Can the Competitive Model of Telecommunications Deliver the Goods?

By Michael Janigan (Speech to Pacific Telecommunications Council)
Pacific Telecommunications Council ’99

Introduction

By now, few of us have not been exposed to the visionary rhetoric that has accompanied the dawning of the so-called information age. Fortunately there is no amount of cynicism engendered by the hype surrounding the Information Highway that can fully extinguish the sense of awe that most of us have when we contemplate the potential of the new communications technologies. On a worldwide basis, these technologies are establishing an infrastructure that is transforming the way we do business and, to a large extent, the way we live.
For public interest advocates, the allure of these technologies has not been their ability to change a resource based economy to an information based economy, a change largely effected by the marriage of the computer and communications technologies. The attraction is rather that these technologies offer an opportunity to deliver societally important public goods and services in dramatically more effective ways, both domestically and internationally. These new methods of delivery connote an opportunity to better everyone’s lot.
But as we all know, the delivery of these new goods and services does not take place in a governmental or regulatory vacuum. First of all, the technological advances themselves have served to rebut the notion of the telephone system as a natural monopoly. Developments in digitization, transmission and traffic switching technology enabled new entrants to challenge incumbent hegemony in telecommunications services.
However, the advent of the digital age has also served to focus industry dissatisfaction on the alleged shortcomings of the traditional methods of communications regulation. It is particularly interesting how the potential application of the new technologies has been used a lever to advocate for dramatic changes in the regulatory environment. Despite the fact that reliance on market forces is largely at odds with the broad based social goals promised by the new technologies, there has been a consistent clamour, particularly from the former incumbent monopolists, to be released from the chains of regulatory oversight.
It would be hyperbolic to claim that the regulatory models currently evolving are solely the result of the aggressive posturing of telecommunications players to the effect that fantastic new developments cannot be achieved under existing regulation. However, it is important to note that the promise of seductive new technologies and new services on the horizon has been successfully married by industry spokespersons with the plea to be set free from regulatory “bondage.”
The question that policymakers and public interest advocates must confront is whether the competitive model of communications oversight currently espoused will be capable of delivering the goods in the form of universal affordable access to those communications technologies and services that are recognized as socially useful and necessary. It is first perhaps necessary to look at the essential components of the conceptual competitive model. The talking points of this model will certainly vary by jurisdiction. For the purpose of this paper, its development is primarily predicated on the Canadian experience. However, even given its country specific limitation, the description of this model will be admittedly general and broad brush. In fairness, it is likely that no industry actor ever finds its position itself entirely within the construct of this model as elaborated herein. However, the description of the model does serve a focus the discussion as to whether the full implementation of the model would broaden or narrow access to the services enabled by the new technologies.

The essential features of this model are:

1. Internal subsidies to enable network access are sought to be eliminated.
2. Individual components of network access are, to the greatest extent possible, unbundled and repriced.
3. Consumer choice and individualized programs of service are a network priority.
4. Market forces are sufficient to ensure service quality.
5. Universal public access is a public goal to be ensured with public monies.
6. Telecommunications objectives are best achieved through competitive means.
7. Consumer protection is best achieved through competition or anti-trust policy rather than regulatory oversight.
1. Internal subsidies to enable network access are sought to be eliminated.
I do not intend to revisit the debate of the last two decades concerning who should pay the costs of network access. The impact, however, of the migration of greater costs in telephony to local basic service has had two principal effects:
I) savings, particularly for high volume customers of competitive services such as long distance
ii) a substantial escalation of the basic costs to get on the network.
For competitive model adherents, this reallocation of costs reflects simple market realities and allocates costs to telecommunications services using the network in a market-based fashion.
To consumer and public interest advocates, the costing results are decidedly subjective, geared more to ensure competitive entry by service providers than allocative efficiency and value. (One wag has termed the process the evolution from cost based pricing to price based costing).
Whatever the merits of the different applications at this principle, it is undeniable that its impacts is most heavily felt by those with the least ability to pay. Access to advanced applications of communications technologies may be a moot point if a subscriber has already dropped off the network. On the other hand, a rebalancing of network costs may make start-up and delivery of new applications on the network more cost effective.
2. Individual components of network access are, to the greatest extent possible, unbundled and repriced.
In a competitive telecommunications universe, there is a perpetual squeeze between the desire for a return on investment and the fulfilment of the important telecommunications objective of maintaining basic universal service. In Canada, consumer and public advocates have seen a wholescale attack in telephony on the collaterally important functions of the telephone system that were either formerly or realistically part of a package of basic services. Network functions such as local information services, long distance information services, repairs to subscriber lines and touchtone service are classified as services additional to local basic service for which the telcos assess an additional fee. Other U.S. jurisdictions have allowed the introduction of local measured service. The erosion of the content of basic network service that ensures functional access to the communications network and full participation in the community of interests served by the local network presents a substantial irritant, if not a road block to establishing or maintaining universal accessibility.
3. Consumer choice and individualized programs of service are a network priority.
The discipline of competition has meant a quicker and better response by industry participants to those customers whose consumption of services represent a significant market share to be obtained or retained. As well, new providers of communication services have been able to enter and provide services to emerging markets particularly through the use of wireless technologies where traditional networks could not have been implemented. The presence of competing players in the communications market does present possibilities for expanding access to consumers whose needs cannot be met in the traditional monopoly environment.
4. Market forces are sufficient to ensure service quality.
While competition has produced increased efficiencies and choice for consumers in desirable markets, it has also had the effect of inducing ambivalence by network providers concerning markets whose economies of scale or scope, or net revenue, make them unattractive for industry participants. This is particularly been evident in US jurisdictions where the local network provider has in many instances virtually abandoned its responsibility to provide local service and failed to address service quality problems in a suitable fashion.
In Canada, the CRTC has been non compliant with requests from local service providers that they be exempted from accountability on quality of service matters, and resistant to the claim that market forces can provide incentives to ensure that quality of service is maintained. The CRTC, as the national telecommunications regulatory body, has insisted upon the maintenance of appropriate quality standards in that “market forces are not sufficient incentives to ensure that quality of service with respect to essential utility segment services and bottleneck facilities does not deteriorate…”(1)
The experience to date in Canada and the United States, arising in jurisdictions where regulation has not been completely ceded to market forces, represents a significant counsel of caution to those who would advocate an abandonment of the maintenance through regulatory authority of quality of service network standards as a result of the introduction of competition.
5. Universal public access is a public goal to be ensured with public monies.
While there is agreement by government, industry and consumers that the telecommunications networks of the present and future represent a substantial national and public interest, there is an ever widening divergence of views between industry and public interest advocates as to the responsibility for ensuring network access. While the industry players continue to publicly highlight the importance of the applications of new communications technologies as the lifeblood of future economic development, the responsibility to ensure delivery of access to all elements of society is looked upon by industry as a non-network cost.
In Canada, we appear to be committed to access as an objective, yet we are indefinite as to how access will be achieved in the current environment without government subsidy. Clearly the most successful efforts to promote access, to new technologies outside of industry pilot studies have involved direct federal funding.
The Canadian government’s Information Highway Advisory Council recognized the critical necessity for developing access to the Internet and ensuring equitable participation in a knowledge society. It’s September 1997 report contained far-reaching recommendations to enable such participation. Through the Community Access Program, the federal government is committed to the goal of connecting up to 5,000 communities across Canada by 2001 through the establishment of public access sites in low cost public locations. The SchoolNet program is a collaborative effort sponsored by federal, provincial, and territorial governments and takes in about half of Canada’s 16,500 schools with hundreds of on line services.
While the government has been forthright in its desire to put money into range of partnerships to expand access to new telecommunications services, the traditional industry players have resiled from their longstanding notion of stewardship over network access to a position of “show me the money”.
In a current CRTC proceeding examining service to high cost serving areas in Canada, the submission by the Stentor Resources Centre Inc., the alliance of Canada’s local telephone companies, contains the following statements:
“Stentor believes the following principles should apply in achieving the objectives of this proceeding:
First, market forces should be relied on to achieve public policy goals whenever possible. Second in cases where it is determined that market forces are insufficient to achieve public policy goals relating to accessibility, then governments should accomplish such goals directly through spending and tax measures.”
I do not quote from this document to illustrate that Stentor is callous or indifferent to the needs of Canadian society. It is rather that some of the goals associated with the implementation of a competitive model of telecommunications are difficult to reconcile with the notion of expanding access by consumers in undesirable markets. As a matter of policy, you are unlikely to accomplish access goals simply by reliance upon market forces, notwithstanding the promise associated with some of the new technologies.
In Canada, it is also interesting to note that the ongoing debate concerning the achievement of other important national communications goals is taking on the same characteristics as the struggle to ensure public access. The touchstone of Canadian communications and broadcasting policies for more than half a century has been the maintenance of Canadian content in creation and distribution. However, a verity of equal importance in the regulatory arena, has been the continual, and occasionally successful, whining from the non-governmental providers of broadcasting services that the content restrictions constitute an unacceptable straightjacket on their ability to earn an acceptable rate of return.
As I write this paper, the news media is covering a squabble between the two main private networks concerning Canadian content programming. One network is accusing the other of profiting by maintaining smaller Canadian content quotas. Predictably, the response from the network accused of such delinquency is “if you are going to regulate free enterprise in the private sector, you’ve got to give them some room to do well”(2).
In Canada, the traditional telecommunications players have increasingly focused on the prospect of providing services that would be traditionally looked upon as broadcasting through their own networks. These services have been principally enabled by new developments in Internet streaming audio-video technology. However, similar to the industry attempts to winnow down the statutory responsibilities of ensuring public access in local telephony networks, the framework of Canadian broadcasting policy emphasising maintenance of Canadian content is under increasing attack from the high powered aspiring new entrants.
In a remarkable discussion paper issued by Stentor in March of 1998, there is an attempt to revisit all of the largely successful themes that have been played in the telecommunications market.(3)
First of all, the promise of flourishing Canadian industry created by the new technologies and the intersection of telecommunications and computing in the creative content industries is provocatively dangled before government policymakers. However, after whetting the appetite with the carrot of the economic promise of the brave new media world, the stick is applied when it is stated that investment in new media services requires minimal regulatory intervention to expedite new entry and to limit the application of longstanding licensing requirements.
To assist in the bulldozing of the current regulatory framework, the viewing preferences of Canadians are attempted to be enllisted.
“Changes in consumer behaviour and technology will demand a economic framework aimed at promoting rather than protecting and encouraging access rather than relying on barriers as the means to success”(4)
In any event, the discussion paper predictably that government funding and tax incentives should be used to assist Canadian content creators for new media services and certainly no further financial demands should be put upon the providers of new services.
When all else fails, the admonition of potential impotence is given to government policymakers.
“A number of changes in the market – in consumer attitudes and technology and international agreements are raising questions with respect to our ability to maintain such restrictive (ie Canadian content approaches), all be it for a public policy purpose that continues to be important to Canadians.”(5)
Now one can scarcely expect that traditional telecommunications companies, about to embark upon new ventures will embrace schemes of national regulation which may prove burdensome to their bottom line. But it is important to note, it is implicit in their approach that the creation of a competitive framework which may enable the new technologies to deliver services does not guarantee the achievement of national goals such as Canadian content and public access particularly without public finance. In fact it may create an aggressive lobby for the alteration of the national public goals.
6. Telecommunications objectives are best achieved through competitive means.
Most governments are now of the belief that market forces represent the preferable way of achieving telecommunications goals.
For example, in Canada, the 1993 Telecommunications Act explicitly instructs the national regulator, the CRTC, to forebear from regulation where a service or class of services is or will be subject to competition sufficient to protect the interest of users.(6) In addition, the Act recognizes as an objective
“To foster increased reliance on market forces for the provision of telecommunication services and to ensure that regulation where required, is efficient and effective”(7)
The current framework of Canadian communications governance has evolved from a series of decisions that permitted entry into the local market by striving to ensure that the right economic and technical conditions existed for open access. A price cap regime has subsequently put in place governing local network services until competition is established. Finally the CRTC has recently forborne from regulating long distance services offered by the former monopoly telcos.
While the introduction of competition as a principal tool of industry governance is not controversial, its establishment as the only tool certainly is. The former incumbent monopolists are anxious to hasten the transition to what is termed “a fully competitive communications market”. A recent study by the Stentor companies concluded:
“Regulation in a fully competitive communications market will be considerably different. The market failures which required industry specific economic and technical regulation will no longer be present as new players compete aggressively for customers.”(8)
In Canada, Stentor’s enthusiasm for unrestricted competition does not have industry-wide enthusiasm. A wireless competitor notes:
“As competition is introduced into markets still dominated by telephone companies whose actions and positions have been influenced by the regulated past, it is important to evaluate carefully then correct for the ways in which these markets are distorted by the lingering effects of the past.”(9)
As well, the claims of some that allowance of market entry has obliterated the vestiges of monopoly power, has attracted the expressed disbelief, attention of industrial economists. As a recent study notes:
“The hope that monopoly and dominance will quickly disappear are contrary to industrial experience. …New entry is actually a complicated process; it is rarely a strong force in mainstream markets that is able to discipline incumbent dominant firms.” (10)
The efforts of the Regional Bell Operating Companies to enter the long distance market following passage of the 1996 Telecommunications Act in the United States has also spurred renewed interest in the examination of whether workable competition in the local market actually exists notwithstanding the regulatory seal of approval. In a petition filed by the American Association of Retired Persons, the Competition Policy Institute and four other state based public advocates, the FCC was requested to ensure that consumers have a realistic choice of alternative local telephone companies before any assumptions were made concerning competitive entry into the local markets.
The significance of the lingering effects of monopoly in a deregulated environment are devastating for the constituencies that formerly relied upon regulation as their consumer protection. Without sufficient market power to ensure the best value for the best price, vulnerable consumers will struggle to maintain their current access to networks, let alone expanded levels of services and technologies.
7. Consumer protection is best achieved through competition or anti-trust policy rather than regulatory oversight.
In many utility markets, there has been a marked tendency on the part of the former incumbent monopolist to embrace the concept of oversight only by anti-trust or competition policy authorities. This idea is trenchant, as it appears to logically coincide with the use of competition as a principle tool of protection.
It is undeniable that competition law and policy has a significant place in maintaining the level playing field upon which all industries including the communication industry must play.
“The anti-trust laws…are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free enterprise system as the Bill of Rights is to the protection of our fundamental freedoms”(11)
However, there are significant differences between the approach of a tribunal implementing competition policy and those that are concerned with the responsible delivery of telecommunication services in the public interest. Some of the difficulties inherent in the proposal to substitute competition policy for regulatory oversight include the following:
1. Enforcement of anti-competitive statutory prohibitions tend to be isolated episodes of intervention rather than maintenance of a particular industry end state (hence its attraction for a dominant industry player). In competition or anti-trust policy, the goal is to intervene, fix the problem, and exit. This works well when there is a particular instance of preferential pricing or restrictions to deal. Its application is more problematic where a pattern of industry behaviour has created market conditions which stifle competition in important market segments. Such problems may call for timely and repeated intervention and monitoring – a function which is not always compatible with the mandate of the competition or anti-trust authorities.
2. The economic underpinnings of competition policy are not universal static equations which are easy to apply, particularly with respect to the concept of market power. In Canada, our Competition Bureau has been far more successful in rooting out competitive injurious conduct brought about by the conduct of multiple firms rather than the problems of market dominance by a single firm. This is largely because remedial action associated with market dominance questions in competition or anti-trust law involves the removal of market entry barriers. In large part, the theory of contestable markets holds sway in relation to the solution of barrier removal as a principal remedy. The theory is that if it is easy for firms to enter the industry then the firms already engaged in the industry will be unable to raise prices above the competitive levels lest such entry occur and the increased industry output will cause prices to fall. However, as critics have noted that empirical evidence for this is weak(12).
For national telecommunications regulators, the rather abstruse debate among economists concerning different methods to affect price must be more than a matter of philosophy. The migration from regulation to competition requires workable competition in order to protect consumers in the delivery of essential services. It is important that a regulator entrusted with public goals has the ability to monitor and implement regulatory process to effect publicly desirable results when market failure occurs.
3. National goals do not fit neatly into competitive policy analysis. It is all well and good to theorize on a basis of competition economics that prices will eventually fall to enable network access. The real question lies whether there is a higher societal cost associated with the denial of access while we are waiting for competition policy doctrine to do its stuff. One commentator has objected to reliance upon competition law to regulate telecommunications policy as follows:
“Competition law is a blunt instrument, mainly designed for manufactured goods, such as toothpaste, cameras and gasoline, where many companies compete. To the contrary, communications is a public utility, an essential infrastructure, where a range of economic, social cultural and political objectives must be satisfied.”(13)

Conclusions

I do not intend that the message of this paper to be that the increasing reliance upon market forces to deliver new communications technologies is a mistaken policy. The difficulty is that, there is considerable, and sometimes intentionally, generated confusion about what a competitive model of telecommunications governance can deliver and what it can’t. While the new technologies, particularly in wireless fields, hold the potential of being able to engender enormous cost efficiencies in the maintenance of universal networks, competitive providers will implement these technologies to maximize returns without the presence of protections to ensure public access and other desirable national goals.
In Canada, we have been able to effect significant inroads in broadening access to new technologies by negotiating with providers of new wireless technologies to “set aside” for public lanes in which access by non-commercial providers of communications content are assured. This strategy represents a symbiotic confluence of competition policy and the national goals of access which cannot be replaced by a simplistic call to obliterate telecommunications regulators.
As well, critical governmental choices loom on the horizon as the principal providers of telecommunications services evolve from their heretofore paternalistic roles as the monopoly trustees of the national interest, to market participants with a steadfast devotion to shareholder expectations. The current policy solution that seems to be provided by these transformed companies, is that any vestige of their former public interest role should be provided and funded by national governments.
However, most governments find themselves in a position where there is fierce competition for their scarce resources. Before wholly embracing the chief tenets of the competitive model elaborated above, we would suggest that government policymakers may wish to ensure that there is a regulatory framework in place that can satisfy public goals without the necessity for extensive public subsidization.
1. Telecom Decision CRTC 97-16 para.37
2. Globe and Mail, August 6, 1998
3. New Consumers, New Technologies and New Media: An Opportunity for Canada SRCI., March 1998
4. New Consumers New Technologies and New Media an Opportunity for Canada, page 8, March 1998
5. Ibid at p. 22
6. Section 34(2) Telecommunications Act S.C. 1993 chapter 38
7. Sect 7 (f) Telecommunications Act
8. Competition and Regulation in the Canadian Communications Market Stentor Telcom Policy Inc. 1998
9. From Monopoly to Mediation New Roles for the Regulator In Competitive Communications Markets, Dean Proctor, Microcell Communications, Toronto, April 13, 1998
10. Deregulation From Monopoly Only to Dominance Telecommunications Railroads and Electricity, William G. Sheppard, NRRI Quarterly Bulletin, Summer 1996
11. United States v Topco Associates Inc. 405 U.S. 596 610 (1972)
12. Determining When Competition Is Workable, David Chesler, PHD, National Regulatory Research Institute, July, 1996
13. Communications Regulatory Agencies for Canadians, page 6, Andrew Reddick, (PIAC), 1998

Newsletter- December 1998 Vol.5 No.2

IN THIS ISSUE
Banking Mergers: Consumers Safe From Mergers For Now But Continued Vigilance Needed!
New PIAC Study Calls for Federal Funding, Better Co-ordination for Public Access to the Internet.
Benefits of long distance competition in question.
Tips to Save Money on Long Distance!
Tips for Shopping On-Line!

Banking Mergers: Consumers Safe From Mergers For Now But Continued Vigilance Needed!

Consumers could breathe a collective sigh of relief when the Finance Minister recently announced that the two bank mergers would not be allowed. We were pleasantly surprised that both the Competition Bureau and the Office of the Superintendent of Financial Institutions issued reports warning that increased concentration in the banking sector would certainly harm consumers. This stands in contrast to the situation a year ago when we published our report on consumer issues and banking; then our concerns about the level of concentration and weakness in competition in the banking market were met with incredulity. One of the benefits of this bank merger controversy is that it will be difficult to brush concerns about concentration in banking under the carpet in the future.
But what have consumers really gained? On the ground, we are stuck with the same old big banks and weak consumer protection measures. Major outstanding consumer issues in the banking sector are numerous, including: information disclosure, fair selling practices, comprehensible contracts, use of personal information, access to basic services for all, responsibility in cases of fraud, the need for independent advice for consumers and scrutiny of the costs of banking services.
However, there are indications that the upcoming overhaul of the financial services legislation offers some promise for consumers. The independent task force appointed by the federal government to study financial services sector reform made wide-ranging recommendations to increase consumer protection measures and empower consumers. Following the task force’s lead, the Finance Minister has taken on the mantle of “Public Interest Paul” (so-called by the Globe and Mail because he used the phrase “public interest” so often in his announcement about the bank mergers).
It is hard to say if this newly incarnated Public Interest Paul will come through for Canadians with substantial consumer protection measures. He will be confronting an industry ferociously opposed to consumer protection, and angry over the merger rejection. Once the mergers are out of the public eye, it will be tempting for the government to water down the reform package so as to achieve peace with the powerful banking industry.
Active vigilance is needed. This is where PIAC comes in; we will continue to promote consumers’ interest in the banking sector. We have some success with advisory bodies such as the independent task force, and the House of Commons Committee on Finance. But unfortunately, we have had less success where it really counts – with the decision-makers. While the Minister’s officials have not been completely unfriendly (we have seen photocopies of our reports floating around the Department of Finance), the doors are mostly closed to consumer representatives and the public. Until the doors open more than a crack, we can not be sure that there will be any progress at all in consumer protection in banking.

New PIAC Study Calls for Federal Funding, Better Co-ordination for Public Access to the Internet

Over the past two years, PIAC has been working in partnership with a number of other public interest and consumer organizations to develop models for sustainable community-based non-profit organizations which would provide affordable access to the Internet and, develop public content services, such as community, health, government, job and employment training, and education information. During the same period, PIAC has also been working closely with Industry Canada’s Community Access Program and the federal department Human Resources Development (HRDC), to help design access and content programs for the Internet which meet the everyday communication needs of Canadians. Much of this work, as well as other research undertaken by PIAC has now been incorporated into a new study which analyzes the public’s Internet needs and the successful models of development and funding necessary to ensure that Canadian’s everyday communication needs are included as an important component of Canada’s Information Highway. The report entitled Community Networking and Access Initiatives in Canada will be available from PIAC by mid January.
Recent research undertaken by PIAC in partnership with Ekos Research Associates found that three in ten households currently access the Internet from home. The majority of those who do not have access either have no interest or need for this service, or can’t afford it. In the past, PIAC has maintained in its arguments to government and the CRTC that new services such as the Internet should be optional services for Canadians and forced on them. Moreover, we also argued that those who actually used the new services should pay for. However, while the Internet is still not an essential communication service like local telephone, this is likely to change over the next few years as both government and companies increasingly only make information and services available on the Internet.
The report found that a large number of Canadians, particularly those in the lower income brackets, will be not be able to afford Internet and other new digital services. Research also showed that there is a widening gulf between a class of information ‘haves’ and ‘have-nots’. The report therefore concluded that until the Internet is affordable for all Canadians from the home, community-based access initiatives, such as Industry Canada’s Community Access Program and HRDC’s Community Learning Network program, among others, are vital to ensure that all Canadians have some level of access in the near term, and that for the longer term, a diverse and substantive set of information resources relating to the public’s community, education, health and related needs are also developed and made widely available on a not-for-profit basis. Among a number of recommendations intended to help government and public organizations achieve these goals, the report identifies a need for the federal government to provide at least 50 per cent of the required operating costs of not-for-profit community access organizations in order that they are able to continue providing on an ongoing basis.
The report will be available from PIAC in January 1999.

Benefits of Long Distance Competition in Question

Once the dust has settled from the recent price war in long distance service, will long distance savings be available to many more consumers than before? A recent PIAC study suggests that the answer might be “No”. In a market in transition from monopoly to competition, such as long distance, consumers have trouble benefitting from the discounts offered. The study points to low levels of consumer knowledge, aggravated by complexity and lack of comparability of long distance pricing, as key factors in the wide-spread consumer inertia found in the residential market.
When it comes to savings on long distance, residential consumers have been the poor cousins of big business users. Big-business long distance rates have plummeted between 1992 and 1996. In contrast, the study shows that many residential consumers, as much as half the population in some regions of the country, were still paying the same high rates in 1996 as they were in 1992. Less than a quarter of Canadians have reaped the full price benefits of competition by subscribing to an alternative service provider. If basic local service is taken into account, the situation is even worse, since most Canadians’ phone bills have actually gone up since long distance competition started.
This study serves as an important reminder that the transition to competition in the long distance market is not yet complete. The market is still dominated by the former monopolies, and exhibits some serious market flaws, such as consumer inertia and market segmentation. PIAC is calling upon the CRTC, and the Ministers of Industry and Heritage to take measures to ensure that residential consumer benefit more over the next five years of long distance competition than they did over the last five years. Public information programs, and better tracking of market indicators, are among the measures that PIAC is advocating.
Still A Long Distance To Go: Residential Consumers and the Transition to Competition in the Long Distance Market is available from PIAC (cost $20). To order a copy by phone, call (613) 562-4002 ext. 60.

Tips to Save Money on Long Distance!

If you are with your regional telephone company, you probably have to subscribe in order to get any discount plan at all. Many of the new discount plans will save you money even if you do not use much long distance. It is worth checking what the telephone company is offering. Also, check out the competitors; they generally try to underprice the regional telephone companies.
If you subscribe to one of the plans that offers calling unlimited calling for $20 per month, remember that the plan may only apply to evenings and weekends, which means that calls on weekdays will be an extra charge on top of the $20. Also, remember to check your old bills, to make sure the $20 flat rate actually saves you money compared to what you used to spend!
If you subscribe to one of the plans that offers 10 cents per minute (some of these are combined with the $20 flat rate plans), remember that the 10 cent rate may not offer you an advantage over other discount plans if you make a lot of short-haul calls.
The bottom line is that saving money in long distance takes some effort. Keep your eye on your long distance bill, and if it has not gone down in the past 6 months, consider trying a new discount plan.

Tips for Shopping On-Line!

Shopping on the Internet can be convenient and satisfying. But the risks are greater than with regular commerce, since anyone can establish a fancy-looking web site. You need to be sure that you are dealing with a reputable merchant who will honour the contract of sale. Here are some questions to ask if you are considering an Internet purchase:
Does the merchant tell you enough about who they are, where they are located, and how to contact them?
Is there enough information about the products or services to account for the fact that you cannot inspect the merchandise or talk to the merchant in person?
Does the merchant have a process in place which allows you to confirm, prior to payment, all aspects of your agreement to purchase, including the full price, terms and conditions, method of payment and delivery arrangements?
Can you obtain a printed record of the terms and conditions of sale at the time of purchase?
Does the merchant ask for your consent prior to collection, using or disclosing your personal information?
Does the merchant have a satisfactory policy regarding its treatment of your personal information?
Is the online payment system at the merchant’s web site secure? Can anyone, other than intended parties have access to your credit card number or other financial information?
Is there an easy and clear procedure for addressing any complaints or problems?

A Consumer Advocate’s View of the Experience with Telecommunications

CANADIAN BAR ASSOCIATION CONFERENCE ON
CURRENT DEVELOPMENTS IN ADMINISTRATIVE AND EMPLOYMENT LAW
November 13 & 14, 1998
PROCEDURAL FAIRNESS AND DEREGULATION: A CONSUMER ADVOCATE’S VIEW OF THE EXPERIENCE WITH TELECOMMUNICATIONS

INTRODUCTION

The Canadian telecommunications industry has undergone dramatic changes during the last decade – changes in technology, market structure and regulatory regime. The CRTC has opened virtually all markets (local and long distance) to competition, has forborne from regulating companies where sufficient competition exists (e.g., long distance, terminal sets), and has completely revamped the regulatory regime applicable to those companies now facing the prospect of local competition.
No longer do the traditional methods of regulating a public utility apply. Rate base, rate of return regulation has been replaced in all but exceptional cases with a combination of forbearance (reliance on market forces), regulatory back-stops, and price cap regulation. Oral public hearings, which used to be a standard element of public utility regulation, have become rare – indeed, almost non-existent. Formal proceedings are now conducted in writing, with increasing reliance on the Internet to exchange and publish information. Many more issues are handled through informal proceedings and working groups, as the Commission attempts a more cooperative approach to decision-making.
Yet, basic telephone service remains an essential service for Canadians. Indeed, together with newer telecommunications services such as Internet, phone service is becoming increasingly essential. Consumer and public interest groups are more interested than ever in telecommunications policy and regulation.
The following comments address the recent evolution of procedures used by the CRTC in its regulation of telecommunications where the ratepayer interest is involved.(1)

PROCEDURAL FAIRNESS IN THE CONTEXT OF DEREGULATION

It is now well-established that the principles of natural justice and fairness apply to public bodies making non-legislative decisions which affect the rights, privileges or interests of an individual.(2) While the content of these principles will vary depending on the nature of the decision, the type of administrative body, and the effect of the decision on the individual’s rights,(3) they can be summarized as:
1. The requirement to provide affected individuals with an adequate opportunity to be heard before a decision is made affecting their interests; and
2. The requirement for independence and impartiality on the part of the decision maker.
Included in the requirement for an adequate opportunity to be heard is adequate notice, as well as an adequate hearing (whether oral or in writing). “Adequacy” of the notice and the procedure will depend on the legitimate expectations of the affected individuals,(4) as well as the three factors listed above.
Public utility regulators such as the CRTC have long respected these principles in the exercise of their powers, even when engaging in what could be argued to be legislative decision making (e.g., establishing rules of conduct binding on the industry at large). Quite properly, regulatory decisions which affect a large and indeterminate number of individuals or companies are not treated as exempt from the requirements of procedural fairness simply because there is no significant individual interest at stake. Indeed, while the effect of such decisions on any one individual ratepayer may be minor, the effect on ratepayers as a whole (vs. company shareholders, for example) may be enormous. In any case, the CRTC’s Telecommunications Rules of Procedure,(5) which apply to all proceedings before the Commission,(6) clearly reflect the Commission’s desire to ensure that all parties to a proceeding are given an adequate opportunity to be heard.
A simplistic view of deregulation might lead one to believe that, once the monopoly is cracked, the regulator has no more business being involved, and any necessary protections should be left to market forces, subject only to the intervention of competition authorities under the Competition Act. However, even a cursory examination of telecommunications will reveal a much messier reality, requiring ongoing regulatory oversight for the foreseeable future. While increased reliance has been placed on the Competition Act, even the Director of Investigation and Research (Competition Bureau) acknowledges that there are some important statutory policy goals (e.g., providing universal service) that neither market forces nor competition law can address, and that some competitive issues (e.g., interconnection and access) require the technical expertise of an industry regulator, such that specific regulatory functions will remain indefinitely with the CRTC.(7)
This points to an important procedural consequence of deregulation that has potential impacts beyond the confines of natural justice: as the CRTC forbears from regulation, determining where its jurisdiction ends and that of the Competition Bureau begins can be problematic. While courts have held that business conduct undertaken pursuant to a valid scheme of regulation is deemed to be in the public interest and, therefore, beyond the application of the Competition Act,(8) it remains unclear exactly how this principle is to be implemented.(9) To whom should consumers (or competitors) complain? From whom can they obtain redress? The uncertainty and confusion over which authority has jurisdiction in a semi-competitive, semi-regulated environment is a problem for business and consumers alike, and needs to be addressed in a coordinated fashion by both agencies.(10)

NEW APPROACHES TO REGULATION

Coincident with the transition from monopoly regulation to management of an increasingly competitive industry, the CRTC has adopted a number of new procedural approaches in an effort to accomplish its regulatory tasks in the most effective and efficient manner.(11) Recognizing that its traditional quasi-judicial processes were no longer appropriate for the resolution of complex, often highly technical issues in a tremendously dynamic industry, the CRTC has all but abandoned the use of oral hearings, and is relying increasingly on “streamlined regulation”, ADR-type procedures, and industry self-regulation. Each of these three developments is discussed below.

Streamlined Regulation

In an attempt to achieve greater efficiency, and to comply with new statutory requirements for timely decision making,(12) the Commission approves numerous tariff applications on an interim basis, sometimes ex parte. While interested parties are provided with an opportunity to comment on the application before it is finally approved, the practical consequences of denying an application once it has been approved on an interim basis cannot be ignored, and undoubtedly contribute to an unwritten presumption in favour of final approval. It would appear that efficiency in this case may be taking precedence over fairness.
As noted above, oral hearings in telecommunications matters have become rare; virtually all Commission proceedings are dealt with in writing. At the same time, and presumably to mitigate any perceived lack of openness as a result of this trend, the CRTC has been conducting open consultations with the public on an ad hoc basis, as well as sessions with regular interveners to obtain feedback on the Commission’s practices and procedures (see below). While there is no legal requirement, per se, for oral hearings, the trend toward paper proceedings has not happened without protest: on a number of occasions, parties have expressed their concern about the lack of opportunity to cross-examine adverse witnesses on controversial evidence and to make their case orally..
Such protests have been acted upon in only one instance to this author’s knowledge: when the Commission attempted to extend the application of a rate rebalancing decision to the Manitoba Telephone System (“MTS”) and its customers, without any public hearing. A lengthy public hearing had been held with respect to other companies, but MTS was not subject to CRTC jurisdiction at the time. Once MTS came under its jurisdiction, the Commission proposed to apply the decision to MTS without any additional public proceeding. MTS customers took their complaint to the Federal Court, arguing that the CRTC’s failure to hold a public proceeding with respect to MTS, inter alia breached their legitimate expectations and was otherwise contrary to the requirement of natural justice. Unfortunately, the court never had an opportunity to rule on this case.(13) However, the episode does point to a perceived need for full and proper proceedings where ratepayers stand to be directly affected.

ADR-Type Procedures

A number of different types of proceedings have been used in recent years by the CRTC to obtain public input, to build consensus among competing interests, and to achieve more effective decision making through the active involvement of industry and consumers. Consumer groups have been involved in three distinct types of procedure: consultations, workshops, and a novel form of negotiated rule making.
(a) Consultations
The aim of consultation by an administrative body is usually modest: to provide a forum for input to the decision maker. Consultations may be open or closed, bilateral or multilateral, held within a proceeding or on issues that are not the subject of an existing proceeding. There is no attempt to reach consensus on issues; rather, the objective is simply to provide the decision maker with informed input and/or to permit interested parties an opportunity to be heard.
The CRTC uses bilateral consultations, but generally only with respect to issues that are not already before it in a proceeding. It is felt that, for reasons of fairness and due process, any discussion of matters before the Commission should occur on the record of the relevant proceeding. These consultations take two forms: open, public forums in which anyone is invited to speak their mind, and closed, invitation-only sessions between the invited party and the Commission. In this way, the Commission is attempting to improve its understanding of public concerns and of industry it governs, and thereby to improve the effectiveness of its decisions.
Consultations are a valuable tool for the CRTC, and can be conducted at minimal cost (for example, in the case of open, public consultations, by piggybacking on existing Commission hearings so as to avoid the cost of a separate trip). As long as the Commission does not compromise the integrity of existing proceedings by allowing the consultations to venture into matters already the subject of an established proceeding, and as long as the consultations are open and preceded by adequate notice, the requirements of natural justice will likely be met.
However, the practice of closed, one-on-one consultations on matters of both public and private interest raises concerns about both elements of natural justice. The Commission must be especially careful to provide an equal opportunity to all stakeholders to be heard in this manner. It must also ensure that such consultations do not degenerate into lobbying sessions. The pursuit of effectiveness through greater dialogue with stakeholders must not compromise the need for procedural fairness, impartiality and the appearance of impartiality on the part of the regulator.
(b) Workshops/Roundtables
One step beyond consultations, workshops have been used by the CRTC to bring together various interested parties in order to build consensus, clarify issues, and resolve potential problems before they arise. Workshops are different from consultations in that they allow for the exchange of ideas and views between stakeholders with a view to achieving greater understanding, cooperation, and ultimately, consensus among the parties. Workshops may be open or closed, held within or outside a proceeding, and presided over by either a Board member or staff person.
The CRTC has used workshops (also referred to as “roundtables”) in at least two instances: (a) to identify and define issues in a particular matter, before commencing a proceeding through a public notice,(14) and (b) “to provide an opportunity for individual participants, interest groups, associations and the industry to consult and discuss issues of concern relating to public participation in Commission proceedings”.(15)
In the first case, the Commission invited a limited number of industry participants (those directly affected by the issue in question) to a “Round Table Consultation” chaired by the Commission Vice-Chair. As stated in the subsequent Public Notice,
An important aspect of this consultative process was to seek clarification and industry input on the extent of the problems associated with the current contribution mechanism, and to identify alternative solutions, if required, that would foster competition and, at the same time, maintain both affordable basic local service and the reasonable financial health of the independents. The Commission noted that it intended the round table to be a consultative rather than a decisional process and that it intended to initiate this proceeding subsequently, wherein all interested parties would be invited to participate and make submissions.(16)
A number of uninvited parties, upon learning of the intended closed consultation, requested that they be permitted to participate, and were so allowed. However, questions were raised as to the fairness and propriety of such closed door sessions, even for the limited purpose of facilitating a subsequent public proceeding. In this case, efforts to achieve greater effectiveness seemed to run up against the demands for procedural fairness.
The second example of CRTC experimentation with workshops was a one day, staff-conducted workshop on public participation in Commission proceedings. Two months in advance, invitations were sent to those consumer groups and other public interest organizations who had previously participated in Commission proceedings, as well as to the associations representing the Commission’s regulated industries. Participants were asked to provide brief written submissions in advance, outlining their concerns and proposed solutions. These submissions were then used by Commission staff to develop an agenda for the meeting. After the meeting, staff reviewed and evaluated the various oral and written submissions, and made recommendations to the Commission, many of which were subsequently implemented.(17)
The use of workshops (or indeed consultations) for the purpose of evaluating and revising general procedure and practice is sensible and involves minimal risk. Everyone “wins”: the Commission obtains helpful input, while parties have an opportunity to assist the Commission in the development of its general operational practices. Because decisions on practice and procedure are quasi-legislative, they do not require the same degree of due process as those involving substantive policy.
(c) Negotiated Rule Making
Of all the various ADR-type procedures, this is one of the most useful for regulators such as the CRTC, whose mandate involves detailed oversight of a complex and constantly changing industry. It is also finding favour among regulators of monopoly utilities, as a means of reducing the number of issues to be addressed in traditional, adversarial rate hearings.
The term “negotiated rule making” is used here to mean a multilateral bargaining process designed to achieve consensus among interested parties on regulatory policy and related matters. Where, as in the case of the CRTC, the tribunal has exclusive jurisdiction to make these kinds of decisions, the parties to the negotiation have no decision-making powers – they can only make recommendations to the decision-maker.
For negotiated rule making to operate effectively, a number of criteria must be met: the regulator must not delegate its exclusive decision-making powers, all stakeholders must have a full and fair opportunity to participate, there must be clear rules of engagement and a clear agenda, and each party must participate in good faith.
The CRTC has blazed new trails in negotiated rule making over the last few years, with its use of industry working groups to develop the detailed (often highly technical) rules for local competition in telecommunications. Under the oversight of the CRTC Interconnection Steering Committee (“CISC”), and a Coordinating Committee with one representative from each interested party, over 20 working groups have been established to address specific tasks required for local interconnection.(18) Participation in any working group is open to any and all interested parties, and can be active or passive.
One or more CRTC staff members is assigned to each working group, but staff does not participate in the group’s work unless requested. Each working group identifies and defines tasks within its mandate, then works toward a consensus resolution of each task. Once the group has achieved consensus on a given outcome, it files a consensus report with the CISC Coordinating Committee and the Commission. The consensus report is reviewed at the next Coordinating Committee meeting, at which time parties who were not involved in the working group may raise objections. If no objection is raised, the consensus report is filed with the Commission for approval. Where objections are raised, the matter is sent back to the working group. Approval of consensus reports is not automatic; the Commission reviews each matter on its merits and issues a ruling either approving the consensus as submitted, modifying it, or dismissing it.
Where consensus cannot be achieved, a formal dispute is initiated. Each party to the dispute submits its position, in writing, to the Coordinating Committee and CRTC staff, as well as to the working group members. A final effort is made to achieve consensual resolution of the issue, with CRTC staff participation. If this effort is unsuccessful, the dispute is filed with the Commission, and discussed at the next Coordinating Committee meeting. Another effort at resolution is made at this level. Staff may issue a non-binding opinion at this stage, to assist in a negotiated resolution. If this fails, the matter is left in the Commission’s hands. The type of process then invoked by the Commission will depend upon the nature and history of the dispute, and may involve anything from rendering a decision based on the record before it, to issuing a public notice on the disputed matter and inviting public comment.
While there is little doubt that this process has been effective in terms of minimizing disputes, achieving industry “buy-in”, and reducing the Commission’s workload, a number of procedural concerns arise. First is the issue of adequate notice. Aside from the original public notice which was issued in 1996, notice of the subsequent establishment of working groups, together with the minutes, reports and other recorded output of each working group, is published on the CRTC’s website. It is therefore up to interested parties to monitor the website in order to be aware of CISC developments. Even diligent monitoring, however, can fail to uncover the existence of an important issue if it has not been made the subject of a specific task, or if the working group did not post the information in a timely manner.
Thus, aside from the active involvement of one consumer representative in the working group in which end-user issues were most concentrated,(19) consumer advocates have relied upon other parties and Commission staff to bring to their attention issues arising in other groups which raise end-user concerns. This provides an interesting contrast to the manner in which the Commission provides notice on other, non-CISC issues: tariff applications, for example, are more reliably posted to the CRTC website for public review, and, where considered sufficiently important or controversial, are made the subject of a public notice by the Commission. In other words, consumers can rely on the Commission to actively notify them of important issues arising out of ordinary tariff applications. This is not the case with important issues arising out of CISC deliberations, unless and until the issue is filed with the CRTC as a formal dispute.
A second procedural concern with the CISC process has to do with the ability of interested parties to participate. The CISC process is an enormous undertaking, requiring enormous effort on the part of its participants.(20) Its theoretical openness is of limited value to resource-strapped stakeholders, who quickly find that effective participation in negotiated rule making requires far more than explaining and defending one’s position. In order to be part of the negotiation, and to have their views reflected in the group’s output, parties must be prepared to negotiate – to engage in discussion with other stakeholders, to listen and attempt to understand opposing interests, to consider alternative approaches, to be creative, and ultimately, to compromise where doing so is in the public interest. They must be prepared to attend lengthy meetings, travel where necessary, and stay involved until the issue has been resolved.
This is a far greater burden on participants than is the traditional, adversarial-style proceeding in which parties make their case, ask and answer questions, make their case once again, then leave it to the Commission to decide the issue based on the record before it. Indeed, the opportunity to participate in negotiated rule making processes such as CISC may be no more that – an unrealized opportunity – for those groups who simply don’t have the requisite resources.

Industry Self-Regulation

A third development that commonly accompanies deregulation is increased reliance on industry self-regulation. Despite obvious concerns about putting the fox in charge of the chicken coop, enthusiasm remains high for this approach to dealing with government cutbacks and minimizing heavy-handed regulation. The CRTC has been forthright about its desire to foster industry self-regulation,(21) and currently does so in at least two areas: customer complaints regarding cable TV service, and customer complaints in respect of certain long distance telephone companies. In each case, the Commission’s practice is to refer complaints to the relevant body, as appropriate.
With competition in long distance telephone service came a flurry of new consumer complaints about confusing and deceptive marketing, aggressive sales practices, and unauthorized transfers (“slamming”) by a number of the new providers. Neither the Commission nor the Bureau of Competition were able to respond effectively to these complaints. By1996, the problem had become serious enough that some industry players(22) established the “Telecommunications Customer Service Foundation” (TCSF), developed a Code of Ethics binding on members of the Foundation, and hired an Ombudsman to oversee administration of the Code and to provide a fair and timely process for the resolution of their customers’ complaints. The Ombudsman, who has been active now for two years, reports to the TCSF, which is an exclusively industry body with no consumer or other participation.
The cable TV experience with self-regulation provides an interesting contrast to the industry-initiated TCSF. First, unlike the industry-initiated TCSF, the CRTC initiated and supervised the development of cable TV standards, through a series of public proceedings.(23) Early on in this process, the cable industry, with the encouragement of the CRTC, established a body known as the Cable Television Standards Foundation (CTSF) to implement the expected standards and codes. By 1991, a set of standards was approved by the Commission, and in 1992, the CRTC began referring customer complaints to the CTSF.
Second, the cable TV industry recognized the importance of public accountability: it set up an independent body known as the Cable Television Standards Council to administer the various standards, codes and guidelines. Although appointed by the industry, the three Council members are selected specifically to ensure a broad representation of interests. The Council chairperson has judicial experience, one member represents the consumer interest, and the other is from the cable television industry.
Third, while the Commission appears to follow the same practice of complaint referral in each case, it has publicly explained its approach only in respect of the CTSF. Presumably responding to concerns about improper delegation, the Commission emphasized in a public notice that while it intended to refer complaints to the CTSF, “any interested party may, at any time, choose to approach the Commission directly”, that it would “carefully monitor the activities of the Council in carrying out its new responsibilities”, and that it would continue to deal with breaches of the Cable Television Regulations as well as with complaints about matters not covered by the Standards.(24) No such clarification has been made in respect of the TCSF.
Both experiments in industry self-regulation appear to have been successful in terms of improving customer satisfaction with the complaints process: the industry bodies tend to provide faster and more effective resolution of customer complaints than does the CRTC. Moreover, the standards themselves are considered reasonable, likely because they were in each case developed through consultations with consumer representatives. However, concerns remain about ultimate accountability residing with the industry itself, and in particular about the lack of any consumer representatives on the TCSF Board.

CONCLUSION AND RECOMMENDATIONS

The process of deregulating a public utility industry inevitably involves changes that raise a number of fairness and other administrative law concerns. These concerns include: uncertainty and confusion as a result of overlapping jurisdiction between the industry regulator and the Competition Bureau, regulatory gaps, improper delegation of decision-making and complaints handling to industry bodies, inadequate distance between the regulator and its subjects, and the predominance of efficiency concerns over fairness considerations. Even where the regulator is not breaching the rules of natural justice, its legitimacy will be enhanced the more open and fair its procedures are perceived to be.
In light of these concerns, the following recommendations are provided:

• The CRTC and the Competition Bureau should work together to develop clearer guidelines as to which agency will take control in the case of overlapping jurisdiction.
• The CRTC should treat as legitimate (i.e., refer complaints to) only those self-regulatory bodies whose codes were developed with adequate public input, and that are themselves structured in a manner that assures public accountability.
• Where the only form of public notice is via the CRTC’s webpage, greater efforts should be made to ensure timely posting and easy monitoring by interested parties.
• Consensus recommendations by industry working groups, as well as disputes arising from those groups, should be made the subject of Public Notices, or at a minimum set out on the CRTC webpage in a timely and effective (i.e., easily accessed) manner.
• When engaging in closed consultations, the Commission must be especially careful to provide an equal opportunity to all stakeholders to be heard in this manner, and must ensure that such consultations do not degenerate into lobbying sessions.
• The Commission should continue its practice of not discussing ongoing proceedings with interested parties outside the (open) proceeding.
• ADR-type procedures used in the context of substantive decision-making must be designed with appropriate safeguards against the exclusion of any interested party. This should include provisions for the funding of resource-poor interveners where necessary to ensure adequate public participation.

ENDNOTES

1. As telecommunications becomes more competitive, the CRTC is increasingly acting as a “referee” between disputing service providers. Staff assisted resolution and staff mediation (see Telecom Public Notice CRTC 95-51 for an explanation of these terms) have been used on a number of occasions to date, with some success. While there are important private interests at stake in these proceedings, ratepayers are not usually affected.
2. Nicholson v. Haldimand-Norfolk (Regional Municipality) Commrs. of Police [1979] 1 S.C.R. 311, 88 D.L.R. (3d) 671, 23 N.R. 410; Martineau v. Matsqui Institution, [1980] 1 S.C.R. 602.
3. Knight v. Indian Head School Division No. 19, [1990] 1 S.C.R. 653, 69 D.L.R. (4th) 489, 43 Admin.L.R. 157, 83 Sask.R. 81.
4. Where the decision maker promised that a specific procedure would be followed, or acted in such a way as to reasonably create such an expectation, affected individuals have a right to that procedure on the basis of their “legitimate expectation”: Old St. Boniface Residents Assn. Inc. v. Winnipeg (City), [1990] 3 S.C.R. 1170, 46 Admin. L.R. 161, [1991 2 W.W.R. 145, 75 D.L.R. (4th) 385, 116 N.R. 46, 69 Man.R. (2d) 134.
5. SOR/79-554.
6. Ibid., s.3.
7. See Remarks by Konrad von Finckenstein, Director of Investigation and Research, Competition Bureau, to the International Bar Association Conference, Vancouver B.C., September 15, 1998.
8. Reference re: Farm Products Marketing Act, [1957] S.C.R. 198, 7 D.L.R. (2d) 257; R. v. Canadian Breweries Ltd., [1960] O.R. 601, 126 C.C.C. 133 (H.C.); A.G. Canada v. Law Society of British Columbia, [1982] 2 S.C.R. 307, [1982] 5 W.W.R. 289.
9. For example, does conditional forbearance constitute a regulatory scheme, under which conduct is subject to CRTC regulation?
10. Some problems arising from the introduction of competition have eluded the regulatory powers of both authorities: neither considered itself empowered to deal effectively with consumer complaints of “slamming” by unregulated telephone service providers (the practice of switching a customer between carriers without the customer’s consent). While affected individuals may have had their concerns “heard”, the lack of any effective recourse is of concern.
11. The Telecommunications Act, subs.7(f), requires that regulation by the CRTC, “where required, is efficient and effective”.
12. Section 26 of the Act requires that the Commission decide on tariff applications (or provide reasons why such a decision is not being made) within 45 days of filing.
13. Manitoba Society of Seniors Inc. and the Consumers Association of Canada (Manitoba) Inc. v. the CRTC and MTS,, Notice of Motion filed Dec.5, 1994, Federal Court File A-657-94. On the eve of the court hearing, Cabinet issued Order-In-Council P.C. 1994-2036 staying the rate rebalancing ordered by the Commission in Telecom Decision CRTC 94-19 and referring the rate rebalancing decision back to the Commission for reconsideration. Hence, the Manitoba case become moot.
14. The Public Notice in question was Telecom Public Notice CRTC 97-41: Review of the Contribution Regime of Independent Telephone Companies in Ontario and Quebec.
15. Staff-conducted workshop on issues related to public participation in the Commission’s broadcasting and telecommunications proceedings, 16 June 1997.
16. Para.8, Telecom Public Notice CRTC 97-41.
17. Indeed, implementation of the recommendations is being tracked through a “Report Card”, published on the CRTC’s web site. A further meeting of interested parties is being held via teleconference to assess progress on the workshop suggestions.
18. These groups cover such areas as customer transfer processes, ordering and billing, emergency services, network operations, building access and inside wiring, and master agreements.
19. The Customer Transfer sub-working group developed rules and processes for customer transfers between local service providers, along with processes for the resolution of disputes over the authorization of such transfers.
20. Indeed, some participants have questioned whether the CISC process is any more efficient than a more traditional proceeding. If anything, it appears to have substantially shifted the resource burden of decision-making from the Commission to the industry.
21. See, for example, the Commission’s Vision statement “From Vision to Results at the CRTC”, (revised, May 1998).
22. Members of the Competitive Telecommunications Association, led by AT&T Canada, Sprint Canada, and ACC Long Distance.
23. See Public Notice CRTC 1988-13: Guidelines for Developing Industry-Administered Standards; Public Notice CRTC 1991-60: Cable Television Customer Service Standards; and Public Notice CRTC 1992-22: Cable Television Standards Council.
24. Public Notice CRTC 1992-22.
 

Protecting Personal Information on the Internet: The Canadian Approach

Philippa Lawson
Counsel, Public Interest Advocacy Centre
CPSR Conference, Boston MA
The subject of this panel couldn’t be more timely for a Canadian – just a few days ago, our federal government tabled legislation to protect personal information in the private sector, and it is notable that the driving force behind this initiative is the growth in Internet use – in particular, electronic commerce.
In fact, the privacy provisions are part of a broader Bill entitled “An Act to Support and Promote Electronic Commerce…”; the Bill also clarifies the legal status of electronic signatures and documents. As a privacy advocate, I’m deeply uncomfortable with this approach of situating basic privacy rights in the context of promoting electronic commerce, but it does appear that the privacy protections in the Bill stand on their own, and apply to all forms of commercial activity. (Bill C-54; available on Canada’s Parliamentary Website: www.parl.gc.ca).
While this legislation remains to be reviewed and passed by Parliament, it is a major initiative, especially considering some very vocal opposition from business lobbies.
I would like to briefly describe how we got to this point in Canada, what the Bill says, and what its prospects are.
The need to control government’s use of personal information has long been recognized in Canada, through legislation applicable to the federal government and most provinces. Under these statutes, Privacy Commissioners receive complaints, conduct investigations, resolve disputes, and make recommendations – but only with respect to matters involving government.
However, with the exception of one renegade province – Quebec – Canadians are basically unprotected as far as their personal information is concerned once it enters the hands of a commercial entity.
Quebec is the only jurisdiction to have laws which establish a right to privacy in the private sector, and which place strict limits on the ability of commercial entities to collect, use and disclose personal information (defined as any information about an identifiable individual). Through its Civil Code (a legal instrument unique to civil law regimes), and its more recent statute respecting the protection of personal information in the private sector (enacted in 1993), Quebec has codified the right to control over one’s personal information, and has given its Privacy Commissioner the power to fine companies in breach of the law. I think this probably reflects the more European outlook of Quebec – a higher value placed on individual privacy, and a more pragmatic view of market forces.

What do Canadians think?

Public opinion surveys over the past several years indicate growing concern about privacy, and a desire for government action. Canadians are starting to wake up to the fact that they have lost control over their personal information, and they are not happy about it.
Meanwhile, the Canadian government is very much awake to the fact that trade with Europe could be seriously hindered if Canada does not establish data protection standards similar to those in place in Europe. The European Union’s data privacy directive takes effect on Oct.25th, and it requires EU countries to block transmission of data to third countries whose domestic legislation does not provide similar privacy protection to that offered in the EU (e.g., individual rights to review, correct and limit the use of personal data).
Moreover, our current government wants to position Canada as a global leader in electronic commerce. Yet, a key reason cited by Canadian consumers for their reluctance to engage in electronic commerce is lack of confidence in how their personal information is gathered, stored and used by online businesses.
Recognizing that privacy legislation was a possibility, industry groups joined with government and public interest organizations in the early 1990s to develop a voluntary code for businesses to use in the treatment of customer information. From the beginning, industry hoped that its participation in this process that would pay off by avoiding government legislation. Consumer and public interest participants, however, saw the process as worthwhile insofar as it would lay the groundwork for legislated privacy protection, something which they have consistently called for.
Despite these conflicting motivations, the working group’s efforts paid off. In 1996, the Model Code for the Protection of Personal Information was approved as a national standard by the Standards Council of Canada. The Code sets out ten basic principles of data protection, similar to those of the OECD. In brief, they provide for individual control over the collection, use and disclosure of personal information. like the Quebec law.
By adopting the Code, and subjecting themselves to independent audits, businesses can demonstrate that they are following fair, nationally accepted standards. Unfortunately, no corporations have yet seen fit to register.
However, a number of industry associations have developed model Codes for their members, based on the CSA principles. Some of these are very good – the problem is that they are not being put into practice.
In some cases, the Code is not binding, and members have simply not adopted it. In others, the policy ostensibly adopted has yet to filter down to the operations level. In still others, a significant number of businesses are not members of the association, and are therefore not bound by the Code – for example, approximately 20% of direct marketers in Canada are not caught by that organization’s binding code.
The point is: industry self-regulation in this context is bound to fail. Quite simply, there are too many market players who fall outside any self-regulated regime. We don’t even need to get into a discussion about lack of effective sanctions, or other weaknesses of voluntary codes.
It is therefore not surprising that some industry groups in Canada have expressed support for privacy laws based on the Model Code which they helped to draft. (e.g., Information Technology Association of Canada, the Canadian Direct Marketing Association and the Canadian Federation of Independent Business)
Despite their distaste for any form of regulation, reputable industry players in Canada are recognizing that they will be better off, in the long run, under a legislated approach which encompasses the entire private sector.
And, to the surprise of many, no one is complaining about the regulatory regime in Quebec – business seems to be able to live with it.
So, it seems there was a happy confluence of forces leading to this recent initiative:

1. public pressure;
2. a committed Minister;
3. dedicated and determined civil servants; and
4. no solid or convincing industry opposition.

So, what does the legislation say?

It takes the CSA Model Code, and entrenches the ten principles, word for word, in a statute. I think this is a novel approach to legislation, and it has the strength of building on standards which were developed through consensus by the very stakeholders to whom they will apply. It represents one of the ways in which voluntary codes can be used in the public policy process – as the “backbone” of a law.
On the other hand, the CSA Code is considered a compromise by many privacy advocates, a reasonable first attempt that can do with improvements. For example, the Code requires businesses to limit the collection of personal information to “that which is necessary for the purposes identified by the organization”, but does not expressly limit the purposes for which the information can be used. This lack of any clear “purpose limitation” principle is not corrected in Bill C-54.
Other weaknesses of the Bill include overly broad exceptions to the rule of informed consent, limited powers on the part of the Commissioner to uncover and expose privacy violations, and a lack of any non-court recourse for complainants where an organization fails to comply.
The law will apply first to the federally-regulated private sector. Three years after coming into force, it will apply to all commercial activities in Canada that are not already covered by similar provincial privacy laws. In other words, the federal government is giving the provinces a chance to act, but if they fail to do so within three years, they will be effectively trumped. (I expect that we’ll be hearing from the provinces on that aspect of the Bill!)
The federal Privacy Commissioner will be mandated to investigate and report on complaints, as well as to engage in educational activities. He will also be empowered to audit organizations who appear to be violating the Act, but only where he has reasonable grounds to believe that the statute is being violated.
Complainants will have ultimate recourse will be available to the Federal Court, which has broad remedial powers including the awarding of damages for humiliation, of up to $20,000.
This is so-called “light” regulation. It sets up a complaint-driven process, which many of us feel is inadequate given that privacy violations are so difficult to spot. It requires individuals to go to court for redress, which is costly and therefore unlikely to occur except in unusual cases. It contains some exceptions that we feel are too broad. And it is improperly framed as a means of promoting commerce, rather than protecting privacy. But, it is a start on the path toward recognition of basic privacy rights that is sorely lacking in Canada, and we will be working to improve the Bill as it moves through Parliament.

What are its prospects?

I think that there’s enough positive momentum that this Bill will be enacted, in some form or another. The challenge for privacy advocates will be to ensure that the Act is tight, properly framed, and has adequate teeth.
In conclusion, let me say in response to the question put to us today, that while law, market forces and technology each have an important role to play in the protection of individual privacy, law is the essential starting point – it is necessary to articulate and define the right to privacy. Without a legal structure giving meaning and teeth to privacy rights, technology will be used to take advantage of vulnerable citizens, and market forces will have little effect, since privacy invasions are usually invisible to the consumer. There is nothing wrong with self-regulation, but it does not substitute for the rule of law, especially in respect of human rights and other essential elements of a civil society.

Achieving Universal Access to the Information Highway

Philippa Lawson
Public Interest Advocacy Centre
Global Internet Liberty Coalition Conference
I would like to begin by commending GILC and the organizers of this conference on broadening the focus of our discussion beyond traditional concepts of free speech, liberty and fundamental human rights, and including the more difficult, but equally important and relevant issues of access, privacy and consumer protection.
These issues are more difficult because their resolution calls for restraints on the free play of market forces – something that, in this day and age, is not popular. Nor is it, on its face, consistent with what is often seen as the primary message of cyber-rights activists to governments: “Stay out of our lives!”.
There is, however, no inconsistency between calling for more market freedom in some respects and less in others. Indeed, both are required for a just society. Unfortunately, many people don’t appreciate the integral link between access and free speech – the fact that the right to free speech online is pretty hollow for those individuals who can’t even get online.
Universal access to the information highway is one of those things that can’t be achieved without government intervention. Market forces just can’t do it. Indeed, market forces barely exist in some of the places where access is most needed. Left to its own devices, the market would provide amply for those of us with lots of money, but would offer limited access, if any at all, to those living in poverty. (This has been referred to as “dollar democracy”.) It would provide abundant and cheap service to urban dwellers, but would offer limited and expensive options to rural and remote dwellers. The evidence of this disparity in access is most stark at the international level (See Appendix 2 of Sid Schniad’s paper), but it is also present domestically.
Clearly, if one of our goals is to have everyone connected to the public telecommunications network, there is an important role for government to play, in extending connectivity to rural and remote areas and to those who can’t afford the market price, wherever they happen to live.
Before the widespread adoption of telephone service, we recognized the value of affordable access to a public means of universal communication – the postal system. Having replaced postal service as the primary method of distance communication, telecommunications deserves the same treatment: equitable and affordable access for all.
I would like to speak for a few moments on some solutions to this problem of unequal access.
For ordinary citizens, there are two elements of access: first, access to an underlying telecommunications network, and second, access to the Internet itself.

Access to the Telecom Network

Let’s start with the basics: a phone line. For most people, this is a prerequisite for basic Internet access. Other options (via cable television) are being developed, but it looks like telephone access will remain the most economical means of linking to the Internet for some time.

Affordable Service to Low Income Canadians

Even in Canada, one of the most connected nations in the world, with some of the lowest rates for phone service, there are thousands of households without basic telephone service because they can’t afford it. This problem is expected to grow, as basic local rates rise in order to pave the way for competition and lower long distance rates. Yes, the introduction of competition in Canadian telecommunications has led to higher rates for local phone service. Many Canadians, especially those in the lower income brackets who make minimal use of long distance service, were actually better off under the regulated monopoly.
At the same time, access to telecommunications is more important than ever.(1) It is particularly essential for disabled and elderly persons with limited mobility, for unemployed persons seeking a job, for low income families with limited transportation options, and for those living in rural and remote areas. Yet these are also the same people who have trouble affording the higher rates brought about by market forces.
After losing the battle against “rate rebalancing” (i.e., the raising of local rates in order to permit lower long distance rates), Canadian consumer groups realized that something else had to be done to maintain universal affordability of phone service. In a proceeding some three years ago, a broad coalition of anti-poverty, seniors and consumer groups published a “Blueprint for Action”, which called for a seven-point plan:

1. Define “basic telecommunications service”, and establish a process for updating this definition as technology and market demand evolves.
2. Establish an “affordability benchmark” – a monthly rate above which affordability for lower income households is jeopardized.
3. Ensure that basic monthly service is provided to lower income Canadians at a price no higher than the affordability benchmark.
4. Establish policies, such as instalment payment options, to ease the burden of lump sum charges on customers in need.
5. Examine security deposit and disconnection policies to ensure that they do not pose unnecessary obstacles to affordability.
6. Require that telephone companies offer options that allow customers to better control their bills – options such as the blocking of calls which attract usage charges.
7. Establish a Fund for the subsidization of basic service provided to self-certifying households with incomes below the poverty level.

The targeted subsidy aspect of this approach was strongly opposed by local phone companies, who instead proposed “budget” service options consisting primarily of limited usage for a lower price, and pay-per-use calling above a certain threshold.
Consumer groups pointed out that these “budget” options, while attractive to high income professionals, who use their office phone for personal calling, were completely unresponsive to the needs of low income Canadians, who if anything need to use their home phone more than average – to seek employment, to contact health and social service agencies, to stay in touch.
In the end, the CRTC decided that neither approach should be adopted, yet. Based on high overall penetration rates of phone service in Canada, the regulator determined that affordability was not yet a serious problem, but that should it become a problem, a targeted subsidy was the appropriate solution. In the meantime, the CRTC ordered that penetration rates and other affordability indicators be monitored. In spite of the urgings of consumer groups, the CRTC refused to define “basic telecommunications service”.

High Cost Serving Areas

Since that decision, the long distance market in Canada has been deregulated, the local market has been opened to competition, and a new price cap form of regulation has replaced earnings regulation for incumbent local service providers. The profit margins on long distance and urban business service that used to sustain below-cost prices in rural and remote areas are rapidly being depleted. But the cost differences remain: it is far more expensive to serve some areas than it is others. Without maintaining some kind of subsidy for these high cost areas, the goal of universal access will be lost from sight.
Public interest and consumer groups have again banded together to call for a new, competitively neutral subsidy designed to improve and maintain access to telecommunications services in high cost areas, at quality and price levels comparable to those in urban areas. We have drafted a “Consumer Charter for a Connected Canada”, which calls on the government to take the necessary actions to ensure that the benefits of competition flow to all Canadians, not just those in urban centres.
We are proposing that a national fund be established for this purpose, with monies collected through a revenue-based levy on all telecommunications service providers. The subsidy would be portable, in that any local service provider meeting pre-established price, quality and availability requirements would be eligible to receive it for those customers that it serves in the high cost area.
The CRTC is considering this and other similar proposals right now. In the interim, it has set up company-specific funds into which long-distance service providers pay (a per minute contribution) and out of which local service providers withdraw, in order to subsidize below-cost prices.

Conclusion

In Canada, almost everyone agrees: in the absence of direct government intervention, some kind of competitively-neutral, explicit, regulated subsidy scheme is necessary in order to maintain universal access to basic telecommunications service. I am confident that our government, given its commitment to being the most connected nation in the world, will support a regulatory solution to this problem.
That’s just the first part – access to basic phone service. We still have the rest of the equation to deal with: Internet access.

Access to the Internet

As part of their proposal in the high cost area proceeding, consumer groups are calling for toll-free access to the Internet, and minimum transmission speed capabilities. Specifically, they are proposing that companies who want to receive the subsidy must offer toll-free access to a location with at least one ISP. I don’t know if this proposal will fly, but the important point is that consumer groups are now including Internet access as part of their definition of basic telecommunications service.
Another coalition of public interest groups in Canada has been pushing our government to adopt a model of public space community networking, and to provide the necessary funding to sustain this non-commercial initiative. As you heard this morning, we seem to be having some success. The Canadian government is working hard to spread Internet access points across the country, and to encourage Canadians of all ages and backgrounds to use the Internet for personal and business gain. In addition, we have succeeded in convincing a major broadcast carrier in Canada to reserve a few of its licensed broadband channels for non-profit, local community purposes such as health, education, and literacy.
Yet, only 28% of Canadians have Internet accounts. Not surprisingly, this rate is much higher among lower income households. At the same time, more and more information and services are offered over this medium, and more communication is conducted over the Internet. A recent publication of the NTIA in the United States shows that, despite significant growth in computer ownership and Internet usage among Americans, the “digital divide” persists, and is in fact widening. According to the NTIA’s survey, there is an even greater disparity in access among income and racial groups than there was three years ago. In other words, we are becoming a society of information haves and have-nots, despite our best intentions.
So, how do we improve this situation?
The effective approach is, I think, a multi-pronged one:

1. Allow competition to flourish where it can best achieve the goal of affordable pricing. Governments should vigilantly guard against anti-competitive behaviour and harmful mergers in the markets for computer hardware and software, as well as Internet service provision.
2. Use regulation to address systemic market inadequacies. Companies who wish to receive subsidies for service provision should have to meet certain access requirements.
3. Provide direct financial and other support to establish public access points in communities, schools and libraries, and to train citizens in Internet usage.
4. Support the development of not-for-profit community networking initiatives. If electronic democracy is to be realized, we must protect public space on the Internet, space that is unsullied by commercial interests and that permits the free flow of individual ideas and communications.

To sum up,

1. The right to free speech on the Internet is one thing, but it’s pretty hollow for those who lack access to the medium in which this free expression can occur. A truly democratic cyberspace is one to which everyone has access.
2. In order not to exacerbate existing social disparities, we must make special efforts to ensure that the Internet advantage is brought to those who are starting off at a disadvantage. Schools and libraries are a good place to start, but ultimately, it’s access to the home that we will all need.
3. Without diminishing the tremendous value of Internet access, we must not forget that many of our fellow citizens are still struggling to afford basic telephone service. With increased competition and deregulation of telecommunications, this problem could get worse. In the enthusiasm for expanding Internet access, let’s not ignore the prior and more immediate need for basic phone access.

1. In a recent survey, 97% of Canadians viewed telephone service to the home as essential, while only 39% considered Internet access to be an essential home service.
 

Future of the Canadian Financial Services Sector – Presentation

Presentation to the Standing Committee on Finance

Comment on the Report of the Task Force on the Future of the Canadian Financial Services Sector
The Public Interest Advocacy Centre is a non-profit organization with a national board of directors and both organizational and individual membership. We specialize in representing the consumer interest in the delivery of important public services, particularly regulated industries such as telecom and energy, and have a particular concern for the vulnerable customers of these industries. We have attempted to apply some of our knowledge from these other utilities to the banking sector.
We commend the Task Force for producing an intelligent, fair and balanced report. The Task Force recommendations provide a blueprint for how the financial services sector should evolve over the next decade. Also, the Task Force provided an important service by commissioning research that is now part of the public domain.
As Harold MacKay said before this committee, the Task Force recommendations are a package. The Task Force made many recommendations that go further than ever before in dismantling the pillars of the financial services sector. The recommendations aim at increasing competition in the sector, but do not guarantee that banks will not grow even bigger, or that concentration will not increase in retail banking. As consumer representatives, these possibilities are worrisome. However, the Task Force report is acceptable to us because of the recognition that strong consumer protection measures need to be part of the framework for the financial service sector.
The Task Force’s vision is that, through a combination of legislated consumer protection measures, codes of practice, and on-going dialogue between the industry and consumer representatives, ordinary Canadian consumers can be well served by the financial services sector. While the Task Force’s approach to consumer concerns is “common sense,” it is in fact revolutionary for this sector. Over many decades, the financial industry has lobbied stenously, and for the most part sucessfully, to avoid consumer protection measures, and consumer involvement in decision-making.
The Task Force recommends an entirely new way of treating consumer issues. New ways of doing things can be threatening. This committee needs to be aware that many parties will want to water down the Task Force’s recommendations on consumer protection issues. We strongly recommend that the government not tamper with the balance that the Task Force acheived – that the government recognize that the consumer protection measures must accompany the implementation of the other recommendations.
The government will be pressured to move quickly to implement the changes recommended by the Task Force, and to limit the time it take to make a decision about the bank mergers. The need for speedy deliberations needs to be balanced by the need to ensure full and fair public participation. The type and extent of public involvement that the Task Force recommends is new to this sector. The need to involve consumers and consumer representatives in upcoming deliberations needs to be carefully thought out. We feel that the Task Force is on the right track, and have some comments to make in support of the Task Force’s recommendations. We have choosen three key issues to bring to your attention today.
Our first recommendation is that the government develop an implementation plan for the Task Force recommendations, in consultation with consumer organizations and other interested parties. The implementation plan would be a vehicle for an open, orderly process to proceed with Task Force’s recommendations, recognizing that many of the recommendations involve consultations and multiparty involvement in various iniatives. The Task Force report notes that consumer organizations need to be strengthened. The implementation plan would form the basis for the discussions on consumer organizations’ future role, and what measures may be needed to ensure adequate resources.
Our second recommendations is that the government insure that we get the institutional arrangements right in the implementation of the Task Force recommendations. The Auditor General’s 1995 report stated the responsibilities of OSFI, CDIC and Departments of Finance for implementing public policy objectives were unclear. As far as we can tell, this is still the case. The implementation of the Task Force recommendations will be confusing unless the government players’ roles are clarified.
In the context of these unclear roles, we are quite concerned about the proposal to make OSFI responsible for the proposed consumer protection measures. It’s principle mandate is to supervise financial institutions for financial soundness, and it is not clear how consumer protection measures would fit into this mandate. Also, despite many consumer concerns with the banking industry, no measures to address consumer concerns have ever originated from OSFI. We suggest that consumer protection measures should be implemented by a body with an appropriate mandate, that has some experience with and commitment to consumer issues.
Another institutional issue is the proposed changes to the Banking Ombudsman system. We support the Task Force recommendations, and would like to emphasize the need for the ombudsman framework to be open and accountable. Consumer representatives should be involved in developing the new framework.
Finally, we have some recommendations about the review of the mergers. We are very encouraged by the government’s commitment to implement the public interest review process as suggested by the Task Force. We have a number of procedural recommendations about the process, which are given in an Appendix to this brief. I want to bring one recommendation to your attention today, which is that participant funding be provided for the public interest review process for the mergers. It is important that all interested parties have the resources to participate meaningfully in the public interest review process. The Taskforce noted that consumer organizations are short of resources, and struggling to meet their current commitments. Without participant funding, non-industry parties will not have the resources to devote to reviewing documentation, assembling expertise and preparing for hearings. Participant funding would ensure that there is a strong public interest presence at the public interest review process. This strong public interest presence is crucial for the process to be legitimate in the eyes of the Canadian public.
We do not have time to discuss the Task Force’s recommendations in any detail today. We may submit further recommendations to the committee before hearings on the Task Force report end. Today, we would like to table a report we have recently completed on tied selling. The report discusses the Task Force’s recommendations on improving section 459.1 of the Bank Act. I would be happy to discuss this report further today or at another time.
Appendix A

Recommendations on Public Interest Review of the Mergers

• There should be a a public comment period on the guidelines for the public interest impact statements, so that all public concerns about the mergers are included in the guidelines.
• Participant funding should be provided for the public interest review process. Without participant funding, non-industry organizations will not be able to participate meaningfully in the process. A fair process needs to be developed to award the funding.
• The hearings should be informal and non-judicial.
• The process must be structured to that it is fair and legitimate. There should be an independent panel to conduct the hearings.
• The results of the process should be made public at the same time as they are submitted to the Finance Minister.
• The federal environmental assessement review process is a good model to follow for the public interest review process.

Newsletter – October 1998 Vol.5 No.2

IN THIS ISSUE
Telecom Service in High Cost Areas: Will it survive competition?
Privacy Protection on the Way!
Electronic Commerce and Consumer Protection
CRTC holds hearings on Canadian Television Policy
New Report: Tied Selling in Banking.
Energy Competition Act

Telecom Service in High Cost Areas: Will it survive competition?

One of the problems with a competitive telecommunications marketplace is that it doesn’t necessarily respond to need. In particular, there is no incentive for a company to serve communities where the cost of serving is higher than the potential revenues. Yet Canada contains many such “high cost areas” ­ communities who have received service in the past through large subsidies internal to the monopoly provider.
With competition, and the demise of the monopolies, such subsidies can no longer be sustained. The profit margins on long distance and business service that used to subsidize below-cost prices for rural and remote residents are being competed away. And while technological breakthroughs may provide lower cost solutions in the future, for now, the cost differences remain.
The CRTC last year initiated a proceeding to examine ways in which this problem could be addressed. On behalf of a coalition of groups, The Alberta Council on Aging(ACA), Consumers Association of Canada (CAC) Federation Nationale des Associations de Consommateurs du Quebec (FNACQ), National Anti-Poverty Organization (NAPO), Rural Dignity of Canada (RDC), the Public Interest Advocacy Centre (PIAC) filed submissions calling for a competitively-neutral explicit subsidy scheme that harnesses market forces to achieve universal availability, affordability, and quality of telecommunications services throughout the country.
Together with other public interest groups, PIAC is concerned about the maintenance of affordable service in rural areas. This concern has resulted in the evolution of a set of principles, which will be released of a consensus policy document entitled a Consumer Charter for a Connected Canada. It is our hope that the Charter will be a focus for public discussion. The Charter will be released at the end of October.

Privacy Protection on the Way!

Lack of adequate protection for personal information in the private sector is a growing problem in Canada, especially in light of the increasing use by Canadians of electronic means of communication and commercial transactions. Consumers are protected from abuse of their personal information by government, but other than in Quebec, there is no law guaranteeing them control over their personal information in the private sector. As a result, the market in personal information has been booming, while consumers find themselves bombarded by unsolicited marketing via phone, fax, post and e-mail.
Together with other privacy advocates, PIAC has been calling for legislation to protect the individual’s right to control her personal information. We have worked closely with business groups to help them develop effective voluntary codes of practice with respect to consumer privacy, but such voluntary actions won’t do the job. Many businesses choose not to adopt voluntary codes, despite the urging of other industry players. Of those who do adopt a good policy, many have difficulty translating it into practice.
It is therefore with enthusiasm that we greet the federal government’s Bill C-54, which sets out a framework for privacy protection reflecting the ten principles agreed to by business and consumer groups, and set out in the Canadian Standard Association’s Model Privacy Code (now a national voluntary standard for business). Initially, the legislation will apply only to federally regulated businesses, but after three years, it will extend to all sectors, with the exception of those already covered by similar provincial legislation. PIAC is currently reviewing the Bill, and will provide its comments to Parliament as soon as Committee hearings begin.
This Bill won’t go through without a struggle. Let your M.P. know that data protection legislation is needed!

Electronic Commerce and Consumer Protection

The Canadian government, through its agenda of “Connecting Canadians”, is striving to make Canada a global leader in electronic commerce. Given our international advantage in terms of universal telephone service, high technological literacy, and growing use of the Internet, this may be an achievable goal. However, electronic commerce brings with it numerous perils for the consumer. PIAC is working with business and government to ensure that consumer needs are met through appropriate marketplace protections.
We are developing a set of principles for consumer protection on the Internet which are intended to guide business and government in the creation of voluntary and, where appropriate, legislated, solutions to consumer problems with electronic commerce. Many existing consumer protection laws already apply to the online world, but others need to be extended to cover new forms of distance sales. New rules need to be developed to address unique aspects of electronic commerce, such as the “point and click” interface, and the ability for a vendor to disguise its location and identity.
PIAC is telling the government that consumers will not engage in electronic commerce in large numbers until they have confidence that their personal information is not being abused, that their transactions are secure, and that the merchants with which they are dealing can be trusted. Without regulations to protect consumer rights privacy and fair business practices, Canada’s goal of being the world leader in electronic commerce will not be achieved.
The privacy of one’s personal information is becoming increasingly difficult to protect in this age of computerization and globalization. Personal information (any information about an identifiable individual) is now a valuable commodity in the private sector, but individuals’ rights to control over their own personal information have yet to be recognized in law.
Most provinces, as well as the federal government, have laws protecting personal information in the government’s possession. However, Quebec is the only province that regulates the collection, use and disclosure of personal information by private companies. Everywhere else in the country, citizens are bereft of any statutory right to control the collection, use or disclosure of their own personal information by private companies. Yet surveys show that the vast majority of Canadians are concerned about the loss of control over their personal information, and wish to regain it.
In January 1998, the federal government issued a discussion paper entitled “The Protection of Personal Information: Building Canada’s Information Economy and Society”. This paper explains why current protections are no longer enough, and invited feedback by March 27th on the design of a new federal law to protect personal information in the private sector.
PIAC provided detailed comments and suggestions in its March 27th submission to the government, calling for strong legislation and effective enforcement tools. PIAC pointed out a number of gaps in existing voluntary privacy codes, and warned against too much reliance on self-regulation by industry. PIAC recommended that a single federal agency be given the mandate and the resources to apply the new legislation, to effectively enforce it, and to inform the public about their rights and avenues of redress.
The government initiative is encouraging, and we hope that draft legislation will not be long in coming. PIAC’s submission (18 pages, single spaced) can be obtained upon request by calling (613) 562-4002 ext.60.

CRTC holds hearings on Canadian Television Policy

On May 6, 1998, the CRTC announced a review of Canadian television policy. The purposes for the review are to consider policy and regulatory options which ensure a strong and viable programming industry; ensure that Canadians are able to receive a wide range of distinctive Canadian program choices; facilitate industry growth; ensure that the system meets the needs of Canadian viewers and reflects their values; and implement the public interest objectives of the Broadcasting Act.
PIAC represented the Fédération Nationale des associations de consommateurs du Québec (FNACQ), the National Anti-poverty Organization (NAPO), One Voice – the Canadian Seniors Network, and Rural Dignity of Canada (FNACQ et al) for the proceeding. The proceeding was concerned with industry structure; support for the production and broadcasting of different forms of Canadian content (e.g., entertainment, information, documentaries, etc.); the move to digital television; independent production, among others.
PIAC’s submissions on behalf of FNACQ et al focused on several core issues which were of concern to the groups’ members. First, the CRTC should reaffirm the basic nature of off-air television signals. About 25% of Canadians receive their signals this way, and not through cable. Our concerns are that some companies may see this as an unnecessary expense, where most viewers in a particular market use cable to receive television signals, and apply to the Commission to stop providing this service. As well, we were concerned that Industry Canada’s policy of moving to the auctioning of spectrum, essentially the privatization of this public resource, may be extended to broadcasting from telecommunications.
Another issue is the move in the industry to digital television. Over the next ten years or so, digital television is expected to replace current analogue sets. This will allow consumers to receive more programming, as well as Internet and multimedia through their television. Given that this new technology could cost consumers several hundred to a few thousand dollars for each unit, television signals should be available in both traditional analogue, as well as new digital formats, until at least 90% of consumer households have purchased the new digital televisions or a digital decoder. It would be thus unfair to force consumers to switch to an expensive new technology. Moreover, with the high cost of the digital technology, a number of Canadian households may have to lose their television service if they lost the analogue signal.
Support for the production and broadcasting of Canadian programming for all categories, e.g., entertainment, documentaries, etc., should be increased. It was further argued that with the development of new technologies, such as multimedia, it is important that the government and the CRTC require contributions for the development and distribution of Canadian content in these new media. Given that many broadcasters are already contributing to content development and that much of this new content is being made available on the Internet, often using telecommunications technologies. Finally the CRTC should require commercial Internet service providers and telephone carriers to contribute up to 5% of their gross annual revenues. These monies should be used, in priority for: a) to facilitate technical access to the Information Highway through assistance for basic telecommunications costs and the sustainability of community access initiatives, b) the development of not-for-profit Canadian content; and c) to augment the existing multimedia fund.

New Report: Tied Selling in Banking

PIAC’s new report, Unfit to Be Tied, discusses a number of ways that the tied selling provisions of the Bank Act, which were recently proclaimed, could be improved. Even though most people do not know what “tied selling” is, it can have a negative impact on any customer of a Canadian bank. “Tied selling” means that a bank makes a loan conditional on buying another product, so that the customer is required to buy something in order to obtain the loan. Essentially, tied selling is a misuse of the leverage a bank has over a customer in need of a loan.
It is clear that tied selling occurs often enough in banks for it to be major concern for customers. A recent survey found that 16% of Canadians who received loans in the past three years felt that the loan approval was tied to purchasing another product. Our research showed that the banking industry’s Statement on Tied Selling has not significantly improved the practices of front-line bank staff in the first six months of its implementation.
The introduction of a new provision into the Bank Act prohibiting tied selling was a positive development for consumers in the context of the lack of consumer protection measures that currently operate in the banking sector. Unfortunately, the new provision does not fully protect consumers against undesirable tied selling practices. Since the Task Force on the Future of the Canadian Financial Services Sector has recently made recommendations on how to improve it, there is a fresh opportunity to integrate consumer concerns into it.
Our report makes a number of recommendations on how the tied selling provision of the Bank Act, section 459.1, should be improved. One important recommendation is that coercion and undue pressure be prohibited in all sales situations in the banking sector, not just in tied selling situations.
Another important recommendation is that cross selling (offering package deals) should not be specifically permitted by section 459.1. Cross selling raises important consumer concerns, since the practice does not benefit all customers equally. In the present context, customers with a high level of knowledge and propensity to bargain benefit from cross selling, while customers with an average amount of knowledge and less propensity to bargain benefit less. Also, high volume customers (who tend to be high income Canadians) benefit far more than low volume customers (who tend to be medium and low income Canadians).
Our work on tied selling in the banking sector suggests that section 459.1 could be replaced by comprehensive disclosure provisions. Customers could more effectively advance their own interests if all package deal options were clearly enumerated up front, and the items in each package identified and priced individually. Also, criteria used by banks to determine adequate security for loans and credit-worthiness should be provided to customers, so they can judge whether banks’ requirements are reasonable
PIAC plans to submit this report to the House of Commons Standing Committee on Finance as part of its brief on the Task Force report. The report is available from PIAC at a cost of $15.00 plus postage.
To Order Reports by phone call – 613-562-4002, Ext. 60.

Energy Competition Act

In July 1998, the Ontario Government introduced the Energy Competition Act 1998 Bill 35. Bill 35 provides for a number of significant changes in the way in which energy markets will operate and be regulated in the future.
Ontario Hydro will be separated into three entities: 1) the Ontario Electricity Generation Corporation (Genco), 2) Ontario Electric Services Corporation (Servco), 3) an Independent Electricity Market Operator (IMO). The IMO would be responsible for managing the electricity system and duties would include ensuring a level playing field, encouraging investment and setting rules for market participants to buy and sell power across the grid. The Genco would be a commercial entity owned by the Province of Ontario and would own and operate Hydro’s generation facilities. The Servco would own and operate the transmission systems and distribution systems through one or more subsidiaries.
The 276 municipal electrical utilities serving three million customers across the province would be encouraged to amalgamate immediately to achieve cost efficiencies and economies of scale and establish local distribution utilities on a commercial footing. These new MEU distribution utilities would be required to separate the monopoly wires business from their competitive commodity business to create a level playing field. The Ontario Energy Board (OEB) would have an expanded role to regulate the tariffs for transmission and distribution wires for both these Servco and the MEU local distribution utilities. In addition they would issue licenses to all transmitters, distributors, generators purchasers and retailers of electricity.
In the field of natural gas, the OEB would obtain new powers to license energy marketers in Ontario Breach of license requirements by marketers could result in the loss of license.
In general terms, the Ontario Government has taken a cautious approach to the problems associated with the introduction of competition. The separation of Ontario Hydro’s generation assets and the restructuring of the transmission and distribution systems should encourage better accountability in individual system components and reduce cross subsidies among those components. As well the elimination of vertical integration should help attenuate market power. Most importantly, for the first time, the OEB will have real power to have cost of service regulation imposed on Ontario Hydro. Previous to Bill 35, Ontario Hydro’s Board of Directors could ignore the recommendations of the OEB with impunity.
Competition in natural gas sales has been going on for over a decade. From the consumer standpoint, there have been complaints of misrepresentation and lack of transparency in transactions. Protection of consumers has been a piecemeal process, with haphazard enforcement. The possibility of having real enforcement of consumer protection in the area of natural gas is also welcome.
However it is by no means clear that these reforms will lead, at least in the short and middle term to lower energy prices for consumers. The problem with stranded assets in electricity is not really solved by the new competitive framework, as the debt will have to be retired using money gleaned from all system participants. In natural gas, it is unclear what efficiencies, if any, will be achieved by having direct sales of the commodity as proposed.
In the meantime, the gas distribution utilities are frantically trying to position themselves as the competitive alternative through non-regulated affiliates. PIAC presented the concerns of vulnerable consumers before the Standing Committee On Resource Development Hearing in Ottawa in August of this year for a full text of PIAC’s statements to the Committee. Please call us at (613)562-4002 ext. 60 fax to (613) 562-0007 or email us at piac@web.net

Letter to Ministers

LETTER TO MINISTERS ATTENDING OECD MINISTERIAL CONFERENCE ON ELECTRONIC COMMERCE, OTTAWA

To: The Ministers of the OECD Member Countries and the Other Countries Attending the Ottawa Ministerial Conference
We thank the Organisation for Economic Cooperation and Development (OECD) and the Government of Canada for the invitation to some public interest groups to participate in the OECD Ministerial Conference, “A Borderless World: Realising the Potential of Global Electronic Commerce,” which is being held in Ottawa, Canada, on 7-9 October 1998 (“Ottawa Ministerial Conference”).
This invitation recognises and affirms the role, place and participation of public interest groups in the ongoing international discussions and negotiations with regard to electronic commerce.
With regard to the OECD, in particular, there should be established a Public Interest Advisory Committee, similar in type and function to the Business Industry Advisory Committee (BIAC) for industry and the Trade Union Advisory Committee (TUAC) for trade unions. Such a committee should include representatives of public interest groups in the fields of human rights and democracy, privacy and data protection, consumer protection, and access.
We regret that public interest groups were not afforded the opportunity by the OECD, prior to the commencement of the Ottawa Ministerial Conference, to submit a document similar to the Business Action Plan that was submitted by BIAC and others. As a result, the extent of our intervention has been severely constrained.
The promotion of electronic commerce by the OECD and member governments must be considered within the broader framework of protection of human rights, the promotion and strengthening of democratic institutions, and the provision of affordable access to advanced communication services.
With regard to the four issue areas for building trust for users and consumers, identified in the document for participants in the Ottawa Ministerial Conference, “A Borderless World: Realising the Potential of Global Electronic Commerce,” and mindful of the broader framework discussed above, we recommend:
Authentication and certification: We recommend that all OECD member countries implement and enforce the 1992 OECD Guidelines for the Security of Information Systems, particularly the Principles on Democracy, Ethics, and Proportionality. The OECD should also consider issues of authentication and certification within the context of consumer protection and privacy protection. Policies and practices that disregard consumer and privacy concerns will ultimately undermine public trust.
Cryptography: The OECD should promote implementation of the Cryptography Guidelines of 1997 and urge the removal of all controls on the use and export of encryption and other privacy enhancing techniques. Trust requires the widespread availability of the strongest means to protect privacy and security.
Protection of privacy: The OECD should urge member states to implement fully and develop means to enforce the Privacy Guidelines of 1980. The OECD Guidelines provide an essential framework to establish consumer trust in online transactions. Self-regulation has failed to provide adequate assurance. We further recommend efforts to promote anonymity and minimize the collection of personal information so as to promote consumer confidence.
Consumer protection: The OECD should support the establishment of minimum standards for consumer protection, including the simplification of contracts, means for cancellation, effective complaint mechanisms, limits on consumer liability, non-enforceability of unreasonable contract provisions, recourse at least to the laws and courts of their home country, and cooperation among governments in support of legal redress. Such minimal standards should provide a functional equivalence to current safeguards, offering at least the same levels of protection that would be afforded in the offline world.
We also recommend:
Intellectual property: The framework for intellectual property protection should be based upon mechanisms that are least intrusive to personal privacy, and least restrictive for the development of new technologies.
Internet governance: Governments should foster Internet governance structures that reflect democratic values and are transparent and publicly accountable to users. Standards processes should be open and should foster competition.
Taxation: At the Ottawa ministerial Conference, Mr. Charles Rossotti, Commissioner of the United States Internal Revenue Service, spoke of the creation of a Tax Advisory Group, in which government and businesses will participate. Similarly, the public interest groups should be invited to participate in this advisory group.
Employment: Impacts on employment must be evaluated and taken fully into account in all discussions and negotiations.
The OECD Committee for Consumer Policy has been and continues to be an important vehicle for discussion of emerging consumer policy issues, including those relating to electronic commerce. It is important, therefore, that the mandate of the Committee for Consumer Policy continue and that the Committee continue to meet on regular basis.
Signed,
Alan Stevens, Editor, WHICH?Online (U.K.) *
Center for Democracy and Technology (U.S.)
Computer Professionals for Social Responsibility (U.S.)
Consumer Association of Canada
Consumer Council of Norway
Consumer Project on Technology (U.S.)
Consumers International
Cyber Rights & Cyber Liberties (U.K.)
Danish Consumer Council
Electronic Frontiers Australia
Electronic Privacy Information Center (EPIC – U.S.)
Fèdèration nationale des associations de consommateurs du Quèbec (FNACQ)
FITUG (Germany)
Foundation for Information Policy Research (U.K.)
Harvard Information Infrastructure Project
Imaginons un Rèseau Internet Solidaire (IRIS – France)
Public Interest Advocacy Centre (PIAC), Ottawa
Richard Long, Vice President, Communications, Energy & Paperworkers Union *
Sid Shniad, Research Director, Telecommunications Workers Union *
Vincent Emmell, Progesta Publishing (Quèbec, Canada) *
Yves Poullet, Universitè de Namur, Belgique *

• Organizations listed for identification purposes only

Grants and Contributions Program Budget

Grants and Contributions Program Budget Office of Consumer Affairs – Letter to the Honourable John Manley, Minister of Industry (November 17, 1999)

 
Honourable John Manley
Minister of Industry
235 Queen Street
11th floor, East Tower
Ottawa, ON
K1A 0H5
Dear Minister Manley:
Re: Grants and Contributions Program Budget Office of Consumer Affairs
On behalf of the Board of Directors of PIAC, I am writing to request that Industry Canada and the Federal Government give consideration to an increase to the Grants and Contributions program that would be reflected in the next federal budget. The Grants and Contributions Program constitutes the primary source of funding for consumer and public interest organizations across Canada that are engaged in advocacy on consumer issues within the federal domain. The current amount of funds that are allocated through this program to consumer groups and organizations is one million dollars.
This amount, however, is much reduced from past government allocations. In 1984, this program funded projects and consumer groups to a total of 1.8 million dollars. The equivalent amount in 1999 dollars of the 1984 figure is 2.7 million dollars.
The program dollar amount shrank in accordance with the deficit reduction measures implemented by the various federal governments during the decade of the 1990’s. It was solely the straitened financial circumstances of the government that caused this diminution of the program funding. It was not reduced because efficiencies were found, or the need for funding was lessened.
The need for funds has, in fact, increased. As a result of various deregulation initiatives, market forces play a greater role today as the means for consumer protection. However, this has also meant that problems of market failure are more critical and frequently difficult to address without adequate empirical support. In the result, the problems of enabling access by ordinary consumers to the benefits of newly competitive markets have occupied considerable organizational resources and time by a dwindling number of consumer groups.
In addition, governments consistently require the policy advice and assistance from non-commercial interests to assist them in formulating appropriate policy to meet changing public expectations. Examples of such requirements for such input abound in federal initiatives concerning privacy, electronic commerce, competition law, airlines and financial services, where effective policymaking cannot take place without an informed and engaged consumer presence. The blunt fact is that the federal government cannot continue to expect a contribution from the consumer interest sector towards issues of public and governmental concern when it is funded with less than 40% of the resources (in 1999 dollars) than it received in 1984.
I know that we do not have to repeat the litany of good work and assistance that groups and organizations funded by the Grants and Contributions have rendered to Industry Canada in the past with the assistance of this program. As you may be aware, there is also considerable work and assistance that is provided without actual funding through this program. There is little likelihood that any organization will be able to maintain the expertise to successfully execute project grants or to render unfunded assistance unless there is a major boost to consumer group funding.
We have all heard the floodgates response which is front-line defense the government is currently offering for all new requests for funding. We recognize that the government must hold the line to ensure that the improving financial condition of the government does not become a reason, in itself, for undue largesse.
However, in this case, the Grants and Contributions Program is a cost effective investment in making markets and the policies associated with markets work better.
There are few larger concerns for Industry Canada and the government. We hope that the importance of this program will accordingly be recognized with a substantial increase in funding in next year’s budget.
Thank you.
Yours truly,
Michael Janigan
Executive Director/General Counsel
cc: The Rt. Honourable Jean Chrétien
The Honourable Paul Martin
 

Newsletter – April 1998 Vol.5, No.1

IN THIS ISSUE
PIAC Advocates Stronger Privacy Laws
Telco Price Caps Now In Effect
CRTC Examines Telephone Service in High Cost Areas
Banking on Consumer Power
New Reports

PIAC Advocates Stronger Privacy Laws

The privacy of one’s personal information is becoming increasingly difficult to protect in this age of computerization and globalization. Personal information (any information about an identifiable individual) is now a valuable commodity in the private sector, but individuals’ rights to control over their own personal information have yet to be recognized in law.
Most provinces, as well as the federal government, have laws protecting personal information in the government’s possession. However, Quebec is the only province that regulates the collection, use and disclosure of personal information by private companies. Everywhere else in the country, citizens are bereft of any statutory right to control the collection, use or disclosure of their own personal information by private companies. Yet surveys show that the vast majority of Canadians are concerned about the loss of control over their personal information, and wish to regain it.
In January 1998, the federal government issued a discussion paper entitled “The Protection of Personal Information: Building Canada’s Information Economy and Society”. This paper explains why current protections are no longer enough, and invited feedback by March 27th on the design of a new federal law to protect personal information in the private sector.
PIAC provided detailed comments and suggestions in its March 27th submission to the government, calling for strong legislation and effective enforcement tools. PIAC pointed out a number of gaps in existing voluntary privacy codes, and warned against too much reliance on self-regulation by industry. PIAC recommended that a single federal agency be given the mandate and the resources to apply the new legislation, to effectively enforce it, and to inform the public about their rights and avenues of redress.
The government initiative is encouraging, and we hope that draft legislation will not be long in coming. PIAC’s submission (18 pages, single spaced) can be obtained upon request by calling (613) 562-4002 ext.60.

Telco Price Caps Now In Effect

After a long process in which PIAC represented a number of consumer groups concerned about telephone rates and service quality, a new regulatory regime took effect on Jan.1, 1998. Eight of the major phone companies in Canada (Bell, BC TEL, Telus, MTS, MT&T, NBTel, NewTel and IslandTel) are no longer subject to detailed regulatory scrutiny of their costs and revenues. Instead, they are subject to a pre-set cap on the prices that they can charge.
The cap is based on a formula, which was established by the CRTC in May 1997. This formula requires the telcos to reduce overall prices for local services by 4.5% less inflation each year. Average residential rates are permitted to increase by no more than inflation, while individual rates can be increased by no more than 10% per year. It is expected that companies will satisfy the price cap by lowering business rates – indeed, we are already seeing such reductions.
One of the more controversial aspects of price caps involved the level of “going-in” rates. Telephone companies wanted to jack up their rates before the price cap took effect. The CRTC permitted rate increases as of Jan.1, 1998 ranging from $1.33 in the case of Telus to $3.20 in the case of BC TEL. (NBTel did not request an increase) However, the Commission rejected telco requests for a more lenient price cap, and, with minor exceptions, held the line on its price cap formula. Average local residential rates for these eight companies now range from $17.64 in the case of MTS, to $25.00 in the case of MT&T.
In the wake of this dramatic change in the way that telephone service is regulated in Canada, PIAC has published a booklet entitled “Price Caps in Canadian Telecommunications: A Consumer Primer”. Copies are $6 each and can be obtained by calling (613) 562-4002 ext.60.
CRTC Examines Telephone Service in High Cost Areas
PIAC is representing a broad coalition of consumer groups in a CRTC proceeding on problems associated with providing telephone service to people and businesses in rural and remote parts of the country.
Increasing competition in telecommunications has brought more choice and lower prices to many Canadians. However, it has also put great pressure on local rates, especially those in smaller centres. As well, competition tends to concentrate in densely populated areas, leaving many rural folks without any real options.
In the past, phone bills were based on the value of service a customer received – i.e., the number of other subscribers that could be reached free of charge. That’s why rates in rural areas were so much lower than rates in big cities. It didn’t matter that the phone company’s costs were much higher in rural areas, because the same company could use its revenues from more profitable urban centres to make up the difference.
With competition, however, this “value-of-service” based pricing cannot be sustained. Competitors squeeze profit margins where they are the greatest, and thereby reduce the ability of old monopolies to cross-subsidize unprofitable services (e.g. local service in high cost areas) with revenues from profitable services (e.g., long distance, local business service in urban centres).
In brief, competitive market forces that tend to bring phone rates in line with company costs could make phone service unaffordable for many Canadians outside the major centres. This could have disastrous effects on small communities and the people who happen to live and work in them. All Canadians, however, stand to be affected by the CRTC’s ultimate decision, either as telephone ratepayers or as citizens who benefit socially and economically from the universal availability of affordable telephone service across the country.
Key issues include:

• Should people in rural and remote areas have access to high quality telecommunications services on the same basis as other Canadians, and if so, how should this be funded?
• To what extent should phone rates reflect the value of service received (e.g., comparable rates for comparable service), and to what extent should they reflect the cost of providing service, which can be disproportionately high in rural and remote areas?
• What problems do telephone subscribers in rural and remote areas experience, and how should these problems be addressed?

The CRTC will be holding public consultations in locations across the country, from May 26th to June 25th. It is important that as many people as possible come out to these consultations, and make their views known. PIAC has prepared a Fact Sheet on the proceeding, which sets out the dates and locations of the meetings. For a copy, call (613) 562-4002 ext. 60.

Banking on Consumer Power

In February, PIAC released a report on consumer issues in the financial services market that explores consumer concerns regarding the banking industry with the goal of identifying future possibilities for consumer advocacy. A key concern highlighted by the report is that with current levels of concentration in the banking industry, competition in the financial services sector is to weak to protect consumers. The recent news that the Bank of Montreal and the Royal Bank intend to merge has made the report’s conclusions on the lack of competition in this sector even more pertinent.
While consumer advocates have made great efforts to influence the banks and their regulators to make the financial services industry more friendly to consumers, the industry still has a long way to go on consumer issues. In fact, according to a recent survey, the majority of Canadians think that the government should be more involved in the banking industry to protect consumers.
A major concern is that the self-regulatory approach rather than legislation is being relied upon in the areas of tied selling, access to basic financial services, and privacy. Self-regulation in this case means that consumer protection is essentially optional for the banks. The report also concluded that current service fee levels are not fair for low-income Canadians.
Consumer organizations views on the banking industry are generally supported by public opinion. A survey conducted for the report showed that: 68% of Canadians think that government should become more involved in the banking industry to protect consumers; 61% of Canadians think that a legal framework is the best way to ensure that privacy of personal information collected by banks is protected; and 40% of Canadians would like a watchdog to be created for the banking industry.
Banking on Consumer Power: The Issues for a Canadian Consumer Coalition for the Banking Industry is available at a cost of $20.00 from the Public Interest Advocacy Centre.

New Reports:

PIAC has released a new report called Criteria for Defining Essential Communication Services. The 52 page report establishes a matrix based on factors relating to market supply, user demand, and policy/public benefits to be used assess whether new communication services are basic or essential. A case study analyses the circumstances under which the Internet would become an essential service. The report is available from PIAC at $15 per copy, plus shipping.
To Order Reports by phone:
call – 613-562-4002, Ext. 60.
Communication Regulatory Agencies for Canadians was also recently released by PIAC. This study analyses the roles of Canada’s regulatory agencies, the CRTC and the Competition Bureau, in a competitive communications marketplace. The 113 page report compares the abilities of the CRTC and the Competition Bureau to address and protect the interests of consumers. The report is available from PIAC at $15 per copy, plus shipping.