. §§ 3001-3017

In general, limits “solicitation of money or

property through the mails by means of false

representations”; the conduct of illegal lotteries,

sweepstakes or skill contests; or the promotion

or distribution of various items that are

“nonmailable” by statute.

Specifically applicable to USPS e-commerce

initiatives (1) if the offered service is used to

solicit money or property through the U.S. mail

by false pretenses or (2) if a physical product is

ordered and paid for electronically and then

delivered by USPS.

Selected Contract and Procurement Related Statutes

The Rehabilitation Act of 1973

29 U.S.C. § 701, et seq.

Prohibits discrimination against disabled

individuals in programs receiving federal

financial assistance.

Applies to USPS, including USPS e-commerce

products and services.

The Vietnam Era Veterans

Readjustment Assistance Act

of 1972

38 U.S.C. § 4212

Requires federal contractors and subcontractors

to take affirmative action to employ certain

veterans.

Applies to USPS, including USPS e-commerce

products and services.

Postal Reorganization Act

39 U.S.C. §410(b)(2), (4), and (5)

Cites contracting and labor laws that apply to

USPS.

Applies to USPS.

National Labor Relations Act

 29 U.S.C. § 151 et seq.

Governs labor management relations. To the extent that it is not inconsistent with 39

U.S.C. §§1201-1209, this act applies to USPS.

The Javits – Wagner – O’Day

Act

41 U.S.C. §§46-48

Establishes policies for government

procurement from qualified agencies for the

blind.

Applies to USPS, including USPS e-commerce

products and services.
Appendix II

Selected Federal Laws, Regulations, and Policies That May Relate to USPS E-Commerce

Initiatives According to USPS

Page 69 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Citation(s) Description USPS Comments

The Contract Disputes Act of

1978

41 U.S.C. § 601 et seq.

Establishes rules for initiating and adjudicating

contract claims against the U.S. government.

Applies to USPS, including USPS e-commerce

products and services.

Title III of The Federal Property

and Administrative Services

Act

41 U.S.C. § 251 et seq.

Provides that federal agencies are to make

purchases and contracts for property and

services through full and open competition.

Does not apply to USPS.

The National Environmental

Policy Act

42 U.S.C. § 4321 et seq.

Requires federal agencies to consider possible

environmental consequences when performing

their functions.

Applies to USPS, including USPS e-commerce

products and services.

Selected Criminal Statutes

18 U.S.C. § 201 Prohibits bribery of public officials and

witnesses.

Applies to USPS, including USPS e-commerce

products and services.

Employees who accepted bribes or gratuities in

exchange for information about postal

customers would be subject to prosecution

under this statue.

18 U.S.C. § 641 Prohibits the theft or embezzlement of public

money, property, or records.

Applies to USPS, including USPS e-commerce

products and services.

The taking, conversion, or destruction of USPS

tangible property would be a violation of this

statute.

18 U.S.C. § 1029 Prohibits fraud and related activity in connection

with access devices.

USPS investigative authority relating to this

section is derived from 18 U.S.C. § 3061(b)(2)

and a delegation of authority from DOJ.

18 U.S.C. § 1030 Prohibits fraud and related activity in connection

with computers.

USPS investigative authority relating to this

section is derived from 18 U.S.C. § 3061(b)(2)

and a delegation of authority from DOJ.

18 U.S.C. § 1341 Prohibits frauds and swindles involving the use

of the mails.

No court has yet addressed the issue of whether

this statute would be applicable to USPS ecommerce products and services.

18 U.S.C. § 1343 Prohibits fraud by wire, radio, or television. USPS investigative authority relating to this

section is derived from 18 U.S.C. § 3061(b)(2)

and a delegation of authority from DOJ. Based

on existing case law, it can be assumed that this

law would apply to certain USPS e-commerce

products and services.

18 U.S.C. §§ 1691-1738 Prohibits theft, delay, and obstruction of mails,

among other things

Applies to USPS, but does not apply to ecommerce products and services that do not

involve hard copy mail.

USPS believes that enforcement of these

criminal statutes is limited to hard-copy mail,

although no cases have addressed the issue.
Appendix II

Selected Federal Laws, Regulations, and Policies That May Relate to USPS E-Commerce

Initiatives According to USPS

Page 70 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Citation(s) Description USPS Comments

18 U.S.C. § 2701 Prohibits unlawful access to stored

communications.

USPS investigative authority relating to this

section is derived from 18 U.S.C. § 3061(b)(2)

and a delegation of authority from DOJ.

Selected Statutes Relating to Ratesetting and the Postal Rate Commission (PRC)

Postal Reorganization Act

39 U.S.C. § 101(d)

Postal rates shall be established to apportion

the costs of all postal operations to all users of

the mail on a fair and equitable basis.

USPS believes that while this subsection deals

specifically with mail services, the cost

apportionment policy reflected in this provision

seems appropriately applied to nonpostal

services as well.

Postal Reorganization Act

39 U.S.C. § 401(2)

Grants USPS the power to adopt, amend, and

repeal rules and regulations.

This subsection applies to the exercise of all

USPS functions, including any use made of

electronic commerce.

Postal Reorganization Act

39 U.S.C. § 403(c)

Prohibits USPS from making any undue or

unreasonable discrimination among users of the

mails, and also from granting any undue or

unreasonable preferences to any such user.

While USPS believes this subsection on its

terms seems inapplicable to nonpostal services,

USPS assumes that general principles akin to

those underlying that subsection are implicit in

the policies of title 39 and thus should be

applied.

Postal Reorganization Act

39 U.S.C. §§ 3621 and 407(b)(2)

Grants BOG authority to establish reasonable

and equitable classes of domestic mail and

reasonable and equitable rates and fees for

domestic postal services except as otherwise

provided by this statute.

Courts have regarded postal services in this

context as those services involving aspects of

the acceptance, processing, or delivery of mail.

In USPS’ view, the term “mail” involves hard

copy and not electronic transmissions.

Postal Reorganization Act

39 U.S.C. §§ 3622 and 407(b)(2)

Establishes a system for USPS to request and

the PRC to provide recommendations for

changes in rates of postage and fees for

domestic postal services.

Courts have regarded postal services in this

context as those services involving aspects of

the acceptance, processing or delivery of mail.

In USPS’ view, the term “mail” involves hard

copy and not electronic transmissions.

Postal Reorganization Act

39 U.S.C. §§ 3623 and 407(b)(2)

Establishes a system for USPS to request and

the PRC to provide recommendations for

changes in domestic mail classification.

Courts have regarded postal services in this

context as those services involving aspects of

the acceptance, processing or delivery of mail.

In USPS’ view, the term “mail” involves hard

copy and not electronic transmissions.

Postal Reorganization Act

39 U.S.C. § 3625

Establishes actions BOG may take upon

receiving a recommended decision from PRC.

BOG actions would apply to PRC decisions on

USPS e-commerce products and services that

are subject to PRC decisions.

Postal Reorganization Act

39 U.S.C. § 3662

Enables parties to file complaints to PRC

charging that USPS rates and fees do not

comply with the policies and guidelines

contained in the Postal Reorganization Act.

USPS does not know of any provision for direct

review or modification by PRC of any

determination by USPS about whether it regards

particular services as “postal.” In the course of

PRC’s own proceedings under chapter 36,

however, which may depend upon a service

being “postal” for purposes of that chapter, PRC

asserts the authority to form its own position on

that subject for that purpose. The final

determination in a particular case or controversy

may rest with the courts.
Appendix II

Selected Federal Laws, Regulations, and Policies That May Relate to USPS E-Commerce

Initiatives According to USPS

Page 71 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Citation(s) Description USPS Comments

Selected Patent and Trademark Related Statutes

Lanham Act or Trademark Act

of 1946

15 U.S.C. § 1051 et seq.

Allows owners of trademarks to register them

with the Patent and Trademark Office and

prohibits others from using that trademark.

Applies to USPS, including USPS e-commerce

products and services.

Thus, as with other products and services,

USPS can acquire trademark rights in the

names used with e-commerce products and

services and can register those names in the

U.S. Patent and Trademark Office.

28 U.S.C. §1498 Allows patent and copyright holders to enforce

patent rights against the federal government.

Applies to USPS, including USPS e-commerce

products and services.

Patent Act of 1952

35 U.S.C. § 1 et seq.

Provides for the application for and enforcement

of patent rights.

Applies to USPS, including USPS e-commerce

products and services.

Other Selected Statutes

Federal Tort Claims Act

28 U.S.C. § 2671 et seq.

Subjects the federal government to liability for

injury or loss to the extent an individual would

be liable under the law of the state in which the

injury occurs.

Like the rest of the federal government, USPS

is, for the most part, subject to tort liability only

to the extent that immunity has been waived by

this act.

In 28 U.S.C. § 2680(b), the Federal Tort Claims

Act (FTCA) excepts the loss, miscarriage, or

negligent transmission of letters or postal

matter. While application of this provision to

electronic commerce services of various

descriptions has not been litigated, to the extent

that such services may involve “mail matter,” the

FTCA would bar tort liability in that arena.

USPS has, with respect to specific guaranteed

products, essentially waived that exception to a

limited extent. Such specialized waivers would

also be possible in the electronic commerce

context.

The Paperwork Reduction Act

of 1995

44 U.S.C. § 3501 et seq.

Sets policies and rules for minimizing the

paperwork burden resulting from the collection

of information by or for the federal government.

Does not apply to USPS.

The Government Paperwork

Elimination Act of 1998

44 U.S.C. § 3504 note

Sets requirements for federal agencies to

develop capabilities to permit, where

practicable, electronic maintenance,

submission, or disclosure of information,

including the use of electronic signatures.

Does not apply to USPS.

The Chief Financial Officers Act

of 1990

31 U.S.C. §§ 901-903

Establishes a Chief Financial Officer in each

executive agency. Sets expectations for design,

development, and deployment of modern

financial systems, better performance and cost

measures, and results-oriented reports on the

government’s operating performance.

Does not apply to USPS.
Appendix II

Selected Federal Laws, Regulations, and Policies That May Relate to USPS E-Commerce

Initiatives According to USPS

Page 72 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Citation(s) Description USPS Comments

Selected Executive Orders, Regulations, and Directives

Executive Order No. 11,246 Prohibits discrimination and establishes equal

employment opportunity requirements for

federal employers and contractors.

Applies to USPS, including USPS e-commerce

products and services.

However, USPS maintains that executive orders

and Office of Management and Budget (OMB)

instructions generally do not apply to USPS,

although it may choose to be guided by certain

of them.

39 C.F.R. § 211.3 States that certain executive orders, and other

executive pronouncements and certain circulars,

bulletins, and other issuances of the OMB or

particular provisions thereof, or requirements

therein, apply to USPS and certain others do not

apply.

USPS maintains that executive orders and OMB

instructions generally do not apply to USPS,

although it may choose to be guided by certain

of them.

16 C.F.R. §§ 233.1, 233.5, and

251.1

Federal Trade Commission (FTC) regulations

concerning marketing and advertising.

Does not apply to USPS.

There are no written guidelines or regulations

that require USPS to comply with FTC

guidelines.

39 C.F.R. 266 Establishes USPS Privacy Act regulations

governing information collected about

individuals through USPS operations.

Applies to USPS, including USPS e-commerce

products and services.

The terms in this regulation allow disclosure

pursuant to a “routine use” for the system of

records published in the Federal Register.

OMB Circular A-76 Establishes federal policy regarding the

performance of commercial activities and

implements the statutory requirements; the

supplement to the circular states the procedures

for determining whether commercial activities

should be performed under contract with

commercial services or in-house using

government facilities and personnel.

Does not apply to USPS.

USPS maintains that executive orders and OMB

instructions generally do not apply to USPS,

although it may choose to be guided by certain

of them.

OMB Circular No. A-130 Establishes uniform government-wide

information resource management policies.

Does not apply to USPS.

The Postal Reorganization Act requires USPS

to manage its information resources in an

appropriate manner.

OMB Memorandum M99-18 Directs executive branch departments and

agencies to post clear privacy policies on

federal web sites and provides guidance for

doing so.

USPS has published on its Internet home page

a generic privacy policy that it believes is in

accordance with OMB guidance.

Source: USPS.
Appendix III

Comments From USPS

Page 73 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Discussed on p. 56.

Discussed on p. 56.

Discussed on p. 55.
Appendix III

Comments From USPS

Page 74 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Now on p. 54.

Discussed on p. 55.

Discussed on p. 56.

Discussed on p. 56.
Appendix IV

Comments From PRC

Page 75 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Now on p. 46.

Discussed on pp. 56-57.

Discussed on p. 56.
Appendix IV

Comments From PRC

Page 76 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Discussed on pp. 56-57.
Appendix V

GAO Contacts and Staff Acknowledgements

Page 77 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws

Bernard L. Ungar (202) 512-8387

Teresa L. Anderson, Kenneth E. John, Angela S. Davis, Casey L. Brown,

Hazel J. Bailey, Alan N. Belkin, and Victor B. Goddard made key

contributions to this report.

GAO Contact

Acknowledgments
Page 78 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws
Page 79 GAO/GGD-00-188 USPS’ E-Commerce Activities and Laws
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