Ontario Consumer Protection Act, 2002 and draft regulations

PIAC’s comments on the new Ontario Consumer Protection Act, 2002 and draft regulations

PIAC submission on security deposits

PIAC’s submission on security deposits, on behalf of a coalition of low-income energy consumers, to the Ontario Energy Board.

The Ontario Energy Board (OEB) is currently considering changes to the rules governing the customer security deposit policies of electricity distributors. For more information on this topic, visit the the OEB website
RP-2002-0146
ONTARIO ENERGY BOARD
NOTICE OF PROCEEDING TO AMEND THE DISTRIBUTION SYSTEM CODE AND RETAIL SETTLEMENT CODE CONSUMER SECURITY DEPOSIT POLICIES

Submissions of the Vulnerable Energy Consumers’ Coalition (“VECC”) With Respect to the Notice of Proceeding Concerning Consumer Security Deposit Policies

Introduction

These submissions, made on behalf of the Vulnerable Energy Consumers’ Coalition (“VECC”) are in response to the Ontario Energy Board’s own motion of June 10, 2003 to initiate a proceeding concerning proposed changes to the Distribution System Code (the “Code”) to provide for rules with respect to the consumer security deposit policies of electricity distributors. The Board has also noted that consequential changes to the Retail Settlement Code are also being proposed, as a result of the changes to the Distribution System Code.
VECC has a particular interest in this proceeding because it touches on issues that are of concern to the groups that constitute this coalition. VECC represents the Ontario Coalition of Senior Citizens (“OCSCO”), the Ontario Coalition Against Poverty (“OCAP”) and the Federation of Metro Tenants Association (“FMTA”). OCSCO is a coalition of over 120 senior groups, as well as individual members across Ontario and represents 500,000 senior citizens. OCSCO’s objective is to improve the quality of life for Ontario Seniors. OCAP is an umbrella organization of regional and locally based anti-poverty groups throughout the province. The FMTA is a non-profit corporation composed of over ninety-two affiliated tenants associations, individual tenants, housing organizations, and members of non-profit housing co-ops.
These organizations have longstanding concerns associated with the provision of public services and utilities and their client groups, who are low income and fixed income consumers, are particularly affected by security deposit policies of utilities. VECC’s submission, therefore, focuses on the proposed changes that will affect the residential customer rate class.

Argument

Overall, VECC supports the Board’s proposal, following upon the recommendations of the working group, to standardize consumer security arrangements among electric Local Distribution Companies (“LDCs”). The current provision in the Retail Settlement Code places too much discretion in the hands of LDCs to impose security deposits on consumers without any specific guidelines as to terms or amounts. This has resulted in inconsistent approaches, which has resulted in uncertainty and unfairness for residential consumers across the province. VECC therefore supports the requirement for LDCs to adhere to a set of minimum requirements in preparing their consumer security deposit policies.
VECC’s concern, however is that even the adoption of uniform guidelines will have a disproportionate impact on low and fixed income consumers, given the maximum amount of security deposit that may be charged under the proposed amendments. VECC’s position is that low-income residential customers should receive an exemption from LDC security deposit obligations, based on the definition of “low-income consumer”, proposed by the Advocacy Centre for Tenants Ontario. It is VECC’s submission that the Board has the authority under its enabling legislation, the Ontario Energy Board Act¹, to grant such an exemption.
The Board has the legislative authority to grant mandatory exemptions
The Board has a clear objective under Section 1 of the Ontario Energy Board Act to provide consumers with non-discriminatory access to electricity distribution systems in Ontario and to protect the interests of consumers with respect to prices.
The recent amendment to Section 88. (1) (z.4) of the Ontario Energy Board Act states that the Lieutenant Governor in Council may make regulations governing the amount of deposits charged by distributors as a condition of distributing electricity to consumers. We argue that this provision gives the authority to the Board, through the regulatory instrument of the Distribution System Code, to mandate exemptions to the requirement of a security deposit.
Residential customers do not present the greatest non-payment risk to LDCs
The Board has recognised that the residential customer rate class does not post the greatest degree of non-payment risk, as acknowledged in its June 10, 2003 Notice of Proceeding: “…large customers (> 50 kW), representing the greatest degree of non-payment risk, would have their deposit refunded after 7 years of GPH”.
We also note that research on payment patterns of utility customers indicates that residential consumers tend to pay their utility bills before paying nearly any other obligation, other than rent or mortgage.² This supports the argument that distributors may exempt a certain portion of residential customers, without undue financial risk or risk of being held imprudent by the Board. The Board, in its August 14, 2002 letter reiterated that LDCs “are not intended to be held generally accountable or at risk for uncollected commodity costs from consumers.”
The proposed formula for determining a consumer security deposit is prohibitive for low- income residential consumers
The proposed Code amendments set out a formula for calculating the maximum amounts of a security deposit which a distributor may require of a residential consumer, based on a an average billing multiplied by a billing cycle factor. VECC’s concern is that the formula allows maximum amounts that may be prohibitive for some consumers. For residential customers with an average monthly electricity bill of $100, the maximum security deposit that could be charged would range from $250 to $450, depending upon the customer’s billing cycle. These amounts could be prohibitive for many low and fixed income customers, as even a cursory analysis of income levels of those in the lower income brackets and the financial challenges they encounter reveals.
The overall impact of paying higher utility costs is much greater upon lower income residential consumers than any other class of consumers. The demand for utilities by residential consumers is virtually inelastic. A consumer’s dependence upon these utilities is such that the consumer will continue to demand almost the same amount of service even if the price increases. Residential consumers who are also poor have an even more inelastic demand, being less able to choose between alternate suppliers of electricity than any other class of consumers.
Statistics confirm this assertion. A recent Statistics Canada analysis of the widening gap between rich and poor Canadians strongly suggests the difficulties low-income families, who would not qualify for social assistance utility supports would face in having to pay a security deposit. The typical low-income family in 1999 had only $300 in savings to protect it against unexpected financial hardships.³
In 1999, the lowest household income quintile (those earning less than $20,520 per year) in Canada, spent, on average, more than twice the amount of their income on utilities (water, fuel and electricity) than the highest income quintile (those earning $79,964 and over).⁴
There has been some judicial consideration of the constitutionality of charging security deposits to low-income residential consumers, which is leaves open the possibility that the imposition of a security deposit on low-income customers may be found to be unconstitutional. Although the court in Clark v. Peterborough Utilities Commission⁵ found that the requirement of a security deposit upon the applicants, who were persons of limited income, was constitutional, we argue that the court was inconclusive on the issue of the constitutionality of effect of consumer security deposit policies on certain income groups.
We take issue with the working group’s interpretation of this case, based on their meeting notes of October 9, 2002, page 3, which suggest that this case affirmed the legality of the requirement of a security deposit upon low income consumers by a distributor. It is our view that the decision cannot be so broadly interpreted and that it stands for the narrower proposition that, on the facts before this court, a constitutional argument could not be made. The court stated:
In conclusion, then, I find that the applicants have not proven that the P.U.C. policy violates s. 15(1). It may well be a provable proposition, using the P.U.C.’s records or by a statistical survey of those of whom deposits are required or in other ways, but it has not been shown in close to any satisfactory way in this case. Strangely, the expert in utility practices retained by the applicants and the coalition, Roger Colton, was based in the United States…However, he did not analyze or have any knowledge of the Ontario or Peterborough situation nor did he have any knowledge of social welfare legislation in Ontario. Mr. Anand was unable to traverse the resulting evidentiary gap with law alone, impressive though the attempt was.⁶
The court’s inconclusive approach to the issue of the legality of security deposits imposed by distributors upon low-income consumers in Clark, does not constrain the authority of the Board to exempt low income consumers from security deposit policies of LDCs.
The proposed amendments fail to address the relationship between non-payment of a security deposit and termination of service
The proposed amendments fail to address an important issue concerning consumer security deposits, whether non-payment of a security deposit is grounds for termination of service pursuant to section 31 of the Electricity Act, 1998. We note the comments by the Board in their August 14, 2002 letter regarding the co-ordination of a working group on consumer security deposits, that the Board had not “made a determination on whether non-payment of a consumer security deposit is grounds for termination of service pursuant to section 31 of the Electricity Act, 1998.” We are very concerned about this omission, particularly in light of the position taken by the working group in their Options Paper (April 10, 2003) that the LDC be given the ability to limit or disconnect service for a consumer’s non-compliance with a security deposit requirement.
If the Board proceeds with the proposed amendments to the Code which would impose a security deposit requirement on all residential consumers, we propose that the Code be amended to state that non-payment of a consumer security deposit by a residential consumer be specifically exempted from distributor’s power to terminate service under section 31 of the Electricity Act, 1998.

Conclusion

VECC recognizes that the rationale for applying a security deposit by a utility is to protect a utility from those customers who fail to pay their bills and protect other ratepayers who would be required to make up the loss of revenue from non-paying customers. This argument, however, must be weighed against other, equally compelling arguments. These include the actual financial capability of low and fixed income residential consumers to meet the obligation represented by a security deposit, the relatively low level of financial risk that would be posed by exempting consumers who met the required definition of low-income, and the ultimate impact of the inability to access electrical service by residential consumers.
Despite comments by some members of the working group that provided stakeholder input to the Board on this issue, that “Electricity is not defined as a necessity of life (not an essential service)”⁷ the provision of electrical service is well recognized as a necessity of modern urban life. In Clark v. Peterborough Utilities Commission, [1995] O.J. No. 1743 (Gen. Div.) the court, in considering the issues raised by the imposition of security deposits on low income customers, affirmed this:
“I recognize that the issues raised by these applications are of importance to all parties. They remain of importance to others in the position of these applicants in 1991, faced with a threatened denial of what is now a necessity of life in urban Canada.”
The U.S. Supreme Court has also affirmed this view by stating that “utility service is a necessity of modern life; indeed, the discontinuance of water or heating for even short periods of time may threaten health or safety.”⁸

Recommendations

VECC recommends that the Board amend the Distribution System Code as follows:

Section 1.2 is amended to add the following definition: “low-income residential consumer” is a person with a household income level at or below the Low-Income Cut-offs (“LICOs”) defined by Statistics Canada, using pre-tax, post-transfer household income.
The proposed Section 2.4.6.1 is amended by adding after the last bullet “Where a security deposit is not paid by a residential consumer, a method of enforcement may not include termination of service.”
Add Section 2.4.6.1.1 – “A distributor shall waive all security deposit provisions of its Conditions of Service in favour of a low-income residential consumer.”
The proposed Section 2.4.11 is amended to add the following: – (c) verification that the consumer is a low-income residential consumer.ALL OF WHICH IS RESPECTFULLY SUBMITTED this 10th day of July 2003.
Sue Lott, Counsel for VULNERABLE ENERGY CONSUMERS’ COALITION (“VECC”)
1. Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sched. A.
2. National Consumer Law Centre, Access to Utility Service (2nd ed. 2001) at 76
3. Statistics Canada, The Daily (July 18, 2002) at 13.
4. Statistics Canada, Spending Patterns in Canada, 1999 (Ottawa: Industry Canada, August 2001) at 57.
5. 24 O.R. (3d) 7.
6. Ibid. per Howden J.
7. Consumer Security Deposit Working Group, Meeting Notes – #3, (October 9, 2002) at 3.

Memphis Gas Light and Water Division v. Craft, 436 U.S. 1, 18 (1978).

PIAC comments on Ontario proposals for mutual fund disclosures

Stephen Paglia, Senior Policy Analyst
Joint Forum Project Office
5160 Yonge Street,
Box 85, 17th floor
North York, ON, M2N 6L9
Telephone: 416-590-7054
fax: 416-590-7070
e-mail: spaglia@fsco.gov.on.ca
BY EMAIL ONLY
Dear Mr. Paglia:
Comments on Joint Forum Proposals re: Disclosure System for Segregated Funds and Mutual Funds
We have recently been made aware of the Joint Forum’s proposals for changes to the way information is communicated to consumers of segregated funds and mutual funds about their investment choices. The following are comments submitted by the Public Interest Advocacy Centre (PIAC) on certain aspects of the above-noted proposals.
The Public Interest Advocacy Centre is a national non-profit organization devoted to the representation of consumer interests in matters involving public utilities, essential services, and public interest issues of broad application to Canadians. PIAC has developed a strong record of consumer advocacy since its inception in 1976, and is widely recognized as an important and influential voice for ordinary consumers in a variety of marketplace issues, including financial services and electronic commerce. PIAC is governed by a distinguished volunteer Board of Directors from across the country, and is supported by member groups and donors representing hundreds of thousands of Canadians.
Given resource constraints and our focus on the protection of lower income and vulnerable consumers, we are have restricted our comments to a few key consumer protection issues.
As a preliminary matter, we commend you on the process you are following: the plain language consultation paper and background document, the allowance of several weeks for comments, and the posting of all submissions on an OSC webpage for this purpose. However, we are concerned about the apparent lack of consumer involvement in the development of these proposals. In some respects (e.g, the “access equals delivery” approach), it appears that the interests of industry have taken precedence over those of consumers.

Disclosure needs of investing consumers

We agree that the current disclosures made to consumers by segregated funds and mutual funds are sub-optimal, primarily due to their complexity. There is no question that they can and should be improved from the perspective of plain language, focus on key issues for consumers, and timeliness. We therefore support the Joint Forum’s proposal for replacement of current disclosure requirements with new documents that are more geared toward the needs of the investing consumer. We are particularly supportive of the proposed new “Consumers’ Guide” that would be made available to all participants, especially novice investors. We also support the proposed requirement for a short “Fund Summary” document, as well as the separation of “static” Fund information from ongoing performance information about each Fund.
However, we have serious concerns about proposals regarding mode of disclosure and cooling-off periods.

“Access equals delivery”

As we understand it, the proposal calls for actual delivery of only the Fund Summary document to all new investors. The Consumers’ Guide would be provided only where deemed appropriate by the sales representative (i.e., to novice investors). The other two documents – the Foundation document and the Continuous disclosure record – would only be provided to investors upon request; otherwise, availability online, together with notice thereof in the Fund Summary document, would be considered adequate disclosure.
While sympathetic to the desire to reduce paper waste and to minimize mailings that are not appreciated by the recipient, we strongly disagree with the “access equals delivery” approach advocated in this consultation paper. We are also concerned that the recommended approach to disclosure of the Consumers’ Guide might leave many consumers without the benefit of this information.
Quite simply, online access does not equal delivery. Many investors do not use computers. Many others do not wish to use computers for this purpose. If disclosure is to be meaningful, it must be made in a manner that accounts for the range of individual circumstances and that does not put an undue burden on the intended recipient.
The problem with the proposed “access equals delivery” approach to two of the four documents is not that it allows for online access instead of paper delivery, with its associated cost and waste. Indeed, we agree that consumers should have the option of refusing paper documents and instead relying on electronic disclosures. Rather, the problem is that, by following a “negative option” approach to electronic disclosure, this proposal puts the onus on the wrong party, and thus effectively ensures that the disclosure will not reach many investors who might otherwise have benefited from it.
It is important not to confuse two distinct issues: that of the content of the disclosure and that of the mode of disclosure. With improved content and presentation of the information in question, it can be expected that more consumers will be interested in reviewing the documents. Thus, even if current evidence suggests that few consumers are reading prospectuses, that could well change with the move to more consumer-friendly information.
In any case, instead of putting the onus on consumers to “opt-out” of electronic disclosure, the default rule should require a mode of disclosure which works for everyone. It should also allow for alternative modes of disclosure, upon clear direction from the consumer. These alternatives need not be limited to website postings and full information mailings. Electronic mail delivery, or at least notices of new postings, can be offered, for example. Consumers can and should be encouraged to opt-in to electronic disclosures, whether by e-mail or website postings; but their ability and willingness to do so should not be taken for granted.

Distribution of the Consumers’ Guide

We are also concerned that the Consumers’ Guide, a valuable primer on segregated funds and mutual funds, may not be provided to investors who would benefit from it. Just because a consumer has been investing in mutual funds for many years (and is thus not a “novice” investor) does not mean that they understand the basics of this industry. Indeed, we suspect that many long time investors are lacking in basic information, and would appreciate receiving this proposed new guide.
We therefore submit that industry participants should always offer this document to clients, unless they are sure that the client already has the document and is aware of its contents. Efforts should be made to ensure that all individual investors have this document and are aware of its contents. For example, it should be referred to in the Fund Summary document, along with references to other fund-specific documents.

Consumer rights of withdrawal and recission

The Consultation Paper further proposes that withdrawal and rescission rights (other than for misrepresentations) attached to mutual fund purchases be eliminated. We oppose this proposal.
The fact that information on a mutual fund will now “be made widely available [online] before the point of sale” does not obviate the need for a cooling-off period so as to protect consumers from pressure sales in this industry. First, many consumers will not in fact have ready access to this information online. Those who continue to rely on paper disclosures will not be able to access this information until it is delivered to them.
Second, just because the information is available online before the point of sale does not in any way guarantee that the consumer has not been subject to the kind of pressure sale that cooling off periods are meant to mitigate. Individual investors will definitely be prejudiced from removal of these rights, even if they have not taken advantage of such rights in large numbers in the past. Once again, the improved content of information disclosure proposed by the Joint Forum could well lead to greater investor awareness, and thus more exercise of investor rights.
If possible, measures should be implemented to prevent investors from using the cooling-off period to play the markets. For example, an investor exercising this right could be limited to recovery of his or her initial investment.
Yours truly,
original signed
Philippa Lawson
Senior Counsel

PIAC Comments on Spam

Industry Canada Discussion Paper:E-mail Marketing: Consumer Choices and Business Opportunities

Comments of the Public Interest Advocacy Centre

This document is also available as a PDF [pdf file: 0.12mb]
The following comments are provided by the Public Interest Advocacy Centre (PIAC) on the Discussion Paper issued by Industry Canada in January 2003 on the issue of unsolicited commercial electronic mail (“spam”).
The Public Interest Advocacy Centre is a national non-profit organization devoted to the representation of consumer interests in matters involving public utilities, essential services, and public interest issues of broad application to Canadians. PIAC has developed a strong record of consumer advocacy since its inception in 1976, and is widely recognized as an important and influential voice for ordinary consumers in a variety of marketplace issues. PIAC is governed by a distinguished volunteer Board of Directors from across the country, and is supported by member groups and donors representing hundreds of thousands of Canadians.

The Problem of Spam

As Industry Canada’s discussion paper recognizes, unsolicited commercial email is becoming a serious problem for online consumers, and thus a serious hindrance to the further growth of this medium of communication and commerce. There have been many studies, reports, and estimates of the extent of the problem. For example:

One research company estimates that 2.3 billion spam messages are now broadcast daily over the Internet, and that this will rise to 15 billion in 2006;1
Another company reports that 32% of the 7.3 billion e-mail messages sent each day are spam;2
As of March 2003, it is estimated that roughly 40% of all e-mail traffic in the
U.S. is spam, up from 8% in late 2001 (citing Brightmail Inc., anti-spam software vendor)3 and 12-15% in 2002;4
In the UK, its was estimated that 40% of emails received by computer users in December 2002 were spam5; another survey in February 2003 estimated that 25% of e-mail was spam (MessageLabs survey);6

ISPs estimate that the quantity of spam rose by more than 500% between September 2002 and March 2003;7 AOL’s spam filters block 1 billion messages daily8, or an average of 24 junk e-mails per account per day;9

On 5 March 2003, AOL said it blocked a billion e-mails offering mortgages and organ enhancements;10

If 1% of the 24 million small businesses in the U.S. sent an e-mail subscriber one e-mail a year, it would result in 657 messages in the subscriber’s in-box every day;11

Type of spam sent:

18% pornographic or sex sites
33% products (inexpensive ink cartridges, etc.)
24% financial offers (“low-cost” loans)
5% scams/fraud 20% other12

Clearly, the problem is significant and shows no sign of abating, despite efforts, both technological and legal, to control it.

The Costs of Spam

While cheap for the marketers who use it, spam is also proving costly to the economy, as well as to individual consumers.
In the U.S., e-mail marketing is a $1.4 billion industry (citing Jupiter Research);13
Collecting addresses to spam is relatively inexpensive: $150 for a CD with millions of addresses;14
e-mail software is being sold online that will extract e-mail addresses from websites; prices range from $19.95 to $89.60;
an e-mail costs a fraction of a cent to send;15

Yet,

Spam costs are largely born by recipients, both directly and as customers of ISPs who are forced to spend money fighting it (in contrast to other media of communication such as television, radio and print, where advertising revenues support the media itself);
Inmarsat-C cell phone holders pay US$6 to receive a 1000-character e-mail, with one-minute connection costs of US$2 – mail cannot be deleted unless it is received;16
Brightmail, an anti-spamming company, sells its services for $5-$15 per user per year;17
In August 2002, Computer Mail Services, a technology company, projected that a company whose 500 employees each receives 5 junk e-mails a day and uses 10 seconds to delete each one, can expect to lose $40,000/year in wasted salaries, and 105 days in lost productivity;18
San Francisco consulting firm Ferris Research Inc. estimates that spam will cost U.S. organizations more than $10 billion in 2003, due to lost productivity, additional equipment, software and staff time needed to address the problem;19

It estimated that unwanted commercial e-mail cost

U.S. corporations $8.9 billion in 2002;20 Close to $1 billion in Canada;21

Approaches to Controlling Spam

ISPs, regulators, consumers and entrepreneurs have been struggling with the problem of spam for some time. Many different approaches to controlling spam have emerged: technological options, self-regulatory codes, standards development and legal requirements. Those closest to the problem seem to agree that the solution will require action on all fronts: technology, self-regulation, standards development, and law.22
(a) Technological options
The market has produced an array of constantly-evolving filtering and blocking services, now widely used by ISPs as well as individual e-mail users. Different methods of filtering are used, including blacklists of known spammers’ Internet addresses. Companies such as Brightmail Inc. who specialize in anti-spam software are finding a growing market for their services. While these filtering services help to reduce the costly impact of spam on ISPs and users, however, they do not appear to be stopping spammers from engaging in the practice in the first place.
Non-governmental organizations such as the US-based Internet Research Task Force’s recently inaugurated “Anti-Spam Research Group”, are attempting to develop technological means to better control spam. The group’s Charter focuses on the need to allow for “consent-based communication”, under which “an individual or organization should be able to express consent or lack of consent for certain communication and have the architecture support those desires.”23 The Chair of this group noted that technical and legal solutions must work hand in hand.24
Another group recently formed in the USA, “JamSpam”, was created “to produce an open interoperable antispam specification that serves as a universal solution to both edges of the spam sword”.25 Some options being considered include developing e-mail authentication standards to ensure that legitimate messages are recognized and delivered securely, closing “open relays” – insecure servers used by spammers to send bulk e-mail, and creating more transparency for legitimate messages, so as for example to be able to discern whether the message is a newsletter, a bill, or a message from a friend.26
(b) Policy and self-regulatory approaches
There are hundreds, if not thousands, of mailing lists, message boards and anti-spam organizations battling the problem of junk e-mail.
ISPs deal with spam in a variety of ways, including automatic filtering technologies, as well as customer-controlled filtering services. Microsoft recently announced that its MSN Hotmail subscribers would be limited to sending only 100 messages per day, “in an effort to prevent spammers from using Hotmail to spread spam”.27 Prior to this, Microsoft relied on filtering technology: it filtered all messages twice, first through its e-mail servers and then at the subscriber end, based on the subscriber’s own designation of previous messages as junk.28
In January 2003 AT&T WorldNet unsuccessfully tried to use a “reverse DNS lookup” to block spam: ISP servers were programmed to relate incoming e-mail’s originating address to a valid domain name or Web address by looking it up in a DNS database; if not there, the message was dropped. This approach failed, however, as too many legitimate e-mails were dropped.29
In addition to spam filtering and acting on subscriber complaints, AOL tracks the volume of e-mail in its system, and terminates AOL subscribers who have unusually high volumes of outgoing mail.30
ISPs such as Yahoo and Microsoft have also changed their registration processes so as to make it more difficult for spammers to automate the process of creating new free e-mail accounts.
Associations of Direct Marketers are also trying to control their members’ behaviour online. But even effective self-regulation by such bodies is ineffective insofar as spammers are not members of the organization.
(c) Legislation
In the USA, Microsoft, AOL, Verizon, Earthlink and other ISPs are aggressively pushing for national legislation. Even marketers, who generally oppose more regulation, now support the drive for national legislation, if only to avoid a patchwork of state regulations that vary in strength and approach: in October 2002, the American Direct Marketing Association announced that it supported federal anti-spam legislation that would ban false headers.31
The following approaches are either being taken in other jurisdictions, or are being considered, currently:
(i) Regulate Spammers

prohibit unsolicited commercial email without explicit, prior, opt-in consent from the recipient;32
require labeling of all unsolicited commercial email as such;33
require standardized labeling of all unsolicited commercial email (e.g., “ADV” in the subject line of the email);34
require electronic marketers to filter out addresses maintained in a central database of users who register their wish not to receive any unsolicited commercial email (similar to telemarketing “Do Not Call” lists);35
require valid, active e-mail address of sender to be displayed on all messages;36
require conspicuous, easy, effective opt-out of further mailings by recipients;37
prohibit the sending of messages to those who have requested to be removed from the sender’s list;38
prohibit transmission of large quantities of advertising email using randomly chosen addresses;39
prohibit the harvesting of e-mail addresses from the Internet;
prohibit falsified or forged routing and transmission information, as well as the sale of software designed to permit such falsification or forgery;40

(ii) Regulate ISPs

require the licensing of all ISPs, and make a condition of license the blocking of spam41
prohibit ISPs from selling or trading subscriber e-mail addresses to marketers;

(ii) Regulate Businesses who use e-mail lists compiled by others

prohibit the use by marketers of e-mail addresses without documented proof of addressee’s consent to receive unsolicited commercial e-mail;

(iii) Empower E-mail users and ISPs to enforce law and obtain redress

Provide users and ISPs with the right to sue spammers for specified damages per unsolicited e-mail received in violation of the law;42

PIAC Position
As others have noted, spam is a serious problem in need of a multi-faceted and coordinated response. Neither technological nor legal approaches alone will suffice; both are needed.
Legal initiatives are needed both to further encourage the development of technological “fixes” and to deter spammers. Even where enforcement of laws is difficult, it is important to establish ground-rules for online marketers, so that the limits of acceptability are clear, and so that enforcement can proceed where possible.
PIAC advocates an internationally-coordinated approach which includes:

prohibition of all unsolicited commercial e-mail without prior, explicit consent from the recipient or contrary to the recipient’s expressed wishes; * Alternatively, establishment of a national “Do Not Send” database, in which e-mail users can register their desire not to receive any unsolicited e-mail, and which all e-mail marketers are required to respect; AND prohibition of the sending of unsolicited commercial e-mail to such addresses;
a standardized labeling requirement for all advertising e-mail;
inclusion, at the top of each commercial message, of a simple method by which recipients can opt-out of any future mailings;
specific prohibition of false, misleading, or invalid information in e-mail messages, as well as disguised paths of transmission;
specific prohibition of software products used to harvest e-mail addresses from the Internet, to falsify return addresses, or to disguise transmission paths;
significant penalties for violation of the law (e.g., $25 per illegal e-mail message); and
statutory provision for civil suits by e-mail users and ISPs against spammers.

Only with a set of meaningful rights and obligations such as those above will e-mail users and service providers be properly equipped to control spam.
Contact: Philippa Lawson Senior Counsel Public Interest Advocacy Centre 1204 – 1 Nicholas St. Ottawa, Ontario K1N 7B7 tel: (613)562-4002 x.24 fax: (613) 562-0007 email:plawson@piac.ca
http://www.piac.ca
1 “States Still Trying to Stop Spam” Wired News (7 February 2003) http://www.wired.com/news/print/0,1294,57585,000.html
2 Ira Teinowitz, “FTC to Hold Spam Workshop: Three-Day Hearings Could Lead to Reglatory Action” online: ADAGE.com news (3 February 2003).
3 Jonathan Krim, “Spam’s Cost To Business Escalates: Bulk E-Mail Threatens Communication Arteries” Washington Post (13 March 2003)
4 Jennifer Lee “Spam: An Esclating Attack of the Clones” The New York Times on the Web (27 June 2002).
5 Claire Cozens,, “ASA clamps down on spam” The Guardian online: The Guardian http://www.guardian.co.uk/Print/0,3858,47617533,00.html
6 “Spam comprises nearly quarter of email” online: SMH.com.au (11 February 2003).
7 Stefanie Olsen, “Hotmail restricts outgoing messages”, CNET News.com (24 March 2003).
8 Ibid.
9 AP “AOL Claims Record Block of Spam E-Mails” The Washington Post (5 March 2003) online: Washington Post http://www.washingtonpost.com/ac2/wp-dyn/A47523-2003Mar5?language=printer
10 Ibid.
11 Jonathan Krim, op cit
12 Neil McIntosh, , “Mail out of order” The Guardian 27 February 2003)
13 Jonathan Krim, op cit
14 James Love, “Taking on Junk E-Mail” online: Consumer Project on Technology http://www.cptech.org
15 Ibid.
16 Herwig Feichtinger e-mail (18 May 2000), on CAUCE website http://www.cauce.org/tales/retrieve_mail.shtml
17 Neil McIntosh, op cit.
18 E-mail “The High Price of Spam” (1 March 2002; printed 3 August 2002).
19 Ibid.
20 Brian Morrissey “Spam Cost Corporat eAmerican $9B in 2002” online: Juperiterresearch http://cyberatlas.Internet.com/big_picture/applications/print/0,,1301_1565721,00.html
21 http://webmania.ctv.ca/w2003jan17.htm
22 See Stefanie Olsen, “Tech Firms tackle spam”, CNET News.com (14 March 2003); and WIRED NEWS, “Net Gurus Rally Anti-Spam Forces”, 01 March 2003.
23 WIRED NEWS, “Net Gurus Rally Anti-Spam Forces”, 01 March 2003.
24 Ibid.
25 Stefanie Olsen, “Tech Firms tackle spam”, CNET News.com (14 March 2003).
26 Ibid.
27 Stephanie Olsen, op cit.
28 Microsoft “Spiking The Spammers” (12 February 2003) online: Microsoft on the Issues http://www.microsoft.com/issues/essays/2003/02-12spam.asp
29 Stefanie Olsen, “AT&T spam filter loses valid e-mail” online: CNET (24 January 2003) http://news.com.com/2102-1023-982118.html
30 Ibid.
31 Jonathan Krim, op cit.; Ken Magill, “Minnesota Anti-Spam Law Takes Effect, Texas Introduces Bill” DMNews (4 March 2003)
32 E.g., Delaware; France; UK, EU (to become effective end of 2003), Korea (impending)
33 E.g., UK (ASA), California
34 E.g., Minnesota, Washington, Korea,
35 “States Still Trying to Stop Spam” Wired News (7 February 2003)
36 E.g., Japan, Minnesota, Virginia, Washington
37 E.g., Arizona, California,
38 E.g., Japan, Arizona, Minnesota, Ohio,
39 E.g., Japan
40 E.g., Virginia, Washington.
41 Proposed by an M.P. in the U.K.: Neil McIntosh, op cit.
42 E.g., Minnesota, Ohio, Texas, Utah, Virginia, Washington

Consumer Groups' submissions to CRTC on Payphone Access – Cover Submission

Philippa Lawson
Senior Counsel
Ms. Diane Rheaume
Secretary-General
Canadian Radio-Television and Telecommunications Commission
Ottawa, ON
K1A 0N2
BY EMAIL AND COURIER
Dear Ms. Rheaume:
Re: Public Notice CRTC 2002-6: Access to Payphones
1.The following submission is made in response to Telecom Public Notice CRTC 2002-6, on behalf of the following groups, collectively referred to herein as “The Consumer Groups”:

The Consumers’ Association of Canada, National Anti-Poverty Organization, and Union des Consommateurs;
The BC Old Age Pensioners’ Organization, Consumers’ Association of Canada (BC Branch), Council of Senior Citizens’ Organizations of BC, federated anti-poverty groups of BC, Senior Citizens’ Association of BC, West End Seniors’ Network, End Legislated Poverty, BC Coalition for Information Access, and Tenants Rights Action Coalition; and
The Consumers Association of Canada (MB. Branch) and the Manitoba Society of Seniors.

2.In PN 2002-6, the Commission invited parties to provide their views, with reasons and supporting information, on access to pay telephone service generally, and on access to payphone service by deaf consumers in particular. Specific issues on which the Commission requested comment include:

The extent to which consumers rely on pay telephone service;
The availability of pay telephone service to meet consumers’ need;
The impact of the removal of pay telephones on consumers;
Whether there is a need to establish a regime for public interest pay telephones, and if so, how it should be designed; and
Whether there is a need to improve access to pay telephone service by deaf consumers, and if so, how that should be accomplished.

3. In considering these issues, the Consumer Groups found that they did not have sufficient information on which to develop a response. Aside from anecdotal information, it was not clear, for example, to what extent consumers rely on payphones.
4. The Consumer Groups therefore undertook two primary research projects: first, a nation-wide telephone survey of Canadians regarding their use and perceptions of payphone service; and second, a purposive survey targeted at low income Canadians, asking about their use and perceptions of payphone service. The results of each survey are provided in Attachment A and Attachment B, respectively.
5. With respect to the policy questions of whether and how a public interest payphone regime should be established, and whether and how access by deaf consumers should be improved, the Consumer Groups also found that they lacked sufficient information to develop reasoned positions. Much of the information needed for this purpose can only be obtained from the telephone companies, through the interrogatory process. However, some useful information is available from other jurisdictions, in terms of their approaches to the same issues. Attachment C provides an overview of the approaches taken by some other jurisdictions to the issue of public payphone service availability in general. Attachment D provides a brief overview of the approaches taken by some other jurisdictions to the challenge of ensuring access to payphone service by those with hearing impairments, including the profoundly deaf.
6. Based on the evidence that they have been able to gather without the benefit of data from the telephone companies, the Consumer Groups submit that certain conclusions can be reached regarding consumer reliance on payphone service.

Payphones are an important public service

7.The evidence is clear that Canadians consider payphone service to be an important public service.[1] Payphone users feel that the calls they make from payphones are important, while a strong majority, including infrequent users and non-users, say that it is important for others to be able to use payphones to call them.
8.The growth in popularity of wireless phones has by no means rendered payphones obsolete. Indeed, cell phone users (half of those surveyed) are almost as likely as others to use payphone service. However, their frequency of payphone use is much less than that of people without cell phones.
h3. Low income Canadians rely heavily on payphones
9.While a significant proportion of all Canadians (49%) use payphones at least occasionally, a much larger proportion of low-income Canadians (88%) do so. Well over half (59%) of respondents to our low-income survey said that they use payphones at least once a week (vs. 5% of respondents to the EKOS survey), and 22% said that they use payphones daily (vs. 1% of respondents to the EKOS survey).
10.Not surprisingly, people without home phone or wireless service rely heavily on payphones: 93% of the 131 “phoneless” respondents to our survey reported using a payphone at least occasionally, and 82% said that when they need to make a phone call, they go to a payphone. Seventeen percent (17%) said that they use payphones to receive calls.
11. The main reason cited by low income payphone users for their use of payphones is “no other option” (71%). Convenience, while important, is much less likely to be a motivating factor for payphone use by this class of users (46%). A high proportion of low income users report using payphones to call important services (55%) or to make important personal calls (69%).

Payphones are used for a variety of purposes

12.Payphones are used for many different purposes, from social to emergency calling. Convenience and important personal calls are the most common types of calls made (65% and 60%, respectively), but 43% of payphone users say that they have used payphones in the past year to make an emergency or urgent call.
13.Low-income Canadians are more likely than others to use payphones for important personal (69%) and emergency (50%) calls, and less likely than others to use payphones for convenience (58%) calls.
Sizable minorities report problems with payphone availability
14. Forty-four percent (44%) of respondents to the EKOS survey reported sometimes having difficulty finding a payphone when they need one, and 24% (41% in smaller communities or rural areas) said that they had been frustrated by the removal of a payphone that used to be there.
15.One-third (33%) said that they had been frustrated by payphones that are broken, and 44% said that they have sometimes tried to use a payphone and found that it was not working.
16. While availability of payphone service is generally rated as good or excellent, 14% of respondents to the EKOS survey, and 12% of respondents to our low-income survey, rated the availability of payphone service in their area as poor.

The coin payment option is important

17.The vast majority of payphone users (84%) use coins to make payphone calls, and 64% use coins more often than other methods of payment. In contrast, only 23% reported using prepaid cards, and this method of payment was used “most often” by only 6% of respondents.
18. Over one-third (36%) of payphone users have been frustrated by payphones that will not accept coins, and a strong majority (71%) agree that it would be a problem for them if payphones no longer accepted coins.
Lack of incoming call capability is a problem for some
19.Twenty-three percent (23%) of respondents to the EKOS survey said that they used payphones to receive calls from other people, and 21% said that they had been frustrated by payphones that don’t allow incoming calls.

Need for Public Interest Payphones?

20.The evidence suggests that there may be a need for some kind of program to ensure the delivery of payphone service in locations where it is not being provided by market forces alone. Clearly, Canadians, and especially low-income Canadians, rely heavily on payphone service for important calling needs. Yet, it is also clear that the availability of payphones does not always meet consumer needs.
21.In any case, it is unlikely that the social need for payphones will always coincide with profitability of payphone service; some locations will remain unprofitable, yet will serve an important public need. Hence, some kind of regulatory intervention is likely to be necessary in order to ensure that payphones are provided in some locations, where needed.

Design of a Public Interest Payphone regime

22. The Consumer Groups take no position at this time as to the appropriate design for a public interest payphone regime, other than to submit that public interest payphones should:

have no less functionality than regular payphones;
cost no more than regular payphones; and
have the same consumer safeguards as regular payphones.

23. See Attachment C for a description of approaches taken by some other regulators to the provision of public interest payphones.
Access to payphone service by deaf consumers
24. The Consumer Groups agree with the Canadian Association of the Deaf that payphones must be accessible to deaf consumers. Clearly, there is a need to improve access to payphone service by deaf consumers in Canada.
25. Current requirements that all payphones be hearing-aid compatible and provide access to Message Relay Service are insufficient. The former does not accommodate the needs of the many Canadians who are profoundly deaf. The latter is useless to deaf consumers wishing to make a call from a payphone, unless there is a TTY unit attached to the payphone.
26.However, more information on options for the provision of such access is needed before the Consumer Groups can take a position on how the needs of deaf Canadians for access to payphone service should be accommodated.
27.Attachment D provides information on how some jurisdictions are approaching this issue.
All of which is respectfully submitted,
original signed
Philippa Lawson
Co-Counsel for the Consumer Groups
cc:Interested Parties, PN 2002-6
[1] 92% of respondents to the EKOS survey agreed with this statement: “Payphones are an important public service”.

Consumer Groups comments on telco “winback” activities – Reply comments

Link to CRTC proceeding

Philippa Lawson
Senior Counsel
(613) 562-4002 x.24
plawson@piac.ca
Ms. Diane Rheaume
Secretary-General
Canadian Radio-Television and
Telecommunications Commission
Ottawa, ON
K1A 0N2
BY FAX AND EMAIL
Dear Ms. Rheaume:
Re: Public Notice CRTC 2003-1: Review of Winback Promotions
1. The following reply comments are provided by the Consumers’ Association of Canada and l’Union des Consommateurs (“The Consumer Groups”), in response to the above-noted Public Notice. We are in receipt of comments from The Companies, TELUS, Aliant, AT&T, Call-Net, Futureway, Eastlink, Primus and Microcell.
2. Consistent with the Public Notice, these comments refer to promotions of local telephone services.
ILEC local service promotions available only to customers of competitors (“winback promotions”)
3. Having reviewed the comments of all parties, the Consumer Groups confirm their preliminary position that all ILEC “winback” promotions (i.e., those available only to customers of competitor companies) should be prohibited for the time being, regardless of whether they meet the imputation test. As noted in their preliminary comments, promotions that are targeted solely at disloyal customers are unduly discriminatory from the customer perspective, and take undue advantage of the ILECs’ incumbency to the detriment of new entrants.
4. This prohibition should be lifted once competitor market share has achieved a level consistent with a truly competitive market, such that all service providers are able to benefit relatively equally from the ability to engage in such practices.
5. The ILECs argue that ILEC winback promotions “may actually encourage customers to sample CLEC services”,[1] and that disallowing the waiver of re-connection fees, for example, would impose significant switching costs that will disincline customers from switching in the first place.[2]
6. In reply, the Consumer Groups submit that this argument has little merit. Customers who switch to competitors are unlikely to be aware of the existence (if any) of ILEC winback offers at the time that they make the switch. Moreover, such offers are typically time-limited. Hence, a consumer’s decision to switch providers is unlikely to be informed by any knowledge regarding applicable ILEC reconnection fees. The ILECs’ argument would have merit only if ILECs waived re-connection fees to all returning customers as a matter of course, and if all customers were aware of this standard policy.

Promotions available to all customers (existing and new)

7. Competitors have proposed a variety of restrictions on general ILEC promotions, including a complete ban on such promotions for at least three years (Call-Net). The Consumer Groups see no reason to restrict ILEC promotions that cover their cost and that are offered equally to all customers. In fact, this is the type of benefit that competition is supposed to deliver.
8. General promotions that do not pass the imputation test should continue to be permitted as long as they are of limited duration. The Consumer Groups confirm their preliminary position that the maximum time period for “limited duration” promotions should be six months. Thirty days, as proposed by Futureway, is unreasonably short for a service that is billed on a monthly basis, while the current effective twelve-month limit is unreasonably long.

Promotions available to all new ILEC customers

9. A number of competitors argue that general ILEC promotions available to new customers (e.g., connection fee waivers; discounts for new local service subscribers) effectively target customers of ILEC competitors, and should therefore be treated as “winback” offers.
10. The Consumer Groups share the concern that ILECs may be able to circumvent a prohibition on winback offers by making their offers available to all new customers. However, without data on the average number of new service requests originating from customers who are moving (as opposed to the number of potential winback customers), it is difficult to assess this argument.
11. The Commission is currently deliberating on an application by Call-Net to order ILECs to permit their ADSL Internet subscribers to obtain local telephony service from alternative providers. Should this application succeed, one type of promotion allegedly targeting CLEC customers (i.e., discounts on ADSL service subscriptions) would no longer be a concern in terms of its impact on the local service market.
12. As long as promotions such as connection fee waivers are available to all new customers, and as long as they pass the imputation test, the Consumer Groups submit that they should continue to be permitted. Where such promotions do not pass the imputation test, they should, at a minimum, be subject to the same limited duration rule as applicable to other below-cost promotions.
Period of Prohibition
13. Should the CRTC prohibit ILEC winback and/or other promotions, it will have to decide on a period of prohibition. The Consumer Groups see two options:
a) a fixed duration, after which time a review is held to determine whether the prohibition should be lifted, continued, or modified; or
b) pre-established criteria for the lifting or modification of the prohibition (e.g., a threshold of ILEC market share loss by specified market segment).
14. The Consumer Groups consider that either approach is acceptable in theory, as long as the time period, or criteria, are fair and reasonable. In that respect, the Consumer Groups submit that an appropriate time period for any new restrictions on ILEC promotions would be the remainder of the current price cap regime.
15. Should the latter approach be taken, the Consumer Groups reiterate their view as expressed in the recent Price Cap Review proceeding, that the test for competition currently applied in the cableTV market is inappropriate for the telephone service market. A threshold of 5% market share loss in the telephone service market would be laughable, insofar as ILECs would continue to dominate the market. Should the Commission decide to establish such a test, other than the criteria for forbearance in the telecom market already articulated, for the purpose of lifting or reconsidering restrictions on ILEC promotions, a further public process should be initiated on this specific issue.
Long Term Contracts
16. Primus raises the issue of cancellation fees and automatic renewal of ILEC long term contracts for local service, arguing that these also need to be regulated by the Commission if local competitors are to be able to break into the local market.
17. The Consumer Groups note that this issue is currently under consideration by the Commission as a follow-up to Decision CRTC 2002-34, in respect of Bell Canada and TELUS tariffs applicable to business services.
18. While this does not yet appear to be an issue in the market for residential local wireline services, the Consumer Groups note that it could become an issue, and that it is already an issue to some extent in the wireless and Internet services markets.[3]
19. The Consumer Groups submit that any rule prohibiting automatic renewal of long term contracts and requiring positive customer consent to renewal of such contracts, should apply to contracts for all telecommunications services, including residential wireline, wireless and Internet services.
20. The issue of cancellation fees should also be examined, perhaps by way of a separate proceeding, with a view to maximizing the potential for competition and market forces to operate effectively.
All of which is respectfully submitted,
original signed
Philippa Lawso
Counsel for the Consumer Groups
cc: PN 2003-1 Interested Parties
[1] The Companies, para.21.
[2] TELUS, para.11.
[3] Some wireless and Internet service providers apply large cancellation fees for early termination of long term contracts, thus creating a barrier to switching of service providers by customers.

Consumer Groups comments on telco “winback” activities – Initial comments

Appropriateness of ILEC Winback Promotions

2. Based on the record to date, the Consumer Groups support a prohibition of ILEC “winback” promotions in the local residential wireline market, whether or not such promotions meet the imputation test, until competitor market share reaches a level that is reflective of a sustainably competitive market.
3. In the current environment, ILECs continue to hold a virtual monopoly in the local residential wireline market. Competition is only just beginning to emerge. In this context, allowing incumbent providers to offer special deals to “win back” those customers who have decided to switch, even after a 90-day period, could amount to allowing a re-monopolization of this market.
4. Particularly in light of the high cost to CLECs of acquiring new customers, targeted winback promotions by ILECs could serve to ensure that new entrants are never able to turn a profit, such that effective local competition never gets off the ground.
5. If ILECs want to compete with CLECs by offering special deals to customers, such deals should be available to all customers, not just those who have switched to alternative providers. In particular, loyal ILEC customers should not be forced to subsidize disloyal ILEC customers. Even where winback promotions meet the imputation test, they can be fundamentally unfair to loyal customers. Such price discrimination should not be permitted in markets that are not fully competitive.
6. Once the local residential telephony market has attained a level of competition more indicative of a truly competitive market, winback restrictions can be lessened or eliminated.

Definition of “Promotion of limited duration”

7. The Consumer Groups consider that a “promotion of limited duration”, in the context of telecommunications services, ceases to be a “promotion of limited duration” after three to six months. Based on general marketplace practices and expectations, six months would appear to constitute the outside limit of any reasonable definition of this concept; three months may be more appropriate. A promotional offer lasting a full year cannot reasonably be considered a promotion “of limited duration”; it is more in the nature of a standard offer.
All of which is respectfully submitted,
Philippa Lawson
Counsel for the Consumer Groups
cc:PN 2003-1 Interested Parties

Fed.Gov.Cybercrime and Lawful Access Proposals

Public Interest Advocacy Centre
Comments on Federal Government’s “Lawful Access” Consultation PDF version is also available [pdf file: 0.21mb]

Introduction

The Public Interest Advocacy Centre (PIAC) is a national non-profit organization devoted to the representation of consumer interests in matters involving public utilities, essential services, and public interest issues of broad application to Canadians. PIAC has developed a strong record of consumer advocacy since its inception in 1976, and is widely recognized as an important and influential voice for ordinary consumers in a variety of marketplace issues. Over the past decade, PIAC has become a leading advocate of consumer privacy interests, in the context, especially, of the electronic marketplace. PIAC is governed by a distinguished volunteer Board of Directors from across the country, and is supported by member groups and donors representing hundreds of thousands of Canadians.
PIAC is grateful for the opportunity to comment on the important issues raised in the Consultation Document issued August 25, 2002 by the Government of Canada on “Lawful Access”. We commend the Government on its efforts to reach out to, and obtain input from, civil society through advance consultations on these issues. However, our ability to provide feedback is limited due to a lack of detail and clarity regarding the legislative proposals as well as the problems they are designed to overcome. Our comments below are therefore more general than might otherwise have been the case.
We look forward to an opportunity to review and comment on more specific legislative proposals accompanied by more substantial evidence as to their need.

Guiding Principles

The guiding principles for lawful access in Canada have already been established in the Canadian Charter of Rights and Freedoms, and Supreme Court jurisprudence interpreting these fundamental rights and freedoms. Under section 8 of the Charter, “everyone has the right to the secure against unreasonable search and seizure”, “subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society”. A significant body of jurisprudence has developed under this principle, providing helpful guidance as to where the line is to be drawn between reasonable and unreasonable intrusions by the state into the personal lives of individuals.
The Supreme Court of Canada has repeatedly confirmed the importance of privacy as an essential aspect of an individual’s liberty in a free and democratic society. As noted by the Court,
“The very efficacy of electronic surveillance is such that it has the potential, if left unregulated, to annihilate any expectation that our communication will remain private.”
The Court has also emphasized the importance of prior judicial authorization as an essential safeguard against undue invasion of individual privacy by the state:
“The state’s interest in detecting and preventing crime begins to prevail over the individual’s interest in being left alone at the point where credibly-based probability replaces suspicion. History has confirmed the appropriateness of this requirement as the threshold for subordinating the expectation of privacy to the needs of law enforcement.”
In R. v. Oakes, the Court established a clear test for the determination of whether a given infringement of Charter rights is reasonable and demonstrably justified. This test requires a sufficiently important objective served by the infringement, a rational connection between the means and the ends, and minimal impairment of the right in question.
We agree with the Privacy Commissioner of Canada that any new privacy-invasive measure that purports to enhance security must meet the following test:

it must be demonstrably necessary in order to meet some specific need;
it must be demonstrably likely to be effective in achieving its intended purpose. In other words, it must be likely to actually make us significantly safer, not just make us feel safer;
the intrusion on privacy must be proportional to the security benefit to be derived; and
it must be demonstrable that no other, less privacy-intrusive, measure would suffice to achieve the same purpose.

General Conclusions

Having reviewed the Consultation Document, and participated in a day-long consultation with government officials, it is PIAC’s view that the Government’s proposals for greater lawful access to private communications have not been demonstrably justified, according to the test articulated by both the Supreme Court of Canada and the Privacy Commissioner of Canada. In particular,

it is not clear that greater access by law enforcement to electronic communications will in fact, or is even likely to, increase the security of Canadians;
the privacy intrusions that would result from these proposals are clearly significant, while the security benefit to be derived therefrom is unclear;
it has not been demonstrated that no other, less privacy-intrusive, measure (e.g., focused on technological and/or administrative impediments) would suffice to achieve the same purpose of enhanced security.

We fully appreciate the need for law enforcement agencies to be able to protect citizens against criminal activity without undue effort. We are as interested as everyone in the security and safety of Canadians. However, we strongly oppose measures that provide law enforcement agencies with greater powers of intrusion into the private lives of individuals, without adequate safeguards against the abuse of such powers.

Lack of Supporting Data

The legislative reforms being considered are premised on a need for enhanced state power in the face of technological change and specific barriers that exist today. Yet, the government has provided little evidence to justify the significant privacy intrusions posed by increased lawful access. Without specific information as to the extent and nature of the problem(s) to be rectified, it is impossible to conduct the “cost/benefit” analysis required by the Supreme Court.
Indeed, PIAC is unable to answer most of the specific questions posed in the Consultation Document because of the lack of information provided to justify the proposals.
If evidence is available to justify the proposed measures, it should be made public, so that Canadians can weigh it and thus make informed judgements as to whether the security benefits of the measures outweighs the privacy costs. If such evidence does not exist, then there is no case for the measures in question, and they should be dropped.

Technical or Legal Problems?

The Consultation Document identifies a number of technological developments that have created problems for law enforcement investigations (p.4). It would appear that the problems in question are technical, rather than legal. If law enforcement agencies have difficulty dealing with new technologies of communication, the solution is not to lower the legal standard for interception or search and seizure; rather, it is to provide law enforcement agencies with the technical expertise they need to deal with the evolving environment.

Technological Neutrality

The proposals would effectively establish a lower standard for interception and/or search and seizure in the online context, versus in the offline context. Yet, no justification in principle has been provided applying a different standard depending on the mode of communication used. PIAC submits that legal standards should not differ according to technology. Not only would this be unprincipled; it would lead to a situation in which the government is constantly playing legislative “catch up” with new technologies. Criminal Code standards should be designed to apply regardless of technology, and legislative reform should focus on ensuring that the standards in question are worded so as to incorporate all relevant technologies (rather than on establishing lower standards for certain types of technology).

Maintaining Lawful Access Capability vs. Increasing Lawful Access Capability

The Consultation Document states that the objective of the Lawful Access proposals is “to maintain lawful access capabilities for law enforcement and national security agencies in the face of new technologies”. Yet, the proposals go much further than maintaining existing lawful access capabilities – instead, they would significantly increase the ability of law enforcement and national security agencies to intercept, search and seize electronic communications of individuals, and personal information about individuals in electronic form.
PIAC has no objection to updating Canadian legislation so that the well-established Canadian standards of lawful access to private communications and personal data are clearly applicable in the context of new communications technologies. We do, however, object to a substantial weakening of such well-established safeguards.

The Council of Europe Convention on Cyber-Crime

It is unclear to what extent the proposals in question have been driven by forces outside Canada. According to the Consultation Document, the Council of Europe Convention on Cyber-Crime requires that ratifying countries provide in their domestic law for Production Orders, Preservation Orders, and an offence in relation to computer viruses that are not yet deployed. PIAC’s comments on these specific proposals are set out below.
In general, however, we are concerned that some aspects of this Convention may be inconsistent with Canadian values, insofar as it requires provision for an unreasonable level of state incursion into the private lives of individuals, without adequate privacy safeguards. In our view, Canada should not ratify the Convention if to do so would be inconsistent with Canadian values and rights as set out in our Charter of Rights and Freedoms and interpreted by the Supreme Court of Canada.
What position did Canada take in the negotiations?
There is absolutely no information available as to the position that Canada took in the negotiations. If this information were available, it would aid in understanding and framing the lawful access proposals.
What are the options being considered (and not considered)?
Similarly, no information is available to understand which options were considered and rejected in the process leading to the convention signing. Why was there no pre-signing consultation to review and direct the position that Canada would take?
Lack of Corresponding Privacy Safeguards
While clearly aware of privacy concerns, the government does not appear to have made a serious attempt to weigh them against the pressure from law enforcement agencies for easier access to personal information in the electronic environment.
Privacy, as much as national security, is under attack
The same technologies that law enforcement agencies complain are hindering their ability to investigate criminal activities, have also provided the basis for an unprecedented erosion of individual privacy. Individual privacy is increasingly under assault by virtue of the vastly easier access to vastly greater quantities of personal information available electronically. We find it particularly ironic in this context that the government seeks to further erode individual privacy, in the name of the public interest. If anything, privacy protections for electronic communication should be stronger than for non-electronic communications, given the unprecedented opportunities that electronic technologies offer for surveillance and intrusion.

The Need for Privacy Safeguards

In contrast to the Lawful Access legislative proposals, is the government’s recent legislative initiative on Money Laundering (The Proceeds of Crime Act). Just over two years ago, the federal government consulted with the Privacy Commissioner and the public on legislation designed to detect and deter money laundering and to facilitate the investigation and prosecution of money laundering offences. In response to concerns raised by the Privacy Commissioner and stakeholders, the government included a number of measures designed to limit otherwise enormous systemic individual privacy invasions that would have been authorized. For example, Bill C-22 (as it then was) included provisions:

exempting lawyers from the requirement to disclose communications, where such communications are subject to solicitor-client privilege;
requiring the police to obtain a judicial warrant in order to obtain detailed information from the new Financial Transactions and Reports Analysis Centre of Canada (FTRAC);
limiting the use of information by FTRAC or other officials to purposes of exercising powers or performing duties and functions under the Act;
making a punishable offence the improper disclosure of information; and
giving the Privacy Commission oversight powers in relation to FTRAC’s handling of personal information.

In contrast, the Lawful Access proposals contain no safeguards against abuse of the increased powers they would provide.

Recommended Safeguards

The proposal assumes almost unlimited levels of citizen trust in law enforcement and national security agencies; trust that historically has not always been deserved. It argues for the need to infringe upon individual rights, suggesting this will enhance collective public security. As noted above, PIAC does not consider that the proposals have been adequately justified.
Should they nevertheless proceed, any proposals for greater access by law enforcement agencies to private communications and information must be accompanied by strong oversight mechanisms that ensure public accountability, transparency and scrutiny. This oversight should require routine reporting on measures undertaken in the name of law enforcement and national security and an accounting of the efficacy of these measures. Such reporting would enhance public confidence in the government and its agents exercising their rights to intercept and collect personal data.
Specific and severe penalties for improper use or disclosure of personal data collected via lawful access, as well as for improper attempts to access personal data, should be introduced
Specific procedures should be enacted for the destruction of information seized or acquired as part of a lawful access endeavour, at a minimum these should include:

Specific guidelines to be followed for destruction
Specific guidelines to be followed to notify parties whose information has been intercepted

Specific procedures should be enacted for the handling of intercepted or seized information that is subject to legal privilege.
In summary, we believe that all interception and/or search and seizure of electronic communications should require judicial approval, should identify a specific target, should identify specific information to be seized/intercepted and should have a specific rationale and justification for the seizure or interception. We also believe that any orders issued should be time-limited.

Intercept Capability

The government is proposing to introduce a general requirement in legislation to ensure intercept capability, with the specific details to be contained in regulations proclaimed at the time the legislation will come into force. It is proposed that all service providers (wireless, wireline and Internet) be required to ensure that their systems have the technical capability to provide lawful access to law enforcement and national security agencies.
We recognize that there may be a need for assurance, on the part of law enforcement agencies, of the ability to intercept and monitor electronic communications upon the issuing of judicial authorization. However, the government has failed to present evidence that the deployment of this massive surveillance infrastructure is necessary. For example, we do not know how many investigations have been thwarted as a result of the lack of technical capability. Moreover, the lack of clarity regarding evidentiary thresholds, oversight and safeguards makes us unable to provide an opinion on this proposal.
The Consultation Document suggests that many of the important details of such interception capability requirement (e.g., cost recovery) would be left to regulation. It is important that any regulations be subject to full public review. We echo the call from CWTA and CAIP and request that the draft legislation and accompanying regulations be made available for a full and complete public review, and that sufficient time be provided for interested parties to assess their impact and submit comments.

Effect on future innovation and adoption of technology

It is possible that impact the proposed requirement for intercept capability will have an adverse effect on future innovation in this industry. In particular, if intercept requirements are not applied to current infrastructure but only “when a significant upgrade is made to their systems or networks”, ISPs may be disinclined to upgrade their operations or capabilities. This could limit innovation and is therefore arguably in conflict with Canadian telecommunications policy.

Cost implications

We are concerned that the cost of constructing the surveillance infrastructure may unnecessarily burden the industry, and hence the telecommunications user. This, again, is arguably in conflict with Canadian telecommunications policy. In any case, it is impossible for us to address this issue fully without more information as to the costs in question.
It is certain than there will be disagreement between the industry groups and others with respect to costs. Some have envisioned the ISPs assuming the costs of ‘lawful access’, others have envisioned the government providing funding through some form of authorized tariff. Either way, it is clear that the citizen, as a telecommunications user or as a taxpayer, will be responsible for the costs of ‘lawful access’. Any such costs should be minimized.

Email Interception

The government seeks input on whether, or when, email constitutes a communication subject to interception, or instead a document subject to search and seizure. Different standards for access apply, depending on which approach is taken.

Reasonable expectation of privacy

Canadians have come to expect a high degree of privacy in email, despite widespread awareness of the ease with which such communications can be accessed by third parties. Increasingly, we are using email to communicate highly sensitive information, and indeed are relying on it to the same extent that we rely on postal mail. Canadians have, we submit, a similar reasonable expectation of privacy in email as they do in other forms of communication.
However, it is important to recognize the limits of the “reasonable expectation” test, where rapidly developing technology is concerned. Internet and email communications is an area in which technology and business practices have far outpaced the law. As a result, “reasonable expectations” may be based not on what is desirable, but rather on what we know to be the case, as undesirable as it may be. The legal treatment of email should not be determined by technological capability, but rather by our values as a society. If we wish to be able to communicate privately by email, without the possibility of unjustified surveillance, we should construct our laws so as to protect that desire. Principle, not technology, should guide our determination of this issue, as it did in the context of cellular telephone privacy.
Proceeding on this basis, PIAC submits that the Criminal Code should be amended to clarify that email, at least while in transit, constitutes a “private communication” under s.183. It would then be subject to the same procedural safeguards as all other interceptions under this provision.

Interception or Search and Seizure?

While in transit, interception of email is clearly just that: interception. It is a good question, though, at what point in the process of communication/delivery email is no longer a communication subject to interception, and is instead a document subject to search and seizure. The Criminal Code should be clear about when and where the line is to be drawn, if at all, between these two possibilities.

Access to Subscriber and Service Provider ID

Definitions CNA: Customer Name and Address (in effect the identity of the subscriber). LSPID: Local Service Provider Identification (identifies the company that provides services to the subscriber).
The government’s consultation document states that, “Basic customer information such as name, billing address, phone number and name of service provider, has historically been made available by service providers without a prior judicial authorization (such as a search warrant).” Recent changes in the telecommunications sector, however, have left law enforcement agencies with a patchwork of differing and inconsistent policies among service providers, regarding the provision of this information upon request. The PIPED Act, for its part, permits (but notably does not require) private organizations to disclose this information upon request by law enforcement officials without judicial authorization. Instead, it is left to the government to determine what limits, if any, should apply in respect of access by law enforcement agencies to this information.
Notwithstanding the discretion afforded service providers by virtue of PIPEDA, we believe that from a public policy perspective, it is beneficial to build a clear, consistent, privacy-protective policy framework that balances all of the competing interests.

LSPID

The CRTC recently ruled on the LSPID issue in the context of telephone service providers, requiring that, in order to obtain this information from Bell Canada, a law enforcement agency (LEA) must identify its lawful authority to obtain the information, and indicate that:

it has reasonable grounds to suspect that the information relates to national security, the defence of Canada, or the conduct of international affairs;
the disclosure is requested for the purpose of administering or enforcing any law of Canada, a province, or a foreign jurisdiction, carrying out an investigation relating to the enforcement of any such law or gathering intelligence for the purpose of enforcing or administering any such law; or
it needs the information because of an emergency that threatens the life, health or security of an individual, or the LEA otherwise needs the information to fulfill its obligations to ensure the safety and security of individuals and property.

PIAC submits that the CRTC test for LSPID disclosure by Bell Canada is appropriate, and should be adopted in respect of other communications service providers.

CNA

On the other hand, we believe that access to CNA data should require judicial authorization. Customer name and address information can be sensitive information, depending on the context. It is not clear why we should grant law enforcement agencies unimpeded access to this information. Clearly, much of this information is already easily accessible in the marketplace, through published directories. However, many subscribers choose to protect their privacy by not publishing their contact information; in these cases, at least, individuals have a high expectation of privacy regarding their contact information, and such expectations should be reflected in the standard applied for lawful access.
With respect to Internet address information, we strongly object to a lower standard of access given that the ability to link such information to identified individuals would permit the collection of a vast amount of personal information.
Some may argue that by requiring judicial authorization for CNA release, we will create a system that is expensive, inconvenient and unfairly burdens the law enforcement or national security agency. We submit that these are not the only factors to consider when drafting public policy. Rather, it is imperative in a free and democratic society to balance the legitimate needs of the state with appropriate roadblocks to protect the rights of the citizenry from incursion by the state; this may, in fact, be expensive and inconvenient and may burden the state. Freedom has a cost; we believe the state can more properly bear the burden of this cost.

Obligation to collect where none exists

We have been asked to comment on whether the obligation should be imposed on service providers to collect this information in circumstances where they are not currently collecting this information for their own purposes. This obligation would likely affect those service providers and retailers selling prepaid and other anonymous telephone cards and phones.
We would imagine, for this to be implemented, a customer would need to present approved identification to a retail clerk (e.g. a convenience store clerk) who would verify and copy down the identification; this would then be forwarded to the service provider. This would be a gross invasion of privacy and present even greater opportunities for data leakage or loss (and subsequent threats such as identity theft).
In discussing this point, we are struck by the fact that this proposal appears to conflict with the implicit premise of the consultation as attempting to overcome differences in legal process necessitated by technology. For example, if we require name and address to be supplied by persons purchasing pre-paid cards and anonymous wireless phones; why are we not similarly requiring persons utilizing the services of Canada Post to identify themselves? Should we not seal all Canada Post street mailboxes and require people depositing mail to present themselves at a government approved post office and present their government approved identification to a government approved counter clerk? Most correspondents would recognize the lunacy and Orwellian effect of such an unprecedented level of state intrusion.
We should not afford any lesser protection, or impose any higher burden on service providers, retailers and end users merely because they wish to avail themselves of technology solutions as an alternative to Canada Post.
Other mechanisms to provide subscriber and service provider information
The government raises the topic of ‘other mechanisms’ for law enforcement and national security agencies to access subscriber (CNA) and service provider (LSPID) information, arguing that, “the only way in which this information can be obtained is through the time-consuming and costly process of directly contacting each local carrier.” The Canadian Association of Chiefs of Police has suggested the concept of a national database be constructed containing CNA and LSPID information for ‘lawful access’ use.
We recognize that it is not always an easy task for law enforcement and national security agencies to obtain CNA and LSPID information. We recognize that considerable cost and effort may be expended to locate this information. However, we believe that these are not the only factors to consider when drafting public policy. Creation of a national database of any personal information, even limited to CNA information, raises the potential for misuse and should therefore be avoided.

Production Orders

In keeping with requirements under the Council of Europe Convention on Cyber-Crime, the Government proposes to create a new type of authorization for lawful access to documents held by a private body. A “production order” would require the custodian of documents to deliver or make available the documents within a specified period.
The concept of production orders raises concerns about forcing private service providers into a role of agents of the state. It is at least questionable whether such “conscription” of third parties to carry out law enforcement activities is appropriate. It would undoubtedly interfere with the primary role of serving customers, and would effectively expand the reach of law enforcement well beyond current limits.
Three types of production order are being considered:

General production order
Specific production order for traffic data
Specific production order for CNA and LSPID data

General Production Orders

PIAC does not support the creation of production orders in the absence of clear evidence showing how existing warrant powers (supplemented with assistance orders where necessary) are insufficient. Such evidence has yet to be provided.
The need for anticipatory orders, permitting law enforcement agencies to monitor transactions for a specified period of time, is also insufficiently documented. In any case, we cannot perceive a situation in which any such order would or should require a different standard than currently applies to search and seizure, or to interception of communications.
If general production orders are nevertheless created, they should be subject to the same procedural safeguards as currently apply to search warrants (or interception, where appropriate). To apply any lower standard would be to go beyond the objective of maintaining existing lawful access capabilities, in the new electronic environment.

Production Orders for “Traffic Data”

It is suggested that issuance of specific production orders would be subject to a lower standard than that for issuance of general production orders. In particular, the Consultation paper suggests that “the standard for Internet traffic data should be more in line with that required for telephone records and dial number recorders in light of the lower expectation of privacy in a telephone number or Internet address, as opposed to the content of a communication”.
PIAC disagrees. First, it is not at all clear how “traffic data” in the Internet context could be stripped of content that is not available in the telephone context. Second, it is not clear that individuals have a low expectation of privacy in respect of their Internet address, at least once they know what other information about them could, or would necessarily, be transmitted along with Internet address information.
The Lawful Access Consultation document does not define traffic data. However, a definition is found in The Council of Europe Convention on Cyber-Crime. Under the Convention, traffic data is defined as, ” any computer data relating to a communication by means of a computer system, generated by a computer system that formed a part in the chain of communication, indicating the communication’s origin, destination, route, time, date, size, duration, or type of underlying service.”
It is notable that the explanatory memorandum to the Convention cautions against the simplistic notion that Internet “traffic data” can be easily separated from more substantive information in which a higher expectation of privacy exists:
”… the privacy interest is generally considered to be less with respect to the collection of traffic data than interception of content data. Traffic data about time, duration and size of communication reveals little personal information about a person or his or her thoughts. However, a stronger privacy issue may exist in regard to data about the source or destination of a communication (e.g. the visited websites). The collection of this data may, in some situations, permit the compilation of a profile of a person’s interests, associates and social context. Accordingly, Parties should bear such considerations in mind when establishing the appropriate safeguards and legal prerequisites for undertaking such measures…”
It has become apparent during the course of this consultation that it simply is not possible to clearly separate ‘traffic’ data from ‘content’ data (i.e., data that reveals much more about an individual) in the internet context. See A Pascual’s “Access to traffic data: when reality is far more complicated than a legal definition.” What looks like mere “traffic data” to a computer layperson, for example, could be a wealth of personal information in the hands of a computer expert.
Given that internet ‘traffic data’ can be so rich in information about an person’s lifestyle, interests, views, etc., the standard for lawful access to such data should be at least as high as currently required for interception of communications or searching of records. Otherwise, the government will not be maintaining current standards of lawful access, but will in fact be expanding them.
As noted by the Privacy Commissioner of Canada, George Radwanski, “Agents of the state in Canada cannot order Canada Post to photocopy the address on every envelope we send, nor can they order bookstores to keep a record of every book we buy, let alone of every page of every magazine we leaf through. There is no reason why they should be able to exercise such powers with regard to every e-mail someone sends or every Web site he visits.”

Preservation Orders

Preservation orders do not currently exist in Canadian law. They are being proposed pursuant the Council of Europe Convention, so as to provide law enforcement with a further tool of access. A preservation order would require the service providers to store and save existing data specific to a transaction or client. The order would be temporary, remaining in effect only as long as it takes law enforcement agencies to obtain a judicial warrant to seize the data or a production order to deliver the data.
No data has been provided to justify the creation of this new order, which constitutes a limited form of data retention. Without clear justification, it should not be adopted.
While the proposed Preservation Order does not raise the same concerns as would routine, longer-term retention of data as proposed in other jurisdictions, it is a step in that direction and could become a “back door” method of obtaining judicial authorization for access, circumventing the higher thresholds that would apply for standard warrants.
We do not believe that a clear case has been made to support the introduction of data-preservation orders. No statistics have been introduced, no rationale has been offered beyond simple reference to the Council of Europe Convention on Cyber-Crime. In any case, the creation of this new type of order would clearly constitute an expansion, rather than a maintenance, of existing lawful access capabilities, and should be rejected on that basis alone.

Virus Dissemination

The Council of Europe Convention on Cyber-Crime requires signatory states to criminalize the creation, sale and possession without right of devices (e.g., computer programs) that are designed or primarily adapted for the purpose of committing offences specified in the Convention, whether or not the virus has been deployed or has caused any form of mischief.
Further, in order to ratify the Convention, new offences in relation to illegal devices (such as viruses) would have to be added. These could include importation, procurement for use, and otherwise making available an illegal device as defined in the Convention.
We generally support the prohibition against viruses, as contemplated by the government. However, we have some concerns about the application of the proposal with respect to a virus that has not been deployed and has not caused any mischief. Some software or devices, due to programming errors (commonly referred to as ‘bugs’) or poor programming technique may fall within scope of this prohibition. Care should be taken to appropriately circumscribe the definition of virus and non-deployed or contingent virus.
In addition, care must be taken not to prohibit the legitimate activities of individuals and companies that possess these devices for analytical, research, design, educational, or anti-virus purposes. Nor should a person be guilty of an offence if they have an undetected virus or other device residing on their computer without their knowledge. Any provision outlawing possession of viruses should be carefully drafted so as to ensure that innocent individuals will not be caught.

Extra-Territoriality

The consultation paper details that the Council of Europe Convention on Cyber-Crime calls for the criminalization of certain offences relating to computers, the adoption of procedural powers in order to investigate and prosecute cyber-crime, and the promotion of international cooperation through mutual legal assistance and extradition in a criminal realm that knows no borders.
We have serious concerns regarding the risk of Canadians being subject to non-Canadian laws based upon a request from another jurisdiction. Canadian law enforcement officials should only enforce Canadian laws and not assist in the enforcement of foreign laws that are substantially different.

Conclusion

The Canadian government, through the Canadian Electronic Commerce Strategy and the policy objectives of the Telecommunications Act has actively encouraged the adoption of new technologies within the Canadian marketplace. Indeed, we rank ahead of many other countries in terms of penetration and user acceptance and even cost in the internet and telecommunication sectors. These accomplishments have brought Canada well deserved praise as well as obvious economic benefit. It would seem that these same new technologies are now being used to justify a potentially invasive state surveillance regime under the guise of ‘lawful access’.
We agree that new technologies necessitate updated legislation, so as to ensure that they are not inappropriately excluded from existing provisions. However, we do not see any reason why electronic mail should be subject to a lower standard of protection than telephone calls or regular mail. We do not see why Internet browsing should be subject to a lower standard of protection than book purchasing or researching in a library. We do not see why our movements should be subject to tracking merely because we choose to use a cellular phone or other wireless device.
Canadians should not be subject to greater monitoring or scrutiny just because they choose to avail themselves of new technologies and convenience. Criminal law principles, including standards for lawful access, should be technology-neutral.
Throughout this consultation process the government has not demonstrated why the proposed measures are necessary, how they are reasonable or that there are no less-intrusive alternatives. Such evidence is required in order to meet the test set out in the Charter of Rights and Freedoms, as well as to convince civil society of the appropriateness of the proposed measures. After a review of the consultation paper and participation in the roundtable activities, we find ourselves left with more questions than answers. We cannot support the proposed new measures for lawful access in their current form given the lack of supporting data, the lack of adequate privacy safeguards inherent in them, and the significant expansion in lawful access that they would permit for one type of technology. We do not believe that the proposals, as currently constituted, meet the test set out by the Supreme Court of Canada for reasonable and demonstrably justified limits on the right to be free from state surveillance.
We therefore call upon the government to take the following steps, if it wishes to pursue this matter further:

Publish all background materials relating to the Council of Europe Convention on Cyber-Crime, including documents detailing Canada’s position, and explanatory memoranda relating to the Canadian implementation of the convention;
Provide empirical evidence and full justification for all components of the lawful access proposals;
Publish draft legislation and accompanying regulations for further consideration and feedback by stakeholders, so that we know what precisely is being proposed;
Allow sufficient time for a full, thorough and informed public consultation.

All of which is respectfully submitted,
Philippa Lawson
Senior Counsel
Public Interest Advocacy Centre

Consumer Groups Additional Comments on AT&T Petition

Mr. Alex Himelfarb
Clerk of the Privy Council and Secretary to the Cabinet
Langevin Block
80 Wellington St.
Ottawa Ontario
K1A 0A3
BY FAX AND EMAIL
Dear Sir:
Re: Canada Gazette – Notice No. DGTP-008-02
Petition to the Governor in Council from AT&T Canada under Section 12 of the Telecommunications Act in regard to the following CRTC Decision: Regulatory Framework for Second Price Cap Period, Telecom Decision CRTC 2002-34
1. The following supplementary comments are filed on behalf the of Consumers’ Association of Canada, the National Anti-Poverty Organization, and l’Union des Consommateurs (“The Consumer Groups”), a coalition of consumer groups that participated in the CRTC proceeding leading to Decision 2002-34, under the name “ARC et al”.
2. The Consumer Groups have recently been made aware of some misleading statements made by Call-Net in its submission of November 21, 2002. The Groups are submitting these comments in order to identify and correct those misleading statements, and to address the request put forward by Call-Net for a repeat of the CRTC’s price cap review. Failure to address any other allegation or argument should not be construed as acceptance of, or agreement with, that allegation or argument, where such acceptance or agreement would be contrary to the position of The Consumer Groups.

Call-Net’s request for a review of telecommunications pricing in Canada has already been fulfilled

3. Call-Net requests, among other things in its Comments, that the Governor in Council direct the CRTC:
to investigate and report on policy initiatives to reform the pricing of telecommunications services in Canada. This would include reports on the relative level of telecommunications prices in Canada versus other G-8 countries; whether existing price levels provide a sufficient return to ILECs and competitors to finance their capital projects and research and development activity; and what measures need to be taken to improve investment in telecommunications infrastructure in Canada and the ability of competitors to finance their new entry; while still providing services to Canadians at reasonable rates.
4. This is precisely what the CRTC did during the fourteen month proceeding launched by Public Notice 2001-37, Price Cap Review and related issues, which focused on the very issue of local telecommunications service pricing in Canada. Call-Net ignores the fact that, during this proceeding, ILECs and CLECs submitted voluminous evidence in an attempt to establish exactly what Call-Net is, once again, trying to establish here.
5. That evidence, which included international rate comparisons, ILEC returns, competitor returns, and effects of pricing on investment and R&D in the Canadian telecommunications industry, was the subject of extensive review and cross-examination during the proceeding.
6. Indeed, the very report on which Call-Net relies for its (incorrect) assertion that Canadian residential retail rates are significantly lower than in those in the USA, was relied upon by the ILECs and subjected to a thorough review during the proceeding. Also reviewed during the proceeding was an International Price Benchmarking Study produced for the ILECs by Teligen Ltd., as recently as May 2001. Indeed, the whole issue of international price comparisons was discussed at length and addressed in argument by several parties.
7. Also discussed at length during the proceeding were the issues of ILEC returns, CLEC returns, and investment in telecommunications generally, all in the context of setting local retail rate constraints. Extensive evidence was adduced on these issues, via submissions, interrogatories, exhibits, cross-examination, and argument – too many to catalogue here.
8. That such evidence may not have been explicitly addressed by the Commission in Decision 2002-34 does not mean that it was not considered. To the contrary, the Commission took into account all evidence adduced and all submissions made during the proceeding, in coming to its decision on appropriate rate levels.
9. In brief, Call-Net is effectively requesting that the CRTC be ordered to repeat the fourteen month proceeding it has just completed on the issue of pricing of telecommunications services in Canada. In light of the thoroughness of the CRTC’s review, this request cannot be taken seriously.

Call-Net’s argument is out-dated and patently self-serving

10. In an effort to make its local telephone business more profitable, Call-Net suggests that higher retail rates are necessary. Insofar as increases to retail rates would increase Call-Net’s profits, this is not surprising. Higher retail rates have obvious appeal for all providers in the market.
11. Any “general consensus in the industry that existing price levels are too low” merits no weight, given the industry’s self-interest in higher rates. Regulators and policy-makers must instead examine objective factors such as costs and profit levels in order to determine whether there is a problem with price levels. This is exactly what the CRTC did in the price cap review.
12. Competition in local telephony may have required higher retail rates several years ago, when local residential rates were below cost; it no longer makes sense, now that local service more than covers its costs in all but the defined “High Cost Serving Areas”, where a competitively-neutral subsidy scheme is in place. It is no coincidence that industry players argued for higher price caps and greater pricing flexibility in the price cap review proceeding not on the basis of cost, but rather on the grounds that higher retail rates would attract more investment by better rewarding shareholders, while still comparing well internationally.
13. Yet, Call-Net tries to resurrect this out-dated argument by suggesting that retail rates in Canada still do not cover costs. Except in High Cost Areas, consumer prices for local phone service in Canada are no longer “frozen below cost”. Call-Net should know better than to mislead the government in this manner.
14. In any case, Call-Net’s argument that retail rates need to rise in order to attract competition was clearly rejected by the CRTC on the basis of the evidence provided during the proceeding, including extensive evidence on the cost of providing service and rates of return to service providers in the local market.

Canadian retail rates are no longer lower than US rates

15. Astonishingly, Call-Net relies upon a discredited study for its argument that Canadian retail rates are significantly lower than rates for comparable service in the USA. Citing a 2001 Yankee Group report, Call-Net argues that typical users in selected US cities paid significantly more for local service than in selected Canadian cities. This very study was relied upon by the ILECs in the price cap review proceeding, and reviewed by other parties. Call-Net totally ignores the fundamental flaws of this study, as set out in ARC et al’s Final Argument, reproduced below:
Canadian rates are at parity with US rates for basic service, and are not out of line with rates in other OECD countries
1. In defence of their application to further raise basic local rates, The Companies argue that “local service rates in Canada are among the lowest in the world”. Specifically, they argue that Canadian rates for a typical basket of residential local telephone service are well below those in the USA and other OECD countries. In so doing, they rely on two studies, both of which were funded by them: one by Teligen comparing rates in G7 countries, and another by The Yankee Group, comparing Canadian and US rates.
2. The Companies’ capital markets witness, Mr. Richard Talbot, also relies on the Yankee Group study for his conclusion that “Canadian consumers pay lower prices for a typical usage basket of telecom services than do consumer in the U.S.”.
3. As demonstrated by Ms. Lawson in cross-examination of The Companies’ Panel #1, the Teligen study is inherently biased due to its selection of countries, and the Yankee Group study is so flawed that it is not worth the paper it is written on.
4. In fact, rates for a representative basket of local services in Canada are well within the bounds of other OECD countries: as Mr. Farmer acknowledged, Canada ranks 10th or 11th out of 29 OECD countries in terms of the price of a given basket of residential local services. The Teligen study, for no good reason, excludes most of those OECD countries with lower rates than Canada’s.
5. A close examination of the Yankee Group study shows that it is nothing more than propaganda for the company who funded it. Its flaws are numerous, centering around an arbitrary methodology. The many flaws include:

three “user profiles” which bear no relation to actual consumer usage;
an assumption of 1,000 minutes of local calling for each user profile, which is exactly twice the number of local minutes assumed by the FCC when constructing similar comparisons (and hence exaggerates the cost of metered service in the USA);
a “modest user” profile which, in respect of long distance usage, is in fact reflective of a heavy LD user based on data from Bell Canada;
a “typical” usage profile which, in respect of long distance calling, is again many times higher than that of the typical (i.e., median) Bell Canada customer;
a “heavy user” profile which is at the extreme end of heavy usage;
no amount for installation fees;
no accounting for discount “Lifeline” and “Link-up” rates in the USA (available to low income households for basic local service and installation); and
failure to adjust rates for purchasing power parity.

1. Clearly, the conclusions of this study are completely unfounded and cannot be relied upon.
2. In fact, a simple comparison of average Canadian and US rates for basic local service shows that they are virtually identical, once the OECD’s purchasing power parity adjustment is applied. As illustrated in ARC et al Exhibit #5, the average rate in Canada as of May 2001 (before increases in July 2001) was app.CDN$22.75, while the comparable US rate in 2000 was US$18.71, equivalent to CDN$22.76 using the June 2001 PPP adjustment factor of 1.25.
3. As confirmed by Dr. Taylor under cross-examination by Ms. Lawson, rates for basic local service in the USA have generally been frozen (i.e., no increases, even for inflation), over the past few years. Hence, the average US rate in 2001 is unlikely to be much different.
4. To the extent that comparative rate levels are relevant, we have therefore already achieved rate parity with the US. No longer is the Canadian economy benefiting from lower basic telephone rates than apply south of the border.
5. Furthermore, at the same time that basic telephone rates in the USA are being reduced, in real and in many cases nominal terms, ILECs in Canada are asking for increases that would bring Canadian rates to levels higher than in the USA. Such is neither necessary nor desirable.”
1. In their Reply to ARC et al’s Argument on this point, the Companies focused on the issue of Purchasing Power Parity, and did not refute other flaws in the Yankee Group study, pointed out by ARC et al. Instead, they acknowledged that if any conclusions can be drawn from these studies, it is that “telecommunications costs in Canada are fair”. Notably, the Companies did not attempt to stretch the truth in the way that Call-Net has.
2. The fact is that there is no longer any “significant” differential between Canadian and American telephone service prices, as alleged by Call-Net. Canadian local rates are no longer “remarkably low”. Indeed, Canadian prices for local phone service are now higher than in the USA in many cases, depending on location. On average, rates for local service in Canada and the USA are now comparable.
3. For Call-Net to attempt to perpetuate an out-dated myth about relative price levels is regrettable and surprising, given that the real issue raised by the AT&T Petition has to do with competitor service rates, not retail rates.

Call-Net confuses issues of long distance pricing with issues of local service pricing

4. Call-Net fails to distinguish between long distance and local service pricing in its argument that CRTC price caps are at least partially responsible for its financial woes. Decision 2002-34, the subject of the AT&T Petition, has to do only with local price levels. Call-Net’s complaints, however, have more to do with its long distance business than its local business.
5. When Call-Net states, in para.66, that it “views the pricing issue of telecommunications services as a key indicator of the unhealthy state of competitive market in Canada”, it not only has the issue backwards, it is confusing low LD pricing (and hence low profits) due to high levels of competition in that market, with price caps on local service. In fact, local service continues to be highly profitable for the ILECs.
6. Evidence adduced during the CRTC proceeding showed that ILEC rates of return on their local service businesses, during 1998-2001, ranged from 9.7% to 27.0%, healthy levels by any calculation. On the other hand, competitive service rates of return were a fraction of these utility returns.
7. If there are “structural problems” with the local telecommunications market in Canada, they clearly do not have to do with local price levels.
8. On the other hand, the long distance market is characterized by a high level of competition, which, as expected, results in low prices and low profit levels. Call-Net’s complaints, in our submission, lie more with the competitiveness of the long distance market in Canada than with the CRTC price caps on local retail rates.

Local price caps are not to blame for the woes of competitors

9. The evidence regarding ILEC rates of return is sufficient to dispose of Call-Net’s argument that the low level of pricing for local exchange services is responsible for the slow development of competition in this sector. Clearly, other factors are at work, including the highly capital-intensive nature of this industry, the economic nature of competition in some areas and/or sectors, competitor service rates, difficulties obtaining access to ILEC facilities, and other anti-competitive behaviour on the part of ILECs.
10. It is facile and short-sighted to suggest that raising local rates will solve the problems faced by competitors in this industry.

Call-Net puts the cart before the horse

11. Call-Net is explicit in its request that “pro-competitive policies must prevail over other policy objectives”. This is the heart of Call-Net’s argument: that competition should be pursued at all costs, regardless of the outcome in terms of price, quality of service, or other ultimate goals.
12. In effect, Call-Net is asking the Governor-in-Council to put investor returns ahead of consumer rates.
13. Yet, Call-Net also appreciates that competition is merely “the preferred means of achieving the socio-economic objectives in s.7 of the Telecommunications Act”. If this is the case, then clearly, the socio-economic objectives Call-Net refers to are ultimately more important that the means of achieving them.
14. Clearly, the latter approach is the one adopted by Parliament and implemented by the CRTC. Competition is a preferred means to an end, not an end in itself. As noted by the Consumer Groups in their earlier submissions:
“Competition is achieved, where it is economic, by ensuring that competitors face fair rates for the services they need from ILECs. Healthy, sustainable competition cannot be forced. It should instead be allowed to develop where economic, and at a pace that reflects the reality of this highly capital-intensive, technology-dependent industry. The public interest will not be served by premature attempts to “kickstart” competition where it cannot be sustained in the long term. Such regulatory subsidization of uneconomic competition is destined to failure at the expense of ratepayers and to the benefit of no one other than a few lucky shareholders.
ompetitors can be subsidized either through discount rates for services they buy from ILECs, or through artificially high retail rates. In the latter case, ILECs also benefit, and may indeed benefit more than CLECs due to their dominant position in the marketplace. As Dr. Taylor acknowledged, it is inappropriate to raise retail rates simply in order to create margins for competitors…”
“Inefficient competitive entry will not be sustainable. If such entry is made possible through retail price increases beyond levels necessary for fair ILEC returns, it will be very short-lived. Once ILECs lower prices to levels more in accordance with efficiently competitive markets, inefficient competitors will lose their margins and go out of business. In order to avoid such inefficiency and disruption to consumers, it is incumbent on the Commission to establish price caps at levels that reflect lowest cost provision of service.”
15. In sum, the Consumer Groups urge the Governor-in-Council to review all the evidence and arguments put before the CRTC in the price cap proceeding on the issue of local rate price levels, before accepting any of Call-Net’s submissions on this point. If this is done, it will become clear that the “investigation and report on pricing” requested by Call-Net are unnecessary.
All of which is respectfully submitted,
original signed
Philippa Lawson
Counsel for the Consumer Groups
cc: The Honourable Allan Rock, Ministry of Industry
Ms. Diane Rheaume, Secretary General, CRTC
Mr. Michael Helm, Dir. Gen., Telecom Policy Branch, Industry Canada
Chris Pierce, AT&T
Ian Scott, Call-Net
END OF DOCUMENT

Consumer Group Comments on AT&T Petition re: CRTC Price Cap Decision

Philippa Lawson
Senior Counsel
Mr. Alex Himelfarb
Clerk of the Privy Council and Secretary to the Cabinet
Langevin Block
80 Wellington St.
Ottawa Ontario
K1A 0A3
Dear Sir:
Re: Canada Gazette – Notice No. DGTP-008-02

Petition to the Governor in Council from AT&T Canada under Section 12 of the Telecommunications Act in regard to the following CRTC Decision: Regulatory Framework for Second Price Cap Period, Telecom Decision CRTC 2002-34

1. The comments below are filed on behalf the of Consumers’ Association of Canada, the National Anti-Poverty Organization, and l’Union des Consommateurs (“The Consumer Groups”), a coalition of consumer groups that participated in the CRTC proceeding leading to Decision 2002-34, under the name “ARC et al”.
2. The Consumer Groups were active participants in the proceeding that led to Decision CRTC 2002-34. They represent one of the three main stakeholder groups affected by this decision. As noted in both the Public Notice and Decision in this proceeding, the Commission attempted to balance the interests of the three main stakeholder groups: customers, competitors, and incumbent telephone companies.
3. The Consumer Groups consider that, with the exception of certain reporting requirements that the CRTC decided to lift, the Commission did a reasonable job of balancing the interests of end-users with those of service providers generally. (See below for more on the issue of reporting requirements.)
4. The AT&T Petition challenges the appropriateness of the balance struck between incumbent service providers (“ILECs”) and new competitors (“CLECs”). It does not challenge the appropriateness of the CRTC’s determinations in respect of the balance between companies and end-users. It is important to appreciate this distinction, because any remedies flowing from the AT&T Petition should be carefully constructed so as not to interfere with the appropriate balance struck between consumers and service providers.

Standard for Cabinet Review

5. In general, the Governor-in-Council should not interfere with decisions of its expert tribunals, such as the CRTC. To do so other than in cases of egregious error would undermine the ability of the tribunal to operate independently and effectively.
6. The Consumer Groups submit that the Governor-in-Council should not interfere with the CRTC’s decision in this case unless it is convinced that the goals of Canadian telecommunication policy, taken together, will otherwise be subverted. It is not clear to the Consumer Groups that this is such a case.

The Goal of “Facilities-Based Competition”

7. AT&T challenges the Commission’s interpretation of the policy goal of fostering competition in telecommunications, arguing that Decision CRTC 2001-37’s focus on “facilities-based competition” constitutes a “startling departure from the clear wording of the Telecommunications Act….”
8. AT&T’s characterization of the Commission’s approach to facilitating competition is misleading in two respects: the focus on “facilities competition” is not new: in Decision CRTC 97-8, the Decision by which the local telecom market was opened to competition, the Commission stated:
The Commission is of the view that efficient and effective competition will be best achieved through facilities-based competitive service providers; otherwise, competition will only develop at the retail level, with the ILECs retaining monopoly control of wholesale level distribution.
The Commission is of the view that resale can promote the development of a competitive market while allowing competitors time to construct their own facilities. While resale competition can help promote the development of a competitive market, it is the Commission’s view that the full benefits of competition can only be realized with facilities-based competition.”
9. Second, “facilities-based competition” as promoted by the Commission is in fact a hybrid model of competition: it explicitly permits resale and requires the provision of certain “essential” ILEC facilities at mandated cost-based rates. It does not require competitors to duplicate incumbent networks. It is based on the notion that parallel networks already exist, in the form for example of wireless and coaxial cable transmission facilities, and that competitors can take advantage of such non-ILEC facilities to create more lasting forms of competition.

AT&T’s Requests

10. At the core of AT&T’s Petition is a request for lower rates for certain competitor services. The Consumer Groups do not have the expertise necessary to take a position on the appropriate rate levels for competitor services. They do, however, take a position on the fundamental principles that should underlie the establishment of such “wholesale” rates. Such principles include:

that competitors should have access to those ILEC facilities that cannot be economically reproduced, at rates that cover ILEC cost, but that are not higher than what the ILEC effectively pays for the same service; and
that competition should not be subsidized.

11. Under no circumstances should end-users be forced to pay higher rates in order to facilitate competitor access to ILEC facilities.
12. Competition is a preferred means of achieving the policy goals set out in the Telecommunications Act. It is not an end in itself. As a recent Decima survey indicated, Canadians are not willing to pay more for local residential telephone services in order to have greater choice. Nor should they: competition is meant to bring them lower prices, not higher prices.
13. The ultimate goals of Canadian telecommunications policy involve availability, affordability, quality, and responsiveness to user needs.
14. The following excerpt from ARC et al’s Final Argument in the Price Cap proceeding sets out their position on the issue of how best to facilitate reliance on market forces in this context:

“Competition is a preferred means to an end; it is not an end in itself

15. Both ILECs and CLECs treat competition as the primary goal in this proceeding. While competition is clearly an objective of the Commission in all of its regulatory efforts, it is not so much an end in itself as the preferred means of achieving the Canadian telecommunications policy goals of affordability, quality, fairness, efficiency, and innovation, among others. From the consumer perspective, choice is desirable, but not at all costs. As the results of BCOAPO et al’s membership survey show, consumers value price over choice: greater choice is not worth higher prices to them.
16. As pointed out by Mr. Todd under cross-examination by Mr. Koch, consumers are not given a choice between competition and higher prices on one hand, and monopoly and lower prices on the other hand. Instead, higher prices are being forced on basic ratepayers in a determined effort to achieve competition, the primary benefit of which is meant to be lower prices!
MR. KOCH: Now, you would agree with me that lower prices is not the only potential benefit of competition to consumers. Correct?
MR. TODD: It’s the primary benefit, but it’s not the only benefit.
MR. KOCH: Okay. Choice and innovation are often cited as other benefits of competition?
MR. TODD: Yes. One of the interesting things is that with the move—and I have been involved in the move to competitive markets in many different industries at this point—with the move to competition, if your choice is between a bunch of different service providers at, say, a 10 per cent higher price than if you didn’t have that choice, customers no longer are able to say “Well, I would rather not have the choice and have the lower price”. So you don’t actually see how much they value that choice.
They are now choosing perhaps at the higher rates amongst competitors, and, yes, they, in a sense, benefit from that choice that they have, but we are not able to get evidence that they actually find those higher prices a fair trade-off for the greater choice.
17. Indeed, for many – possibly most – residential consumers, there may not even be a trade-off: they will continue to face higher prices for an essential service, without seeing any countervailing benefits in terms of choice. As Dr. Taylor stated:
It’s an experiment. We don’t know what the true scope for competition is going to be.
18. Consumers of an essential service should not be forced to underwrite a costly experiment that has no guarantee of success.

Regulation should recognize the reality of competition in local telecommunications

19. The record of this proceeding could not be clearer that effective competition in residential local telephony is a long way off, and will likely never come to pass in some parts of the market. The spate of CLEC failures over the past several months, the inability of any CLEC yet to make a profitable business case, and the fact that only one party in this proceeding is offering local service to residential customers, despite the predictions of ILECs just four years ago, speaks loudly and clearly to this issue.
20. The Commission must not be seduced by unrealistic predictions of competition over the next price cap period. Instead, it should establish a regulatory regime that is based solidly in reality – the reality so eloquently described by TELUS in a recent submission to the CRTC regarding local “winback” rules. In that submission, TELUS emphasizes:

”…..the stubborn economic facts of competition in a network industry (significant capital expenditures, ongoing need for funding, long investment recovery periods, the inevitable failure of some market participants)….”

and states:
“Facilities-based competition in telecommunications is, by its very nature, slow, expensive and risky.”
“The practical and financial challenges posed by infrastructure development appear, in magnified form, in the Canadian context. The difficult task of constructing transportation and communications infrastructure in vast and sparsely populated country is a recurrent theme in Canadian historiography….”
21. Within this context, competition in local telephony should be allowed to develop at its own pace, at rate levels that are constrained as necessary to meet public policy objectives.
22. Experience to date suggests that predictions of future competition have been grossly overstated. The pace and extent of competitive entry in telecommunications over the next 4-5 years is simply not known, regardless of the extent to which accommodative entry policies are put in place.
23. In view of this uncertainty, the Commission should avoid premising its regulatory plan on any particular view of how competition will develop. Instead, it should simply focus on its primary task: protecting ratepayers from monopolistic pricing in a manner that permits ILECs to earn a fair return and that does not impede the natural development of competition.

Competition should not be subsidized

24. Competition is achieved, where it is economic, by ensuring that competitors face fair rates for the services they need from ILECs. Healthy, sustainable competition cannot be forced. It should instead be allowed to develop where economic, and at a pace that reflects the reality of this highly capital-intensive, technology-dependent industry. The public interest will not be served by premature attempts to “kickstart” competition where it cannot be sustained in the long term. Such regulatory subsidization of uneconomic competition is destined to failure at the expense of ratepayers and to the benefit of no one other than a few lucky shareholders.
25. Competitors can be subsidized either through discount rates for services they buy from ILECs, or through artificially high retail rates. In the latter case, ILECs also benefit, and may indeed benefit more than CLECs due to their dominant position in the marketplace. As Dr. Taylor acknowledged, it is inappropriate to raise retail rates simply in order to create margins for competitors:
MS LAWSON: Right. Now, if it turns out, though—and I ask you to make this assumption—if a competitor’s costs are significantly higher than the incumbent’s costs, should retail rates be increased to a level that provides the competitor with an attractive margin, regardless of the incumbent’s costs and margins?
DR. TAYLOR: Not in my view.
MS LAWSON: No. Because that would amount to subsidization of inefficient competitive entry. Correct?
DR. TAYLOR: Yes, which would, in the end, be bad for consumers.
26. Inefficient competitive entry will not be sustainable. If such entry is made possible through retail price increases beyond levels necessary for fair ILEC returns, it will be very short-lived. Once ILECs lower prices to levels more in accordance with efficiently competitive markets, inefficient competitors will lose their margins and go out of business. In order to avoid such inefficiency and disruption to consumers, it is incumbent on the Commission to establish price caps at levels that reflect lowest cost provision of service.”
END OF QUOTE

How to ensure that the balance between end-users and service providers is not jeopardized

27. As noted above, the Consumer Groups believe that Decision CRTC 2002-34 reflects a reasonable balance between service providers and ratepayers, and should not be interfered with in that respect. The Consumer Groups, however, do no take a position on whether the balance between ILECs and CLECs needs to be adjusted (via competitor service rates), all else equal.
28. Should the Governor-in-Council decide that some adjustment or reconsideration of competitor service rates is appropriate, it is essential that any such adjustment or reconsideration be made without affecting retail rate caps and ratepayer entitlements under the Decision.
29. In particular, any negative financial impacts on ILECs as a result of reduced rates for competitor services should be borne by ILEC shareholders; ILECs should not be “made whole” through increases to the price cap or by monies that would otherwise go to reduce retail rates (e.g., via the deferral account).

ILEC Reporting Requirements

30. In its Petition, AT&T addresses the need to ensure fair and appropriate costing methods, given the reliance on ILEC-reported costs. The Consumer Groups agree, and submit that he CRTC should use all the tools at its disposal to monitor and assess, on an ongoing basis, the reasonableness of the balance that Decision 2001-37 strikes between the three main stakeholder groups. One of the key measures of whether the balance is fair, is ILEC earnings on their regulated Utility businesses.
31. If ILEC Utility earnings are extremely low across the board, it can be expected that the ILECs will request adjustments to the regime at the time of the scheduled review (if not earlier), noting their inability across-the-board to earn a fair return on their Utility segments under the regime. If, on the other hand, ILEC Utility earnings are well above market averages, no one will know. This is because the Commission determined, in para.994 of the Decision, that “there is no longer a need for Phase III/SRB inputs on a going-forward basis”. ILEC Utility earnings are reported as part of the “Phase III/SRB inputs”.
32. The Commission does state, in para.995, that “ILEC financial results will need to be available for the purpose of the review of the next regime. Sufficient information must be reported to allow the Commission the gauge the financial state of the ILECs in order to ensure that the objective of the price cap regime are being met.”
33. It is not clear from the Decision whether the Commission will review ILEC Utility earnings as part of the “ILEC financial results” referred to in this paragraph. If so, it is unclear why the Commission would eliminate the ongoing reporting of these particular financial results. If not, the Consumer Groups submit that an important monitoring and assessment tool has been unnecessarily and inappropriately discarded.
34. Dispensing with ILEC Utility segment financial reports is, furthermore, inconsistent with Order-in-Council P.C. 2000-1053, in which the CRTC was ordered to monitor and report on the state of competition in Canadian telecommunications markets. Such reports, over a period of time, provide an important indication of how well the price cap regime has balanced the competing interests of various stakeholders.

Conclusion

35. In conclusion, the Consumer Groups submit that:

the Governor-in-Council should not interfere with the CRTC’s Decision at least in respect of the balance it strikes between service provide and end-user interests;
“facilities-based competition” as promoted by the CRTC is neither new nor exclusive of other forms of competition;
competition is a preferred means to an end, not an end in and of itself;
competition should not be subsidized;
any adjustment of competitor service rates should be done in a manner that does not interfere with end-user entitlements under the current regime; and
the CRTC should not be dispensing with reporting requirements that assist it in its role of monitoring and assessing the state of competition in this industry.

All of which is respectfully submitted,
Philippa Lawson
Counsel for the Consumer Groups
cc: The Honourable Allan Rock, Ministry of Industry
Ms. Diane Rheaume, Secretary General, CRTC
Mr. Michael Helm, Dir. Gen., Telecom Policy Branch, Industry Canada
Chris Pierce, AT&T
Bernard Courtois, Bell Canada