United States General Accounting Office

GAO Briefing Report to the Chairman

Subcommittee on the Postal Service

Committee on Government Reform

and Oversight

House of Representatives

March 1997 POSTAL REFORM IN

CANADA

Canada Post

Corporation’s

Universal Service and

Ratemaking

GAO/GGD-97-45BR

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-271661 

March 5, 1997

The Honorable John H. McHugh

Chairman, Subcommittee

 on the Postal Service

Committee on Government

 Reform and Oversight

House of Representatives

Dear Mr. Chairman:

This briefing report responds to your request that we provide certain

information on Canada’s 1981 postal reform initiative, which created the

Canada Post Corporation (CPC). Our discussions with your staff revealed

that knowledge about Canada’s experience with postal reform would be

useful to the subcommittee’s current efforts to reform the U.S. Postal

Service. As agreed with the subcommittee, this report, which follows our

briefing of the Subcommittee on February 25, 1997, presents information

on selected aspects of (1) universal mail service in Canada, (2) CPC

ratemaking, and (3) key events affecting CPC since its creation in 1981.

Background The Canada Post Corporation Act (CPC Act) established CPC as a Crown

Corporation1

 and gave it broad authority to address problems reported to

exist in the Canadian postal system. However, the CPC Act also provided

that the Canadian government will select the CPC Board of Directors,

designate a minister to oversee CPC, and approve proposed CPC regulations.

The government also is to approve CPC’s 5-year plans and annual operating

and capital budgets, and CPC is subject to Canada’s antitrust law, which is

administered by Canada’s Bureau of Competition Policy.

The CPC Act requires CPC to strive to operate on a self-sustaining financial

basis. CPC incurred operating losses each year through fiscal year 1988, and

reported its first profit (totaling Can$96 million, or U.S.$81 million)2

 in

fiscal year 1989. CPC subsequently reported profits in 4 of the 7 fiscal years

1990 through 1996. In some recent years, CPC paid dividends and, since

1994, has been subject to federal income tax.

1

Crown Corporations are parent corporations or wholly owned subsidiaries owned by the Crown that

are commercial functions operating for public purposes in areas such as energy, communications, and

transportation.

2

We converted Canadian dollars to U.S. dollars using the average 1989 exchange rate of Can$1.1842 =

U.S.$1.

Page 1 GAO/GGD-97-45BR Postal Reform in Canada
B-271661 

Results in Brief The CPC Act does not use the term universal service but states that “while

maintaining basic customary postal service” CPC must consider several

factors in carrying out the act’s objectives. One such factor is providing a

standard of service that will “meet the needs of the people of Canada and

that is similar with respect to communities of the same size.” Although not

required by the CPC Act, CPC policy is to provide basic letter mail services

at a uniform rate. Under the CPC Act, CPC has the “exclusive privilege” (i.e.,

a statutory monopoly) to collect and deliver most letter mail in Canada.

This letter mail accounted for about 50 percent of CPC’s operating revenue

in fiscal year 1996. Since its creation in 1981, CPC has made some changes

that affect the extent of mail service. For example, while taking certain

steps to improve mail service, CPC also reduced the frequency of mail

delivery to rural areas from 6 to 5 days per week and also gradually

reduced the delivery of mail to urban businesses from several times a day

to once a day.3

 From 1981 through 1994, CPC also converted about

50 percent of its post offices to privately owned, franchised operations

that offer retail postal services, such as stamp sales and post office box

rentals, and also closed some post offices. (See br. section II.)

With regard to postal ratemaking, CPC sets some postage rates through

regulations. Under the CPC Act, interested parties must be afforded a

reasonable opportunity to comment on such regulations, and the

regulations are subject to government approval. At the time of our review,

CPC used regulations to set postage rates for basic domestic and

international single-piece letters and some other categories of mail. CPC

sets postage rates for other mail services by agreement, without issuing

regulations or obtaining government approval. Under CPC policy, the

nonregulated rates must be approved by the CPC Board of Directors or

others within CPC, depending on the particular mail service involved. (See

br. section III.)

Since reform, several key events have affected CPC’s business practices.

For example, CPC’s customers raised concerns, and legal challenges were

made, regarding CPC’s closure of rural post offices and its conversion of

others to private ownership. In 1994, in response, the Canadian

government imposed a moratorium on further rural post office closings

and conversions. Further, in 1993, the Bureau of Competition Policy

reviewed CPC’s plan to acquire a large interest in a competitor, PCL Courier

Holdings, Inc. During the review, CPC’s competitors expressed concerns

about CPC’s cross-subsidization of the prices of its courier services with

3

Some portions of northern Canada receive mail service less often than each work day. This situation

continued after the 1981 postal reform.

Page 2 GAO/GGD-97-45BR Postal Reform in Canada
B-271661 

monopoly revenues and whether CPC should compete with the private

sector. In response, the Bureau reported that CPC had not cross-subsidized

in this case and that it was not within its purview to examine whether a

Crown corporation should compete with firms in the private sector

because the Competition Act encouraged competition.

Additionally, the Canadian government has made several reviews of CPC,

some of which have resulted in recommendations for additional

government oversight of CPC. At the time of our review, the Minister

Responsible for Canada Post was still considering most of the

recommendations resulting from the 1995-96 review and had taken action

on two of the recommendations (1) continuing the moratorium on post

office closings and (2) discontinuing delivery of certain advertising mail.

(See br. section IV.)

Scope and

Methodology

The scope of our review encompassed the period from the creation of CPC

in October 1981 through November 1996. We provide information on

selected aspects of Canadian laws and practices for universal mail service

and ratemaking but do not compare these with those followed in the

United States.

To accomplish our objectives, we reviewed relevant Canadian legislation

and implementing policies and procedures, which we obtained from CPC as

well as from the Canadian Treasury Board and Bureau of Competition

Policy, entities that have CPC oversight responsibility. We also reviewed a

number of government and private studies on Canadian postal reform. For

information on court cases involving CPC, we relied on CPC’s summary of

these cases. We interviewed various CPC executives and Canadian

government officials responsible for overseeing CPC, including the

Treasury Board and Bureau of Competition Policy.

We did our work from March 1996 through November 1996 in accordance

with generally accepted government auditing standards.

Agency Comments We provided a draft of this report to the Postmaster General of the U.S.

Postal Service and to officials of the Canada Post Corporation for

comment. We received written comments from the Controller of the U.S.

Postal Service dated February 14, 1997, and from officials of the Canada

Post Corporation on January 10, 1997. They suggested specific technical

Page 3 GAO/GGD-97-45BR Postal Reform in Canada
B-271661 

changes or updated information, which we have incorporated in the report

where appropriate.

We are sending copies of this briefing report to the Ranking Minority

Member of your Subcommittee, the Chairman and Ranking Minority

Member of the Senate Committee on Governmental Affairs, the U.S. Postal

Service, the Canadian Minister Responsible for CPC, the Canada Post

Corporation, and other interested parties. We will also make copies

available to others on request.

The major contributors to this report are listed in appendix II. Please

contact Michael Motley on (202) 512-8387 if you have any questions about

this report.

Sincerely yours,

J. William Gadsby

Director, Government Business

 Operations Issues

Page 4 GAO/GGD-97-45BR Postal Reform in Canada
Page 5 GAO/GGD-97-45BR Postal Reform in Canada
Contents

Letter 1

Briefing Section I 

Introduction

8

Briefing Objectives 8

Knowledge About Canada’s Postal Reform Would Be Relevant to

U.S. Postal Reform

10

Selected U.S. Demographics 12

Selected Canadian Demographics 13

Selected Statistics for the U.S. and Canadian Postal Systems 14

1996 Revenue and Mail Volume by Canadian Market Segments 16

Several Events Led to Canadian Postal Reform 18

CPC’s Mandate Includes Broad Commercial Freedom 20

Factors To Be Considered While Maintaining Service 22

Canadian Government Structure for CPC Oversight 24

CPC’s Corporate Structure and Subsidiaries 26

Scope and Methodology 28

Briefing Section II 

Universal Mail Service

30

The CPC Act Requires Mail Service To All Canadians 30

CPC Has Exclusive Privilege For Letter Mail Delivery 32

CPC Reduced Frequency of Some Deliveries to Reduce Cost 34

Less Frequent Delivery in Remote Areas Continued After Reform 36

1986 Corporate Plan Focused on Cutting Costs and Improving

Service

38

Number of CPC-Owned Post Offices Reduced Between 1985 and

1996

40

Briefing Section III 

Postal Ratemaking

42

The CPC Act Provides for Regulated and Nonregulated Rates 42

Detailed Criteria and Methods for Ratemaking Not Prescribed in

Act

44

Process for Approval of Regulated Rates 46

Process for Approval of Nonregulated Rates 48

Basic Letter Rates and Public Comments Received, 1982-1995 50

CPC’s Income (Loss) Since Its First Profitable Year 52

Page 6 GAO/GGD-97-45BR Postal Reform in Canada
Contents

Briefing Section IV 

Key Events Affecting

CPC

54

Historical Perspective: Key Events Affecting CPC’s Business

Practices

54

CPC’s Maintenance of “Basic Customary Postal Service” 56

Concerns About Financial Accountability 60

Concerns About Pricing and Competitive Practices 62

Government Requested and Conducted a Review of CPC 64

Recommendations by the 1996 CPC Mandate Review 66

Appendix I 

Information on

Governance and

Postal Ratemaking of

Canada Post

Corporation and the

U.S. Postal Service

68

Appendix II 

Major Contributors to

This Briefing Report

69

Abbreviations

CEO Chief Executive Officer

CPC Canada Post Corporation

CPI Consumer Price Index

FAA Financial Administration Act

GDP Gross Domestic Product

GIC Governor in Council

MEC Management Executive Committee

POD Post Office Department

USPS United States Postal Service

Page 7 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

GAO

To present information on

Universal mail service

CPC ratemaking in Canada

Key events affecting CPC

Briefing Objectives

Page 8 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

Briefing Objectives The objectives of our review were to obtain information on selected

aspects of (1) universal mail service in Canada, (2) Canada Post

Corporation (CPC) ratemaking, and (3) key events affecting CPC since 1981.

Page 9 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

GAO Knowledge About Canada's Postal Reform 

Would Be Relevant to U.S. Postal Reform

CPC has operated 15 years with both 

increased commercial freedom and the 

obligation to maintain "basic customary 

postal service"

Proposed U.S. postal reform would

give USPS greater operating flexibility

keep universal service requirement

Page 10 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

Knowledge About Canada’s

Postal Reform Would Be

Useful to U.S. Postal

Reform

In June 1996, Chairman John McHugh, Subcommittee on the Postal

Service, House Committee on Government Reform and Oversight,

introduced the Postal Reform Act of 1996 (H.R. 3717). The Subcommittee

held four hearings on the proposed legislation between July and

September 1996. That proposal, among other things, would have given the

U.S. Postal Service more flexibility in setting postal rates and introducing

new products and services. Also, if this bill had been enacted, the

requirement for providing mail service to all communities, and at uniform

rates for certain letter mail, would have remained intact. In January 1997,

Chairman McHugh reintroduced a similar bill (H.R. 22).

Although there are differences between the two countries and their postal

systems, knowledge about Canada’s experience with postal reform would

be relevant to ongoing postal reform efforts in the United States. CPC was

created as a Crown corporation in October 1981 to provide it with

commercial freedom in delivering and maintaining customary postal

services.

Page 11 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

GAO Selected U.S. Demographics

Cities with populations ranging from 

1 million to over 5 million people.

Over 5,000,000 population

1,000,000 - 5,000,000 population

Legend

Population: 263.8M

Square miles: 3.7M

GDP: U.S.$6.738T

Source: CIA World Fact Book.

The United States and Canada are similar in geographic size, both having

just under 4 million square miles. However, as of July 1995, the U.S.

population was 264 million, or about 9 times Canada’s 28 million

population. Also, the U.S. economy was about 10 times larger than

Canada’s.

Page 12 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

GAO Selected Canadian Demographics

Population: 28.4M

Square miles: 3.8M

GDP: U.S.$639.8B

Cities with populations ranging 

from 1 million to 5 million people.

Over 5,000,000 population

1,000,000 - 5,000,000 population

Legend

Source: CIA World Fact Book.

The Gross Domestic Product (GDP)—presented using purchasing power

parity, a standard method used when comparing the size of two countries’

economies—of the United States was about U.S.$6.7 trillion, compared

with about U.S.$640 billion for Canada.

Page 13 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

GAO Selected Statistics for the U.S. and 

Canadian Postal Systems

 Canada

1981 1996

 United States

 1981 1996

Volume (billions of pieces) 6.5 11.8 110.1 182.7

Revenue (billions of dollars 

U.S.)

 1.3 3.6 20.9 56.6

Number of employees (full 

and part time)

 62,600 63,500 670,200 886,000

Post offices and other retail 

outlets 

 8,275 7,604 39,457 38,212

Note: CPC revenue for 1981 was converted to U.S. dollars using the 1981 average rate of exchange

of Can$1.1990 = U.S.$1. The 1996 revenue was converted using the Dec. 30, 1996, rate of

exchange of Can$1.3698 = U.S.$1.

Source: CPC and USPS data.

Page 14 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

Selected Statistics for the

U.S. and Canadian Postal

Systems

The postal systems of the United States and Canada differ greatly in size

and resources. For example, in 1996, the United States Postal Service

(USPS) had approximately 14 times the number of postal employees and 5

times the number of post offices and other retail outlets, as compared with

CPC.

CPC’s mail volume totaled 11.8 billion pieces in the fiscal year ending

March 30, 1996.4

 In contrast, USPS had 182.7 billion pieces in the fiscal year

ending September 30, 1996. By comparison, since 1981, CPC’s mail volume

has grown by about 82 percent, compared to a 66-percent growth in the

USPS’ mail volume over approximately the same period.

Revenues in fiscal year 1996 totaled U.S.$3.6 billion for CPC, compared to

U.S.$56.6 billion for USPS. USPS revenues were 16 times that of CPC’s.

The total number of postal employees for CPC, which includes about 9,300

employed by Purolator, was about the same in 1996 as it was in 1981. USPS

experienced a 32-percent growth in the number of its employees in about

the same period.

CPC and USPS both have slightly reduced the number of retail outlets that

provide products and services to the public during the same period.

4

CPC’s mail volume and revenue includes that of Purolator Courier, Ltd., which CPC acquired in 1993.

Page 15 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

GAO 1996 Revenue and Mail Volume by 

Canadian Market Segments

0

10

20

30

40

50

60

70

46.9

30.6

16.3

8.2

39.8

2.5

56.8

Percentage comparison

Can$2.3

billion

4.7

billion

pieces

Can$1.5

billion

.3

billion

pieces

Can$.8

billion

6.7

billion

pieces

Can$.4

billion

Communications and

information transfer

Physical distribution Advertising Other

Revenue (total Can$4.9 billion, U.S.$3.6 billion): individual amounts do not sum to total due to rounding.

 Volume (total 11.8 billion pieces): individual amounts do not sum to total due to rounding.

0

Source: CPC.

Page 16 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

1996 Revenue and Volume

by Canadian Market

Segments

CPC groups its products and services into three primary market segments:

• Communications and information transfer, which is hard-copy letter mail

and electronic services.

• Physical distribution, which is expedited delivery and parcel services.

• Advertising, which includes addressed and unaddressed letter mail as well

as publications.

CPC’s reported total revenue was Can$4.9 billion (U.S.$3.6 billion) from

11.8 billion pieces of mail, of all types, for its fiscal year that ended

March 30, 1996. Of this total revenue, information transfer and

communications generated Can$2.3 billion (U.S.$1.7 billion) from 4.7

billion pieces; physical distribution generated Can$1.5 billion (U.S.$1.1

billion) from 300 million pieces; and advertising generated Can$805 million

(U.S.$588 million) from 6.7 billion pieces. CPC reported that other revenue

sources generated Can$373 million (U.S.$272 million).5

5

Conversion to U.S. dollars is calculated using the Dec. 30, 1996, rate of exchange of Can$1.3698 =

U.S.$1.

Page 17 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

GAO

Labor union strikes interrupted delivery 

service

Customers dissatisfied with postal 

services

Annual postal deficits up to Can$500 

million

Insufficient letter-mail rate revenue to 

fund universal services

Several Events Led to Canadian Postal 

Reform

Source: CPC; Campbell, Robert M, The Politics of the Post: Canada’s Postal System from Public

Service to Privatization, (Broadview Press, 1994).

Page 18 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

Several Events Led to

Canadian Postal Reform

In the 1970s, Canadians had grown increasingly frustrated with the postal

system. This period was marked by labor strikes and service disruptions

caused by, among other things, postal mechanization. Postal employee

unions were concerned over employees’ limited collective bargaining

rights in areas such as technology change. Labor-management relations

were constrained by having to ensure comparability of wages and

conditions of postal employees with those of certain other government

employees. Customer dissatisfaction with the reliability of postal services

was a continuing problem.

The former Post Office Department was generating annual operating

deficits, totaling about Can$500 million (U.S.$428 million)6

 in 1980, that

were being funded by the government through annual appropriations.

By 1981, the 17-cent first-class stamp was well below the level needed to

cover the cost of providing universal service to all Canadians, and this

underpricing was contributing significantly to the deficit.

6

Conversion to U.S. dollars is calculated using the 1980 average exchange rate of Can$1.1693 = U.S.$1.

Page 19 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

GAO CPC's Mandate Includes Broad 

Commercial Freedom

CPC has "commercial freedom" to 

address

labor-management relations

customer service

operating deficits

CPC Act defines three objectives to be 

achieved by CPC

Page 20 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

CPC’s Mandate Includes

Broad Commercial

Freedom

According to CPC and other documents we reviewed, members of

Parliament wanted CPC to have the “commercial freedom” and tools to

(1) repair labor-management relations, (2) improve customer service, and

(3) eliminate operating deficits. After some debate on how the law should

be written to give CPC this commercial freedom, the CPC Act simply

provides the corporation with the “capacity, and subject to this Act, the

rights, powers, and privileges of a natural person.” According to CPC,

Parliament provided CPC with this broad authority rather than providing a

long list of specific powers, so that CPC would be free to develop new

businesses not mentioned in the legislation and not contemplated at the

time of reform.

The CPC Act provides three broadly defined objectives of CPC. The

objectives are to (1) establish and provide a postal service to collect,

transmit, and deliver messages, information, funds, and goods both in and

outside of Canada; (2) provide products and services that CPC believes are

necessary or incidental to its postal service; and (3) provide to or on

behalf of various governmental entities, including Canadian government

departments and corporations, or to any person, services that CPC believes

can be conveniently provided in the course of carrying out CPC’s

objectives.

Page 21 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

GAO Factors To Be Considered While 

Maintaining Service

Improve products and services

Operate on self-sustaining basis

Provide mail security

Use CPC employees to achieve 

objectives

Maintain corporate identity

Page 22 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

Factors to Be Considered

While Maintaining Service

Under the CPC Act, CPC is to “have regard to” five factors in carrying out its

legislative objectives. CPC is to consider these factors, which are

summarized below, while maintaining “basic customary postal service”:

• Improve and extend CPC products and services in light of developments in

the field of communications.

• Conduct operations on a self-sustaining basis while providing a standard

of service that will meet the needs of Canada’s people and that is similar

for communities of the same size.

• Conduct CPC operations to best provide mail security.

• Use human resources both to attain CPC objectives and to ensure the

commitment of CPC employees to those objectives.

• Maintain a corporate identity program, approved by the Governor in

Council (GIC),7

 that reflects CPC’s role as an institution of the Government

of Canada.

7

GIC is a special committee of the Cabinet with responsibility for approving government regulations,

including regulations for postal rate changes. GIC provides oversight of CPC.

Page 23 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

GAO Canadian Government Structure for CPC 

Oversight

Parliament Judiciary

Prime Minister

Treasury Board

 (Special Cabinet committee)

approves CPC's

annual budgets and

reviews corporate plans

Crown Corporation 

Directorate

analyzes CPC's 

budgets and corporate 

plan before

 approval 

Deputy Secretary of

Treasury Board

Department of Finance

Minister implements

Financial Administration Act 

Assistant

Deputy Minister 

Finance

CPC

 Chairman and the

Board of Directors (9 members), 

and

President/CEO

The Minister Responsible

 for

Canada Post 

Corporation

Minister of Consumer

and

Corporate Affairs

Canada

Bureau of Competition

 Policy

enforces 

Competition Act

Cabinet

Governor in Council

(Special Cabinet committee)

 approves CPC's corporate 

plan

 and regulations

Source: CPC; Canadian Treasury Board.

Page 24 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

Canadian Government

Structure for CPC

Oversight

CPC is owned by the Canadian government and, through the CPC Act and

other laws, the government can influence CPC policies and operations in

several ways. Under the CPC Act, GIC appoints the CPC board chairman and

president, and approves CPC’s corporate plans and regulations. A minister,

whom the Prime Minister designates as responsible for the corporation,

appoints the remaining nine directors, with the GIC’s approval, and each

director holds office for a term not to exceed 3 years.

In addition to the CPC Act, CPC is subject to Canada’s Financial

Administration Act (FAA) and Competition Act. FAA governs spending and

administration of all federal agencies, and contains specific provisions

including, among other things, the requirement for an annual financial

audit applicable to CPC and other Crown corporations. Under this act, the

Minister of Finance and the Treasury Board, a special committee of the

Cabinet, must approve CPC’s annual capital and operating budgets. A

Crown Corporation Directorate assists the minister and board with their

oversight responsibilities.

The Competition Act is Canada’s antitrust law that applies to all private

businesses as well as to Crown corporations regarding those activities

open to competition. The purpose of the act is to maintain and encourage

competition in order to promote the efficiency and adaptability of the

Canadian economy. The act prohibits practices such as abuse of

dominance, predatory pricing, and price discrimination. The act is

administered and enforced by the Bureau of Competition Policy.

Page 25 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

GAO

President/CEO

CPC's Corporate Structure and 

Subsidiaries

The Minister 

Responsible for

CPC

Chairman of 

the Board

National VP

Sales

Senior VP

Operations

Senior VP

Marketing & 

Product

Development

Senior VP &

Chief Financial 

Officer

Senior VP

Electronic Products

& Services

VP

Administration

VP Human

Resources

Four subsidiaries

wholly or

partly owned

by CPC

Management Executive Committee Four active subsidiaries

Source: CPC.

Page 26 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

CPC’s Corporate Structure

and Subsidiaries

The CPC Act established a Board of Directors for CPC, consisting of a

chairman, the president, and nine other directors. The CPC Act states that

“the Board shall direct and manage the affairs of the Corporation and may

for such purposes exercise all the powers and perform all the duties of the

Corporation.” The board is assisted by CPC’s Management Executive

Committee (MEC). The Committee comprises the president, also known as

the chief executive officer (CEO), and the most senior managers in the

Corporation to direct the day-to-day management of postal operations. At

present, seven managers, in addition to the president/CEO, serve on MEC.

At the time of our review, CPC wholly or partly owned four active

subsidiaries through which it markets its products and services in

domestic and international markets. Canada Post Systems Management

Limited, a wholly owned subsidiary, markets CPC’s management system

and postal technology to other postal administrations. It had contracts to

provide these services in several countries, including Germany, Italy,

Sweden, New Zealand, South Africa, and Argentina. A second wholly

owned subsidiary, Canada Post Holdings Limited (and its subsidiaries),

holds a 75-percent controlling interest in PCL Courier Holdings, Inc.,

which owns all the shares of Purolator Courier Limited. Purolator provides

overnight delivery services.

Two CPC subsidiaries are involved with a consortium, called “UBI,” formed

by CPC and six other companies. UBI is developing interactive television

technology to include home shopping, bill payment, home-energy

management, messaging, games, and yellow pages.

Page 27 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

GAO Scope and Methodology

Covered period since 1981 Canadian 

postal reform

Reviewed Canadian legislation, CPC 

reports, and various government studies

Interviewed CPC and other Canadian 

government official

Page 28 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section I 

Introduction

Scope and Methodology The scope of our review encompassed the period from the creation of CPC

in October 1981 through November 1996. We provide information on

selected aspects of Canadian laws and practices for universal mail service

and ratemaking but do not compare these with those followed in the

United States.

To accomplish our objectives, we reviewed relevant Canadian legislation

and implementing policies and procedures, which we obtained from CPC as

well as from the Canadian Treasury Board and Bureau of Competition

Policy, which have CPC oversight responsibility. We also reviewed a

number of government and private studies on Canadian postal reform. For

information on court cases involving CPC, we relied on CPC’s summary of

these cases.

We interviewed various CPC executives and Canadian government officials

responsible for overseeing CPC, including the Treasury Board and Bureau

of Competition Policy.

Page 29 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section II 

Universal Mail Service

GAO

The CPC Act requires

"Basic customary postal service" to be 

provided

Standard of service to be similar for 

"communities of the same size" 

The CPC Act does not require uniform 

rates

The CPC Act Requires Mail Service to 

All Canadians

Page 30 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section II 

Universal Mail Service

The CPC Act Requires Mail

Service to All Canadians

The term “universal service” is not used in the CPC Act nor was it used in

the Post Office Act of 1867, which the CPC Act superseded. However, the

CPC Act requires CPC to maintain basic mail service to all Canadians by

providing that

“While maintaining basic customary postal service, the Corporation, in carrying out its

objects, shall have regard to...(b) the need to conduct its operations on a self-sustaining

financial basis while providing a standard of service that will meet the needs of the people

of Canada and that is similar with respect to communities of the same size.” [Underscoring

supplied.]

Further, the CPC Act does not require that letter or any other mail service

be provided to all communities at a uniform rate. Nevertheless, CPC has

provided a uniform letter rate as part of its universal service. At the time of

postal reform, the former Post Office Department also provided a uniform

letter rate.

Page 31 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section II 

Universal Mail Service

GAO CPC Has Exclusive Privilege for Letter 

Mail Delivery

The CPC Act retained exclusive privilege 

from former Post Office Act

Exclusive privilege definition: CPC has 

sole and exclusive privilege of collecting, 

transmitting, and delivering letters

Exemptions to exclusive privilege

Exclusive privilege revenue totaled about 

50 percent of CPC's FY 1996 operating 

revenue

Page 32 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section II 

Universal Mail Service

CPC Has Exclusive

Privilege for Letter Mail

Delivery

As was the case under the former Post Office Act, the CPC Act provides for

the sole and exclusive privilege of delivering most letter mail. This

privilege is also referred to as the statutory mail monopoly. Newspapers,

magazines, books, catalogs, or goods are not included in the letter

monopoly. In addition, there are a number of exceptions to exclusive

privilege, including letters of an urgent nature, which are transmitted by

messenger for a fee of at least 3 times the 50-gram letter rate.

The CPC Act also provides CPC with authority to issue regulations defining a

letter for the purposes of the act. These regulations define a letter as one

or more messages or information in any form not exceeding 500 grams.8

They include 13 exceptions to the exclusive privilege, including those

originally listed in the CPC Act.

According to CPC, about 50 percent of its operating revenue in fiscal year

1996 was from services covered by the statutory monopoly.

8

Letter Definition Regulations. Canada Post Corporation Act and Regulations Manual (94-03).

Page 33 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section II 

Universal Mail Service

GAO CPC Reduced Frequency of Some 

Deliveries to Reduce Cost

In 1982, mail delivery reduced from 6 to 

5 days per week in rural areas

Over time, multiple daily deliveries to 

businesses reduced to once a day

In 1986, on-time delivery standards 

relaxed

Page 34 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section II 

Universal Mail Service

CPC Reduced Frequency

of Some Deliveries to

Reduce Cost

CPC used its flexibility under the CPC Act to make certain changes in mail

service delivery intended to reduce its operating costs and permit it to

become self-sufficient. In some cases, certain changes began before CPC

was established. For example, in the late 1970s, the former Post Office

Department reduced mail delivery to urban centers from 6 to 5 days a

week, eliminating Saturday delivery. In 1982, CPC also reduced the

frequency of mail delivery from 6 to 5 days a week in rural areas.

According to CPC officials, this was not a sweeping, immediate change but

was evolutionary. In 1996, CPC’s policy was to deliver mail 5 days a week

(Monday through Friday) throughout all portions of Canada except certain

difficult-to-serve communities in northern Canada (discussed later in this

section).

The former Post Office Department had delivered mail up to 5 times a day

to some businesses in urban areas, such as Toronto. CPC gradually reduced

delivery to all businesses to once a day. The last multiple deliveries to

businesses in an urban area (Winnipeg) were in 1992.

To further reduce operating cost, in the 1980s, CPC changed its on-time

delivery standards for basic letter mail from 1 to 2 days for local areas, 2 to

3 days within a province, and 3 to 4 days for national mail. This change in

delivery standards had been recommended in a 1985 report on the

government’s review of CPC’s mandate.9

 According to CPC, its customers

were more interested in having CPC improve the reliability of mail delivery

than the speed of delivery. CPC arranged for independent measures of its

delivery performance. These measurements showed that 2-, 3-, and 4-day

on-time delivery performance for basic letter mail service improved from

87, 84, and 89 percent, respectively, to 97 percent for all three standards

between 1988 and 1996. CPC also provides overnight letter mail delivery

service. However, this is a different category of service and is available at

a higher price than that for CPC’s basic letter service.

9

Alan R. Marchment, Chairman, Report of the Review Committee on the Mandate and Productivity of

Canada Post Corporation, (Canadian Government Publishing Centre, Nov. 1985), p. 19.

Page 35 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section II 

Universal Mail Service

GAO Less Frequent Delivery in Remote 

Areas Continued After Reform 

Before and after reform, frequency of mail 

delivery to about 200 remote northern 

communities varied

CPC does not apply usual delivery 

standards due to limited access

Northern Air Stage Program provides 

contract mail delivery

Can$15.6 million remote area subsidy 

for 1997

Page 36 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section II 

Universal Mail Service

Less Frequent Delivery in

Remote Areas Continued

After Reform

Compared with other places in Canada, CPC provides mail delivery less

frequently to about 200 remote northern Canada communities. Delivery to

some of those communities can be as infrequently as once a week. Like

the former Post Office Department, CPC does not apply normal delivery

standards to these areas because of limited access caused by infrequent

air flights, circuitous routes, long distances, and uncertain weather

conditions.

CPC maintains the Northern Air Stage Program to provide contract mail

delivery of parcels containing perishable objects and foodstuffs to remote

areas. This service has been provided since the late 1960s. Parcels, letters,

and other materials are transported to more than 60,000 addresses in the

200 communities that are without road access and are spread over more

than 70 percent of Canada’s land mass. According to CPC, the postage paid

by commercial shippers of parcels in these areas does not fully cover the

cost involved, and the Canadian government appropriates money to cover

the difference.

In 1989, the revenue from postage paid by these shippers covered about 40

percent of related CPC costs, and the government’s appropriation for this

service was Can $17 million (U.S.$14 million) during that year. In 1986, the

government planned to reduce the subsidy by Can$1 million

(U.S.$720,000) each year until it was eliminated in 2006. However, in 1991,

after a study of the program, the government decided to (1) provide an

annual appropriation of about Can$15 million (U.S.$13 million); (2) restrict

the range of products to be transported (primarily nutritional food

supplies); and (3) provide the service to communities with no year-round

surface transportation. The government’s appropriation for this service is

budgeted at Can$15.6 million (U.S.$11.4 million) for fiscal year 1997.10

10Conversion to U.S. dollars is calculated using the Dec. 30, 1996, rate of exchange of Can$1.3698 =

U.S.$1. Conversion of 1986, 1989, and 1991 Canadian dollars to U.S. dollars is calculated using the 1986

average exchange rate of Can$1.3896 = U.S.$1; the 1989 average exchange rate of Can$1.1842 = U.S.$1;

and the 1991 average exchange rate of Can$1.1460 = U.S.$1.

Page 37 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section II 

Universal Mail Service

GAO 1986 Corporate Plan Focused on 

Cutting Costs and Improving Service

Largest CPC rural post offices would be 

converted to private retail outlets

Other post offices would be consolidated 

or closed

Various changes to be made to improve 

service

privately owned outlets were to have 

longer operating hours and a wider 

range of services

Page 38 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section II 

Universal Mail Service

1986 Corporate Plan

Focused on Cutting Costs

and Improving Service

Before reform, the former Post Office Department owned and operated

post offices but also had “sub-post offices” that private parties owned and

operated on a commission basis. In 1986, CPC developed, and the Canadian

government approved, a plan which, among other things, provided for CPC

to make greater use of the private sector to market its retail services. CPC

had continued to incur operating deficits well into the 1980s. In 1984, the

newly elected government focused greater attention on CPC’s economic

goals. Subsequently, the Treasury Board and Finance Minister worked

closely with CPC in the formulation of its 1986 strategic plan to devise ways

to reduce costs and improve postal services. The resulting 1986 CPC

corporate plan formalized operational goals that included long-range,

cost-cutting measures as well as certain service improvements.

Among other initiatives, the plan proposed to expand private sector

involvement by transforming the large rural post office network to private

ownership over a 10-year period (1986-1995). The largest of these post

offices were to be transformed into privately owned retail outlets, with the

anticipated benefits of both reducing operating costs and improving

service. Other rural post offices were to be consolidated with other post

offices, or closed.

CPC intended that these changes would improve customer service. Under

the plan, the privately owned outlets, typically located in existing

commercial operations like pharmacies and grocery stores, would have

longer operating hours each day, operate 7 days a week, offer a wider

range of services, and be more conveniently located. Further, the

commercial operators were to meet more stringent requirements for

training, equipment, and service hours than were the existing privately

owned sub-post offices.

Page 39 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section II 

Universal Mail Service

GAO Number of CPC-Owned Post Offices 

Reduced Between 1985 and 1996

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

5,868

4,175

2,206

3,331

Number of outlets

CPC-owned outlets

Private outlets

Total 8,074 Total 7,506

1985 1996

Source: CPC. Canada Post Corporation: Standards of Service and Network Operations. Prepared by

CPC for the Mandate Review.

Page 40 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section II 

Universal Mail Service

Number of CPC-Owned Post

Offices Reduced Between

1985 and 1996

CPC increased the number of postal retail outlets owned by the private

sector, from 2,206 in 1985 to 3,331 in 1996, or about 50 percent. At the

same time, the total number of outlets owned by CPC decreased from 5,868

to 4,175, or 29 percent. Along with converting post offices to private

ownership, CPC closed some post offices during this same period, reducing

the total number of outlets from 8,074 to 7,506, or 7 percent. Most of these

post office closures and conversions took place prior to February 1994,

when the government placed a moratorium on CPC’s conversion program.

CPC also increased the number of businesses where customers could

purchase postage stamps, from about 6,300 in 1986 to about 11,000 in 1996,

or 75 percent.

Page 41 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section III 

Postal Ratemaking

GAO

Regulated: Domestic and international 

single-piece letters, international printed 

matter, literature to the blind, and some 

registered mail products

Nonregulated: All bulk mail discounts off 

the basic letter rate, parcel rates, and 

certain other rates

Most CPC rates set without regulations 

and government approval

The CPC Act Provides for Regulated 

and Nonregulated Rates

Source: CPC.

Page 42 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section III 

Postal Ratemaking

The CPC Act Provides for

Regulated and

Nonregulated Rates

The CPC Act provides general authority for CPC to issue regulations, with

the approval of GIC, for the efficient operations of its business and for

carrying out the purposes and provisions of the act. Specifically, with

regard to postal ratemaking, the act provides authority for CPC to issue

regulations prescribing rates of postage and providing postage discounts

on mailable matter prepared in the manner prescribed by the regulations.

In 1996, the only postal rates established by regulation—regulated

rates—were those for basic domestic and international single-piece letters;

international printed matter, including newspapers and periodicals;

literature for the blind; and some registered mail products.

The CPC Act allows CPC to set certain postage rates by agreement rather

than by issuing regulations—nonregulated rates. Such agreements may

relate to (1) variations of postage rates based on bulk mailings or the

preparation of the mail in a manner that facilitates processing or (2) the

provision of experimental services for periods not exceeding 3 years.

Based on these provisions, CPC has, over time, sought and received

government approval to remove numerous rate categories from the

regulatory process. Consequently, most of CPC’s postal rates have been

established without issuing regulations and without government approval.

Such rates cover letters submitted in bulk to CPC with certain preparation

by the mailer to facilitate processing; “courier” (overnight or urgent

delivery) services; unaddressed advertising mail; and parcels.

Page 43 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section III 

Postal Ratemaking

GAO Detailed Criteria and Methods for 

Ratemaking Not Prescribed in Act 

The CPC Act contains few ratemaking 

provisions 

CPC has established pricing objectives/ 

principles and taken other steps to comply 

with the Competition Act 

Page 44 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section III 

Postal Ratemaking

Detailed Criteria and

Methods for Ratemaking

Not Prescribed in Act

The CPC Act provides that postage rates issued by regulation must be “fair

and reasonable and consistent so far as possible with providing a revenue,

together with any revenue from other sources, sufficient to defray the

costs incurred by the corporation in the conduct of its operations. . .” CPC

has established a pricing policy that is intended to comply with both the

CPC Act and the antitrust provisions of the Competition Act. CPC’s overall

pricing objectives are to

• achieve a 12-percent return on equity;11

• ensure that prices for products covered by its monopoly are not

cross-subsidizing nonmonopoly prices; and

• ensure that universal basic letter rates are being extended to its customers

within Canada, in compliance with the social obligation to provide

nondiscriminatory and affordable access to a national and international

system of letter mail.

CPC follows certain principles in developing postal rates: nonregulated

products will be priced to maximize their contribution in a competitive

environment, government-subsidized services will be priced according to

appropriate government policy, all rates will comply with the Competition

Act, and CPC’s basic customary service obligation will be taken into

account. Other principles include providing uniform basic letter rates and

limiting such rates to the level necessary to compensate for inflation, as

measured by the Consumer Price Index (CPI).

CPC has used an independent auditing firm to help ensure that the

corporation is properly allocating and distributing costs for ratemaking

purposes and is in compliance with the Competition Act. CPC considers its

detailed cost and revenue data to be commercially sensitive and, therefore,

has only released data for “bundled” product categories to the general

public.

11Return on Shareholders Equity is defined as net income (after interest, taxes, and dividends) divided

by the corporation’s equity (capital less any deficit). The Canadian government is the only shareholder

of the corporation. The CPC Act authorizes the corporation to issue to the Minister Responsible for

CPC shares of the corporation, which are held in trust for Her Majesty in right of Canada.

Page 45 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section III 

Postal Ratemaking

GAO Process for Approval of Regulated 

Rates

Crown Corporation

Directorate staff

analyze CPC's proposal for

Treasury Board

and Finance Minister, which

then provide input to GIC

After GIC approval,

rates published within 23 days

CPC's

Management Executive Committee (MEC)

 submits proposed rate regulations

CPC's

Board of Directors'

approves proposed regulations

Proposed regulations published in Canada 

Gazette; 60-day comment period provided

CPC reviews public comments

After final Board

approval, regulations are

submitted through the

Minister Responsible for CPC

to GIC; GIC has 60 days to

approve or reject

proposed regulations

Source: CPC and the Canadian Treasury Board.

Page 46 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section III 

Postal Ratemaking

Process for Approval of

Regulated Rates

The CPC Act requires that proposed regulations to be issued by CPC be

published in the Canada Gazette12 and a reasonable opportunity provided

for interested persons to comment on them prior to their approval.

According to CPC, it first presents information relating to future postage

rates in its corporate plan, which is submitted each year to the Minister

Responsible for CPC and the President of the Treasury Board for their

review and GIC approval. The approved plan forms the basis for developing

specific future postage rate changes. When new postage rates are to be

established by regulation, CPC’s MEC presents proposed regulations to the

CPC Board of Directors for approval. When approved, the proposed

regulations are published in the Canada Gazette; a 60-day period is

provided during which interested parties may respond by written

comment. The publication includes CPC’s rationale for the new rates but

does not include cost data. The CPC Act does not prescribe how the public

comments are to be addressed. However, according to CPC officials, they

analyze all comments received. The review process is not public, but

results of the CPC analysis are provided to the Minister Responsible for CPC.

Then, the proposed regulations are sent to the Board of Directors for final

approval.

After the board’s approval, the regulations are submitted through the

Minister Responsible for CPC to GIC, which has 60 days to approve or

disapprove of them. The Crown Corporation Directorate reviews the

proposed regulations to advise the Treasury Board and the Minister of

Finance about the proposal prior to GIC approval. According to Directorate

officials, their analysis includes a comparison of the proposed rate

increases to changes in the CPI. They said that they do not perform a

detailed analysis of CPC’s costs relative to the rates proposed for specific

products and services because CPC provides cost data for only broad

categories of products and services. If approved, the new rates are

published in the Canada Gazette within 23 days.

12The Canada Gazette is a government publication, similar to the U.S. Federal Register, in which

proposed and final government regulations are made public.

Page 47 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section III 

Postal Ratemaking

GAO Process for Approval of Nonregulated 

Rates

CPC staff submits

package of proposed nonregulated 

rates for MEC approval

President/CEO

approves generic rates

Generic Nongeneric

Managers with delegated authority

approve nongeneric rates

MEC briefs

Minister Responsible for CPC

and Board of Directors

Source: CPC.

Page 48 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section III 

Postal Ratemaking

Process for Approval of

Nonregulated Rates

CPC’s nonregulated postage rates fall into two categories: generic and

nongeneric. According to CPC, its procedures for establishing the two

categories of postage rates differ slightly, but neither requires Canadian

government approval.

Generic rates are rates that apply to discounted bulk-business letter mail,

advertising mail, parcels, or courier services that are generally available to

CPC business customers. CPC develops specific, product-by-product generic

rates that are discounted from the basic letter mail postage rate. These

rates are available to anyone who meets bulk mail requirements

established by CPC regulations. New generic rates must be approved by

CPC’s President/CEO in consultation with MEC. The Board of Directors and

the Minister are briefed on proposed changes in generic rates, but the

President/CEO is authorized to approve such rates. CPC officials said that

customer associations are briefed on the proposals to change generic rates

about 6 months before the rate changes take effect.

Nongeneric postage rates are established through negotiated, confidential

agreements that are customized for individual, large-volume business

customers. Such agreements are approved by CPC officials below the

President/CEO level through authority delegated by the Board of Directors.

These agreements are primarily for types of mail other than letters, such

as parcels and unaddressed advertising mail.

Page 49 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section III 

Postal Ratemaking

GAO Basic Letter Rates and Public 

Comments Received, 1982-1995

Date Cents (Can$) Cumulative 

percent

increase

Public comments

Jan 1982 30 Base 9,136

Feb 1983 32 7 2,467

June 1985 34 13 4,000

Apr 1987 36 20 291

Jan 1988 37 23 75

Jan 1989 38 27 45

Jan 1990 39 30 11

Jan 1991 40 33 26

Jan 1992 42 40 24

Jan 1993 43 43 9

Aug 1995 45 50 108

Source: CPC.

Page 50 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section III 

Postal Ratemaking

Basic Letter Rates and

Public Comments

Received, 1982-1995

Through November 1996, CPC had raised the basic letter mail rate 11 times

since 1981. When CPC was created in 1981, the basic letter mail rate was 17

cents, which CPC officials said was too low to cover the cost of providing

letter mail services. Therefore, CPC’s first rate change, in January 1982,

raised the basic letter rate by 13 cents to 30 cents, about a 75-percent

increase. Subsequently, postage rate for letter mail has increased by 1 or 2

cents in each instance.

The number of comments received by CPC on proposed rate changes has

varied greatly from a high of 9,136 in 1982, at the time of the highest

increase since reform, to a low of 9 in 1993. In 1995, the number of

comments increased from those of the previous years. In reviewing the

most recently proposed rate change, a newly elected government closely

scrutinized CPC’s rationale for the rate increase. CPC officials said the closer

scrutiny by the Minister Responsible for CPC and the Treasury Board

resulted in a 10-month delay in obtaining government approval for the rate

increase. They believe that public statements about the increase

stimulated public interest, resulting in an increased number of comments.

CPC’s pricing plan calls for increasing basic letter mail rates at a rate that is

within changes in the CPI. From 1982 to 1996, the basic letter rate had

increased a total of 50 percent, while the CPI had increased 71 percent.

Page 51 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section III 

Postal Ratemaking

GAO CPC's Income (Loss) Since Its First 

Profitable Year

1989 1990 1991 1992 1993 1994 1995 1996

-$400

-$300

-$200

-$100

$0

$100

$200

96

149

14

-128

26

-270

-69

28

First 

profitable

year

Can$ in millions

Income Losses

Source: CPC.

Page 52 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section III 

Postal Ratemaking

CPC’s Income (Loss) Since

Its First Profitable Year

The Canadian government reformed its postal system in 1981 to, among

other things, eliminate the annual operating deficits of the former Post

Office Department, which were funded by the government. The deficit

totaled about Can$500 million (U.S.$417 million*) in 1981.13 CPC made

progress in reducing the annual deficits in the 1980s and recorded its first

net profit of Can$96 million (U.S.$81 million*) in 1989. CPC reported losses

in 3 of the 7 years after 1989. For example, in 1994, corporate restructuring

and capital investments led to a loss of Can$270 million

(U.S.$198 million*). In 1996, CPC recorded a net profit of Can$28.0 million

(U.S.$20 million*). The Canadian government had expected CPC to pay

dividends to the government totaling about Can$300 million

(U.S.$253 million*) for the 5-year period ending in 1994.11 The corporation

paid dividends in only 2 years—Can$60 million (U.S.$51 million*) in 1990

and Can$5.7 million (U.S.$4.7 million* in 1992). In addition to paying

dividends, since 1994 CPC has been subject to federal income tax. For 1996,

CPC estimated that it would pay Can$4.0 million (U.S.$3.0 million*) in

federal income tax to the Canadian government.

CPC’s net profit in 1989 marked the end of government funding of its

operating deficits. The government continues to subsidize mail service for

members of Parliament, magazines and newspapers, the blind, and

customers in remote areas of Canada. For fiscal year 1996, this

government’s appropriation was Can$97 million (U.S.$71 million*).

13Conversions to U.S. dollars on this page were calculated using the following average exchange rates:

(1)U.S.$417 million (1981 average rate: Can$1.1990 = U.S.$1); (2)U.S.$81 million (1989 average rate:

Can$1.1842=U.S.$1); (3)U.S.$198 million (1994 average rate: Can$1.3644=U.S.$1); (4)U.S.$20 million

(12/30/96 rate: Can$1.3698=U.S.$1); (5)U.S.$253 million (1989 average rate: Can$1.1842=U.S.$1);

(6)U.S.$51 million (1990 average rate: Can$1.1668=U.S.$1) and U.S.$4.7 million (1992 average rate:

Can$1.2085=U.S.$1); (7)U.S.$3.0 million (2/30/96 rate: Can$1.3698=U.S.$1); (8)U.S.$71 million (12/30/96

rate: Can$1.3698 = U.S.$1).

Page 53 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section IV 

Key Events Affecting CPC

GAO Historical Perspective: Key Events 

Affecting CPC's Business Practices 

Cost reduction efforts:

Post office conversions, delivery service changes

CPC

developed

plan

to reduce

costs

New 

government

elected

Government 

moratorium 

on post office 

closings

Government 

reviewed

CPC's

mandate

Government 

reviewed 

CPC's

mandate

and

recommended

third-party

regulator

Parliamentary 

committee

recommended

third-party 

regulator

Postal

reform

CPC 

created

Post office 

problems

led to

reform

New 

government

elected

First profitable

year

Experimental

third-party

regulator

reviewed

proposed rates

1981 1984 1985 1986 1989 1990 1994 1995

Legal challenges to service changes

Page 54 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section IV 

Key Events Affecting CPC

Historical Perspective: Key

Events Affecting CPC’s

Business Practices

This chart is an overview of key events and government interventions that

have shaped CPC’s business practices since its creation in 1981.

These actions include changes made to services since reform, public

reactions to those changes and to CPC’s competitiveness, and government

involvement in CPC’s activities. For example, of particular concern to

customers was CPC’s closure of rural post offices, its conversion of others

to private ownership, and its implementation of community mail boxes

rather than an expansion of door-to-door mail delivery. These efforts have

been criticized by communities, members of the public, and labor unions,

and have resulted in a number of legal challenges to and government

scrutiny of CPC’s mandate. In response, the Canadian government imposed

a moratorium on further rural closings and conversions and a court in

Canada has upheld CPC’s decision to use community boxes.

In addition, competitors have criticized CPC’s behavior in its competition

with private business and have alleged that CPC cross-subsidizes the prices

of its competitive products with revenues protected by the CPC Act’s

statutory monopoly provision. In response, the government has conducted

several government studies of CPC since reform that contained

recommendations for additional oversight, such as establishing a

third-party regulator to address concerns about CPC’s accountability.

Page 55 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section IV 

Key Events Affecting CPC

GAO CPC's Maintenance of "Basic 

Customary Postal Service" 

In new communities, door-to-door 

delivery replaced with community boxes 

Dissatisfied customers argued

community boxes were different level 

of service for same-size communities

mandate to provide "basic customary 

postal service" was violated

Court upheld CPC's right to decide on 

type of mail delivery

Page 56 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section IV 

Key Events Affecting CPC

CPC’s Maintenance of

“Basic Customary Postal

Service”

CPC’s increased use of “community” mail boxes, rather than door-to-door

mail delivery, has prompted concern among some customers,

communities, members of the public, and labor unions representing CPC

employees. These concerns have resulted in a legal challenge to CPC’s

practices and closer government scrutiny of CPC’s mandate.

In the mid 1970s, the former Post Office Department introduced a group

mail box concept for the delivery of mail.14 In 1986, CPC adopted a new

national delivery policy under which there would be no extension of

door-to-door delivery in new areas beyond existing routes. Rather, in new

areas, mail would be delivered to “community boxes.” According to CPC,

the cost to serve each community mail box was Can$28 (U.S.$20) per year

compared with Can$113 (U.S.$83)15 per year for service to each door. By

March 1995, about 5 million, or 40 percent, of the 12.3 million delivery

addresses served by CPC, received door-to-door delivery, while 15 percent

received group and community box delivery.

Some customers argued that the boxes (1) were less convenient,

particularly in the winter months; (2) were less accessible for disabled

persons; (3) presented safety concerns; and (4) violated CPC’s mandate to

provide similar services to same-size communities. In 1985, a community

brought a legal complaint against CPC, saying that use of community mail

boxes, instead of door-to-door delivery, violated the concept of “basic

customary postal service” required by the CPC Act.16 The court upheld CPC’s

decision to use community boxes, and said that CPC’s obligation was only

“to have regard to” the factors set out in the act, and that there was no

positive duty for it to provide door-to-door delivery.

14Group mail boxes were used primarily in rural collection and delivery situations where “clustered”

delivery was considered to be a cost-effective delivery mode.

15Conversion to U.S. dollars is calculated using the 1985 average exchange rate of Can$1.3659 = U.S.$1.

16The Mandate of Canada Post Corporation and Its Development, Prepared for Mandate

Review,(Nov. 8, 1995), and other CPC documents.

Page 57 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section IV 

Key Events Affecting CPC

GAO CPC's Maintenance of "Basic 

Customary Postal Service" (cont.)

Legislation did not define "basic customary 

postal service" 

Post office closures and private 

ownership were challenged in the courts

Government imposed moratorium on 

further post office closures and franchise 

conversions in 1994

Page 58 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section IV 

Key Events Affecting CPC

CPC’s Maintenance of

“Basic Customary Postal

Service (cont.)

Since reform, there have been a number of challenges to CPC’s efforts to

convert post offices to private ownership and close others.17 For example,

with regard to CPC’s conversions of post offices, in 1988, a postal union

filed a complaint in court that CPC had operated outside its authority in

creating a franchise outlet in a pharmacy. However, in 1994, the court

dismissed the complaint, saying that CPC has the rights, powers, and

privileges of a “natural person” to contract with others to act on its behalf

in the collection or delivery of letters as long as it does not extend an

exclusive license. With regard to closures, in 1991, residents of four rural

communities filed a complaint in court to set aside CPC’s decision to

convert post offices to private ownership. The court held that CPC’s

mandate did not impose a duty to provide a local post office in each

community as a basic customary postal service. In another case, a citizens’

coalition and the Canadian Postmasters and Assistant Postmasters

Association challenged the legality of CPC’s closure of post offices without

the issuance of a regulation. The court determined that the CPC Act allows,

but does not require, CPC to issue regulations to close post offices.

In 1994, in response to customer concerns, the newly elected Canadian

government imposed a moratorium on CPC’s post office closure and

conversion program. The Minister Responsible for CPC announced that

there would be no further closures of rural post offices and that CPC would

continue the conversion program in urban areas only after consultation

with Postal Service Customer Councils. To offset financial losses caused

by the operation of post offices that are not cost effective, the government

agreed to make greater use of CPC services offered through its retail

network. CPC officials said that they believe the conversions to private

ownership did not degrade services and that CPC has adhered to the

moratorium on rural closings.

17The Mandate of Canada Post Corporation and Its Development, Prepared for the Mandate Review,

(Nov. 8, 1995), pp. A1, A2, A3.

Page 59 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section IV 

Key Events Affecting CPC

GAO Concerns About Financial 

Accountability

Past government-sponsored reviews of CPC 

recommended a third-party regulator

1985 review led to experiment with 

third-party regulator (concerns about lack 

of cost data)

1988 government experimented with 

third-party regulator

1990 review called for regulator and 

eventual private ownership of CPC (public 

concerns about accountability)

Page 60 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section IV 

Key Events Affecting CPC

Concerns About Financial

Accountability

The Canadian government has made several reviews of CPC, some of which

have resulted in recommendations for additional government oversight of

CPC, including establishing a third-party regulator to oversee postal

ratesetting. In 1985, a newly elected government requested that the

Minister Responsible for CPC conduct an independent review of CPC’s

mandate to determine, among other things, whether a third-party regulator

should be established.18 The resulting report concluded that CPC did not

have sound procedures for determining costs. Further, the Corporation

was unlikely to achieve its self-sufficiency goal. The report recommended

establishment of an independent third-party rate regulator, but the

government did not adopt the recommendation.

In 1988, the Minister for Consumer and Corporate Affairs in Canada

presented models for third-party regulation of certain CPC activities. The

government directed that a newly created Postal Service Review

Committee review CPC’s rate and service proposals, request public

comments on the proposals, and make recommendations supporting or

rejecting CPC’s proposals. In its review of CPC’s 1990 proposed rate

changes, the Committee said that CPC had not provided sufficient volume,

cost, or revenue data to assess the proposed rates or to determine whether

CPC cross-subsidized its competitive product prices with monopoly

revenues. Even so, the government approved CPC’s proposed rate

regulations. The government later eliminated the Committee.

In 1990, a Parliamentary committee responded to public concerns about

CPC’s accountability by conducting a review of CPC.

19 The Committee was

concerned that the Postal Service Review Committee had been unable to

fulfill its mandate because of the lack of CPC data. Among other

recommendations, it recommended the establishment of a third-party

regulator. The government did not adopt the recommendation.

18Alan R. Marchment, Chairman, Report of the Review Committee on the Mandate and Productivity of

Canada Post Corporation, (Canadian Government Publishing Centre, Nov. 1985).

19House of Commons Issue No. 53. Standing Committee on Consumer and Corporate Affairs and

Government Operations. Moving The Mail: Canada’s Postal Service in the 1990s, (Ottawa: Canadian

Government Publishing Centre, Apr. 1990).

Page 61 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section IV 

Key Events Affecting CPC

GAO Concerns About Pricing and 

Competitive Practices 

Competitors allege cross-subsidization of 

prices and unfair competition

Bureau of Competition Policy 

examination of CPC-Purolator merger 

found no basis for cross-subsidization 

allegations

Bureau of Competition Policy did not 

address competition issue

Page 62 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section IV 

Key Events Affecting CPC

Concerns About Pricing

and Competitive Practices

In 1993, CPC acquired a competing overnight delivery service courier,

Purolator Courier Limited, which provided CPC with about 40 percent of

the small-parcel, express-mail market in Canada. The Bureau of

Competition Policy examined the acquisition pursuant to its authority

under the Competition Act to approve mergers of Canadian companies.

Public comments obtained by the Bureau’s investigators indicated

concerns regarding (1) possible cross-subsidizing of CPC’s prices of its

courier services and (2) the appropriateness of allowing a Crown

corporation to compete with the private sector.

Regarding the first concern, the Bureau investigated the

cross-subsidization issue and reported it was satisfied that CPC had not

cross-subsidized its courier service prices.20 According to the Bureau’s

report on the investigation, CPC provided a substantial amount of

information on its costs, costing methodology, and the procedures and

policies in place to monitor the allocation of costs among its various

products. The accuracy of this information was verified by an independent

accounting firm.

Regarding the second concern, the Bureau determined that it was not in its

purview to examine whether a Crown corporation should compete with

firms in the private sector because the Competition Act was established to

encourage competition.

20Bureau of Competition Policy. Backgrounder: “Canada Post Corporation/Purolator Courier, Limited”

(n.p), Nov. 1993.

Page 63 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section IV 

Key Events Affecting CPC

GAO Government Requested and 

Conducted a Review of CPC

CPC 's Minister conducted mandate 

review during November 1995 - July 1996

Staff received 440 submissions, 1,084 

letters, and 1,116 telephone calls

Public meetings held in six Canadian 

cities

Page 64 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section IV 

Key Events Affecting CPC

Government Requested

and Conducted a Review

of CPC

In November 1995, the Minister Responsible for CPC arranged for a

“Canada Post Mandate Review” because of (1) concerns by competitors

and others about CPC’s mandate and practices and because (2) the

government had not reviewed CPC’s mandate since 1985. The review was

done by a committee that consisted of a chairman, appointed by the

government, and staff who examined various CPC-related financial and

policy issues. After soliciting public comments regarding CPC, the review

committee staff told us that they received 440 submissions, 1,084 letters,

and 1,116 telephone calls with comments. The committee staff obtained

additional information at public meetings held in six Canadian cities. Both

CPC and the Bureau of Competition provided detailed written comments

and analyses to the review committee. The mandate review was completed

in July 1996.

Page 65 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section IV 

Key Events Affecting CPC

GAO Recommendations by the 1996 CPC 

Mandate Review

Make universal service mandate explicit

Retain post office closing moratorium 

and revise door-to-door service policy 

Revise delivery standards

Establish rural delivery standards

Retain exclusive privilege authority but 

no third-party regulator

Page 66 GAO/GGD-97-45BR Postal Reform in Canada
Briefing Section IV 

Key Events Affecting CPC

Recommendations by the

1996 CPC Mandate Review

In the July 1996 report, the review committee Chairman made many

recommendations covering a broad range of CPC policies and practices.

Regarding universal mail service, he recommended that in any future CPC

Act amendments, the obligation to provide universal service at a uniform

rate for letter mail be explicitly included. The Chairman also

recommended that

• the existing moratorium on post office closings and conversions be

retained,

• CPC implement door-to-door service delivery for disabled and elderly

customers, and replace community boxes with door-to-door service in

those urban areas where some door-to-door delivery already exists, and

• CPC (1) improve the speed and reliability of mail delivery and return to the

previous 1-, 2-, and 3-day letter mail delivery standards for urban areas that

CPC had relaxed and (2) establish delivery standards for rural areas.

Regarding ratemaking, the Chairman recommended that the government

retain the CPC exclusive privilege authority in the CPC Act and

recommended that CPC and the government vigorously enforce this

authority. In addition, several recommendations were made to increase

revenues to help offset the cost of service improvements. The Chairman

rejected third-party regulation as an option for CPC because, among other

reasons, such regulation would require the government to redefine its

relationship with CPC, and it would be too time consuming and costly. Also,

he recommended that the required government approval of CPC regulations

should be retained and CPC should provide at least a year’s advance public

notice of any changes in rates, rate discounts, and mail preparation

standards for businesses.

As of November 1996, the Minister Responsible for CPC was still

considering the recommendations, but had accepted two

recommendations (1) continuing the moratorium on post office closings

and (2) discontinuing delivery of certain advertising mail.

Page 67 GAO/GGD-97-45BR Postal Reform in Canada
Appendix I 

Information on Governance and Postal

Ratemaking of Canada Post Corporation and

the U.S. Postal Service

Canada Post Corporation United States Postal Service

Head of postal administration President/Chief Executive Officer Postmaster General/Chief Executive Officer

Government official who selects head of

postal administration

Governor in Council, a special committee

of the cabinet

Postal Governors

Oversight administration Minister Responsible for Canada Post Congress and the Postal Rate Commission

Government approval of operating and

capital budgets

Treasury Board and Minister of Finance None required

Subject to antitrust laws Subject to the Competition Act, with

respect to those activities open to

competition

Not subject to antitrust laws

Legal financial mandate Have regard to the need to operate on a

self-sustaining financial basis

Operate on break-even basis

Financial goal CPC plan for 12-percent return on

shareholder equity

Operate on break-even basis

Postal rates that require governmental

approval

Government must approve basic

single-piece letters (domestic and

international), international printed matter,

literature for the blind, some registered mail)

Postal Rate Commission issues

recommended decisions to USPS

Governors on all proposed rates except

international rates and nonpostal services;

Governors may accept or reject decision,

resubmit proposal, or unanimously modify

a resubmitted decision

Uniform postal rates Not legally required, but provided in

practice for basic letter mail

Legally required and provided by USPS

Basic letter rate (as of Nov. 1996) Can $0.45 (U.S. $0.33)a U.S. $0.32

Last increase in basic letter rate 1995 from Can $0.43 (U.S. $0.31)a 1995 from U.S. $0.29

Frequency of mail delivery 5 days/weekb 6 days/week

Delivery standard for local mail 2 business days 1 day

aConversion to U.S. dollars is calculated using the Dec. 31, 1996, rate of exchange of

Can$1.3698 = U.S.$1.

bExcept in remote northern communities accessible only by air and difficult to serve in winter.

Source: CPC, USPS data.

Page 68 GAO/GGD-97-45BR Postal Reform in Canada
Appendix II 

Major Contributors to This Briefing Report

General Government

Division

Michael E. Motley, Associate Director

James T. Campbell, Assistant Director

Hazel Bailey, Writer-Editor

Denver Regional

Office

Arleen L. Alleman, Senior Evaluator

Rudolfo G. Payan, Senior Evaluator

(240214) Page 69 GAO/GGD-97-45BR Postal Reform in Canada
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 6015

Gaithersburg, MD 20884-6015

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (202) 512-6000 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

For information on how to access GAO reports on the INTERNET,

send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. G100