Postal Reform in Canada: Canada Post Corporation's Universal Service and
Ratemaking (Letter Report, 03/05/97, GAO/GGD-97-45BR).

Pursuant to a congressional request, GAO provided certain information on
Canada's 1981 postal reform initiative, which created the Canada Post
Corporation (CPC), focusing on: (1) universal mail service in Canada;
(2) CPC ratemaking; and (3) key events affecting CPC since its creation
in 1981.

GAO noted that: (1) 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; (2)
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"; (3) although not required by the CPC act,
CPC policy is to provide basic letter mail services at a uniform rate;
(4) under the CPC act, CPC has the "exclusive privilege", i.e., a
statutory monopoly, to collect and deliver most letter mail in Canada;
(5) this letter mail accounted for about 50 percent of CPC's operating
revenue in fiscal year 1996; (6) since its creation in 1981, CPC has
made some changes that affect the extent of mail service; (7) from 1981
though 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; (8) with regard to postal ratemaking, CPC sets
some postage rates through regulations; (9) 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; (10) at the time of GAO's review, CPC used regulations to set
postage rates for basic domestic and international single-piece letters
and some other categories of mail; (11) CPC sets postage rates for other
mail services by agreement, without issuing regulations or obtaining
government approval; (12) 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; (13) since reform,
several key events have affected CPC's business practices; (14) 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; (15) additionally, the Canadian
government has made several reviews of CPC, some of which have resulted
in recommendations for additional government oversight of CPC; and (16)
at the time of GAO's 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, incl*

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-97-45BR
     TITLE:  Postal Reform in Canada: Canada Post Corporation's 
             Universal Service and Ratemaking
      DATE:  03/05/97
   SUBJECT:  Postal service
             Postal rates
             Foreign governments
             Privatization
             Customer service
             Monopolies
             Competition
             Cost control
             Postal facilities
IDENTIFIER:  Northern Air Stage Program (Canada)
             Canada
             
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Cover
================================================================ COVER


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

Postal Reform in Canada

(240214)


Abbreviations
=============================================================== ABBREV

  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

Letter
=============================================================== LETTER


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
------------------------------------------------------------ Letter :1

The Canada Post Corporation Act (CPC Act) established CPC as a Crown
Corporation\1 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. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

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
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.)


--------------------
\3 Some portions of northern Canada receive mail service less often
than each work day.  This situation continued after the 1981 postal
reform. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

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
------------------------------------------------------------ Letter :4

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


---------------------------------------------------------- Letter :4.1

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


Briefing Section I INTRODUCTION
============================================================== Letter 



   (See figure in printed
   edition.)


   BRIEFING OBJECTIVES
------------------------------------------------------------ Letter :5



      BRIEFING OBJECTIVES
---------------------------------------------------------- Letter :5.1

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. 




   (See figure in printed
   edition.)


   KNOWLEDGE ABOUT CANADA'S POSTAL
   REFORM WOULD BE RELEVANT TO
   U.S.  POSTAL REFORM
------------------------------------------------------------ Letter :6



      KNOWLEDGE ABOUT CANADA'S
      POSTAL REFORM WOULD BE
      USEFUL TO U.S.  POSTAL
      REFORM
---------------------------------------------------------- Letter :6.1

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. 




   (See figure in printed
   edition.)


   SELECTED U.S.  DEMOGRAPHICS
------------------------------------------------------------ Letter :7

   Source:  CIA World Fact Book.

   (See figure in printed
   edition.)

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. 




   (See figure in printed
   edition.)


   SELECTED CANADIAN DEMOGRAPHICS
------------------------------------------------------------ Letter :8

   Source:  CIA World Fact Book.

   (See figure in printed
   edition.)

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. 




   (See figure in printed
   edition.)


   SELECTED STATISTICS FOR THE
   U.S.  AND CANADIAN POSTAL
   SYSTEMS
------------------------------------------------------------ Letter :9

   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.

   (See figure in printed
   edition.)

   Source:  CPC and USPS data.

   (See figure in printed
   edition.)



      SELECTED STATISTICS FOR THE
      U.S.  AND CANADIAN POSTAL
      SYSTEMS
---------------------------------------------------------- Letter :9.1

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. 




   (See figure in printed
   edition.)


--------------------
\4 CPC's mail volume and revenue includes that of Purolator Courier,
Ltd., which CPC acquired in 1993. 


   1996 REVENUE AND MAIL VOLUME BY
   CANADIAN MARKET SEGMENTS
----------------------------------------------------------- Letter :10

   Source:  CPC.

   (See figure in printed
   edition.)



      1996 REVENUE AND VOLUME BY
      CANADIAN MARKET SEGMENTS
--------------------------------------------------------- Letter :10.1

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




   (See figure in printed
   edition.)


--------------------
\5 Conversion to U.S.  dollars is calculated using the Dec.  30,
1996, rate of exchange of Can$1.3698 = U.S.$1. 


   SEVERAL EVENTS LED TO CANADIAN
   POSTAL REFORM
----------------------------------------------------------- Letter :11

   Source:  CPC; Campbell, Robert
   M, The Politics of the Post: 
   Canada's Postal System from
   Public Service to
   Privatization, (Broadview
   Press, 1994).

   (See figure in printed
   edition.)



      SEVERAL EVENTS LED TO
      CANADIAN POSTAL REFORM
--------------------------------------------------------- Letter :11.1

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. 




   (See figure in printed
   edition.)


--------------------
\6 Conversion to U.S.  dollars is calculated using the 1980 average
exchange rate of Can$1.1693 = U.S.$1. 


   CPC'S MANDATE INCLUDES BROAD
   COMMERCIAL FREEDOM
----------------------------------------------------------- Letter :12



      CPC'S MANDATE INCLUDES BROAD
      COMMERCIAL FREEDOM
--------------------------------------------------------- Letter :12.1

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. 




   (See figure in printed
   edition.)


   FACTORS TO BE CONSIDERED WHILE
   MAINTAINING SERVICE
----------------------------------------------------------- Letter :13



      FACTORS TO BE CONSIDERED
      WHILE MAINTAINING SERVICE
--------------------------------------------------------- Letter :13.1

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. 




   (See figure in printed
   edition.)


--------------------
\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. 


   CANADIAN GOVERNMENT STRUCTURE
   FOR CPC OVERSIGHT
----------------------------------------------------------- Letter :14

   Source:  CPC; Canadian Treasury
   Board.

   (See figure in printed
   edition.)



      CANADIAN GOVERNMENT
      STRUCTURE FOR CPC OVERSIGHT
--------------------------------------------------------- Letter :14.1

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. 




   (See figure in printed
   edition.)


   CPC'S CORPORATE STRUCTURE AND
   SUBSIDIARIES
----------------------------------------------------------- Letter :15

   Source:  CPC.

   (See figure in printed
   edition.)



      CPC'S CORPORATE STRUCTURE
      AND SUBSIDIARIES
--------------------------------------------------------- Letter :15.1

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. 




   (See figure in printed
   edition.)


   SCOPE AND METHODOLOGY
----------------------------------------------------------- Letter :16



      SCOPE AND METHODOLOGY
--------------------------------------------------------- Letter :16.1

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. 


Briefing Section II UNIVERSAL MAIL
SERVICE
============================================================== Letter 



   (See figure in printed
   edition.)


   THE CPC ACT REQUIRES MAIL
   SERVICE TO ALL CANADIANS
----------------------------------------------------------- Letter :17



      THE CPC ACT REQUIRES MAIL
      SERVICE TO ALL CANADIANS
--------------------------------------------------------- Letter :17.1

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. 




   (See figure in printed
   edition.)


   CPC HAS EXCLUSIVE PRIVILEGE FOR
   LETTER MAIL DELIVERY
----------------------------------------------------------- Letter :18



      CPC HAS EXCLUSIVE PRIVILEGE
      FOR LETTER MAIL DELIVERY
--------------------------------------------------------- Letter :18.1

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. 




   (See figure in printed
   edition.)


--------------------
\8 Letter Definition Regulations.  Canada Post Corporation Act and
Regulations Manual (94-03). 


   CPC REDUCED FREQUENCY OF SOME
   DELIVERIES TO REDUCE COST
----------------------------------------------------------- Letter :19



      CPC REDUCED FREQUENCY OF
      SOME DELIVERIES TO REDUCE
      COST
--------------------------------------------------------- Letter :19.1

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. 




   (See figure in printed
   edition.)


--------------------
\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. 


   LESS FREQUENT DELIVERY IN
   REMOTE AREAS CONTINUED AFTER
   REFORM
----------------------------------------------------------- Letter :20



      LESS FREQUENT DELIVERY IN
      REMOTE AREAS CONTINUED AFTER
      REFORM
--------------------------------------------------------- Letter :20.1

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




   (See figure in printed
   edition.)


--------------------
\10 Conversion 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. 


   1986 CORPORATE PLAN FOCUSED ON
   CUTTING COSTS AND IMPROVING
   SERVICE
----------------------------------------------------------- Letter :21



      1986 CORPORATE PLAN FOCUSED
      ON CUTTING COSTS AND
      IMPROVING SERVICE
--------------------------------------------------------- Letter :21.1

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. 




   (See figure in printed
   edition.)


   NUMBER OF CPC-OWNED POST
   OFFICES REDUCED BETWEEN 1985
   AND 1996
----------------------------------------------------------- Letter :22

   Source:  CPC.  Canada Post
   Corporation:  Standards of
   Service and Network Operations. 
   Prepared by CPC for the Mandate
   Review.

   (See figure in printed
   edition.)



      NUMBER OF CPC-OWNED POST
      OFFICES REDUCED BETWEEN 1985
      AND 1996
--------------------------------------------------------- Letter :22.1

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. 


Briefing Section III POSTAL
RATEMAKING
============================================================== Letter 



   (See figure in printed
   edition.)


   THE CPC ACT PROVIDES FOR
   REGULATED AND NONREGULATED
   RATES
----------------------------------------------------------- Letter :23

   Source:  CPC.

   (See figure in printed
   edition.)



      THE CPC ACT PROVIDES FOR
      REGULATED AND NONREGULATED
      RATES
--------------------------------------------------------- Letter :23.1

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. 



   (See figure in printed
   edition.)


   DETAILED CRITERIA AND METHODS
   FOR RATEMAKING NOT PRESCRIBED
   IN ACT
----------------------------------------------------------- Letter :24



      DETAILED CRITERIA AND
      METHODS FOR RATEMAKING NOT
      PRESCRIBED IN ACT
--------------------------------------------------------- Letter :24.1

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. 




   (See figure in printed
   edition.)


--------------------
\11 Return 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. 


   PROCESS FOR APPROVAL OF
   REGULATED RATES
----------------------------------------------------------- Letter :25

   Source:  CPC and the Canadian
   Treasury Board.

   (See figure in printed
   edition.)



      PROCESS FOR APPROVAL OF
      REGULATED RATES
--------------------------------------------------------- Letter :25.1

The CPC Act requires that proposed regulations to be issued by CPC be
published in the Canada Gazette\12 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. 




   (See figure in printed
   edition.)


--------------------
\12 The Canada Gazette is a government publication, similar to the
U.S.  Federal Register, in which proposed and final government
regulations are made public. 


   PROCESS FOR APPROVAL OF
   NONREGULATED RATES
----------------------------------------------------------- Letter :26

   Source:  CPC.

   (See figure in printed
   edition.)



      PROCESS FOR APPROVAL OF
      NONREGULATED RATES
--------------------------------------------------------- Letter :26.1

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. 




   (See figure in printed
   edition.)


   BASIC LETTER RATES AND PUBLIC
   COMMENTS RECEIVED, 1982-1995
----------------------------------------------------------- Letter :27

   Source:  CPC.

   (See figure in printed
   edition.)



      BASIC LETTER RATES AND
      PUBLIC COMMENTS RECEIVED,
      1982-1995
--------------------------------------------------------- Letter :27.1

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. 




   (See figure in printed
   edition.)


   CPC'S INCOME (LOSS) SINCE ITS
   FIRST PROFITABLE YEAR
----------------------------------------------------------- Letter :28

   Source:  CPC.

   (See figure in printed
   edition.)



      CPC'S INCOME (LOSS) SINCE
      ITS FIRST PROFITABLE YEAR
--------------------------------------------------------- Letter :28.1

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*). 

Briefing Section IV

--------------------
\13 Conversions 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). 


KEY EVENTS AFFECTING CPC
============================================================== Letter 



   (See figure in printed
   edition.)


   HISTORICAL PERSPECTIVE:  KEY
   EVENTS AFFECTING CPC'S BUSINESS
   PRACTICES
----------------------------------------------------------- Letter :29



      HISTORICAL PERSPECTIVE:  KEY
      EVENTS AFFECTING CPC'S
      BUSINESS PRACTICES
--------------------------------------------------------- Letter :29.1

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. 




   (See figure in printed
   edition.)


   CPC'S MAINTENANCE OF "BASIC
   CUSTOMARY POSTAL SERVICE"
----------------------------------------------------------- Letter :30



      CPC'S MAINTENANCE OF "BASIC
      CUSTOMARY POSTAL SERVICE"
--------------------------------------------------------- Letter :30.1

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. 




   (See figure in printed
   edition.)



--------------------
\14 Group mail boxes were used primarily in rural collection and
delivery situations where "clustered" delivery was considered to be a
cost-effective delivery mode. 

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

\16 The Mandate of Canada Post Corporation and Its Development,
Prepared for Mandate Review,(Nov.  8, 1995), and other CPC documents. 


      CPC'S MAINTENANCE OF "BASIC
      CUSTOMARY POSTAL SERVICE
      (CONT.)
--------------------------------------------------------- Letter :30.2

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. 




   (See figure in printed
   edition.)


--------------------
\17 The Mandate of Canada Post Corporation and Its Development,
Prepared for the Mandate Review, (Nov.  8, 1995), pp.  A1, A2, A3. 


   CONCERNS ABOUT FINANCIAL
   ACCOUNTABILITY
----------------------------------------------------------- Letter :31



      CONCERNS ABOUT FINANCIAL
      ACCOUNTABILITY
--------------------------------------------------------- Letter :31.1

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. 




   (See figure in printed
   edition.)


--------------------
\18 Alan R.  Marchment, Chairman, Report of the Review Committee on
the Mandate and Productivity of Canada Post Corporation, (Canadian
Government Publishing Centre, Nov.  1985). 

\19 House 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). 


   CONCERNS ABOUT PRICING AND
   COMPETITIVE PRACTICES
----------------------------------------------------------- Letter :32



      CONCERNS ABOUT PRICING AND
      COMPETITIVE PRACTICES
--------------------------------------------------------- Letter :32.1

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. 




   (See figure in printed
   edition.)


--------------------
\20 Bureau of Competition Policy.  Backgrounder:  "Canada Post
Corporation/Purolator Courier, Limited" (n.p), Nov.  1993. 


   GOVERNMENT REQUESTED AND
   CONDUCTED A REVIEW OF CPC
----------------------------------------------------------- Letter :33



      GOVERNMENT REQUESTED AND
      CONDUCTED A REVIEW OF CPC
--------------------------------------------------------- Letter :33.1

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. 




   (See figure in printed
   edition.)


   RECOMMENDATIONS BY THE 1996 CPC
   MANDATE REVIEW
----------------------------------------------------------- Letter :34



      RECOMMENDATIONS BY THE 1996
      CPC MANDATE REVIEW
--------------------------------------------------------- Letter :34.1

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. 


INFORMATION ON GOVERNANCE AND
POSTAL RATEMAKING OF CANADA POST
CORPORATION AND THE U.S.  POSTAL
SERVICE
=========================================================== Appendix I

                                                      United States Postal
                           Canada Post Corporation    Service
-------------------------  -------------------------  --------------------------
Head of postal             President/Chief Executive  Postmaster General/Chief
administration             Officer                    Executive Officer

Government official who    Governor in Council, a     Postal Governors
selects head of postal     special committee of the
administration             cabinet

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

Government approval of     Treasury Board and         None required
operating and capital      Minister of Finance
budgets

Subject to antitrust laws  Subject to the             Not subject to antitrust
                           Competition Act, with      laws
                           respect to those
                           activities open to
                           competition

Legal financial mandate    Have regard to the need    Operate on break-even
                           to operate on a self-      basis
                           sustaining financial
                           basis

Financial goal             CPC plan for 12-percent    Operate on break-even
                           return on shareholder      basis
                           equity

Postal rates that require  Government must approve    Postal Rate Commission
governmental approval      basic single-piece         issues recommended
                           letters (domestic and      decisions to USPS
                           international),            Governors on all proposed
                           international printed      rates except international
                           matter, literature for     rates and nonpostal
                           the blind, some            services; Governors may
                           registered mail)           accept or reject decision,
                                                      resubmit proposal, or
                                                      unanimously modify a
                                                      resubmitted decision

Uniform postal rates       Not legally required, but  Legally required and
                           provided in practice for   provided by USPS
                           basic letter mail

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

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

Frequency of mail          5 days/week\b              6 days/week
delivery

Delivery standard for      2 business days            1 day
local mail
--------------------------------------------------------------------------------
\a Conversion to U.S.  dollars is calculated using the Dec.  31,
1996, rate of exchange of Can$1.3698 = U.S.$1. 

\b Except in remote northern communities accessible only by air and
difficult to serve in winter. 

   Source:  CPC, USPS data.

   (See figure in printed
   edition.)


MAJOR CONTRIBUTORS TO THIS
BRIEFING REPORT
========================================================== Appendix II

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


*** End of document. ***