Consumer groups call for telemarketing controls

CRTC Public Notice 2001-34: Telemarketing Rules
Comments of Action Réseau Consommateur, the Consumers’ Association of Canada, and Fédération des Associations Coopératifs d’économie familiale (“ARC et al”)
1. The following comments are submitted on behalf of Action Réseau Consommateur, Fédération des associations coopératives d’économie familiale du Québec, and the Public Interest Advocacy Centre (“ARC et al”) on the issues in the above-mentioned public notice, taking into account the submissions and interrogatory responses filed by other parties.

Introduction

2. The record of this proceeding is clear that telemarketing has become a serious annoyance for Canadians. The record also makes clear that more effective regulation is needed in order to better balance the rights of Canadians to freedom from such interference with their privacy, with the rights of businesses to use the public telecommunications network for private and commercial purposes. This proceeding is hence timely, and ARC et al are grateful for the opportunity to participate in the development of a more effective regulatory regime for telemarketing.
3. ARC et al have provided extensive comments already in this proceeding, by way of their initial submission and two sets of interrogatory responses. In addition, they filed two brief supplementary submissions, one providing the results of a nation-wide survey on point, and the other referencing recent statements by the Chair of the Federal Trade Commission in the USA on telemarketing. The Comments provided here are further to those submissions.

The need for a more effective regime

Canadians want the CRTC to act
4. There can be no doubt, based on the record of this proceeding, that the current regime governing telemarketing in Canada is not working. Not only has the CRTC received comments directly from the public and consumer advocates on this issue, it has also heard from Canadians across the country via a nation-wide survey conducted earlier this summer by Ekos Research for PIAC.
5. The Ekos survey probed public opinion on the issue of business use of customer data for marketing purposes, and in particular, on the question of how businesses should obtain customer consent to such marketing. As part of that survey, respondents were asked one question specifically on telemarketing. That question posed two opposite points of view regarding telemarketing, and asked respondents to choose the one that best reflected their views. Only 1% were unsure. 61% chose the statement:
“I would like to stop receiving all telemarketing calls to my household even if it means I may miss out on a really good opportunity”
while 38% chose:
“I don’t mind receiving telemarketing calls because I can always say no or not answer the phone”.
6. Clearly, a significant majority of Canadians are seriously annoyed by telemarketing, consider the current situation unsatisfactory, and would like to be able to stop unsolicited calls to their homes. This result was confirmed in focus groups, where most participants “expressed both concern and little usefulness for many of the calls they received”.

Telemarketing is a particularly intrusive form of marketing

7. In a submission dated Oct.1st, Telelink argues that there is no major difference between telemarketing and direct mail marketing from the perspective of the customer. ARC et al strongly disagree. While unsolicited direct advertising by mail is also of concern to consumers, it is distinct from telemarketing in a critical respect: unlike a telephone call, it does not involve an intrusion into one’s private space. Telephone calls interrupt the peaceful enjoyment of one’s private home and demand attention at the moment they are received. Mail does not. This is why telephone marketing evokes such negative reactions from so many consumers.
8. In addition, telephone marketing uses a finite resource: air time on a given telephone line. The Commission has a mandate to ensure that the public telephone network is used in a responsible manner, in the public interest. It is particularly annoying to consumers when they miss important calls due to unwanted solicitations occupying their line. Canadians rely upon the telephone network for emergency purposes, social interaction, personal health, employment and business dealings, civic engagement, etc. These important social and economic uses of the public network should not be compromised by irresponsible, unnecessary and excessive use by commercial entities for their own gain.

Scope of the Regime

9. ARC et al submit that a more rigorous regulatory regime is needed with respect to telemarketing through all three media through which it is currently conducted: telephone, facsimile, and electronic mail.
10. ARC et al further submit that the regime should cover all sources of unwanted unsolicited calls: for-profit solicitations, non-profit fundraising, and market research.
11. To the extent feasible, the regime should offer consumers the ability to opt-out selectively from these different media and sources of telemarketing. However, a basic opt-out regime should not be delayed for this purpose; greater selectivity can be added-on to the regime over time, as it proves feasible.

The Commission should initiate a proceeding on the growing problem of unsolicited electronic mail

12. In ARC et al’s submission, telemarketing includes all forms of electronic marketing, both over the telephone network and over the Internet. As noted in their April 24th submission, unsolicited email marketing has become a serious problem for email users, and needs to be addressed via regulation. As with other forms of telemarketing, industry self-regulation has proven inadequate.
13. Unsolicited e-mail is similar to facsimile marketing in that it shifts the cost of marketing from the sender to the recipient, albeit via the Internet Service Provider. In this respect, “spam” is particularly repugnant. As communication by e-mail becomes more of a norm, legislators and regulators in other jurisdictions are recognizing the problem and responding in a number of ways, including legislated requirements and civil rights of action. It is time that the CRTC recognizes this growing problem and takes action on it.
14. Despite ARC et al’s initial submissions on this point, it appears from the Commission’s interrogatories and other submissions that this proceeding (PN 2001-34) is perceived to be limited in scope to facscimile and telephone marketing. In particular, the Commission has not taken the opportunity of this proceeding to explore the problem of unsolicited email and potential solutions thereto. Hence, a separate proceeding should be initiated to examine this particular form of telemarketing. ARC et al urge the Commission to initiate such a proceeding coincident with its decision in this proceeding.

Consumers should be able to opt out of market research calls

15. In their April 24th submission and subsequent interrogatory responses, ARC et al took the position that legitimate market research has a social benefit, is not as problematic for consumers as is telemarketing, and therefore need not be subject to a “do not call” regime. Upon further reflection, ARC et al have changed their view on this issue.
16. Market research calls, for many consumers, are as annoying, intrusive and unwanted as are telemarketing and fundraising calls. Many consumers refuse to respond to telephone surveys for this reason. To provide such consumers with a mechanism to prevent such calls would therefore be to the benefit of the survey companies by reducing the number of wasted calls. Non-responsive parties would be screened out, reducing cost as well as consumer annoyance.
17. Another concern of ARC et al’s is that while such surveying is often done by or on behalf of government agencies in the public interest, it is also used widely by commercial entities for no broader social purpose or benefit. To permit an exception from an opt-out regime for market research would open the door to abuse by marketers who cloak their solicitations in the guise of market research. It will be difficult, if not impossible, for the Commission to distinguish between legitimate research and telemarketing wrapped in the cloak of market research.
18. If a new opt-out regime for telemarketing includes market research, ARC et al propose that there be an exemption for official government surveying for public policy purposes (e.g., Statistics Canada).
19. Should market research be included in the regime, as proposed, ARC et al further submit that selectivity by subscribers becomes more desirable, so that those who want to screen out commercial offers but not market research, for example, can do so.
h3, The Need for New Rules
20. In their April 24th submission, ARC et al set out the specific areas in which new rules, or expanded scope of existing rules, are needed. ARC et al refer the Commission to that submission; below is a brief list of our specific recommendations, in addition to those set out above:

1. Fax solicitations should be banned.
2. The prohibition on ADADs should continue and should apply to messages left on voice mail as well, for the reasons set out in The Companies (CRTC)-1403. Under no circumstances should ADADs be permitted for marketing purposes.
3. Time restrictions should be imposed on telephone marketing, as proposed by the Canadian Marketing Association.
4. Telephone marketers should be required to identify themselves immediately upon reception of the call by the called party.
5. The CRTC should impose a zero tolerance rule regarding “dead air” caused by improper use of predictive diallers. ADADs are not an appropriate solution to this problem, since they raise issues of their own. ARC et al note that even the CMA is not 100% supportive of using ADADs to fill in gaps caused by improper use of predictive diallers by overly- zealous telemarketers.
6. There should be no automatic expiry of consumer registration on a company’s “do not call” list; such requests should be respected until they are withdrawn.
7. “Do not call” requests made by consumers to individual companies or associations of companies should be acted upon within a period much shorter than the 30 days currently permitted.

21. Furthermore, ARC et al submit that the CRTC should use its powers under s.41 of the Telecommunications Act to impose obligations directly upon telemarketers, as opposed to merely through Canadian carriers. Parliament gave the CRTC express powers to impose such obligations for a reason. The time has come to use those powers in an effective manner.

The Need for Effective Enforcement

22. The record is also clear that better rules won’t solve the problem alone. Effective enforcement of existing and new rules is badly needed. Already, there is widespread non-compliance with existing minimal rules. This needs to change, and can only do so under strong leadership by the CRTC. In the absence of a serious commitment to enforcement, the regulatory regime will provide no more than a façade of protection for consumers.
23. The CRTC has unused powers of enforcement which it can and should begin using. As noted in ARC/PIAC-1301, the CRTC can consent to a prosecution under s.73 of the Telecommunications Act, and it can issue mandatory orders under s.51, registering them with the Federal Court as appropriate. These activities should be undertaken by the CRTC and/or the Attorney General.
24. ARC et al submit that the primary mechanism for enforcement and deterrence should be monetary fines of a magnitude sufficient to constitute effective deterrence. In addition, individuals should have a statutory right of action for damages, with a minimum amount of damages for each instance of non-compliance. The CRTC should seek amendments to the Telecommunications Act as necessary to create these enforcement mechanisms.
25. Disconnection and other injunctive relief should also be available, but not relied upon as the primary enforcement mechanism. As the record shows, placing the onus on LECs to disconnect non-compliant telemarketers is ineffective for a number of reasons: it may be in the interests of the LEC to keep the telemarketer as a customer; it puts the LEC at risk of liability; and in any case, telemarketers can simply reconnect the following day and continue their business.
26. In order to make disconnection a more useful remedy, the CRTC should issue disconnection orders, thus removing liability from the LEC. Such orders should prohibit all LECs from reconnecting the telemarketer in question.
27. In response to CRTC interrogatory 1401, ARC et al have provided detailed procedural guidelines for enforcement under s.41 of the Act.
28. On the issue of enforcement procedures generally, ARC et al submit that:

1. the Commission needs to respond more quickly and decisively to non-compliance by telemarketers with Commission regulations;
2. there needs to be better and more formal co-ordination among LECs with respect to non-compliant telemarketers;
3. the CMA’s role, if any, should be limited to the operation of a “do not call” list (assuming that the CMA wins the contract for this task through a public tender process), and dealing with complaints about its members;
4. the CRTC and/or Attorney General should handle enforcement.

Proposal for Telemarketer Call Blocking mechanism

29. Parties have commented at some length about the desirability and feasibility of a technical mechanism by which subscribers could block telemarketing calls. ARC et al consider such a mechanism highly desirable insofar as it puts control in the hands of consumers. However, in order to be effective, such a mechanism would have to

1. be easy to implement;
2. be free of charge to consumers;
3. not interfere with any other communications; and
4. be effective in blocking telemarketing calls.

30. It is unclear to ARC et al from the record in this proceeding whether it is possible to construct a blocking mechanism that meets all of these criteria. A registration system for all telemarketers would have to be established, and non-compliant marketers pursued and punished.
31. It is essential, should this approach be pursued as the primary method of controlling unwanted telemarketing, that it not become a source of profit for LECs, and that consumers not be required to pay in order to protect their legitimate desire to prevent unwanted telemarketing.

Proposal for a national “Do Not Call” registry

A single national « Do Not Solicit » registry is needed
32. ARC et al submit that the record of this proceeding strongly supports the establishment of a single, national “do not solicit” (“DNS”) database, to which all telemarketers are required to subscribe. If effective, such a mechanism would respond to the demands of telecommunications users, as reflected in the results of the Ekos survey referred to above. It would go a long way toward meeting the policy objectives of privacy protection and responsiveness to the economic and social requirements of users, as set out in subs.7(h) and (i) of the Telecommunications Act respectively.
33. A mandatory, national « DNS » registry would benefit everyone. Consumers who do not want to receive unsolicited marketing would be able prevent it by means of a single request. Companies wishing to market to Canadians would be able to consult a single database in order to target their efforts toward receptive consumers, as well as to ensure that they are respecting the consumer’s wishes. Telecommunications service providers and regulators would have fewer complaints to deal with (assuming that the registry operates effectively).

Other jurisdictions have seen fit to establish such mechanisms

34. In the USA, numerous states have seen fit to establish centralized “DNS” registries. Unwanted calls have been identified as a major nuisance not only by those states that have developed their own “DNS” regimes, but also by the Federal Trade Commission. In a speech to the “Privacy 2001” Conference in Cleveland on October 4, 2001, FTC Chairman Timothy J. Muris indicated that his administration is recommending a “national, one-stop, “do not call” list”.

Individual telemarketers should still be required to maintain their own lists

35. The establishment of a national “do not solicit” database does not in any way eliminate the need for individual telemarketers to maintain their own, internal, « do not solicit » lists. In some cases, consumers will only want to screen out specific telemarketers. The national « DNS » list will not be sophisticated enough to accommodate such customized requests, hence these consumers will have to rely upon individual marketers respecting their wishes. For this reason, it is essential that the current requirement for each telemarketer to maintain and respect a « DNS » list should be maintained.

Key Principles for a National « Do Not Solicit » Registry

36. A national “do not solicit” registry should be based on the following principles:

1. Comprehensive: subscription to the list should be mandatory on all telemarketers operating in Canada;
2. Free: registering to the list should be free of charge to consumers;
3. Convenient: registering should be convenient;
4. Well-known: consumers should be aware of the existence of the registry, and how to get on it; and
5. Effective:The registry should be effective in stopping unwanted calls.

1. Optimally, the « DNS » list should apply to all unwanted solicitations via telecommunications, including unsolicited e-mail. However, ARC et al recognize that e-mail may require a different approach. Hence, they propose a separate proceeding to examine the problem of unsolicited e-mail and potential solutions thereto.

All telemarketers, fundraisers, and market researchers should be required to use the list

2. It is notable that both telemarketers, through their representative body the CMA, and consumers, through ARC et al, are calling for a mandatory « DNS » registry, in recognition of the failure of voluntary efforts to deal adequately with unwanted telemarketing. Given that bona fide self-regulatory efforts in this area have proven insufficient, there is little point to the CRTC’s involvement if not to create a mandatory system.

Exemptions should be kept to a minimum

3. The CMA has proposed an exemption in cases where the organization has an “existing relationship” with the called party (CMA14Sep 01-1005). The CMA defines “existing relationship” as “when the consumer has purchased a product or service (or has made a donation) within the last six months or during a normal buying cycle”. ARC et al submit that such an exemption is neither necessary nor appropriate.
4. Many, possibly most, individuals who would take advantage of a « DNS » option want to be free of telemarketing from all organizations, including those from whom they have purchased or to whom they have donated. They do not necessarily distinguish among telemarketing on the basis of an « existing relationship » as the CMA suggests. These telecommunications subscribers should be able to achieve the level of privacy they desire through a national « DNS » registry.
5. At a minimum, any such exemption should only be adopted on the basis of firm empirical evidence showing that Canadian consumers want companies with whom they have recently done business (or organizations to whom they have recently donated) to be exempted from any « DNS » requests. Such evidence has not, so far, been forthcoming.
6. With respect to the issue of telemarketing to existing customers, ARC et al further note that companies can always obtain the customer’s explicit permission to such marketing, in which case it may not be considered unsolicited.
7. ARC et al submit that the only exemption to mandatory use of the « DNS » list should be for surveys conducted by or on behalf of Statistics Canada.

Opting-out should be costless to consumers

8. ARC et al submit that consumers should not have to pay to secure their privacy. As noted in ARC/PIAC14Sep01-1001, businesses and others who wish to use public communications systems for private gain via unsolicited calls should be required to ensure that such use takes place in a socially acceptable manner. It follows that they, not the objects of their telemarketing, should bear the costs associated with the creation and maintenance of a « DNS » list.

Opting-out should be convenient

9. In order to ensure that the regime achieves its goal of allowing all customers who want to stop telemarketing calls to their homes the same opportunity to do so, the regime must be convenient to users. In particular, customers should be able to register at any time by calling a toll free number, as well as by fax, mail or e-mail.

Consumers should be made aware of the opt-out regime

10. As noted in ARC et al(CRTC)14Sep01-1006, telemarketers should be required, when they receive an opt-out request from a consumer, to inform that consumer of the national opt-out registry. If the consumer wishes to be added to the national registry, the marketer should provide information to the consumer on how to do so. In any case, the telemarketer should continue to be obliged to honour the consumer’s request for no more marketing calls. If an opt-out request automatically expires after a given period of time (contrary to what ARC et al have proposed), the consumer should also be informed of this fact.
11. Consumer awareness should also be improved via notice in telephone directories, bill inserts, CRTC, industry association and individual company websites, and other relevant information channels.
12. In addition, the registry should be advertised in the general media. A portion of the budget for the national “DNS” service should thus be dedicated to advertising. The administrators of the list should evaluate the most efficient way to make the service known to the public and should include costs for that purpose in the yearly budget.

The opt-out service must be effective

13. There is little point in establishing a national “DNS” registry unless it promises to be effective in terms of stopping telemarketing calls to those customers who so request. Effectiveness requires not only that use of the service be mandatory on all telemarketers, and costless, convenient and known to customers, it also requires:

1. that the opt-out requests be respected until withdrawn,
2. that the “DNS” list be updated as frequently as possible, preferably weekly, and in any case no less then monthly; and
3. that non-compliance be swiftly and effectively punished.

Opt-out requests should be respected until withdrawn

1. The CMA proposes that registration on a national « DNS » list automatically expire after three years. It is not clear to ARC et al what purpose automatic expiry of a customer’s « do not solicit » request serves, other than to open the door to more unwanted telemarketing. Once a consumer has chosen to be on the do not call list it is reasonable to assume that they wish to remain there unless they make an express decision otherwise. Unless the Commission is provided with clear empirical evidence supporting such an automatic expiry, registration on the list should be effective until withdrawn.
2. Requiring the consumer to renew every so often merely increases the burden on the consumer and complicates administration of the program. It is also likely to lead to consumer confusion and anger when be telemarketing recommences, after this arbitrary period.

Consumer « DNS » requests should be made effective as quickly as possible

3. It is in the interests of all to minimize the lag between the consumer’s opt-out request and communication of that request to all telemarketers. The more frequent the list updates, the more effective will be the regime in reducing consumer frustration and annoyance regarding unwanted calls. The Commission’s current telemarketing regulations require that opt-out requests be made effective within 30 days. In ARC et al’s view, this is longer than necessary for individual company « DNS » lists, and is a minimum standard on which a national « DNS » system should be based.
4. The CMA proposes that “Information would be distributed to subscribers on a quarterly or monthly basis according to their subscription profile (e.g. Internet vs. diskette or region) and ability to handle data.” ARC et al submit that this aspect of the CMA proposal is unacceptable. First, a delay of three months for activation of a customer’s opt-out request is inappropriate. Second, different frequencies of activation depending on the mode of communication used by the marketer would complicate enforcement. How is the consumer to know when his registration will come into effect if different subscribers to the list receive updates at different intervals? Such differences are not transparent and make no sense from the consumer’s perspective.

The regime should be vigilantly enforced

5. There is no point in establishing a regime which can be disrespected with impunity. Non-compliance must be deterred through effective sanctions which are imposed without undue delay on violators. In order to be effective, sanctions must be proportional to the gain that violators expect to achieve through their non-compliance. See above, under « The Need for Better Enforcement ».

Funding of a National “Do Not Solicit” Registry

6. Four sources of funding for a national “do not solicit” list have been identified in this proceeding: government funding, subscription fees for marketers, financial penalties levied on non-compliant marketers, and consumer user fees.

The national « DNS » registry should be funded by business subscription fees and financial penalties for non-compliance

7. ARC et al submit that neither taxpayers nor consumers should bear any burden of the cost of a « DNS » regime. The regime is necessitated by the desire of private parties to use the public telecommunications system for private gain. There is no justification for burdening consumers and/or taxpayers with the costs of a system designed to facilitate socially responsible private sector marketing.
8. In addition to annual subscription fees, financial penalties assessed on non-compliant marketers should be used to fund the program. ARC et al note that this approach might require legislation to allocate the penalty fees to support the cost of the do not call program. It might also require specialized ‘telemarketer tariffs’ which would bundle access to the PSTN with access to the do not call lists.

The CMA’s cost estimates are questionable and should be subject to further examination

9. The CMA has developed two proposals, both of which involve fees to both marketers and consumers. In presenting these proposals, the CMA argues that to place the entire funding burden on marketers would not be viable, given the CMA’s estimated cost of the system. ARC et al question the validity of the CMA’s cost estimates for this service, and submit that they should not be accepted without further scrutiny, and in particular without any comparative estimates from other list administrators.
10. It would be instructive in this respect to compare the CMA’s estimates with the budgets of similar services in the USA. Such information is not, unfortunately, on the record of this proceeding. However, information on fees charged to telemarketers for subscription to centralized « DNS » registries is readily available. Below is a table showing fees (in $US) charged to telemarketers for subscription to a central « Do Not Call » list in the states of Colorado, Florida, Idaho, Missouri, New York, Oregon and Tennessee.

State	Annual Fee/Telemarketer	Manager
Colorado	0$-500$	Consumer Protection
Florida	$ 400.00	Florida Dpt of Agriculture & Consumer Services
Idaho	$ 100.00	Attorney General’s Office
Missouri	$ 100.00	Attorney General’s Office
New York	$ 500.00	New York State Protection Board
Oregon	$ 120.00	Private List Administrator
Tennessee	$ 500.00	Tennessee Regulatory Authority

11. Clearly, further research is needed to determine what other sources of funding these systems rely upon, and indeed to compare their entire budgets with that proposed by the CMA. ARC et al encourage the CRTC to conduct such research.
12. In any case, ARC et al submit that fees to telemarketing companies for this service should not be considered an obstacle, as long as an effective enforcement regime exists. High fees may well deter companies from subscribing, but as long as similarly high penalties apply, non-compliance should not be a problem. If companies cannot afford to respect customer wishes regarding telemarketing, they should not be in the business of telemarketing.
13. ARC et al have concerns about the estimated costs of the CMA proposal. There appear to be a number of ways in which these costs can and should be significantly reduced. For instance, the CMA’s proposal involves live operators seven days a week. It is not clear why live operators are needed at all, let alone seven days a week. Surely, an automated registration system can be designed at far less cost.
14. The CMA’s proposal and budget estimates are also based on the use of an FTP server. The CMA describes exchange of the “DNS” list via FTP in these terms:
If a subscriber to the service has an FTP site, data is pushed to them at pre-determined intervals. An e-mail advises the subscriber that a data transfer has occurred, the number of records and the file layout. Those without an FTP site receive quarterly updates via CD-ROM.
15. The CMA’s proposed use of FTP technology is inefficient. There is no need for the agency managing the list to « push » the file to each of their subscribers’ FTP servers. Instead, the agency can simply post the updates to its own FTP server, and send a message to its subscribers informing them of the updated file. Using any browser commonly used to access web sites, marketers can then access the FTP site (using passwords) and download the available file.

Third party operation of a regulated « DNS » registry scheme should be based on competitive bids

16. Assuming that the Commission does not want to administer a national « DNS » list itself, it is essential that measures be taken to ensure that the system operates efficiently and at no higher cost than necessary to achieve its goals. This can and should be accomplished by putting the contract out to competitive tender. ARC et al believe that there are quite many possible operators of such a service across the country and that the opportunity to develop the system should be made widely available. Moreover the cost structure presented by the CMA should not be accepted. If the CMA wants to put up a proposal, it can present its proposals or new proposals that would be evaluated against other proposals.
17. The CMA proposes that any agreement between it and the CRTC for operation of a national « DNS » registry should be subject to a 5-year review. ARC et al submit that five years may be too long a period for the first contract to operate a national « DNS » registry. In any case, the contractual period should be no longer than five years.

Conclusion

18. For all these reasons, ARC et al submit that the record of this proceeding supports the imposition of new rules, mechanisms, and enforcement tools to control unwanted telemarketing in Canada. In particular, it supports the establishment of a national telemarketing opt-out mechanism for subscribers. It also supports much more active enforcement activity by the Commission or another governmental authority against non-compliant marketers. It is time for the Commission to act.
END OF DOCUMENT
Link to CRTC proceeding
 

Comments to CRTC on Affiliate Data Sharing – Reply Comments to CRTC on Affiliate Data Sharing

Comments of Action Réseau Consommateur, the Consumers’ Association of Canada, and Fédération des Associations Coopératifs d’économie familiale (“ARC et al”)
Canadian Radio-Television and Telecommunications Commission
Ottawa, Canada
K1A 0N2
Attention: Ms. Ursula Menke
Secretary General
Dear Ms. Menke:
Re: Public Notice CRTC 2001-60:
Confidentiality Provisions of Canadian Carriers
1. On behalf of ARC et al, we are in receipt of comments in this proceeding from The Companies, AT&T, Rogers, and Murray Long. The following are ARC et al’s reply comments. Failure to address any particular assertion or argument should not be taken as acceptance of that assertion or argument.

ARC et al do not oppose the concept of implied consent

2. In para.4 of their comments, The Companies state that ARC et al’s “opposition seems to be directed at the concept of implied consent”. Similarly, in para.10 and 11 of its comments, Rogers appears to have misinterpreted ARC et al’s position in this proceeding. ARC et al do not oppose the concept of implied consent (i.e., the fact that consent can sometimes be implied where it is not provided explicitly). What they do oppose is the stretching of this concept to infer consent where it does not exist and cannot reasonably be said to exist.
3. Whether or not consent can be implied in any given circumstance is a factual question, not a legal issue. It depends, in large part, on the reasonable expectations of the individual. The sensitivity of the information is relevant to these reasonable expectations, but it is not determinative. Consent can only be implied where the facts suggest that the individual would have provided explicit consent had it been requested.
4. It follows that, as ARC et al stated in response to ARCetal(CRTC)27Aug01-101, “consent should always be obtained in an express manner, except where there is no doubt that it is being implicitly provided (e.g., use of customer address for billing purposes)”. This principle applies generally, not just in the context of data sharing with affiliates.
5. Hence, ARC et al do not disagree with The Companies and others that consent can be inferred in some circumstances. Disagreement centers on the issue of when consent can be inferred – i.e., when it is reasonable for a company to assume that consent has been provided implicitly. The Companies clearly want to be able to deem customer consent to data sharing even where the customer is unaware of the data sharing. As they state in response to The Companies(ARCetal)27Aug01-2(a),
The Companies believe that consent for sharing of information for marketing or any other purpose may be assumed where (1) the customer is made aware, or may be deemed to be made aware, that when she receives a particular service, personal information will be shared with affiliates for that purpose, and (2) the customer uses that service; (emphasis added)
6. In The Companies(ARCetal)27Aug01-6(b), The Companies take the position that based on their various methods of notifying customers, “all customers are aware or may be deemed to be aware of the sharing and opt-out policies” (emphasis added). TELUS also relies upon deemed consent, as made clear in TELUS27Aug01-2. (ARC et al refer the Commission to paras.32-37 of their Dec.5th comments for a discussion of the adequacy of these methods.)
7. Yet, market research strongly suggests that most customers are in fact unaware of the companies’ sharing and opt-out policies. Of the app. 40 participants in Ekos’ focus groups conducted this past summer, not a single one was aware of the Bell Canada opt-out, and concern was expressed in all four groups about the fact that most customers would not be aware of it. Consent cannot properly be implied in such circumstances.
8. To be clear, ARC et al accept implied consent where there is no doubt that it actually exists. What they do not accept, and what the Companies and others are proposing, is the deeming of consent where none exists and where the company in question has failed to make an adequate effort to ensure that informed consent is actually obtained.

ARC et al’s proposal

9. ARC et al submit that the appropriate rule, supported by the PIPED Act, and applicable to both internal use and sharing with affiliates, is to require the customer’s explicit consent to such use or sharing of confidential personal information except where the use or disclosure is necessary to provide the product or service requested by the customer.

The Companies distort the results of the Ekos Survey

10. In paras.24 and 25, the Companies attempt to use the Ekos survey results to support their position that customers reasonably expect, and thus implicitly consent to, data sharing with affiliates. In reply, ARC et al refer the Commission to the survey report itself rather than the Companies’ distorted interpretation. The results speak for themselves. Nevertheless, the Companies’ comments on this point warrant a brief reply.
11. First, the Companies treat neutral responses (neither agree nor disagree) as supportive of their position. However, neutral responses say nothing about consumer expectations or desires; such consumers are as likely to disagree as to agree with the statement presented to them. Their expectations and desires are unclear. Hence, if neutral responses are to be given any weight, it is to show that assumptions about individual consumer expectations and desires cannot be made with any certainty; consumers themselves are not sure.
12. Second, in para.24 of their comments, the Companies misstate the Ekos survey statements in question. Respondents in fact were asked if they expect (and later, if they want) “the company selling the product or service to try to build an ongoing relationship with me….” The Companies, in their comments, ignore the material words “to try”. This is a significant omission, since attempts to build relationships need not involve the kind of data use that actually building relationships does.
13. ARC et al do not dispute that some consumers expect and indeed want the Companies to share their customer data with affiliates. This, however, is not the issue. The issue is whether the Companies can assume that all customers expect and want this kind of sharing to occur. The evidence is clear that a significant proportion of Canadians neither expect nor want such sharing of their data. The very survey questions to which the Companies refer generated the following results:

• 21% did not expect that companies will try to build an ongoing relationship with them;
• 25% do not want companies to try to build an ongoing relationship with them;
• 24% expressed a low expectation that their telephone company, in particular, would keep track of the services they purchase or use;
• 41% object to companies with whom they do business keeping track of their purchases;
• 38% are not comfortable with a company with whom they do business using information about them to advise them of new products and services that may interest them; and
• 48% are uncomfortable with such companies sharing their data with affiliates for the same purpose.

It is not surprising that most industry players support the deeming of consumer consent to sharing of data with affiliates
1. The Companies and Rogers suggest that the fact that most participants in the proceeding support amending Article 11 is “particularly significant” and that the views expressed by ARC et al are not widely held. First, ARC et al is a coalition of a number of consumer groups, each of which could have filed a separate submission. The fact that consumers are represented by only one intervenor surely does not diminish the overall weight to be accorded the consumer position.
2. Second, it is not at all surprising that on this, like many other issues before the Commission, industry players have a common interest which conflicts with that of consumers. This common interest is to be able to leverage customer information so as to maximize sales, and hence profits. Much more significant than the competitive implications of the Companies’ proposal (e.g., the competitive advantage that it would afford large corporate conglomerates over smaller niche players) is the extent to which it would allow widespread abuse of customer information by service providers.

Meaningful consent should be required for internal use as well as for sharing with affiliates

3. In para.20, the Companies argue that requiring anything more than mere “consent” in Article 11 would create a different standard of consent for internal use vs. affiliate sharing, and that there is no justification for such a differentiation.
4. ARC et al first note that Canadians do appear to distinguish between internal use and affiliate sharing, exhibiting somewhat greater concern with respect to the latter. However, concern is high with respect to both scenarios. In both cases, Canadians want their consent to be obtained before any secondary use of the data occurs. Hence, it is inappropriate to exempt internal use from a requirement for meaningful consent to secondary uses.
5. Indeed, the PIPED Act does not distinguish between internal use and disclosure to affiliates in this respect; the rule requiring individual knowledge and consent applies to both internal use and disclosure to affiliates.
6. For the Commission to clarify the PIPED Act consent requirements in respect of disclosure does not, in ARC et al’s submission, create a different standard of consent for internal use. If, however, there is any concern that it would, the Commission is free to apply the same rule to internal use of confidential customer information as it does to disclosure of such information to affiliates. This would, of course, require further modifications to Article 11.
The evidence is clear that the Companies do not adequately communicate their data sharing policies to consumers
7. The Companies argue that they “have made reasonable efforts to ensure that their customers are advised in clear terms of the purposes for which information will be used, as required by section 4.3.2.” (para.10)
8. ARC et al respectfully disagree. The evidence cannot be clearer that these efforts have been entirely inadequate. As noted above, not one participant in Ekos’s four focus groups (conducted in Ontario and Quebec) was aware of the notice and opt-out offered by Bell Canada. Upon review, the only forms of notice actually used (bill inserts/mailings to new customers, introductory pages of the directory, and website notices) are seriously deficient – see para.33-34, ARC et al Dec.5th Comments. It is therefore not surprising that so few customers are aware of purposes for which their information will be used.
9. Given how much more the Companies could be doing to bring such notices to their customers’ attention, and to make them clear, it cannot be said that these efforts are reasonable.

The Companies’ proposal is unnecessarily broad

10. The Companies are proposing very broad flexibility in terms of deemed consent in order to achieve a relatively narrow purpose. In particular, they are proposing that no restrictions be placed by the CRTC on their ability to deem consent from customers to data sharing with affiliates. Yet, they insist that their only desire is to share personal information “among common-branded companies that provide a range of related communications services” (para.10).
11. If the Companies are to be granted greater flexibility in respect of deeming consent, it should be no greater than necessary to achieve their legitimate purposes. In other words, the disclosures permitted without written consent should be limited not only to affiliates, but to common-branded affiliates providing communications services.
12. Even in that case, however, (as with internal company use) it is ARC et al’s position that explicit consent is required unless the use or sharing is necessary to provide the product or service requested.
The Ekos survey and focus groups were designed and conducted in a rigorous and fair manner, so as to minimize any bias in responses
13. The Companies allege in para.4 that “ARC et al’s position is based on selective extracts from what the Companies would submit is a flawed survey”. This allegation is completely unfounded. First, ARC et al has provided the entire survey to the Commission, the Companies, and all other parties. It is freely available on the PIAC website. In contrast to the Companies, ARC et al have provided empirical evidence directly on point for the benefit of the Commission and all parties, and have provided full transparency in terms of the complete survey. In no way have ARC et al been selective about the results of the survey – the results are there for all interested parties to review and analyse.
14. Second, it is unclear in what way the Ekos survey is “flawed”. ARC et al encourage the Commission to review and analyse this survey with rigour. The methodology, questionnaire, and focus group guide were carefully developed so as to minimize any bias toward the positions already taken by consumer groups on these issues. For example, Ekos chose to use the term “opt-out” rather than the more widely recognized “negative option”, so as avoid the negative connotation associated with the latter.
15. Indeed, recognizing that the issues being tested were highly controversial, and that the survey results would be therefore be subject to intense scrutiny from parties adverse in interest to PIAC, a deliberate attempt was made to err on the side of biasing the survey and focus groups toward the positions of business interest groups.
16. The Companies weak attempt to dismiss the Ekos survey as “flawed” is contradicted, in any case, by their attempt to use the survey results to bolster their position. Either the survey results can be relied upon or they can’t; the Companies can’t have it both ways. ARC et al submit that the Ekos survey is a strong, reliable indication of Canadian consumer expectations and desires on the issues in question here.

The quantity of consumer complaints on point provide little indication of consumer views on this issue

17. The Companies argue that because they receive very few complaints about so-called “secondary marketing”, the Ekos survey results must be flawed (para.28). The problem with this argument is that it ignores (a) the fact that most consumers don’t bother to complain about such practices, even though they don’t like them, (b) the fact that most consumers will simply request a stop to such practices rather than complaining about them, and^© as the Ekos survey shows, most consumers do not appreciate the information collection, use and sharing that underlies the direct marketing with which they are bombarded on a daily basis.
18. This is an area in which consumer interests are not reflected in market forces because of the combined factors of lack of information and the cost of action. As the Ekos survey shows, consumers are seriously under-informed as to the extent of information collection, use and sharing that currently pervades the marketplace. Of the few that are aware, the cost of making their objections known is simply too high. Much more than is the case with other issues directly affecting consumers, those who complain represent a tiny fraction of those who object, or who would object were they aware of the practices in question.
Yours truly,
original signature
Philippa Lawson
Counsel for ARC et al
encl.
cc: Interested Parties, PN 2001-60

Comments to CRTC on Affiliate Data Sharing

Comments of Action Réseau Consommateur, the Consumers’ Association of Canada, and Fédération des Associations Coopératifs d’économie familiale (“ARC et al”)
Canadian Radio-Television and Telecommunications Commission
Ottawa, Ontario
K1A 0N2
Attention: Ms. Ursula Menke
Secretary General
Dear Ms. Menke:
Re: Public Notice CRTC 2001-60: Confidentiality Provisions of Canadian Carriers (Sharing of customer data with affiliates)
1. The following are ARC et al’s comments in the above-mentioned proceeding, filed pursuant to the procedures set out in Public Notice 2001-60.

The Request

2. This proceeding was initiated by a Part VII application filed on behalf of Bell Canada, Aliant, MTS, Northern, Northwestel, SaskTel, and Telebec (“the Companies”, and was supported by TELUS. Other telecom service providers, primarily wireless carriers, have since expressed their general support for the application or for a similar relaxation of the rule in question.
3. The application is a request to remove the requirement under Article 11 of the ILEC Terms of Service that customer consent to information disclosure beyond that expressly permitted by Article 11 be provided in written form. This is a provision to which other telecom service providers, including wireless providers, have also been made subject by CRTC Order.
4. In brief, the Companies are requesting that they continue to be required to obtain customer consent to such disclosures, but that the consent need not be in writing when the disclosure is to an affiliated organization.

Implications of the Request

5. The Companies are making this request not so that they can rely upon oral or other non-written forms of consent. Rather, they want to be permitted to continue their apparent current practice of relying upon implicit as opposed to explicit consent of customers to the sharing of customer data with their affiliates. As the Companies state:

• While having the flexibility to collect oral consent is marginally preferable to the status quo, ARC et al’s proposal [that explicit consent be required except where the disclosure is necessary to provide the service requested by the customer] stops far short of what the Companies are seeking….

6. In other words, the issue before the Commission is not whether consent to this data sharing should be obtained in written versus oral or electronic form. Rather, it is whether, or to what extent, consent to this data sharing should be obtained in a manner that ensures that the consent is conscious and informed.
7. The Companies’ proposal is, in essence, to permit them and other service providers to deem customer consent where such consent does not exist and where there are good reasons to suspect that such consent does not exist.

The need for greater clarity

8. Industry players point out that the federal Personal Information Protection and Electronic Documents Act, “PIPEDA”, which applies to them in respect of this issue, does not specifically require that consent to the disclosures in question be obtained in an explicit manner, nor does it set out specific criteria for when implicit consent can be relied upon. In other words, the Companies’ proposal not to specify the type or manner of consent required is entirely consistent with the PIPEDA. ARC et al do not dispute this point.
9. What the Companies fail to point out is that the PIPEDA leaves this very controversial issue open to interpretation, and hence, to abuse. It is precisely because the PIPEDA is so unclear on this issue that greater clarity is needed at the regulatory level, both in terms of when explicit consent is required, and what criteria must be met in order for implicit consent to be valid. It is unfair both to service providers and to customers to leave this highly controversial issue open to interpretation and abuse.
10. In fact, ARC et al submit that the policies and practices disclosed through this proceeding provide sufficient evidence of the likelihood of abuse, should the request be granted. In responses to interrogatories from ARC et al, it became clear that companies want to be able to deem customer consent on the basis of the most minimal notice and opt-out requirements.
11. When pressed for examples of when they would assume customer consent to data sharing with affiliates, companies tellingly avoided examples that go to the heart of the issue before the Commission, and instead provided non-controversial examples, for which consent can reasonably be assumed (e.g., data sharing where necessary to provide the service requested by the individual). No company provided an example of the kind of data sharing that is in issue here: sharing with an affiliate company with whom the customer has no relationship and has expressed no interest in having a relationship. Yet this is exactly the kind of data sharing that the Companies and others wish to engage in without customer consent.
12. While admitting that the determination of whether consent to data sharing with affiliates can be implied must be based, among other things, upon the “reasonable expectations of the individual”, industry players take the view that such individual expectations can be measured by the expectations of the majority of customers, even where a significant minority do not hold the same expectations. Clearly, where customer expectations vary, assumptions about individual expectations cannot be made with any reliability.
13. Moreover, industry intervenors confuse expectations with desires. Just because a customer has come to expect certain behaviour by a company or an industry does not mean that he approves of it or wants to be subjected to it. Customer expectations are therefore relevant, but not determinative.
14. Even if majority expectations were determinative of the “reasonable expectations of the individual”, however, no industry player in this proceeding has provided clear evidence to support its assertions about customer expectations.

Company assertions about customer expectations are unsupported and indeed contradicted by recent market research

15. ARC et al agree with industry players that an important issue in this proceeding is the extent to which customers want them to share customer data with affiliates. It was precisely because of the importance of this issue that PIAC commissioned a national survey of consumers, along with focus groups, last summer. The results of that market research are clear:

• Businesses cannot assume anything about consumer consent to secondary marketing. This is because attitudes vary widely, with 48% of respondents objecting to the sharing of their personal data with affiliates (only 29% were comfortable with such sharing). It is also because many, if not most, customers are unaware of the extent to which their data is being shared.
• A large majority (82%) of Canadians want businesses to obtain their permission before using their data for further marketing purposes.
• A clear majority of Canadians do not want businesses to assume their consent to further marketing. Opt-in approaches to consent are clearly favoured over opt-out approaches (69% do not consider opt-out approaches to be acceptable).
• Opt-out approaches to consent for marketing purposes are considered acceptable only if the opt-out provision is brought to the customer’s attention, is clearly worded, provides sufficient detail, and is easy to execute.

1. Specific questions about telephone companies were asked, generating the following results:

• 79% of respondents considered it “highly important” that their telephone company obtain their consent before using their personal information to promote new services and products directly to them.
• 84% considered it highly important that their telephone company obtain their consent before sharing their data with an affiliate.
• 66% of respondents considered it unacceptable for their telephone company to use an opt-out approach as a way of obtaining consent to use customer data for purposes such as marketing new products or services.

1. As the survey report points out, these results were confirmed in focus groups, where the importance of obtaining consent was stressed, especially with respect to sharing among affiliates. As the report states:
“When it came to sharing information within a corporate family, most participants [in the focus groups] felt that it was unacceptable to assume consent, although a small number felt it was acceptable.’
2. Repeated assertions by companies in this proceeding that consumers expect and desire them to share customer data with their affiliates for marketing purposes are unsupported by empirical evidence. It is telling that not only did no company offer any empirical evidence to back up its assertions regarding customer desires, all remained unable to do so in response to interrogatories from ARC et al. The only evidence offered to support these sweeping generalizations about customer desires was unspecified “observations” and “feedback from the front lines”, and a brief reference to results of “research over the years” regarding customer expectations (not desires). In no case was any supporting data provided. In the case of the apparently dated research referred to by TELUS, no methodology, dates, or other relevant details necessary to assess the reliability of the research were provided.
3. Clearly, such unsupported assertions cannot be relied upon. Accordingly, the Commission should give no weight to them.
4. If companies could provide data supporting their assertions as to customer desires, they could have and would have done so. Like ARC et al, they had ample time during the course of this proceeding to survey customers and provide data for the benefit of the Commission and other intervenors. That they chose not to do so speaks volumes about their ability to do so.
5. The only reliable evidence as to customer desires provided in this proceeding was that provided by ARC et al, not coincidentally an intervenor representing consumers themselves. That empirical evidence directly contradicts the unsupported assertions of companies in this proceeding that customers want them to share customer data with their affiliates, without obtaining clear consent to such sharing beforehand.

Data sharing among affiliates is of greater concern to consumers than is internal use

6. The Companies take the view that “it is generally appropriate that implicit consent be used for internal company use and sharing of information with communications affiliates under common control and branding”, while “express consent would be required for disclosure to unaffiliated third parties”, with some exceptions. In other words, they make a distinction between affiliates and unaffiliated third parties, but not between internal use and affiliate use, when it comes to customer consent.
7. As noted above, the EKOS survey and focus groups show that consumers are significantly more concerned about companies sharing their data with affiliates than they are about companies using that data internally for secondary marketing purposes. Accordingly, while consumers want companies to obtain their clear permission for even internal profiling and marketing, their desire for companies to do so is even more pronounced in respect of sharing with affiliates.
8. Although willing to apply a higher standard of consent to sharing with unaffiliated third parties (in keeping with customer expectations and desires as reflected in the EKOS study), the Companies and most of their industry colleagues seem to want to ignore the important distinction that consumers draw between internal use and sharing with affiliates. This is not surprising, given the tremendous value to them of customer data. However, it runs contrary to clearly expressed consumer wishes.
9. ARC et al note that, while proposing a rule which does not distinguish between different types of affiliates, the Companies do in the quote above confine their definition of the appropriate bodies regarding whom customer consent to data sharing can be implied, to “communications affiliates under common control and branding”. There are two significant qualifications here: first, that the affiliates in question provide communications services, and that second, that the affiliates be marketed under the same brand. While such a narrowing of the scope of “deemed consent” may go some distance toward assuaging consumer concerns (as suggested by Call-Net in its proposal), it does not negate the need for informed consumer consent to any data sharing, as well as to internal use, for purposes beyond those reasonably expected by the customer.

Customers want telecommunications companies to use opt-in approaches to consent

10. As pointed out above, recent market research indicates that consumers want companies to obtain their consent to data collection, use, and disclosure for marketing purposes through explicit, opt-in approaches, under which consent is never assumed. This result was obtained in respect of questions specifically about telecommunications companies, and specifically about data sharing with affiliates.
11. ARC et al note that their position is supported by the Ontario Privacy Commissioner, who states that:
”….as a general rule, opt-out consent would not be an appropriate mechanism for obtaining consent for the sharing of confidential subscriber information among affiliated companies. Instead, subscribers should be provided with an opportunity to opt-in by checking off a box on the billing insert sent to inform them of the change in the Terms of Service. In addition, subscribers could be provided with an opportunity to opt-in through any mechanism by which the subscriber normally communicates with the company (e.g., telephone, fax, e-mail, or in-person).”
12. For these reasons, ARC et al urge the Commission to adopt a rule that consent to customer data sharing with any third party, affiliated or unaffiliated, must be explicit.
If permitted, negative option approaches to consent should be subject to strict criteria to ensure their effectiveness
13. When asked by ARC et al about the important elements of negative option approaches to consent, companies agreed that the negative option should:

1. be brought to the individual’s attention;
2. provide full information as to the uses and/or disclosures in question;
3. be clearly worded and easy to understand; and
4. be easy to execute.

14. The only suggestion of ARC et al’s that they disagreed with in this respect was that the negative option be “costless” to execute. On that issue, industry players nevertheless noted that exercising the negative option may entail minor costs, but should generally be available at no or minimal cost.
15. Yet, in stark contrast to their agreement in principle, the Companies’ and TELUS’s current and proposed practices fail to adequately bring the opt-out to the attention of individual customers, are not always adequately informative, and are not always easy to execute.
16. The Companies point out that they communicate their data sharing policies to subscribers via bill inserts, point of sale documents, the introductory pages of the telephone directory, and their websites. TELUS provides its privacy brochure to all new customers, and posts it on its website.
17. Examining these practices more closely via an interrogatory, however, ARC et al discovered that:

• With respect to bill inserts:
  • In the case of Bell, Aliant, and MTS, the opportunity for subscribers to opt-out of data sharing was either not mentioned or not obvious;
  • Where mentioned, the opt-out required unnecessary effort on the part of the customer (i.e., no toll free number provided on the brochure); and
  • Inserts on point have been sent out no more than once so far by each companies to its subscribers, and there is no indications that further notifications will be sent out via bill insert annually or otherwise.
• With respect to Directory information:
  • That provided by Bell Canada includes only a condensed version of its stated purposes, contrary to the suggestion in para.49 of The Companies’ Nov. application, and is not very informative;
  • In the case of Bell, Island Tel, MT&T, and NBTel, no opt-out provision is provided at all;
  • In the case of NewTel, the only opt-out provision is re: telemarketing lists;
  • In the case of TELUS, the examples provided under each purpose do not mention sharing with affiliates; and
  • In the case of all the companies, the information is not particularly conspicuous; a subscriber would have to be reading carefully in order to notice and appreciate the assumption that is being made about their consent.
• With respect to “point of sale” documents,
  • In fact, contrary to the suggestion made by the Companies in para.49 of their original submission, neither Bell, Aliant, MTS, Telebec nor Northern use this avenue to inform customers of their data sharing policies and of the opportunity to opt out; and
  • Only Bell and TELUS appear to inform new customers of their privacy policies via a mail out.
• With respect to verbal notice to customers,
  • No company other than MTS uses the opportunity of verbal communication with new customers to inform them of the privacy policy (and then, it is not clear what exact information is provided to customers);
  • Only Microcell suggests that it uses or would be willing to use an oral message via SMS to advise customers of a change in the Terms of Service, for example.

18. With respect to website notices, it is obvious that only those customers who use the Internet have any chance of being notified in this manner, and in any case, few Internet-capable subscribers are likely, in ARC et al’s submission, to visit the telephone companies’ website to find out about their privacy policies.
19. ARC et al submit that the ILECs’ current and proposed methods of informing customers of any negative option regarding use and sharing of their data for marketing purposes fail the test of reasonableness. They are inadequate insofar as they fail to engage the attention of customers, are not clearly worded, provide insufficient detail, and are not as easy to execute as they could be.
20. In respect of notifying customers of a change in the Terms of Service as a result of this proceeding, however, some companies proposed more effective means of communication. For example, Microcell stated that notification via “direct contact” with customers would be most appropriate, and that such direct contact could be accomplished via an SMS message (orally), the monthly invoice, or a separate mailed notice.
21. ARC et al submit that these are examples of other means of notification that can and should be used by companies to bring to the attention of customers any negative options regarding data sharing. E-mail messages, telephone messages, and pop-up windows on websites are other possible means of communication. The companies in question are experts in marketing, and hence, in bringing their products and services to the attention of customers. Surely they can make greater efforts to being their privacy policies to the attention of their customers.

Telco data on customer opt-outs proves the point

22. In response to an ARC et al interrogatory, the Companies admit (a) that they have no data on the proportion of customers who are aware of their data sharing policies and opt-out opportunity, and (b) that only a fraction of a percent of customers, if any, have actually exercised the opt-out.
23. It is instructive to compare the 0.006% of Bell’s residential NAS, 0.003% of Aliant’s residential NAS, the 0% of other Companies’ customers who have exercised an opt-out with respect to affiliate sharing, and the “very few” of RWI’s customers who have asked that information not be shared with affiliates, with the 48% of respondents to the EKOS survey who indicated that they do not want companies sharing information about them within corporate families in order to advise them of new products and services that might interest them.
24. There are only two possible explanations for such a vast disparity: customers are simply unaware of the data sharing policy, and/or find it too onerous to execute the opt-out. ARC et al submit that the market research conducted by EKOS supports the inference to be drawn here that most consumers are simply unaware of the data sharing. Under such circumstances, reliance on implicit consent is clearly inappropriate; consent cannot be provided by unaware individuals.

An explicit consent requirement for data sharing with affiliates is entirely consistent with PIPEDA

25. The Companies and others argue that a Commission requirement for explicit consent to customer data sharing with affiliates would be more restrictive than, and would improperly “override” the federal legislation, PIPEDA. ARC et al respectfully disagree.
26. The PIPEDA leaves open the question of when explicit consent is required, suggesting only that the circumstances surrounding the information sharing, the reasonable expectations of the individual, and the sensitivity of the information in question are relevant. Being less than a year old, the legislation has yet to be authoritatively interpreted in context.
27. For the CRTC to require express consent to customer data sharing with affiliates would be entirely consistent with the requirements of PIPEDA. It may constitute a more restrictive approach than the Companies desire, but this does not make it in any way inappropriate or inconsistent with federal legislation.

Competitive equity can be achieved by applying the same rule to all communications companies

28. Any concerns about competitive equity can be addressed simply by applying the same rule to all companies under the CRTC’s jurisdiction. There is no reason why the same rule should not apply to all telecom and broadcasting service providers.
The practices of companies subject to the existing “written consent” rule should be investigated and non-compliance punished
29. It is not clear from the responses to interrogatories provided by companies in this proceeding, whether they are complying with the current rule requiring written consent. On one hand, the Companies assert that “written consent is always obtained for sharing confidential customer information with affiliates, unless one of the exceptions to Article 11 applies”. Yet, in response to another interrogatory, they state:
Since 1997 Aliant Telecom Inc. and its predecessor companies ….have not requested from subscribers written consent for the disclosure of information to affiliates.
30. In the same interrogatory response, Bell Canada and MTS admit to obtaining written consent to such sharing only in certain narrow circumstances. TELUS states that only 2.5% of its customers have given written consent to data sharing with affiliates for directory purposes, while even fewer have provided written consent to data sharing with other TELUS affiliates in the context of loyalty programs.
31. It is unclear to ARC et al how the first interrogatory response reconciles with the second, or with company policies of deeming customer consent to such data sharing.
32. ARC et al urge the Commission to investigate what appears to it to be blatant non-compliance with clear CRTC regulations, and to take appropriate measures regarding any findings of non-compliance.

Conclusion

33. For all the reasons set out above, ARC et al submit that the Commission should require explicit consent of customers prior to any disclosure of confidential customer data to affiliates, except where the disclosure is necessary for the service requested by the customer and where such sharing would be reasonably expected in the circumstances.
34. Should the Commission nevertheless decide not to require explicit consent, it should at a minimum require that any negative option regarding data use or sharing:

1. be brought to the individual’s attention;
2. provide full information as to the uses and/or disclosures in question;
3. be clearly worded and easy to understand; and
4. be easy to execute at minimal effort and cost.

All of which is respectfully submitted,
Original signed
Philippa Lawson
Counsel for ARC et al
Cc: Interested Parties, PN 2001-60

CRTC Price Cap Review – Oral Argument of consumer groups

MS LAWSON: Thank you, Mr. Chairman, Commissioners.
Thank you very much for the opportunity to present the views of residential telephone consumers in this very important proceeding, the outcome of which will not only effect the development of competition in this industry, but will also determine whether Canadian rate payers, as well as shareholders and competitors, enjoy the benefits of the new regulatory framework that you have worked so hard to construct.
ARC et al and BCOAPO et al have coordinated their arguments in this proceeding so as to avoid duplication. I’m going to begin by addressing the question of how you can best balance the interests of the various stakeholders under the new price cap regime.
Mr. Van Koughnett will then address two key issues for us: the relevance of ILEC earnings under price caps and the appropriate approach to quality of service under price caps.
Ms MacDonald will then focus on the important issues of market theory, consumer information and payphones.
Mr. Chairman, Commissioners, before you start in on your deliberations, you need to decide what this proceeding is all about. Is it about maximizing shareholder value and fostering robust investment in Canadian ILECs as The Companies would have you believe? Is it about getting rid of regulation and relying on economic theory to protect consumers as TELUS would have you believe? Is it about giving competitors a boost so that they can roll out their services more quickly and in more places as AT&T and CallNet have proposed? Or is it about getting rid of contribution as Rogers suggests?
Mr. Chairman, every single one of the industry proposals before you in this proceeding is patently self-serving. They all reflect a profit-maximizing mandate rather than a public interest mandate. Not surprisingly, the ILECs want to keep all the productivity gains from price caps to themselves, while CLECs want those gains to be funnelled their way. Neither of these approaches satisfies the Commission’s primary mandate of ensuring just and reasonable rates. Neither will result in healthy, sustainable competition.
As you have stated in this proceeding, the challenge before us is to balance the interest of the three main stakeholder groups: ILECs, CLECs and consumers. Balancing these three interests means ensuring on one hand that ILECs can earn a fair return on their utility rate base. On the other, that CLECs pay fair rates for the ILEC services they need and from the consumer perspective, that consumers pay fair rates for the ILEC services that they need.
In other words, this proceeding is above all about fairness. Fairness for all stakeholders, not just shareholders.
The Companies’ notion of an iron triangle of objectives rightly reflects the importance of each of these three stakeholder interests. However, it wrongly characterizes the interests of consumers in this proceeding as affordability.
Investment is another way of saying fair returns to ILECs. Competition is another way of saying fair rates to competitors. But affordability is not the same as fairness. Just because rates are affordable doesn’t mean that they are fair. ILEC and CLEC attempts to have you focus on affordability are simply transparent tactics designed to deny consumers their fair share of the productivity gains from price cap regulation. You should not be fooled.
The achievement of just and reasonable rates is surely the most central concern underlying price caps. Rates are not just and reasonable when they result in industry-wide excessive profits as they have over the past few years. They are not just and reasonable when they are established on the basis of consumer tolerance rather than on costs as the ILECs have proposed. They are not just and reasonable when they are maintained at artificially high levels in order to subsidize competition as proposed by some competitors.
In order to ensure that rates are just and reasonable under the price cap regime, two conditions must be satisfied. First the going in rates should provide ILECs with a reasonable opportunity, but not more than a reasonable opportunity, to earn a fair return in the first year of the regime. Secondly, the price cap index should reflect the expected trend in target costs such that ILECs continue to be able to earn a fair return, but no more than a fair return in future years of the regime.
Over the past four years, we have seen ILEC returns soar well above what any investor would consider a reasonable return, while consumers have faced ever-increasing rates and competitors have struggled to survive. Clearly something is wrong with the current price cap regime.
Rates that produce sustained, supernormal returns across the industry cannot be considered just and reasonable. It’s time to give something back to residential consumers.
Mr. Chairman, we are at a turning point in Canadian telecommunications. No longer is local residential service subsidized outside of high cost areas. No longer do you have to worry about an unsustainable contribution regime for residential rates in high cost areas. No longer is there any justification for increasing basic residential rates in either urban or rural areas. In fact, the empirical evidence on the record of this proceeding clearly shows that overall revenues from residential local service in non-high cost areas are not only compensatory but highly profitable to the ILECs.
Using the Commission’s approved Phase 2 costs of primary exchange service for Bell Canada and allowing for the recovery of service improvement plan costs as well as a 15 per cent mark-up, Bell is making 100 per cent margin on its local residential service in non-high cost areas in 2001. Even using Bell’s own new Phase 2 costs, the company is making a 40 per cent margin on these services.
Looking forward, Mr. Chairman, what do we see? We see continued declining costs and continued opportunities for ILECs to increase revenues, even assuming that competitors are able to make inroads into the local residential market.
The time has come to reflect these declining costs in rate reductions for already highly profitable local residential services. If expected productivity gains over the next price cap period are not reflected in residential rates, ILEC profits will simply continue to increase. This would be bad for consumers and bad for competition.
Mr. Chairman, competition is a preferred means to an end. It is not an end in itself. The end is a healthy, efficient industry with low prices and high quality of service throughout the country. If competition merely leads to higher prices, less reliable service and customer confusion, it will have been a failure.
Mr. Chairman, consumers have asked us to tell you that greater choice is not worth higher prices to them. It is your job to ensure that competition is allowed to develop where it is economic, at rates that meet public policy objectives, and at a pace that reflects the reality of this highly capital intensive, technology dependent industry.
As Mr. Grieve has said himself, “facilities-based competition in telecommunications is, by its very nature, slow, expensive and risky.” The public interest, Mr. Chairman, will not be served by efforts to prematurely kick start competition where it cannot be sustained in the long term.
Mr. Chairman, Commissioners, you have a choice to make in this proceeding. You can take measures to ensure that residential rates are just and reasonable as costs continue to decline and you can take measures to ensure that residential subscribers receive continued high-quality service. Or you can establish a regime that puts CLEC and ILEC interests ahead of the interests of residential subscribers.
Other stakeholders are calling for an unbalanced distribution of the benefits flowing from price cap regulation. At a time when declining costs and competition are supposed to be leading to lower rates, residential customers are counting on the Commission to do the right thing, to call a halt to basic rate increases and to start flowing some of the benefits of this new regulatory framework to residential consumers.
Thank you, Mr. Chairman, Commissioners. I will pass the microphone over to Mr. Van Koughnett.
MR. Van KOUGHNETT: Thank you, Mr. Chairman.
I’m pleased to have an opportunity to speak about ILEC earnings because it’s something that concerned from the time that I was brought on the case, which as you know was quite late, September 18, and I was briefed at our local Starbucks by a very fluffy bearded economist who works for Bell Canada who shall remain nameless.
And he explained to me that although originally when the price cap regime was first contemplated, not only in this jurisdiction but other jurisdictions, there had been some notion that it was tied to earnings but that I was yesterday’s man to think that was still the case. The new regime was, he explained, the price cap regime should not at all focus on earnings.
Well, you did not have the benefit of that particular conversation, Mr. Chairman, but we all enjoyed the benefit of speaking with and listening to Dr. Taylor who basically expressed the same view, suggesting that the Commissioners should exercise caution in looking at earnings.
This troubled me greatly, but one morning, Mr. Chairman, I believe I woke up understanding how to reconcile the competing considerations that have been put before you on this topic. I think it is really quite simply.
If you are absolutely confident, Mr. Chairman, that you set the correct productivity offset the first time round, then what Dr. Taylor says is absolutely correct, it would be profoundly wrong to look at the earnings of the ILECs. If you are confident that you did it right the first time, then it would flow that any above normal earnings by the ILECs would be because of their abilities to take full advantage of economies, to find new revenue streams. They have been brilliant and that is where the extra earnings come from.
But, Mr. Chairman, how can you be confident that you chose the right productivity offset the first time around. Other jurisdictions, and this one too I submit, necessarily chose a conservative number as the productivity offset.
In fact, to use the nomenclature of this case the Commission had an incentive to choose a low number and that is because of the asymmetric consequences associated with choosing the wrong number.
Let me explain. If you choose a low number all that happens is that we meet here today and we speak of high ILEC returns. If you choose too high a productivity offset figure for the first price cap regime the consequences are much worse. The ILEC returns are so low that the ILECs, operating in a very capital-intensive industry, are unable to attract capital on any reasonable terms. This would not be good for the country.
So why is it that we find that in the U.K. and in the U.S. and here the productivity offset figure the first time around was too low? Because the commissions in question were responding to the incentive, and indeed the opportunity, to set a low figure.
It is no great surprise, therefore, that one finds oneself in the position here today where the ILEC returns are high, the CLEC returns—if any, mostly non-existent—are extremely low, the total productivity factor numbers are high for the companies. Even the marginal cost approach of TELUS and The Companies shows that the productivity offset factor that was set the first time around was low.
Oftel has moved from a low number to 7.5; FCC has moved from a low number to 6.5. It is no great surprise that in this jurisdiction parties such as ARC et al are suggesting that the Commission should revisit and look to a higher number.
Fine. Why does one then focus one’s attention on earnings? Because, Mr. Chairman, you are still the economic regulator you always were. Your job is just and reasonable rates. Section 27 of the Telecommunications Act has not changed, the jurisprudence from the Supreme Court of the United States and from the Supreme Court of Canada has not changed, the shareholders of the ILECs are entitled to a reasonable opportunity to earn a fair rate of return. That is because if you fulfil that part of your job you are achieving, as close as is possible, a simulation of competitive markets.
In a fully competitive market the ILEC shareholders would achieve a rate of return comparable to industries in the unregulated sector. Dr. Taylor and I walked through in gory detail the equation, so to speak, by which rate base rate of return led the Commission inevitably to pay just and reasonable rates to a fair rate of return on average common equity for the ILECs.
That is still applicable today. No one has suggested in developing the price cap methodology that rate base rate of return is out of the window. Quite the contrary, price cap methodology is meant to get to the same place as rate base rate of return with the one exception, of course, that it provides an incentive, for the first time, for the companies to act efficiently. But the ultimate result is supposed to be the same.
Not only is it the case that your statutory duty is to achieve, for the ILEC shareholders, a reasonable opportunity to achieve a fair rate of return, but it is also the case that by focusing on earnings you also benefit customers, because by selecting, as one would in rate base rate of return, an opportunity for shareholders of the ILECs to achieve a fair rate of return, automatically it flows from the equation that declining costs mean declining prices for consumers.
Not only is that true but it is also fair to the third constituency identified in the Public Notice, namely the CLECs, for it diminishes the size of the war chest that the ILECs have, according, therefore, an opportunity to the CLECs—a level playing field, an opportunity to compete.
In fact, one might argue that this Commission has an analogous duty to the CLECs that it does to the ILECs: to the CLECs a reasonable opportunity for the shareholders to earn a fair rate of return—oh, sorry, to the ILECs; and to the CLECs an opportunity to compete on reasonable terms.
So a focus on earnings, just as it was under rate base rate of return, is in fact key to this case, provided always that you are not supremely confident that you set the right TFP offset number the first time.
I turn now to the issue of quality of service.
There is one lesson we learned from price caps and that is that the ILECs respond to an incentive to lower costs. This is great, but it needs to be counterbalanced by an analogous incentive to permit the companies an incentive to adhere to the Commission’s service quality standards.
Under rate base rate of return regulation the Commission could, and did on occasion, set rates at the low end of a range in a rate case. There were two particular instances of that, 1981 and 1982 for BCTel. That mechanism, which in those instances stripped from BCTel 75 basis points and 50 basis points of the rate of return. That mechanism is gone and gone forever, Dr. Taylor and I agreed, you will recall.
While the Commission has over the years developed extremely sophisticated measures for quality of service and yet now those measures are left a paper tiger. Mr. Park, on behalf of The Companies, admitted that in fact all that happens after the exception reports filed by The Companies after three months of poor service quality on a particular indicator, is an action plan as filed by the company and the company either pursues its action plan or it doesn’t and if it does perhaps the indicator comes back into conformance with the Commission’s standard and if it doesn’t nothing happens.
The best possible example, though, is TELUS Exhibit No. 14 which just rolled in last Friday. It was in response to Commission counsel, Ms Moore, seeking an explanation over and above the exception report filed by TELUS for four consecutive months of poor service quality on a particular indicator.
The exception report stated:
“Organizational and symptom process changes.” (As read)
So Ms Moore said “tell me more”. The exhibit that rolled in spent two pages talking about the needs of TELUS to meet its customers and to meet its customers demands, and to meet its customers demands means making changes in processes.
Well, it is very difficult to disagree with any of the words on those two pages, Mr. Chairman. But what kind of a position does this leave the Commission in? In essence, the Commission just says “Fine”.
Now, quality of service results have been drifting somewhat lower, Mr. Park agreed, in Canada over the last couple of years, and the evidence of Ms Alexander filed in this proceeding on behalf of ARC et al also suggests that the same is true in the U.S.
Now, I am not suggesting for a moment that this is caused by price caps, but I am saying that there is absolutely no disadvantage to putting a quality of service mechanism in place for this second price cap regime and there is quite a disadvantage to not doing so, and that is that all the quality of service indicators are left hanging out there without any particular means for enforcing them.
This case, therefore, constitutes a perfect opportunity to improve the price cap regime by introducing a quality of service mechanism.
Now, what of the design of the mechanism?
To be honest, Mr. Chairman, there is only one thing that matters and that is the quantum, the amount that is at stake. Fortunately, The Companies in 1503 have stated correctly the balance. I spoke with Dr. Taylor about that topic, as you may recall.
It has to be the case that the penalty is large enough that The Companies have an incentive to meet the quality of service standards rather than to just pay the penalty, as I pay a parking ticket, park where I wish sometimes.
Now, The Companies have put at risk $27.5 million for Bell. You recall I spoke to Mr. Park. It is kind of hard, I think, Mr. Chairman, to evaluate that raw number. Mr. Park said that was 0.3 per cent on a rate of return.
But as I mentioned to you, in the two Commission precedents that I was able to unearth—and I was on both of those cases as you know, Mr. Chairman—the Commission evaluated the penalty for BCTel for a continued failure to meet 4 and 5, respectively, indicators of the 23 indicators that were then in place at 0.5 per cent and 0.75 per cent, as I mentioned.
It could be the case that the rate of return rather than the actual number of dollars provides the best basis for this Commission to act as a starting point for the maximum number of dollars to put at risk. I say that because of the fact that there are so many differences across the companies that this commission regulates, different tax rates, different debt equity ratios, different ratios of revenue to capital.
Now, as it happens in this case, Mr. Chairman, AT&T has suggested 25 cents per NAS per indicator miss. The Companies suggested 5 cents. So that ratio of 5-to-1 suggested by AT&T would translate out, more or less, using Mr. Park’s evidence, to 1.5 per cent on the rate of return as the maximum penalty from which one would start.
Now, that is less than the State of Maine, that is less than the State of Vermont, but that may well be a good starting point for the Commission in this case.
I hasten to say it is unlikely that the penalty would ever be that great. Based on the quality of service reports that have rolled into the Commission over the last quarter century, it is quite unlikely that The Companies are going to be down on every single indicator and therefore it is quite unlikely that such a penalty amount would make it impossible for The Companies to raise capital on reasonable terms.
As for the rest of the mechanism, The Companies, and Ms Alexander testifying for us, agree that the penalty should be a one-time event, that it should be a line item credit that applies once the year’s results are toted up to the subscribers or record for the previous year. This is simpler and probably fairer to the company and fairer to the subscribers than the mechanisms of having the Q factor go forward.
In addition, parties, The Companies and Ms Alexander and ARC et al, agree that one should, insofar as is reasonable, parallel the Commission’s current indicators. Two of the Commission’s indicators currently do not have standards and the details as to whether those should apply to the scheme, and if so what the standards should be, we would advocate, should form part of a consumer rights proceeding which we would like to propose be an explicit follow-up item to this case. My learned colleague, Ms MacDonald, will expand on this concept in the latter portion of her argument.
Thank you, Mr. Chairman.
MS MacDONALD: Good morning, Mr. Chairman, Commissioners.
I am going to venture into the area of economic theory. I promise I will be short as I must say it is not my area of expertise.
I was struck by something which Dr. Weisman stated when he was on the stand. He stated that where consumers are perfectly informed the market sets quality levels, the market sets prices and provides the consumer with an ideal outcome from the perspective of economic theory.
Subsequently, Dr. Emerson had a discussion about the Nobel prize in economics and about the analysis of the problem of asymmetric information in competitive markets. Dr. Emerson agreed that markets don’t work perfectly and part of the problem is that markets are typically characterized where one party on the market will have better information than those on the other.
Putting this information together with TELUS’ proposal of accommodative entry policy led me to believe that their theory is fundamentally flawed. I say that because Dr. Weisman’s theory states that once accommodative entry policy is in place retail price regulation will only serve to distort the outcomes and instead TELUS rates should be allowed to rise to market levels, despite the fact that no market yet exists.
Now, the basic problem with these arguments is that they do substitute the existence of policy for the existence of competition and that is another fundamental mistake. This is because theory rarely accords with the reality and the reality here of customer inertia and the irrational behaviour of customers doesn’t accord with the theory of accommodative entry policy as postulated by Dr. Emerson.
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Now, Dr. Emerson actually admitted that he is no expert in the area of customer inertia. Accordingly, it would be a folly to abandon the retail price regulations on the basis of this pure economic theory which hasn’t taken into account the problems of customer inertia and customer irrational behaviour.
Accommodative entry policies are essential for competition to be achieved. However, they cannot suffice for regulation before competition has matured to the point of providing adequate market disciplines.
I then took that concept of consumer information and dealt with the topics that I had discussed with some of the witnesses in cross-examination. In the cross-examination, I believe that we proved that in the current system access to information is difficult to access on the part of the consumer. It is often in the control of the ILECs.
Some of the examples that we had provided were to look through the introductory telephone pages. They are quite thick and unwieldy. If you want customer information, you have to flip through different sections. You have to cross reference as to ensure that you get all the information and sometimes and often you will end up phoning the company in order to get the information. If the information is in the hands of the company and not in the hands of the consumers, it’s the companies that have the power in that relationship.
In order to balance out the power, customers have to be given information on their rights. They have to be given information on how to complain when those rights are breached.
One of the TELUS panels had stated that they prefer to have the discretion to deal with the customers on an individual basis and use that discretion on a case-by-case basis. We believe this is flawed from the perspective that customers will be getting different treatment in that scenario. Depending upon the customer service representative that you actually get, you may get one scenario as opposed to another. You may receive different information as opposed to another person.
Some persons will have difficulty advocating their rights. They may be elderly, immigrants, disabled, poorly educated or lacking in economic power. For these reasons we say that the introductory pages are not sufficient in order to provide consumers with information on their rights.
We also looked at the Terms of Service, and Bell’s Terms of Service are now 15 years old and Barbara Alexander had examined them and reported that she found they were overly broad, were not in a consumer friendly format and didn’t focus on key consumer rights.
TELUS’ Terms of Service, as you know, are written in plan language and customer research that they have undertaken and that they provided to us in an undertaking—pardon me—to Counsel Moore in an undertaking, show that people did actually prefer the plain language. However, the clarity notwithstanding, I believe that there is some problems with the fact that the General Terms of Service are different between some ILECs and others and I certainly had a concern that the balance of consumer rights and obligations on the part of the TELUS examples appears to be tipped in the favour of TELUS, particularly with regard to customer liability.
We believe that effective consumer information can be achieved through the Terms of Service and in fact must be achieved through the Terms of Services that contains the contractual terms. However, we also say that there should be a new document outlining consumer rights. We profess that the document should be consumer friendly, written without technical terms and in a format which is easy to understand.
We urge this Commission to initiate a consumer rights’ proceeding to identify those consumer rights and to create a consumer bill of rights. Simultaneously in that proceeding, we would like the Commission to review the General Terms of Service with a view to ensuring that they are written in plain language, and as well to review the balance of rights and responsibilities between consumers and between the companies.
Along with that, as suggested by Mr. Van Koughnett, you could establish the indicators for the two indicators which currently are not being reported on which includes community isolation outage frequency, consumer complaints and the soon to be implemented consumer—customer complaints resolved. As well, during that proceeding, you could establish the relationship between these three indicators and the incentive mechanism. In our written evidence we will outline this in further detail.
Finally, the issue of payphones has come up in this proceeding and it has provided our constituency with a great deal of concern. Payphones actually deal with two major subsets of people with low income. First, it deals with people that don’t have telephone service at all, which from the information that came out on cross-examination there would be approximately 163 households, we don’t know how many people that relates to, 163,000 households without phones, with over 60—just slightly over 60 per cent of those people relying on payphones.
The other people that rely on payphones are low income people that will use a payphone as their dominant form of public communication. So these are people that can’t afford the cell phone.
From the information that we have heard in this hearing, both TELUS and Bell say that the payphone industry is in decline. That gives us great concern as to what is going to happen to that industry and from our point of view there is a balancing of public policy goals that needs to be addressed with the issues of affordability of the payphones on one side with having payphones at all.
In Decision 98-8 the Commission had stated its intention to review the issue of public interest payphones in three years time, which actually is this year, from that and considering Bell’s evaluation of the possibilities for the future and the viability of the payphone service and the seriousness of the matter for our consumer groups, we urge the Commission to initiate that review in this issue with all the ILECs.
These are our submissions. Thank you very much for the opportunity to make them.
 

CRTC Price Cap Review – Final Argument filed by Consumer Groups

Link to CRTC proceeding
 

EXECUTIVE SUMMARY

ARC et al / BCOAPO et al FINAL ARGUMENT in re: CRTC PN 2001-37: Price Cap Review and Related Issues
1. The record of this proceeding supports a new price cap regime with the following basket structure and price constraints:

• Three separate baskets for residential, business and optional services. (Alternatively, if easier to administer, four separate baskets, for residential HCSA services, residential non-HCSA services, business services, and optional services.)

1. For the Residential Service Basket(s), PCIRSB = GDP-PI – X, where X = 5.5%. Additionally, an individual rate element constraint on each basic residential service = GDP-PI. However, in HCSAs, the dollar amount corresponding to any decrease in the PCI would go to reduce the Total Subsidy Requirement, rather than HCSA rates.
2. For Business services, no PCI; instead, an individual tariff item (or rate element) price constraint of 10% per annum.
3. For Optional local services, PCIOLS= GDP-PI on the basket of optional local services, with an individual rate element constraint of 10% per annum.

• A Quality of Service incentive mechanism which automatically penalizes companies for sub-standard quality of service (and violations of consumer rights, once new indicators have been established).
  1. In addition, the Commission should:
• initiate a proceeding on Consumer Rights, with a view to identifying key consumer rights, expressing them in a short, plain language “consumer bill of rights”, and expanding the Quality of Service incentive mechanism to include violations of consumer rights;
• initiate a proceeding to consider ILEC requests for increases in pay phone rates, as well as to evaluate the experience to date with pay phone competition, and in particular the issue of public interest pay phones, as promised in Decision 98-8;
• continue to require ILEC reporting of Phase III SRB results;
• require tracking and auditing of Phase II cost studies, as well as auditing of Phase III SRB results; and
• put in place an effective “self-correcting mechanism” either in the form of earnings sharing, a menu approach to productivity and earnings sharing, or a pre-scheduled review the scope of which is sufficient to identify and correct any errors in the formula.

1. The Commission has correctly characterized its challenge in this proceeding as balancing the interests of all stakeholder groups. Balancing the interests of stakeholder groups involves:

• providing ILECs with a reasonable opportunity to earn a fair return on their Utility segments;
• ensuring that rates for ILEC services required by CLECs are fair; and
• ensuring that rates to end-users are fair (i.e., “just and reasonable”).

1. These three primary stakeholder interests are reflected in the three key policy objectives of investment, competition, and just and reasonable rates. Other important objectives include affordability, efficiency, innovation, reliability/quality of service, rural/urban equity, and efficient and effective regulation where required.
2. Just and reasonable rates, the most central goal of price cap regulation, requires that rates be linked with costs. ILEC earnings are therefore relevant and will continue to be relevant under price cap regulation.
3. Affordability, while an important policy goal, is not the same as fairness. Affordable rates are not necessarily just and reasonable rates. The ILEC and CLEC focus on affordability is a tactic designed to deny consumers their fair share of productivity gains.
4. Affordability of an essential service cannot be measured by penetration rates.

• Low income households pay an increasing, and much higher than average, proportion of their incomes on telephone service.
• Affordability of basic phone service has been jeopardized by rate increases that have far outstripped inflation and income growth over the past several years.
• Many, possibly most, residential customers have not benefited from rate rebalancing and competition over the past several years.
• Canadian rates are at parity with US rates for basic service, and are not out of line with rates in other OECD countries

1. Competition is a preferred means to an end; it is not an end in itself. Consumers do not want choice at the cost of higher basic phone rates. Regulation should recognize the reality of facilities-based competition in local telecommunications (“slow, expensive and risky”). Competition should not be subsidized.
2. Investment is satisfied by the long-established principle of ensuring that ILECs have a reasonable opportunity to earn a fair return on their Utility segment investments. This has not changed since rate of return regulation.
3. Reliability of service under price caps requires an incentive mechanism for quality of service, to counterbalance the strong cost-cutting incentives inherent in price cap regulation. The penalty under such a mechanism must be large enough to create the desired incentives.
4. Rural/Urban Equity: Canadians want reasonably comparable rates for reasonably comparable service in rural and urban areas. The HCSA subsidy is sustainable and should not be prematurely eliminated.
5. Regulation vs. reliance on market forces: Retail price constraints are needed as long as there is insufficient competition to protect the users. Reliance on market forces to protect consumers from monopolistic pricing by ILECs is highly premature. Economic theories suggesting otherwise are based on faulty assumptions and are propounded by individuals who admit to ignorance of important relevant market realities such as customer inertia.
6. The Current Regime: Under the current price cap regime, stakeholder interests have not been balanced. ILECs have benefited enormously, as evidenced by their sustained supra-normal profits, while residential consumers have been subjected to ever-increasing rates for an essential service, and competitors have struggled to survive.
7. The New Regime: In order to better balance stakeholder interests under the new price cap regime, the Commission should ensure that:

• productivity gains are flowed through to residential ratepayers, as well as ILEC shareholders and CLECs;
• time-limited exogenous impacts are reflected in time-limited adjustments to the PCI;
• the total package of residential local services, including optional services, is considered when comparing costs and revenues;
• ILEC pricing flexibility is constrained so as to limit anti-competitive pricing;
• regulatory protections do not give way to reliance on market forces unless and until consumers (i.e., those very “market forces”) are fully informed.

1. The evidence in this proceeding clearly shows that the time has come for residential rate decreases.

• Revenues from residential local service in non-HCSAs are not only compensatory, but highly profitable;
• ILEC productivity growth is higher than the 4.5% target set in 1997, and can be expected to continue to grow at a similar rate over the next price cap period;
• ILEC profit margins on residential services in non-HCSAs will continue to grow;
• HCSA rates need not increase, given the existence of a sustainable contribution mechanism.

1. The test for uncapping Utility services should require the presence of sufficient competition to protect users of the services in question. Applying the appropriate test, neither basic toll services nor credit card surcharges should be uncapped. Moreover, residential extra listings and optional local services should be capped.
2. Optional local services should be capped separately from basic service, so as to prevent anti-competitive pricing to the detriment of basic subscribers.
3. Pay phone rate increases should not be granted. Pay phones are a vital service to low-income consumers as well as citizens generally. Instead, the Commission should initiate a proceeding to review the pay phone market and especially, the issue of “public interest” pay phones, as it promised to do three years ago.
Self-Correcting Mechanisms: If no earnings sharing regime is adopted, it is essential that the next price cap review allow for identification and correction of errors in the price cap formula The scope of that proceeding should be established now, so as to provide some level of certainty to all parties.

CRTC Price Cap Review – Consumer Groups call for end to local phone rate increases

In a hearing starting today, Canada’s largest phone companies are asking the Canadian Radio-television and Telecommunications Commission (CRTC) to approve significant increases in local residential rates over the next four years. Consumer groups, however, object, pointing to record profits earned by the companies in recent years, and noting that while costs of providing service have fallen, local rates have increased at many times the rate of inflation over the past several years. Instead, they say, local rates should, if anything, be decreased.
“To ask for more money from captive ratepayers at the same time that they are making record profits is unjustified,” said Philippa Lawson, counsel for a coalition of consumer groups. “There is no public policy reason to increase basic rates to $30 per month as they are proposing.”
Data submitted by the companies to the CRTC shows profit levels for their regulated local services ranging from 16.6% to a breathtaking 27.7% in 2000, well above the 11% benchmark set by the CRTC in 1997, and well above the 9.5% to 10% considered fair for regulated gas and electric monopolies.
For the last four years, local phone rates have been regulated through a “price cap” regime that sets indexed caps on rates. The price index takes into account inflation and industry-wide declining costs. Under the current price cap, telephone companies have reduced business rates substantially, while continuing to increase residential rates.
Consumer groups do not oppose price cap regulation per se, but argue that the current regime has failed to ensure that residential customers enjoyed any benefits of industry’s productivity gains. “It’s time for a consumer dividend. Now that local service has become profitable for the industry, it’s time for residential rates to start reflecting the industry’s declining costs”, declared Ms. Lawson.
Industry players argue that rate increases are needed in order to stimulate competition. Lawson objects: “Consumers have been footing the bill to get competition in this industry – now it’s time for us to see some benefits. If competition means never-ending price increases, what’s the point of it?”
The consumer groups are also calling for a mechanism to penalize companies for sub-standard quality of service performance. Bell Canada has proposed such a mechanism, but consumer groups say that the penalties proposed by Bell do not adequately offset the strong cost-cutting incentives which are inherent in a price cap regime.
In addition to monthly rate increases, Bell Canada and TELUS are asking for the right to charge 50¢ for pay phone calls (Bell would, however, keep outdoor pay phone rates at 25¢). In Alberta, TELUS is already charging 35¢ for pay phone calls. Bell argues that without such increases, it could be forced to close down its payphone operations entirely due to declining revenues. Consumer groups are calling for a separate proceeding on pay phones, given the importance of this issue to Canadians. Pay phones still provide a critical lifeline service for many Canadians, both in urban and rural areas.
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FOR MORE INFORMATION, CONTACT:
Philippa Lawson, Public Interest Advocacy Centre 613-562-4002 x.24, cell: 613-282-4673
Jean Sébastien, Action Reseau Consommateur and Fédération des ACEF 514-521-6820 x.22
Robert Sexty, Consumers’ Association of Canada 709-737-4514
Bruce Tate, National Anti-Poverty Organization 613-789-0096
Byron Williams, Public Interest Law Centre (Manitoba) 204-985-8533
Jim Wachowich, Counsel for CAC cell: 780-699-4137 office: 780-429-0555
Pat MacDonald, BCPIAC 613-232-2000

CRTC Price Cap Review – Opening Statement of consumer groups

RTC Public Notice 2001-37: Price Cap Review and Related Issues
OPENING STATEMENT OF ARC/CAC/FACEF/NAPO

Introduction

ARC et al are grateful for the opportunity to participate in this proceeding, and hence to be part of shaping the regulatory regime for basic telephone service across Canada for the next few years. The outcome of this proceeding will have major repercussions for residential telephone subscribers, as well as for the telecommunications industry.
Residential subscribers have borne the brunt of costs associated with restructuring the Canadian telecommunications industry. They should be as handsomely rewarded for their substantial and continued investment in Canada’s telephone networks as have ILEC shareholders and senior management.

Goals of this Proceeding

The goal of this proceeding is to establish a new regulatory regime that will achieve the following key objectives:

1. to render reliable and affordable services of high quality, accessible to both urban and rural area customers;
2. to foster competition in the Canadian telecommunications markets;
3. to provide incumbents with incentives to increase efficiencies and to be more innovative, and with a reasonable opportunity to earn a fair return for their Utility segments; and
4. to implement a price cap plan that is simple, straightforward, easy to understand and reduces the regulatory burden to the greatest extent possible.

Some parties have characterized this proceeding as being primarily about competition. There is no question that the new regime should be designed so as to foster the development of healthy, sustainable competition. However, the Public Notice makes it clear that this proceeding is about much more than competition. It is about designing a mechanism that will determine the level of local rates for the term of the new regime (until 2005 or 2006).
If we get it right, sustainable competition will emerge when competitors have a realistic opportunity to compete successfully against the ILECs on the basis of their costs. In the meantime, residential customers will pay fair prices for local services – prices that allow the ILECs to recover their costs and make returns that are reflective of competitive markets.
If we get it wrong, prices will rise, consumers will pay excessive rates, and ILECs will have a highly profitable captive market. They will be able to use this wealth to subsidize their competitive activities and defeat potential competitive entry into the local market. Even worse, they may be able to re-monopolize areas of the market where competitors are already active but struggling (LD, cellular, etc.), and possibly to spread their dominance to new areas such as internet access.

A Key Issue: Fairness between shareholders and ratepayers

As with any regulatory regime involving monopoly providers of an essential service, the key concern of the regulator is fairness: allowing the regulated company to make a fair rate of return for its shareholders, while ensuring that captive ratepayers are subject to rates no higher than necessary to achieve such fair returns. Whether through hands-on rate-base rate-of-return regulation or hands-off price caps, utility regulation must ensure that rates remain just and reasonable. Price regulation is no excuse for abandoning this basic principle of regulation.
Rates are not just and reasonable when they result in industry-wide excessive profits, as they have over the past few years. They are not just and reasonable when they are established on the basis of customer tolerance rather than on reasonable benchmarks for costs and rates of return, as the ILECs have proposed. They are not just and reasonable when they are maintained at high levels in order to subsidize otherwise uneconomic competition, as proposed by CLECs.

Sharing the Benefits: The Need for a Consumer Dividend

In the Public Notice, the Commission has rightly characterized the key challenge before it: to balance the interests of the three main stakeholder groups: ratepayers, ILEC shareholders, and competitors. It is clear that the past regime failed in this respect, as ILECs earned supra-normal profits on their Utility business while Utility ratepayers endured ever-increasing rates and CLECs struggled to survive. This proceeding provides the Commission with an opportunity to right that balance.
Rather than sharing the benefits of incentive regulation, however, both ILECs and CLECs want all the benefits for themselves. ILECs want to keep increasing local rates, despite evidence that non-HCSA rates already cover declining costs. CLECs want all such productivity gains to be funneled into rate reductions for the ILEC services they must use. Neither of these approaches meets the Commission’s mandate of ensuring just and reasonable rates. Neither will result in healthy, sustainable competition.
Instead, the Commission must develop a regime that not only provides incentives for ILECs to cut costs, but that also flows a fair share of the benefits of such productivity gains back to basic residential ratepayers as well as to shareholders and business customers. This time around, there must be a meaningful consumer dividend in the form of real price decreases.

Quality of Service

This Commission has an admirable history of making cutting-edge decisions in the field of quality of service. The MacPherson report, adopted in Decision 82-13, helped to establish the prestige which the Commission justifiably enjoys to this day. Nor has the Commission rested on its laurels in this field. New quality of service indicators have been established, and old ones deleted, in keeping with changing technologies and changing customer needs.
There is no question but that price caps have a significant advantage over rate of return regulation insofar as they provide much greater incentives for telephone companies to act efficiently. However, in the quality of service field, an important regulatory tool is lost in moving away from rate of return regulation. At the same time that quality of service is jeopardized in the drive to cut costs, the Commission loses its ability to penalize sub-standard quality of service performance by setting rates to achieve a rate of return below the approved level (as was done as early as 1981, in Decision 81-3, for BCTel).
Fortunately, however, a price cap regime can be designed to include incentives for high quality of service. This is one key dimension in the quality of service field where the Commission, in moving from rate of return to price caps, has yet to act. The current proceeding accords the perfect opportunity for the Commission to redress this shortcoming. In the new price cap regime, the Commission should tie quality of service performance to the formula of the price cap regime, in a manner that provides meaningful incentives for the ILECs to meet pre-established service benchmarks.

Conclusion

The Commission has a choice to make in this proceeding. It can take measures to ensure that residential rates are just and reasonable as costs continue to decline, and to ensure that residential subscribers receive continued high quality service. Or, it can establish a regime that puts CLEC and ILEC interests ahead of the interests of residential subscribers. Other stakeholders are calling for an unbalanced distribution of the benefits flowing from price cap regulation. At a time when declining costs and competition are supposed to lead to lower rates, residential customers are counting on the Commission to call a halt to ever-increasing local rates.
 

CRTC Price Cap Review – Expert Evidence filed by Consumer Groups

Link to CRTC proceeding
 
EXECUTIVE SUMMARY OF THE PRE-FILED EVIDENCE OF JOHN TODD AND GREG MATWICHUK
for ARC et al, BCOAPO et al, CAC/MSOS & The City of Calgary
in re: CRTC PN 2001-37: PRICE CAP REVIEW
1. The purpose of this proceeding is to develop an appropriate design for the second generation of price caps in the Canadian telecommunications industry. In order to get this design “right” it is critical to first establish a clear vision of the regulatory objectives that it is intended to meet.
Public Notice 2001-37 identified objectives for the second generation that include:

• balancing the interests of the three main stakeholder groups (para.16)
• ensuring equitable sharing of benefits between ILECs and ratepayers (para.18)
• ensuring the maintenance of high quality of service (para.35)

In addition, our review of the broader regulatory objectives of the Commission indicate that the price cap regime should provide incentives for:

• Cost minimization;
• Cost effective innovation;
• Optimal adjustment to input cost conditions; and
• Minimization of cross subsidization.

1.It appears that the existing price cap regime has fallen short of its goals. In particular, it has not resulted in rates and profitability levels that are reflective of the expected performance of a competitive industry exhibiting comparable productivity gains. The implication is that the benefits of the price cap regime have not been divided equitably. Residential customers, in particular, have gained little from the regime, in part because effective competition in the local telephone service market in Canada remains an elusive goal relative to other market segments. The rate reductions required under the cap have been enjoyed almost exclusively by the market segments that are more susceptible to market entry.
2.Competition has struggled and gained only a very small foothold in the market for a number of reasons. The ILECs appear to have a significant competitive edge due to their initial dominance of the market. The price cap regime both has enabled the ILECs to achieve very high profit levels, making them powerful competitors and has permitted them significant pricing flexibility which has enabled them to consolidate their dominance by targeting competitors and making entry unprofitable for those who have braved the hostile environment.
3.It is becoming increasingly evident that the price cap regime has not approximated the results of an effectively competitive market. In competitive markets, only exceptional firms earn above-average profits. In this market, ILECs earn high profits and competitors fail. This experience, however, is consistent with the experience in other jurisdictions where initial target productivities have frequently been found to be too conservative and have therefore been increased over time.
4. The proposals of the ILECs will further entrench their dominance by making non-competitive services even more lucrative; thereby, enriching the “war chest” used to challenge new entrants.
5. In order to avoid this result, it will be essential that the second generation regime maintain the conceptual link between prices and underlying costs. The price cap should ensure that capped prices move in line with the expected downward cost trend due to continued strong productivity growth. The cap should not be designed on the basis of the perceived customer tolerance for rate increases, which has nothing to do with underlying costs. The fundamental principle that just and reasonable rates are reflective of costs has not been altered by the introduction of price caps.
6. The recommended price cap regime is intended to be competition-friendly and to produce price-cost relationships that are truly reflective of the outcomes that would be expected under effective competitive market conditions. Namely, normal performance should result in a normal return. Only superior performance should be rewarded with superior returns. The essential elements of such a regime are reflected in our fouir recommendations.
Recommendation 1 (Baskets): There should be separate baskets, with the price cap formula described below applying separately to each basket, for (i) basic residential services in HCSAs, (ii) basic residential services in non-HCSAs and (iii) basic business services.
Recommendation 2 (Formula): The Price Cap for each residential basket (HCSA and non-HCSA) of capped services should be constrained to increase by no more than GDP-PI – X%, similar to the current cap, where X is significantly higher than the current 4.5% figure. The only constraint required on local business services is the constraint on individual tariff items as discussed below.
Recommendation 3 (Basic Residential Constraint): Increases in basic residential services rates should be constrained so that the cumulative rate increase does not exceed the cumulative increase in the GDP-PI in the previous years of the second generation price cap regime. For example, an increase could be implemented in the third year that does not exceed the increase in the GDP-PI during the first two years of the second generation term.
Recommendation 4 (Basic Business Constraint): Increases in local business rates should be constrained so that the cumulative rate increase for each individual tariff item does not exceed 10% in any 12 month period.
EXECUTIVE SUMMARY
OF THE TESTIMONY OF DR. TREVOR ROYCROFT
FOR ARC et al, BCOAPO et al, CAC/MSOS
IN RE CRTC PN 2001-37: PRICE CAP REVIEW
August 20, 2001

• Evidence in the U.S. indicates that price cap regulation is superior to rate-of-return regulation in providing incentives to increase efficiency.
• Statistically significant increases in Total Factor Productivity (TFP) growth have been experienced by regulated companies in the U.S. under incentive regulation. These productivity gains have persisted across multiple terms of price cap plans.
• Sharing of these productivity gains has been a less successful aspect of the application of price cap regulation in the U.S It is likely that shareholders have reaped a disproportionate share of these gains.
• Given the structure of the CRTC’s price cap plan, and evidence provided by Bell Canada and Telus, I believe that Canadian ILECs subject to price cap regulation have experienced similar incentives to improve efficiency and similar increases in Total Factor Productivity growth as those resulting from increased incentives experienced by ILECs in the U.S.
• ILEC proposals in this proceeding to eliminate the productivity component of a price cap plan are not appropriate.
• Accommodative entry policy alone should not be the basis for determining whether retail price regulation should be abandoned. Examination of market structure and empirical evidence is the appropriate approach to utilize when determining the proper degree of regulation of retail prices.
• Where a policy of accommodative entry exists, price cap regulation can improve the market outcome. Price cap regulation can coexist with emerging competition in a market, until analysis of market structure indicates that competitive forces are capable of disciplining retail prices and preventing cross subsidy.

EXECUTIVE SUMMARY
OF THE TESTIMONY OF BARBARA ALEXANDER
FOR ARC et al, BCOAPO et al, CAC/MSOS,, and MKO
IN RE CRTC PN 2001-37: PRICE CAP REVIEW
August 20, 2001

• A quality of service incentive mechanism is needed as part of a price cap or other incentive regulation regime, in order to offset strong countervailing incentives for ILECs to cut costs, and to replace the review of service quality typically undertaken in revenue requirement proceedings.
• Competitive market forces cannot yet be relied upon to ensure adequate levels of service quality.
• Regulators throughout the USA have adopted service quality incentive regimes in response to deteriorating quality of service under alternative regulatory regimes, and, where service quality is adequate, to assure that it continues to be adequate under multi-year rate plans.
• Canadian ILECs also show poor quality of service performance since the onset of price caps
• Bell et al’s proposed “Residential Service Quality Guarantee” provides an inadequate incentive for meeting the CRTC’s service quality standards.
• An effective Quality of Service incentive regime imposes penalties on ILECs for sub-standard service. Rewards for above-standard performance are unnecessary and inappropriate.
• Each service quality indicator in question should stand on its own, such that sub-standard performance in one area cannot be offset by good performance in another area.
• Applicable penalties must be sufficiently large to constitute an effective deterrent to sub-standard performance. In this respect, each ILEC should be subject to a maximum penalty amount equal to 4-5% of its local exchange service revenues.
• Penalty dollars should be divided equally among indicators, and allocated to the first 30% deterioration below the standard for each indicator, such that the maximum penalty for any given indicator is incurred once the company’s performance falls to 70%.
• Individual customer rebates are useful supplements to the company-wide penalty, but are not an effective substitute.
• Service quality results should be reported annually to subscribers via a bill insert.
• Information on complaints and Terms of Service violations should be published annually by the Commission.
• ILECs should publish and distribute to their subscribers a short, plain language document explaining key customer rights and responsibilities.

 

Comments to CRTC on Reverse Directory Services – Reply comments

Link to CRTC proceeding

Canadian Radio-Television and Telecommunications Commission
Ottawa, Ontario
K1A 0N2
Attention:
Ms. Ursula Menke
Secretary General
Dear Ms. Menke:
Re: Public Notice CRTC 2001-56: Reverse Search Directory Assistance
1. We are in receipt of comments from Bell et al, Telus, and SaskTel in this proceeding. The following reply comments are made on behalf of Action Réseau Consommateur, the Consumers’ Association of Canada, and the National Anti-Poverty Organization (“ARC et al”), in response to the above-noted public notice.
Reverse Directory Services are privacy invasive
2. Bell et al argue that reverse directory services are privacy enhancing, rather than privacy invasive. ARC et al appreciate the advantages that such services provide to persons who wish to discover the identity and/or address of callers or others for whom they have only a telephone number. However, to characterize such information retrieval as privacy-enhancing is to stretch the definition of privacy beyond its normal meaning. Moreover, it focuses entirely on the needs of the information-seeking party, while ignoring the needs of the party whose information is being sought from a third party without their knowledge.
3. Some individuals have legitimate needs to remain anonymous, or to keep their location confidential. Those seeking refuge from abusive relationships or stalkers clearly need to be able to control the availability of such information. Consumers seeking information on sensitive topics such as personal health advice may not want their identity or address made known to the agency they are consulting. Social workers and others who deal professionally with troubled persons may not want their home addresses publicly available. It is essential that such persons are able to maintain their privacy without extra effort or expense. Reverse directory services threaten to further erode the legitimate privacy needs of consumers.
4. For these reasons, ARC et al submit that the damage to privacy caused by reverse directory services outweighs the informational benefits of the services, such that the public interest is better served by limiting the availability of such services.
5. Should the Commission nevertheless continue to permit the provision of reverse directory services by regulated telephone companies, ARC et al submit at a minimum that:
Street address information should not be made available under any circumstances
6. Some telephone companies wish to make street addresses available via reverse directory services. ARC et al strongly oppose such a policy, on the grounds that it would unduly threaten the privacy and safety of subscribers, and is in any case unnecessary: those seeking detailed address information can and should obtain such information from the individual to which it pertains. No party to this proceeding has identified countervailing benefits of such information provision.
Reverse directory services should not be available for the purpose of compiling or updating telemarketing lists
7. ARC et al appreciate that reverse directory services as proposed by the telephone companies in this proceeding are targeted at individual subscribers, and would be neither economic nor practical for use by telemarketers to compile and update marketing lists. However, this may not always be the case. If the service is not intended to be used by telemarketers, ARC et al agree with Bell et al’s suggestion that any such service include a restriction that it is not available for the purpose of compiling or updating telemarketing lists.
Subscribers should be able to opt-out of reverse directory services
8. As stated in their earlier submission, ARC et al urge the Commission to ensure that subscribers are able to opt out conveniently of any reverse directory services, and are made aware of this right. There is no reason to treat reverse directory services any differently from other listing services in this respect.
9. ARC et al agree with Telus that consumer rights in this respect should be the same regardless of the company in question. Other directory publishers and operator service providers should be subject to the same rule requiring meaningful subscriber opt-out opportunities.
All of which is respectfully submitted,
Philippa Lawson
Counsel for ARC et al
cc: Interested parties, PN 01-56

Comments to CRTC on Reverse Directory Services – Initial comments

Link to CRTC proceeding

Initial Comments

Canadian Radio-Television and Telecommunications Commission
Ottawa, Ontario
K1A 0N2
Attention:
Ms. Ursula Menke
Secretary General
Dear Ms. Menke:
Re: Public Notice CRTC 2001-56: Reverse Search Directory Assistance
1. The following submission is made on behalf of Action Réseau Consommateur, the Consumers’ Association of Canada, and the National Anti-Poverty Organization (“ARC et al”), in response to the above-noted public notice.
2. As a preliminary matter, ARC et al submit that regulations governing the privacy of customer personal information, including reverse search directory assistance (“RSDA”), should be consistent across all telephone companies. As the Commission notes, privacy concerns are common to all telephone company customers. There is no reason to apply different standards of privacy protection to different telephone companies.
Application of the PIPED Act
3. The new federal privacy law, Personal Information Protection and Electronic Documents Act (“the PIPED Act”), now applies to telephone companies. It requires that companies obtain customer consent to the disclosure of that customer’s personal information. Personal information, under the PIPED Act, is defined as “information about an identifiable individual”, and hence includes published name, telephone number, and address – information that the Commission has treated as “non-confidential”. However, through its Regulations Specifying Publicly Available Information, the PIPED Act makes an exception to the requirement for consent for “personal information consisting of the name, address and telephone number of a subscriber that appears in a telephone directory that is available to the public, where the subscriber can refuse to have the personal information appear in the directory”. Hence, telephone companies are not restricted from offering RSDA under the PIPED Act.
4. While the Commission should ensure that its rulings are consistent with the PIPED Act, it must not fetter its discretion by treating the PIPED Act as the final answer on all matters to do with customer privacy. In exercising its obligations under the Telecommunications Act, the Commission must take into account many other relevant factors and policy objectives specific to the telecommunications industry and to telecommunications subscribers. Hence, the Commission is free to establish higher standards of privacy protection under the Telecommunications Act than are required under the PIPED Act.
5. It has also been pointed out that reverse search services are already available via the Internet and commercial publications. Hence, prohibiting or restricting telephone companies from offering this service will not solve the general problem of privacy invasion caused by the ability of marketers, stalkers and others to obtain personal information via a telephone number.
6. ARC et al appreciate this situation, but submit that it does not justify enhancing the potential for privacy invasions through the provision by telephone companies of a RSDA service.
7. The Public Notice poses two questions:
a) whether the provision of RSDA service by the telephone companies is appropriate in light of the objectives of the Telecommunications Act; and
b) if the provision of RSDA service by the telephone companies is appropriate, what common tariff conditions should exist for telephone companies under CRTC jurisdiction.

Is the provision of RSDA service appropriate?

8. One of the Canadian telecommunications policy objectives set out in section 7(i) of the Telecommunications Act is “to contribute to the protection of privacy of persons”.
9. The provision of reverse directory services is clearly invasive of privacy, and hence contrary to this objective. The more detailed the information provided via a reverse directory (e.g., street location vs. municipality), the more privacy-invasive the service.
10. However, invasions of privacy may be justified for public policy reasons, or where individual consent to the invasion has been obtained or can reasonably be implied.
11. ARC et al submit that there is no public policy rationale justifying the non-consensual provision of reverse directory services, given the obvious infringement to privacy that they pose. Hence, the provision of such services should be only with the individual’s consent.
12. Previous approaches to RSDA, including that of the PIPED Act, assume that once a person’s telephone number and address is published in a telephone directory indexed alphabetically by name, that person has implicitly consented to the re-indexing of this information by telephone number and to the consequent disclosure of their listed name and location to any third party for any purpose.
13. This reasoning is flawed for a number of reasons. First, customers who have consented to the publication of their name in the alphabetical telephone directory have not necessarily consented to the provision of their name and location to third parties upon the provision of a telephone number. There is a material difference between the disclosure of a published address and/or telephone number upon the provision of a name, and the disclosure of name and/or address upon the provision of a number. The former is a service commonly requested by and provided to individuals seeking to contact other individuals whose names they know. The latter is a service with little value to the ordinary citizen/consumer – rather, it is likely to be used primarily by commercial entities seeking to collect name and address information for unsolicited marketing or other privacy-invasive purposes.
14. Second, while it is true that unlisted service is available to subscribers who wish to avoid the publication of this information, unlisted service is only available for a fee (a recurring monthly rate of up to $2/month). Hence, many lower income subscribers who would like to take this service, do not for affordability reasons. Moreover, unlisted service provides no alternative for those subscribers who wish to be listed in the regular directory, but who do not wish to have their names or locations provided via RSDA. Unlisted service is therefore neither a fair nor realistic alternative for most consumers. The Commission must ensure that privacy can be achieved by all subscribers, not just those with high disposable incomes or extensive privacy needs.
15. For all these reasons, ARC et al submit that the provision of RSDA services by telephone companies without the individual’s consent is inappropriate in light of Telecommunications Act objectives.
16. ARC et al note that a previous application by Telus for reverse directory services that would have provided listed address as well as name upon provision of a telephone number was denied by the Commission, on the grounds that the provision of specific address information was too privacy-invasive. ARC et al agree that Bell’s proposed service is significantly less privacy-invasive insofar as it does not provide specific address information, and does not even make this information available via the RSDA to operators. Nevertheless, ARC et al submit that the provision of name and location via RSDA should be subject to individual subscriber consent.
What conditions should be placed on RSDA services?
17. While Bell Canada does not propose any measures to ensure that RSDA listings are consensual, it is noteworthy that Bell permits its subscribers to opt-out of its Internet-based Canada 411 listings, along with other disclosures of customer listing information (see p.29 of the Bell Canada English Telephone Directory). The only significant difference between the proposed RSDA and Canada 411 is that users must pay for the former. While this charge will likely limit use of the proposed service, it does not justify the failure to offer a free opt-out. Consumers must at a minimum be able to opt-out of a reverse directory service for free, they way they can for Canada 411.
18. Moreover, ARC et al submit that, for the RSDA service to be compatible with subscriber privacy under the Telecommunications Act, there must be an opt-out process that is effectively brought to the consumer’s attention before the subscriber’s name is provided via a reverse directory service, as well as regularly after the fact. In other words, there must be a much more effective opt-out than is currently provided by Bell Canada in respect of Canada 411 listings, for example. All opt-outs should be effected (i.e., the listing removed from the directory) within a short period (e.g., 48 hours) of the request. In this respect, ARC et al propose that the opt-out option be brought to subscribers’ attention annually via the monthly bill and/or bill inserts, as well as via the print directory and the Companies’ privacy policies.
All of which is respectfully submitted,
Philippa Lawson
Counsel for ARC et al
cc: Interested parties, PN 01-56