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IN THIS ISSUE
Telecom Service in High Cost Areas: Will it survive competition?
Privacy Protection on the Way!
Electronic Commerce and Consumer Protection
CRTC holds hearings on Canadian Television Policy
New Report: Tied Selling in Banking.
Energy Competition Act
One of the problems with a competitive telecommunications marketplace is that it doesn’t necessarily respond to need. In particular, there is no incentive for a company to serve communities where the cost of serving is higher than the potential revenues. Yet Canada contains many such “high cost areas” communities who have received service in the past through large subsidies internal to the monopoly provider.
With competition, and the demise of the monopolies, such subsidies can no longer be sustained. The profit margins on long distance and business service that used to subsidize below-cost prices for rural and remote residents are being competed away. And while technological breakthroughs may provide lower cost solutions in the future, for now, the cost differences remain.
The CRTC last year initiated a proceeding to examine ways in which this problem could be addressed. On behalf of a coalition of groups, The Alberta Council on Aging(ACA), Consumers Association of Canada (CAC) Federation Nationale des Associations de Consommateurs du Quebec (FNACQ), National Anti-Poverty Organization (NAPO), Rural Dignity of Canada (RDC), the Public Interest Advocacy Centre (PIAC) filed submissions calling for a competitively-neutral explicit subsidy scheme that harnesses market forces to achieve universal availability, affordability, and quality of telecommunications services throughout the country.
Together with other public interest groups, PIAC is concerned about the maintenance of affordable service in rural areas. This concern has resulted in the evolution of a set of principles, which will be released of a consensus policy document entitled a Consumer Charter for a Connected Canada. It is our hope that the Charter will be a focus for public discussion. The Charter will be released at the end of October.
Lack of adequate protection for personal information in the private sector is a growing problem in Canada, especially in light of the increasing use by Canadians of electronic means of communication and commercial transactions. Consumers are protected from abuse of their personal information by government, but other than in Quebec, there is no law guaranteeing them control over their personal information in the private sector. As a result, the market in personal information has been booming, while consumers find themselves bombarded by unsolicited marketing via phone, fax, post and e-mail.
Together with other privacy advocates, PIAC has been calling for legislation to protect the individual’s right to control her personal information. We have worked closely with business groups to help them develop effective voluntary codes of practice with respect to consumer privacy, but such voluntary actions won’t do the job. Many businesses choose not to adopt voluntary codes, despite the urging of other industry players. Of those who do adopt a good policy, many have difficulty translating it into practice.
It is therefore with enthusiasm that we greet the federal government’s Bill C-54, which sets out a framework for privacy protection reflecting the ten principles agreed to by business and consumer groups, and set out in the Canadian Standard Association’s Model Privacy Code (now a national voluntary standard for business). Initially, the legislation will apply only to federally regulated businesses, but after three years, it will extend to all sectors, with the exception of those already covered by similar provincial legislation. PIAC is currently reviewing the Bill, and will provide its comments to Parliament as soon as Committee hearings begin.
This Bill won’t go through without a struggle. Let your M.P. know that data protection legislation is needed!
The Canadian government, through its agenda of “Connecting Canadians”, is striving to make Canada a global leader in electronic commerce. Given our international advantage in terms of universal telephone service, high technological literacy, and growing use of the Internet, this may be an achievable goal. However, electronic commerce brings with it numerous perils for the consumer. PIAC is working with business and government to ensure that consumer needs are met through appropriate marketplace protections.
We are developing a set of principles for consumer protection on the Internet which are intended to guide business and government in the creation of voluntary and, where appropriate, legislated, solutions to consumer problems with electronic commerce. Many existing consumer protection laws already apply to the online world, but others need to be extended to cover new forms of distance sales. New rules need to be developed to address unique aspects of electronic commerce, such as the “point and click” interface, and the ability for a vendor to disguise its location and identity.
PIAC is telling the government that consumers will not engage in electronic commerce in large numbers until they have confidence that their personal information is not being abused, that their transactions are secure, and that the merchants with which they are dealing can be trusted. Without regulations to protect consumer rights privacy and fair business practices, Canada’s goal of being the world leader in electronic commerce will not be achieved.
The privacy of one’s personal information is becoming increasingly difficult to protect in this age of computerization and globalization. Personal information (any information about an identifiable individual) is now a valuable commodity in the private sector, but individuals’ rights to control over their own personal information have yet to be recognized in law.
Most provinces, as well as the federal government, have laws protecting personal information in the government’s possession. However, Quebec is the only province that regulates the collection, use and disclosure of personal information by private companies. Everywhere else in the country, citizens are bereft of any statutory right to control the collection, use or disclosure of their own personal information by private companies. Yet surveys show that the vast majority of Canadians are concerned about the loss of control over their personal information, and wish to regain it.
In January 1998, the federal government issued a discussion paper entitled “The Protection of Personal Information: Building Canada’s Information Economy and Society”. This paper explains why current protections are no longer enough, and invited feedback by March 27th on the design of a new federal law to protect personal information in the private sector.
PIAC provided detailed comments and suggestions in its March 27th submission to the government, calling for strong legislation and effective enforcement tools. PIAC pointed out a number of gaps in existing voluntary privacy codes, and warned against too much reliance on self-regulation by industry. PIAC recommended that a single federal agency be given the mandate and the resources to apply the new legislation, to effectively enforce it, and to inform the public about their rights and avenues of redress.
The government initiative is encouraging, and we hope that draft legislation will not be long in coming. PIAC’s submission (18 pages, single spaced) can be obtained upon request by calling (613) 562-4002 ext.60.
On May 6, 1998, the CRTC announced a review of Canadian television policy. The purposes for the review are to consider policy and regulatory options which ensure a strong and viable programming industry; ensure that Canadians are able to receive a wide range of distinctive Canadian program choices; facilitate industry growth; ensure that the system meets the needs of Canadian viewers and reflects their values; and implement the public interest objectives of the Broadcasting Act.
PIAC represented the Fédération Nationale des associations de consommateurs du Québec (FNACQ), the National Anti-poverty Organization (NAPO), One Voice – the Canadian Seniors Network, and Rural Dignity of Canada (FNACQ et al) for the proceeding. The proceeding was concerned with industry structure; support for the production and broadcasting of different forms of Canadian content (e.g., entertainment, information, documentaries, etc.); the move to digital television; independent production, among others.
PIAC’s submissions on behalf of FNACQ et al focused on several core issues which were of concern to the groups’ members. First, the CRTC should reaffirm the basic nature of off-air television signals. About 25% of Canadians receive their signals this way, and not through cable. Our concerns are that some companies may see this as an unnecessary expense, where most viewers in a particular market use cable to receive television signals, and apply to the Commission to stop providing this service. As well, we were concerned that Industry Canada’s policy of moving to the auctioning of spectrum, essentially the privatization of this public resource, may be extended to broadcasting from telecommunications.
Another issue is the move in the industry to digital television. Over the next ten years or so, digital television is expected to replace current analogue sets. This will allow consumers to receive more programming, as well as Internet and multimedia through their television. Given that this new technology could cost consumers several hundred to a few thousand dollars for each unit, television signals should be available in both traditional analogue, as well as new digital formats, until at least 90% of consumer households have purchased the new digital televisions or a digital decoder. It would be thus unfair to force consumers to switch to an expensive new technology. Moreover, with the high cost of the digital technology, a number of Canadian households may have to lose their television service if they lost the analogue signal.
Support for the production and broadcasting of Canadian programming for all categories, e.g., entertainment, documentaries, etc., should be increased. It was further argued that with the development of new technologies, such as multimedia, it is important that the government and the CRTC require contributions for the development and distribution of Canadian content in these new media. Given that many broadcasters are already contributing to content development and that much of this new content is being made available on the Internet, often using telecommunications technologies. Finally the CRTC should require commercial Internet service providers and telephone carriers to contribute up to 5% of their gross annual revenues. These monies should be used, in priority for: a) to facilitate technical access to the Information Highway through assistance for basic telecommunications costs and the sustainability of community access initiatives, b) the development of not-for-profit Canadian content; and c) to augment the existing multimedia fund.
PIAC’s new report, Unfit to Be Tied, discusses a number of ways that the tied selling provisions of the Bank Act, which were recently proclaimed, could be improved. Even though most people do not know what “tied selling” is, it can have a negative impact on any customer of a Canadian bank. “Tied selling” means that a bank makes a loan conditional on buying another product, so that the customer is required to buy something in order to obtain the loan. Essentially, tied selling is a misuse of the leverage a bank has over a customer in need of a loan.
It is clear that tied selling occurs often enough in banks for it to be major concern for customers. A recent survey found that 16% of Canadians who received loans in the past three years felt that the loan approval was tied to purchasing another product. Our research showed that the banking industry’s Statement on Tied Selling has not significantly improved the practices of front-line bank staff in the first six months of its implementation.
The introduction of a new provision into the Bank Act prohibiting tied selling was a positive development for consumers in the context of the lack of consumer protection measures that currently operate in the banking sector. Unfortunately, the new provision does not fully protect consumers against undesirable tied selling practices. Since the Task Force on the Future of the Canadian Financial Services Sector has recently made recommendations on how to improve it, there is a fresh opportunity to integrate consumer concerns into it.
Our report makes a number of recommendations on how the tied selling provision of the Bank Act, section 459.1, should be improved. One important recommendation is that coercion and undue pressure be prohibited in all sales situations in the banking sector, not just in tied selling situations.
Another important recommendation is that cross selling (offering package deals) should not be specifically permitted by section 459.1. Cross selling raises important consumer concerns, since the practice does not benefit all customers equally. In the present context, customers with a high level of knowledge and propensity to bargain benefit from cross selling, while customers with an average amount of knowledge and less propensity to bargain benefit less. Also, high volume customers (who tend to be high income Canadians) benefit far more than low volume customers (who tend to be medium and low income Canadians).
Our work on tied selling in the banking sector suggests that section 459.1 could be replaced by comprehensive disclosure provisions. Customers could more effectively advance their own interests if all package deal options were clearly enumerated up front, and the items in each package identified and priced individually. Also, criteria used by banks to determine adequate security for loans and credit-worthiness should be provided to customers, so they can judge whether banks’ requirements are reasonable
PIAC plans to submit this report to the House of Commons Standing Committee on Finance as part of its brief on the Task Force report. The report is available from PIAC at a cost of $15.00 plus postage.
To Order Reports by phone call – 613-562-4002, Ext. 60.
In July 1998, the Ontario Government introduced the Energy Competition Act 1998 Bill 35. Bill 35 provides for a number of significant changes in the way in which energy markets will operate and be regulated in the future.
Ontario Hydro will be separated into three entities: 1) the Ontario Electricity Generation Corporation (Genco), 2) Ontario Electric Services Corporation (Servco), 3) an Independent Electricity Market Operator (IMO). The IMO would be responsible for managing the electricity system and duties would include ensuring a level playing field, encouraging investment and setting rules for market participants to buy and sell power across the grid. The Genco would be a commercial entity owned by the Province of Ontario and would own and operate Hydro’s generation facilities. The Servco would own and operate the transmission systems and distribution systems through one or more subsidiaries.
The 276 municipal electrical utilities serving three million customers across the province would be encouraged to amalgamate immediately to achieve cost efficiencies and economies of scale and establish local distribution utilities on a commercial footing. These new MEU distribution utilities would be required to separate the monopoly wires business from their competitive commodity business to create a level playing field. The Ontario Energy Board (OEB) would have an expanded role to regulate the tariffs for transmission and distribution wires for both these Servco and the MEU local distribution utilities. In addition they would issue licenses to all transmitters, distributors, generators purchasers and retailers of electricity.
In the field of natural gas, the OEB would obtain new powers to license energy marketers in Ontario Breach of license requirements by marketers could result in the loss of license.
In general terms, the Ontario Government has taken a cautious approach to the problems associated with the introduction of competition. The separation of Ontario Hydro’s generation assets and the restructuring of the transmission and distribution systems should encourage better accountability in individual system components and reduce cross subsidies among those components. As well the elimination of vertical integration should help attenuate market power. Most importantly, for the first time, the OEB will have real power to have cost of service regulation imposed on Ontario Hydro. Previous to Bill 35, Ontario Hydro’s Board of Directors could ignore the recommendations of the OEB with impunity.
Competition in natural gas sales has been going on for over a decade. From the consumer standpoint, there have been complaints of misrepresentation and lack of transparency in transactions. Protection of consumers has been a piecemeal process, with haphazard enforcement. The possibility of having real enforcement of consumer protection in the area of natural gas is also welcome.
However it is by no means clear that these reforms will lead, at least in the short and middle term to lower energy prices for consumers. The problem with stranded assets in electricity is not really solved by the new competitive framework, as the debt will have to be retired using money gleaned from all system participants. In natural gas, it is unclear what efficiencies, if any, will be achieved by having direct sales of the commodity as proposed.
In the meantime, the gas distribution utilities are frantically trying to position themselves as the competitive alternative through non-regulated affiliates. PIAC presented the concerns of vulnerable consumers before the Standing Committee On Resource Development Hearing in Ottawa in August of this year for a full text of PIAC’s statements to the Committee. Please call us at (613)562-4002 ext. 60 fax to (613) 562-0007 or email us at email@example.com