Newsletter – December 1997 Vol.4 No.3

IN THIS ISSUE
4-1-1 Charges Appealed
Unlisted Number Service
PIAC Commissions Special Study on Government’s Plans to Auction Spectrum
Ontario Government White Paper Proposes Change
Amendments to the Telecommunications Act
New Reports

4-1-1 Charges Appealed

In October of this year, the CRTC released a decision on a Tariff Application of Bell Canada which has gone largely unnoticed by customers and consumer reporters. Bell Canada applied to charge telephone subscribers who dial 411 for local directory assistance (LDA) for telephone numbers that do not appear in the local telephone directory. This means it will cost you .75¢ every time you try to telephone an individual who has changed his or her number, but the change is too recent to appear in the book.
The CRTC granted Bell’s request because it said a majority of customers don’t use LDA, so it is unfair for all customers to pay for the service in their basic service charge (the basic service charged won’t be lowered, however.
As well, the CRTC were concerned that there was no incentive to stop calling 411 once the telephone subscriber obtained the number.
On behalf of the Consumers’ Association of Canada (CAC) Federation Nationale des Associations de Consommateurs du Quebec (FNACQ) National Anti-Poverty Organization (NAPO), PIAC has appealed to the CRTC to vary this decision. Our appeal dismisses the idea of using frequency of use as the sole barometer of what is an essential service. It was noted that “the application of the (CRTC) reasoning to the policy choice of which medical procedures to publicly fund in medicare programs might lead to some socially unacceptable results. Treatment for leukemia, for example, might be denied coverage because it is needed by only a small percentage of the patient population.”
PIAC has suggested that if 411 cost recovery is necessary that subscribers be given the opportunity to obtain a certain number of free calls per month similar to the situation in US jurisdictions. If it is not overturned, the CRTC order is scheduled to go into effect on January 1, 1998. Our antidotal evidence seems to indicate that this new charge will be extremely unpopular with customers not to mention the detrimental effect on affordability of basic service. We are urging all groups and individuals to write to Mrs. Laura Talbot-Allan, Secretary General, CRTC, Ottawa, ON, K1A 0N2 of fax to 819-953-0795.

Unlisted Number Service

For years, consumers have had to pay a hefty sum in order to keep their personal information (name and telephone number) out of the telephone directory. First, there is a service fee to change from listed to unlisted service, ranging from $22 to $45 depending on the company (this fee doesn’t apply if you start off with unlisted service). Then, there is a monthly charge, which ranges from $1.55 in Manitoba to $5.75 in Nova Scotia (average is $4.25).
Privacy and consumer advocates have been arguing for years that people shouldn’t have to pay more in order to maintain a given level of privacy, and that in any case, unlisted service is priced well above its cost to the companies. The CRTC has finally seen fit to examine this issue, and to consider requiring the companies to lower the price of this increasingly important service.
Unlisted service has always been essential for some people – those fleeing violence or harassment, for example. It has, however, become increasingly valuable for those who wish to maintain control over their personal information. The information published in telephone directories and in directory databases is now available on the Internet and on CDS sold in retail stores across the country. This information is collected, sorted, used and traded by commercial enterprises whose sole goal is to sell you their products. The only effective way for people to avoid this use of their personal information is to keep it out of the directory.
Representing the Consumers’ Association of Canada (CAC), the Fédération Nationale des Associations de Consommateurs du Québec (FNACQ), and the National Anti-Poverty Organization (NAPO), PIAC has filed comments with the CRTC in support of the consumer position that unlisted service should be priced more fairly, that it should include automatic Caller ID blocking, and that listed subscribers should have various options in terms of how their listing appears in the directory.
It is particularly shocking to PIAC and its clients that only three companies (NBTel, MT&T, IslandTel) provide automatic Caller ID blocking with Unlisted Service. As an informal survey conducted by CAC showed, most people with unlisted service assume that their personal information is automatically blocked from appearing on the Call Display screens of the people they call. They were appalled to find out that this is not the case.
While the deadline for comments in the formal proceeding (Public Notice 97-31) has now passed, it is still worthwhile to let the CRTC know your views on this issue. Write to: Mrs. Laura Talbot-Allan, Secretary-General, CRTC, Ottawa, Ontario K1A 0N2, or fax to: (819) 953-0795.
PIAC Commissions Special Study on Government’s Plans to Auction Spectrum.
The federal department Industry Canada has been making plans to begin auctioning radio frequencies or spectrum to communication companies. Spectrum frequencies are the publicly-owned airwaves used for wireless telephone service, radio, and new Information Highway services, such as wireless Internet and wireless local cable television. Spectrum is also used for traditional over-the-air broadcasting signals. The federal government has stated repeatedly over the past few years that these wireless services will provide competitive alternatives to existing wire-based telephone and cable television services and help address the problem of providing new services to rural and remote areas.
Industry Canada’s rationale for auctioning is that it will realize more accurate economic value from companies for the public for the use of spectrum and this process will be easier to administrate.
However, in a series of recent public consultations conducted by Industry Canada, both consumers and industry have opposed auctioning. Instead, both interests prefer that the government continue to use a comparative selection process that assesses fees to companies for the use of this public resource and imposes conditions of license which provide public benefits such as employment and research and development spending in Canada. PIAC released a special study on this issue in December, called Inappropriateness of Spectrum Auctioning in a Canadian Context. The study found many problems with the proposed auction process. Spectrum is publicly owned property. Under auctioning, both companies and the financial community who will be providing loans to the companies, have indicated that they would want to treat spectrum as private property rather than public property. Contrary to rhetoric from Industry Canada, auctioning amounts to the privatization of public property. The federal government is not our real estate agent, but is supposed to act as or representative in the use of public property.
Auctioning also appears to be little more than an ideologically driven idea, largely intended to raise more money (tax) from companies. Companies and consumer groups expect that auctioning will add significant, unnecessary costs to the wireless services. Such higher costs will mean less competition and higher consumer prices. Moreover, auctioning also creates a disincentive for companies to provide traditional public benefits such as employment and R&D. These are likely to be negotiated away during the usual behind-the-scenes lobbying by any license winners. Other findings of the report include: Canadians have been provided with high quality services at affordable rates with the comparative selection process; using this traditional process Canada has developed sustainable competitive alternatives faster than other countries, including the United States; and, Canada shouldn’t blindly follow the United States in using auctions where they have not only led to massive market failures but have been subverted to the political budget balancing process.
PIAC and industry players are encouraging the Minister of Industry to publicly commit to continue using the comparative selection process rather than gut the public interest through auctions.

Ontario Government White Paper Proposes Change

In November, the Ontario Government issued its long awaited White Paper in response to the May 1996 Report of the Advisory Committee on Competition in Ontario’s Electrical System (Macdonald Report)
The report makes a number of broad ranging recommendations that are intended to establish a competitive electricity market for the year 2000 for both wholesale and retail customers. PIAC is pleased to see that the Ontario Government will give the Ontario Energy Board a greater role in regulating the activities of Ontario Hydro. The OEB’s previous function of rendering advice to the Minister was largely ineffective. There are however many questions arising concerning the future of the electricity industry in Ontario. Principally, the issue of potentially stranded debt of Ontario Hydro as a result of their under performing nuclear facilities has yet to be addressed. As well, although the report outlines a strategy for competitive access to electricity, there is no guarantee that actual competition, particularly at the retail residential level will come about.
PIAC intends to participate in the debate concerning the restructuring of this industry. For one thing, we wish to avoid the mistakes that were made in the deregulation of telecommunications were the benefits to date seem to have flowed primarily into the pockets of the largest consumers of telecommunications services.

Amendments to the Telecommunications Act

Bill C-17, An Act to Amend the Telecommunications Act and the Teleglobe Canada Reorganization and Divestiture Act is currently before Parliament. The proposed amendments are designed to permit the government to meet its commitments made to the World Trade Organization (open borders), while still maintaining control over quality and safety standards, and pursuing goals such as Canadian ownership and use of Canadian facilities.
Together with CAC and FNACQ, PIAC appeared before the legislative committee examining this bill, in order to express our support for expanded powers to the CRTC, especially those that would allow the Commission to regulate resellers directly.
At present, the CRTC is able to apply consumer safeguards (e.g., privacy protection, information to consumers, authorization rules for customer transfers) to facilities-based carriers, but has no legal jurisdiction to apply the same rules to non-facilities-based service providers, known as “resellers”. These companies buy service in bulk, then resell it to individual customers. From the consumer perspective, there is no difference between a facilities-based carrier and a reseller; they both offer the same service to the end-customer. Hence, there is no reason why resellers should not be subject to the same consumer protections as are other service providers operating in Canada.
We also pointed out a number of areas – directory assistance database; emergency 911 service; dispute arbitration between carriers – in which administration by a neutral third party will be the most appropriate solution in a competitive environment. In order for such third party administration to occur, the CRTC must be provided with statutory powers of administration and delegation.
Finally, we noted that the statutory term “basic telecommunications services” lacks a definition. We proposed the following:
“Basic telecommunications services shall be defined by the Commission from time to time, on application by an interested party or on its own motion, and shall include those services necessary for a person to participate fully in Canadian society.”
Our presentation was well-received by the Committee. The Vice-Chair of the Committee admonished responsible officials of Industry Canada for not consulting with consumer groups in advance.

New Reports

PIAC has just released Inappropriateness of Spectrum Auctioning in a Canadian Context (see story on page 1). The report was written by Max Melnyk, formerly Chief of Spectrum Policy in Industry Canada. The report is 113 pages long and is available from PIAC at a cost of $10 per copy, plus shipping (English only).

Presentation to the Standing Committee on Industry on Bill C-17

PRESENTATION TO THE STANDING COMMITTEE ON INDUSTRY ON BILL C-17: AN ACT TO AMEND THE TELECOMMUNICATIONS ACT AND THE TELEGLOBE CANADA REORGANIZATION AND DIVESTITURE ACT
BY
THE CONSUMERS’ ASSOCIATION OF CANADA,
LA FÉDÉRATION NATIONALE DES ASSOCIATIONS DE CONSOMMATEURS DU QUÉBEC, AND THE PUBLIC INTEREST ADVOCACY CENTRE
December 4, 1997
Madame la présidente, membres du comité, nous vous remercions de nous donner l’occasion aujourd’hui de nous présenter devant vous et d’exprimer notre point de vue sur les amendements proposés proposées à la Loi sur les télécommunications.
Je suis Marie Vallée, analyste et porte-parole en matière de télécommunications de la Fédération nationale des associations de consommateurs du Québec et avec moi, Me. Philippa Lawson du Public Interest Advocacy Centre.
Nous représentons aujourd’hui:

• l’Association des consommateurs du Canada, une organisation nationale san but lucratif qui représente les consommateurs résidentiels à travers leCanada;
• la Fédération nationale des associations de consommateurs du Québec, qui représente plusieurs groupes de consommateurs résidentiels du Québec; et

• le Public Interest Advocacy Centre, un organisme national sans but lucratif qui défend depuis près de vingt ans les intérêts des abonnés résidentiels du téléphone devant le CRTC et également dans d’autres forums.Nous sommes ici premièrement pour apporter notre support aux amendements proposés et en particulier aux amendements qui donneront au CRTC (Conseil de la radiodiffusion et des télécommunications canadiennes) et au Cabinet des pouvoirs plus larges pour atteindre les objectifs de la politique canadienne de télécommunications – objectifs comme une qualité élevée, un service fiable à des tarifs abordables – et de le faire dans un environnement de plus en plus concurrentiel. Nos commentaires portent sur certains articles seulement.
  Je passe maintenant la parole à Me. Lawson.
  PART IV.1 – s.69.1-s.69.5 Telecommunications Apparatus/Technical Standards
  We support the new provisions which would give the government control over quality, safety and technical standards in respect of telecommunications equipment sold in Canada. In an increasingly global market, such standards will be essential if we are to maintain the quality of service that we have achieved under the regulated monopoly system.
  s.46.1 – s.46.6 Telecommunications Numbering and Other Activities
  We support provisions extending the Commission’s powers to include regulatory oversight of third party administration of such matters as numbering (which is also a new power being handed over to the Commission), and the operation of a fund to support continuing access by Canadians to basic telecommunications services.
  The establishment and operation of a fund to support access to basic telecommunications services in the competitive environment is essential, if we are to respect the policy goals set out in section 7 of the Act. It is truly ironic that one of the first and most tangible effects of competition in this industry has been higher rates for basic residential telephone service. We commend the Commission on its recognition of the need for a fund through which to ensure that Canadians living in high cost areas face affordable prices for basic service, and on its recognition that a fund may be needed in the future to ensure that low income Canadians can continue to afford basic service. The Commission must have regulatory authority over whatever body is established to operate this fund – or these funds – and hence we fully support the inclusion of section 46.6.
  At this point in time, it is possible to identify numbering resources and high cost area funding as matters which may best be handled by a third party, over which the Commission should have regulatory oversight, in order that our policy goals are achieved in the most efficient and effective manner. However, other matters for which the exercise and/or delegation of Commission powers is appropriate, may well arise in the future.
  For example, it is clearly in the public interest to have a single, comprehensive directory assistance database for use by all service providers and customers. Such a database may be most efficiently and fairly administered by a neutral third party. As with numbering and portable subsidies, this is not explicitly provided for in the current legislation.
  Similarly, the provision of 911 emergency services in a competitive environment may be best handled through an independent body, subject to Commission oversight. But the existing statute does not provide for such an approach, even if it would be the most efficient.
  Another example is that of dispute arbitration between competing carriers. As competition increases, so will disputes between carriers. Industry groups are currently considering different approaches to dispute arbitration, one of which is for the Commission to mandate the use of a private arbitrator in the case of customer transfer disputes, for example. In such a case, the Commission may wish to delegate its powers of dispute arbitration.
  These are just a few examples that we can think of now, of valuable activities which may not be permitted under the existing legislation. Who knows what will arise in the future? Given the fast pace of this industry, we can assume that new matters involving the provision of telecommunications services, and for which the Commission’s existing powers are inadequate, will arise and demand action.
  If there is no provision allowing for the administration of such new activities by the Commission or for the delegation of Commission powers other than numbering and fund administration, then we may be limited to a less efficient, less orderly and less competitive telecommunications environment.
  For this reason, we support the proposed s.46.1(b). In addition, we think that the delegation power set out in the proposed s.46.2 needs to be broadened, to cover all existing Commission powers, not just those arising out of numbering or new activities under s.46.1(b).
  s.16.1 – s.16.4 Telecommunications Service Providers’ Licences
  The other area in which we wish to express our particular support is that of reseller licensing.
  We strongly support using this opportunity to provide the Commission with the power to regulate resellers, whether through licensing or otherwise. From the consumer perspective, there is absolutely no justification for distinguishing between different types of telecommunications service providers, when it comes to basic consumer safeguards.
  Under the existing legislation, the Commission considers that it does not have the jurisdiction to regulate resellers directly. So, while facilities-based service providers are required to respect rules protecting customer privacy, to provide certain important information to consumers prior to contracting for service, and to follow certain procedures when signing up customers so as to avoid transferring customers against their will, non-facilities-based service providers are free to ignore such requirements.
  This gaping disparity in consumer protections as between resellers and facilities-based carriers makes no sense. Consumers don’t generally know, let alone care, whether the company they are dealing with owns its facilities. Both companies are engaging in the same exercise, which involves the same risks to customer privacy, the same potential for insufficient or misleading information, and the same potential for error when it comes to transferring a customer’s line. Where the same potential problems exist, the same consumer protection regimes should apply. There is no reason why resellers should not be subject to the same consumer protections as are other service providers operating in Canada.
  It is therefore essential, in our view, that the Commission be provided with the tools to apply consumer safeguards to resellers.
  The proposed licensing power, drafted so as to cover both domestic and international resellers, as well as facilities-based carriers, provides such an opportunity, and therefore has our support. We do not believe that this section should be narrowed to cover only those providers of international services. That would leave the Commission in the strange position of being able to regulate facilities-based carriers and resellers of international service, but not resellers of domestic service.
  Nor do we think that the licensing provision should be narrowed to cover resellers only. The Commission should have as much flexibility as possible in determining the most efficient and effective way of regulating facilities-based carriers, where necessary.
  Should, however, the licensing power be redrafted so as to cover international service providers only, we submit that the existing section 24 should be broadened to cover resellers as well as facilities-based carriers. In this way, the Commission would be able to impose consumer safeguards directly on resellers. The domestic reseller gap would be covered.
  What is essential, from the consumer perspective, is that the Commission has the power to impose conditions directly on resellers, as well as facilities-based carriers, that it has the ability to enforce those conditions, whether through licence revocation, court orders, prosecution or other means.
  Définition de «services de télécommunications de base»
  En dernier lieu, nous ne pouvions pas nous empêcher de remarquer une omission plutôt béante, à savoir le manquement à définir un nouveau terme «services de télécommunications de base» .(Soit dit en passant le texte français a «oublié » le de base.) Nous croyons que la raison de cette comission est que ce concept est en constante évolution et ne doit donc pas être coulé dans le bronze. Nous sommes en accord avec le fait que le Conseil doit avoir la liberté de définir le concept comme il le juge approprié à un moment donné dans le temps. Mais nous croyons pertinent de spécifier cela dans la partie des définitions du texte de la loi. Pourquoi ne pas être plus explicite sur la notion d’un concept en évolution continue et sur le rôle du Conseil pour en assurer la définition? On pourrait pas exemple déclaré dans la Loi que:
  «Les services de télécommunications de base doivent être définis par le Conseil périodiquement, sur demande d’une partie intéressée ou à son initiative et devraient inclure les services nécessaires pour qu’une personne puisse participer pleinement à la société canadienne. »
  De cette manière , vous faites en sorte que le concept soit clairement ancré dans un principe de base d’accès, que les composantes du service de base seront modifiées de temps en temps et que le Conseil à le devoir d’assurer que la définition du service de base demeure actuelle.
  Nous vous remercions encore de votre attention et de nous avoir entendues.
  Nous serons heureuses de répondre à vos questions.

Newsletter – August 1997 Vol.4 No.2

IN THIS ISSUE
SPECIAL FEATURE: Phone Rate Battle Rages Again.
DID THE CRTC BLOW IT????
Proposed Cable Regulations May Leave Consumers Out of the Picture!
Phase II IHAC Recommendations address Access Issues
New Publications

SPECIAL FEATURE: Phone Rate Battle Rages Again.

As if consumers haven’t been hit hard enough already by a series of increases to the price of basic residential service, another round of applications to raise the price of phone service is now before the CRTC. This time, telephone companies across the country are going for broke. In response to an invitation by the CRTC, the companies are asking for another round of basic rate increases: $3 per month, on average, as of January 1, 1998. On top of this, they want the opportunity to raise rates by up to 10% per year over the next four years, “in response to competition”.
It’s a strange form of competition, that leads to rate increases. Yet that is the one tangible outcome of local competition that consumers can expect to see, at least in the short term. In our view, these applications are proof in and of themselves that competition is still a long way off for ordinary consumers.
What we are seeing is a last ditch effort by the companies to jack up their basic rates before consumers have competitive alternatives. Would we be seeing this if the companies thought that they might lose customers as a result? You be the judge.
In its May 1st decision, the CRTC invited the phone companies to raise local rates by an average of $3/mo. on January 1, 1998, after which time average residential rates would be allowed to rise by no more than inflation each year. According to the company proposals filed today, the $3 increase is not enough. While some are not taking full advantage of the Jan.1st allowed increase, they are all asking for the right to continue to raise local rates by up to 10% per year during the price cap period, which runs to 2002, citing a need to increase shareholder profits, and to recover the costs of past and future network modernization.
How do the companies justify these rate increases? Some companies say they need the money from the local side, in order to fund past long distance rate reductions. Some say they need it to pay for past network investments. And all of them say they need it in order for their shareholders to make a tidy profit – 12.75% returns, to be specific. On top of the basic rate increases are proposals to increase and expand directory assistance charges, and potential further increases to cover the costs of a system to allow subscribers to keep their phone numbers when they move between competitors.
PIAC is representing a coalition of consumer groups in the CRTC proceeding to examine these requests, now underway. The Alberta Council on Aging, the Consumers’ Association of Canada, the Fédération Nationale des Associations de Consommateurs du Québec, and the National Anti-Poverty Organization have joined together to fight these proposals and to maintain universal access to affordable basic phone service for all Canadians.
PIAC is particularly concerned about the lack of a full and proper process to deal with these proposals. In the past, the Commission looked at each company separately, and held a public hearing to hear consumer concerns and to allow interested parties to cross-examine companies on their proposals. In the rush to get everything done by January 1st, all the companies are being examined together, and we have been refused the opportunity to cross-examine company witnesses, without any compensating procedural changes. If ever there was a proceeding that called for oral hearings, this is it.
If you think these increases are unjustified and should be stopped, write to the CRTC at:
CRTC
Ottawa, Ontario, K1A 0N2
Attn: Mrs. Laura Talbot-Allan, Secretary General
fax: (819) 953-0795
e-mail: public.telecom@crtc.x400.gc.ca
They need to hear from you!

DID THE CRTC BLOW IT????

In 1992, the CRTC said that long distance competition should not lead to significant increases in local rates. Were they right?
This table shows local rates when long distance competition began in 1992 for selected locations across Canada and current rates. The 1998 figure has been proposed by the telephone companies. They have also requested increases over the next five years that, with normal (3%) inflation, could cause further increases over the 1998 levels of 20% – 30% by 2002.
 

 

Proposed Cable Regulations May Leave Consumers Out of the Picture!

In the spring of this year the CRTC issued its new policy for cable television competition. This broad policy framework was designed to create new rules for establishing competition in the provision of broadcasting (cable) services to Canadians. On July 2, the CRTC issued for public comment the proposed detailed regulations necessary to implement this new policy (Public Notice CRTC 1997-84). While in general these regulations establish a fairly straightforward framework for competition, the CRTC has made some decisions and proposals which are not in the best interest of consumers. PIAC will be representing the National Anti-Poverty Organization, FNACQ and the Consumers Association of Canada in this proceeding.
The CRTC has decided that the cable television community channel will no longer be mandatory. The community channel is an important means of local expression for many Canadians. The CRTC has left it up to each company to decide whether or not to provide such a service. It expects that the possibility that other companies may be competing in the market will be sufficient incentive to convince companies to offer some form of local community channel. However, the CRTC has not taken into account that after the expected competitive market shake-out, whereby only one or two companies are likely to be left in a market, there will be no incentive for cable providers to continue to spend millions of dollars on community expression. Instead, companies may pocket this money. The CRTC should continue to require that community channels and community expression be mandatory.
The CRTC has also proposed that the price for basic cable service for existing cable companies be deregulated after a competitor has drawn away 5 % of its customers. In no other sector is a five per cent market share considered a state of healthy competition. To remove controls over the price of basic service before real competition has developed leaves the door open for existing cable companies to jack cable rates up and down in different locations to suit their own interests as they battle new companies for market share. This approach risks the existing monopoly cable companies wiping out any competition before it gets established.
The proposed regulations do not provide any obvious, transparent mechanism for consumers to challenge or overturn the marketing practices of cable companies. Under competition, consumers may be faced with problems relating to quality of service, price hikes, service upgrades, market dominance by a company or even companies leaving markets (no cable service). The CRTC needs to amend the proposed regulations such that a clear and effective process exists for individuals or consumer organizations to apply for a review of the market activities of any service provider. Such a review should also include a public process – an above board approach will ensure that consumers are given a fair chance in the emerging competitive market. As well, the CRTC should conduct a review in five years time to assess whether a competitive market in cable services has developed which has actually benefitted consumers and not just the cable, telephone and satellite companies.

Phase II IHAC Recommendations address Access Issues

PIAC was a representative on the Federal Government’s Information Highway Advisory Council’s Access Steering Committee for the Phase II deliberations. The Council acknowledged that many Canadians face barriers to access to new communication services, such as the Internet, on the Information Highway.
Recommendations on access in the final report call for government initiatives to support the development of not-for-profit community networks for such purposes as access to government information and services, access and training for those who face affordability and other challenges, and the ability for individuals to get information in paper and electronic formats in order to ensure that no one is precluded from participation in society.
PIAC is working with a number of other consumer and public interest organizations, as well as the federal government, to help develop sustainable community networks in Canada.

New Publications

PIAC’s report LMCS in Canada is now available. LMCS is a wireless technology capable of delivering television, telephone and data services, such as the Internet, to the home. The report explains how LMCS works and cost and service implications for consumers. Report findings include: higher income consumers are likely to benefit first for new services and, competition will likely result in a few companies dominating the market. 55 pages long. Copies are available from PIAC for $20.00 each

Newsletter – April 1997, Vol.4 No.1

IN THIS ISSUE
CRTC Abandons and Privatizes Community Channel
Railway Abandonment Delayed
Cable Competition
Telephone Access: Key Survival Tool in Danger

CRTC Abandons and Privatizes Community Channel

On March 11, 1997, the CRTC released its much awaited new competition policy for broadcast distribution undertakings – (television broadcasting involving cable and Direct-to-Home Satellite signals). This Decision (Public Notice CRTC 1997-25) sets the policy framework for opening the cable industry to competition. Later this year, the CRTC will issue for comment draft regulations that will be used to put this new policy framework into practise. It is expected that the new regulations will come into effect in January of 1998.
While the Decision offers some benefits for consumers (see Cable Competition below), the CRTC has also abandoned the Community Channel. All companies will now have the option whether to offer a community channel or some other form of community expression, or do nothing. Existing cable companies who choose to keep the channel, can now run this as a private channel to boost their competitive advantage in the broadcasting marketplace, rather than meeting the needs of the public for participation and local expression. Cable companies now have absolute control over the content and access by the public to the community channel. Most companies will be permitted to contribute up to 2% of their gross annual revenues for local expression.
The CRTC has offered a confused explanation about this change which reflects a misunderstanding about what the “public interest” actually is, and the ability of cable companies to provide this without public oversight or direction. On the one hand the CRTC states that community programming and community expression will continue to be “vital components of components of the broadcasting system”, but continuing, says that “it does not intend to require any distributor to provide an outlet for local expression”. Then, ignoring that the “public interest” includes the interests of the public as well as cable companies, the CRTC observes that the “community channel provides cable operators with a highly effective medium to establish a local presence and to promote a positive corporate image for themselves”. This amounts to using the channel for an advertising vehicle for cable, not “community expression”. The CRTC is once again assuming that the public interest is the same as cable’s interests.
PIAC, representing FNACQ and NAPO for this proceeding, argued that in a competitive market, no one company should be in control of this important public resource, and that the community channel should not be used as competitive fodder in the battle for market share in the broadcasting market. We also argued that all existing community channels should be managed and controlled by a not-for-profit community organization run by community groups. In this way, all competitors could contribute to and work with community organizations in providing a community channel that existed to meet the public’s needs. In five years will we have to ask: what happened to the community in the community channel?

Railway Abandonment Delayed

PIAC provides ongoing legal advice to Transport 2000, a national citizen’s organization dedicated to the public interest in transportation. Most recently, PIAC has assisted Transport 2000 with efforts to preserve a historic and vital railway link running though Levis, Quebec. The Montmagny subdivision of CN’s railway system has been slated for abandonment for some time now. With PIAC’s help, Transport 2000, and local citizens have managed to delay the abandonment. They are working hard to ensure that this railway line continues to be maintained and operated for the benefit of everyone, local residents and businesses as well as tourists.

Cable Competition

The CRTC’s Decision on competition for cable television was released on March 11, 1997, in Public Notice CRTC 1997-25. Some of the highlights of this decision:

• The best part of the decision is that it opens the cable market to competition. Consumers have long been held hostage by the cable monopoly. Without extensive price regulation by the CRTC, competition is the only other option to try to get prices down and give consumers more choice.
• New competitors will be free to set prices for all levels of services. This may lead to rate reductions for some consumers.
• Under the new rules, existing cable companies will have the basic rate regulated until a competitors service is available to 30% of the households in an area (this could be made available by Direct-to-Home satellite or a land-based competitor) and the existing cable company loses 5% of its basic subscribers. Given that DTH service will apparently be priced around $35 a month, which is about the same for existing cable for many consumers, it is not clear that competition will bring down prices. Consumers may only get more choice in program packages and choice of supplier, especially in the core urban areas. The CRTC is hoping there will be real price competition as more players enter the market.
• Consumers will have the option of owning their inside wire. This will give them more choice in which company they can connect to for service.
• There will be no obligation to serve by new competitors, or by existing providers once an alternative service is available and the existing provider loses 5% of its basic subscribers. With the startup of DTH, the first condition has been met. The second condition should be easily met with some consumers switching to DTH and through market churn.

For the remaining 95% of subscribers in such markets, a number of questions are still outstanding:

• why is there no protection against prices going up, especially where a provider wants to cross-subsidize its competitive losses in another market?
• will the rural services benefit from service upgrades if most of the competition is focussed in the lucrative urban markets, or if no local competition develops?

Telephone Access: Key Survival Tool in Danger

Over the last few decades, telephone service has evolved from a luxury item to an essential service. It is now widely recognized that access to basic phone service is necessary for full participation in Canadian society, and that it is particularly important for people seeking employment, for the elderly and housebound, and in general, for the efficient and effective functioning of communities. This recognition is evident in s.7 of the federal Telecommunications Act, which lists as the first two objectives of Canadian telecommunications policy:
(a) to facilitate the orderly development throughout Canada of a telecommuni-cations system that serves to safeguard, enrich and strengthen the social and economic fabric of Canadaand its regions; and
(b) to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada.
These policy objectives set telecommunications apart from other public utilities: that it is a network-based service. The more people that are on the network, the more valuable the network is. This justifies a more active regulatory role in ensuring accessibility and affordability to all.
Until recently, telephone service was delivered to households by a single monopoly provider in each geographical region. Rates and terms of service were usually controlled by an independent tribunal, whereby private companies were assured of a reasonable profit, while consumers were protected against excessive rates.
With competition, “hands-on” monopoly regulation no longer makes sense. Market forces need more regulatory freedom in order to operate. These market forces, however, do not always operate in the public interest. In particular, they create strong pressures to increase basic local rates, and to exacerbate geographic disparities.
“Rate rebalancing” is a term coined by the telephone companies to mean increasing monthly local rates while lowering usage-based long distance rates. Rate rebalancing benefits heavy users of long distance (such as big business), while raising overall bills for most residential customers. Despite strong consumer resistance, it has been implemented by the CRTC in order “to enhance the efficiency and competitiveness …of Canadian telecommunications” – another of the policy objectives set out in section 7 of the Telecommunications Act.
Instead of spreading the large fixed costs of the network over all services, including long distance, the CRTC decided that economic efficiency requires loading all of those costs on the basic monthly rate. Hence, the $2/month increases that all residential customers across Canada experienced first in 1996, and again in 1997. More increases are expected for 1998.
Low income consumer advocates have led to battle to stop local rate increases, arguing that the public interest is being unnecessarily sacrificed at the alter of economic efficiency, and that an increasing number of households simply cannot afford any further increases to the basic rate. In the event that further increases are allowed, they advocate the establishment of special discount rates for households with incomes below the poverty line.
While approving of this “targeted subsidy” approach should an affordability problem develop, the CRTC recently ruled that current local rates are affordable even for the poorest households. In doing so, it cited Statistics Canada figures that over 98% of Canadian households have telephone service, and promised to reconsider the issue if and when the statistics indicate that more households are doing without service for affordability reasons. In other words, the CRTC equated having telephone service with being able to afford it, rejecting the argument that many low income households maintain telephone service not because they can afford it, but rather because it is essential to survival in today’s society.
The CRTC did, however, commit to monitoring the affordability issue, and invited interested parties to inform it of the availability of any additional data, studies or surveys which could assist it in monitoring the affordability of future rates. It is important that we give the CRTC the information it needs to act – write to the CRTC, Ottawa, Ontario, K1A 0N2, or fax (819) 994-0218.
Competition is now gearing up to enter the local telephone market. Many industry players argue that local rates must rise further, in order to make local competition economically feasible. Competition ideologues are thus faced with an embarrassing conundrum: instead of leading to lower rates, competition in local phone service is raising the price to consumers! This irony appears to be lost on many of our politicians and policy makers, whose almost religious belief in market forces takes precedence over social and economic realities.
With the move to competition, the CRTC is replacing rate of return regulation with “price cap” regulation. Beginning January 1, 1998, the major phone companies will be freed from earnings regulation, but will have to keep basic rate increases below a certain level. While the CRTC has yet to set the cap, many believe that local rates will continue to rise over the next few years, possibly to the $30/month level. In the longer term, competition may bring rates back down again – but it remains to be seen whether the Canadian market can support widespread competition in this very capital-intensive industry.
In the meantime, access to communications services remains a key issue for the federal government. It knows that a free market approach may well lead to a greater gap between the “information haves” and “the information have-nots”, and has therefore stated that “where market forces fail to provide this [universal] level of access, the government is prepared to step in to ensure affordable access to essential Information Highway services for all Canadians, regardless of their income or geographic location.” (Industry Canada, Building the Information Society: Moving Canada into the 21st Century, 1996). We are left wondering how exactly the government will step in, and what it will take to prompt such action. Hopefully, not a crisis.

Newsletter – December 1996, Vol.2, No.3

IN THIS ISSUE
CRTC Rejects Phone Company “Budget Services”
Consumers make splash in CRTC Proceeding on Local Phone Competition
CRTC Price Cap Proceeding – Can A Price Cap keep down local rates?

CRTC Rejects Phone Company “Budget Services”

Consumer groups celebrated a recent CRTC decision rejecting the notion that pay-per-use telephone service is an effective solution for households with affordability problems.
In Telecom Decision CRTC 96-10, released on November 15, 1996, the Commission directed Canada’s major telephone companies to provide all residential customers with free toll blocking options and improved instalment payment plans for connection charges, tools that PIAC and its clients have been advocating for years. In rejecting the telcos’ pay-per-use options, the Commission noted that such options do not address the calling needs of most Canadians.
“Representatives of various consumer groups, agencies and associations made it clear that flat-rate local calling and access to long-distance are considered essential elements of basic telephone service”, said the new CRTC Chairperson, Françoise Bertrand.
PIAC and its clients, the Fédération Nationale des Associations de Consommateurs du Québec, the National Anti-Poverty Organization, and One Voice – The Canadian Seniors’ Network, had presented to the Commission the results of two national surveys on this point.
Consumer groups were disappointed, however, with the Commission’s failure to recognize that the affordability of basic phone service is an issue for many households now, and that the fact that a household has telephone service reflects the essential nature of that service, not its affordability.
PIAC expects to be busy over the next few months assisting the Stentor companies with the task of developing an effective program to monitor the affordability of telephone service in Canada, and to ensure that households who could benefit from toll blocking or instalment payment options are informed of those options. The CRTC has asked the telcos to submit a concrete plan of action on these matters by April 30, 1997.
In its decision, the Commission agreed with FNACQ/NAPO/ONE VOICE that a targeted subsidy program is the appropriate solution to affordability problems. However, it found that “there is currently no conclusive evidence to suggest that local rates won’t remain affordable”.

Consumers make splash in CRTC Proceeding on Local Phone Competition

The CRTC proceeding looking at what rules are needed for competition to thrive in the local phone market ended this fall after a lengthy oral hearing.
Representing the Consumers’ Association of Canada, the Fédération Nationale des Associations de Consommateurs du Québec, and the National Anti-Poverty Organization (CAC/FNACQ/NAPO), PIAC made sure that the CRTC had before it a detailed proposal for consumer-friendly competition in the local phone market. The only other proposals before the Commission were designed by and for vested commercial interests.
At the heart of the CAC/FNACQ/NAPO proposal is a streamlined, competitively-neutral contribution mechanism, through which basic local rates can remain at affordable levels in all parts of the country. Without such a mechanism, rural rates in particular would soar. The consumer coalition also pressed for a certification process under which all competing service providers would be required to meet certain minimum service standards.
The CAC/FNACQ/NAPO proposal is contained in its Final Argument, dated October 8, 1996. This document can be obtained at no charge from PIAC.

CRTC Price Cap Proceeding – Can A Price Cap keep down local rates?

Consumer groups, under PIAC=s leadership, took a front row seat in the recent CRTC proceeding on how to design effective price cap regulation for the Stentor companies. This hearing, which took place in October/November 1996, will likely be the last big proceeding of its kind, if competition does indeed develop in this market.
CAC/FNACQ/NAPO teamed up with the B.C. coalition of consumer groups to argue for a fair and efficient price cap regime, one which recognizes that the Stentor companies will have substantial market power – especially in the residential market – for some time to come. Backed by substantial expert evidence, they challenged the telcos= estimates of expected productivity improvements, the alleged need to replace narrowband facilities before originally planned, and the need for further rate rebalancing.
The Consumer Coalition pointed out that market forces will not necessarily align themselves with Canadian socio-economic objectives, and that regulatory safeguards must therefore be maintained until effective, sustainable competition is proven to exist.
They challenged the Stentor companies= proposals for a low productivity factor, accelerated depreciation, and rate rebalancing, noting that they would amount to app. $1 billion/year of artificially high consumer prices in 1998 and beyond.
The regulatory model advocated by the consumer groups would treat ratepayers and shareholders symmetrically, and would not permit either to benefit unduly from estimation erros in the formula. It would involve a price freeze on basic telephone service as of January 1, 1998, continued contribution from toll and optional service revenues toward the cost of access, and an overall cap on local services of inflation less 6.2% (the Aproductivity offset@). Those companies that do not think they can make efficiency improvements of 6.2% per year could choose a lower offset, with the corollary requirement that they share any earnings above and beyond a certain level. The plan would be reviewed and adjusted as necessary after five years.
The Consumer Coalition stressed the importance of monitoring telco profit levels, in order to judge the reasonableness of rate levels. This was a particularly sensitive point with the phone companies, who argued that their profit levels are irrelevant to the question of whether rates are just and reasonable.
Copies of the Consumer Coalition argument are available from PIAC.

Newsletter – September 1996, Vol.2, No.2

IN THIS ISSUE
Competition in Cable TV Pending!
Local Phone Service – Will You Have a Choice?
Survey Shows Importance of Telephone Service
Negative Option Marketing – Is It Dead?

Competition in Cable TV Pending!

On May 17, 1996 the CRTC issued a call for comments (CRTC 1996-69) on new rules which will permit competition in cable television. PIAC is representing the National Anti-Poverty Organization (NAPO) and the Fédération Nationale des Associations de Consommateurs du Québec (FNACQ) for this proceeding.
The new regulations are supposed to create competition in traditional cable distribution as well as with new interactive services, such as online video games, Internet, etc.. The new rules will apply to the existing cable companies and new competitors offering service using cable, telephone wires, wireless and satellite technologies.
We feel that some of the CRTC’s proposals fall well short of the necessary steps to permit the development of competition which will benefit consumers. The proposed rules do not ensure that Canadians will have choice over who they get service from or that cable service will be available at lower prices.
The CRTC has proposed moving to a regional licensing approach. For example, a company could get a license to operate on a provincial instead of a local basis. While this may be one approach to spur competition, the CRTC has failed to adequately address issues relating to:

• an obligation to serve all customers in an area, not just those in the highest profit centres;
• the possible abandonment of existing small markets which may be seen as not profitable enough by cable companies;
• ensuring that support for traditional community channels is maintained, especially by those who operate and are licensed regionally rather than locally;
• ensuring that regional licensees, if this approach is taken, carry the signals of local stations for local subscribers.

We are also asking the CRTC to define basic service. Cable companies have stretched the definition of basic to include many services that subscribers don’t want and have raised rates to pay for these. It is time that the CRTC ensures that the basic package meets users’ actual communication needs and the objectives of the Broadcasting Act. At the same time, Canadians should also have more choice over the other programming that they receive and how they pay for this.
Both the incumbent cable companies and large telephone companies are eyeing the money pot of cable profits. Both are proposing to rework the community cable tv channel into a commercial product they can use to achieve advantage in the competitive marketplace. This is a public resource that should not be used as fodder in the upcoming war between cable and new competitors. Instead, the control and management of community channels should be turned over to locally run not-for-profit organizations. The public should be in charge of this public resource!
The CRTC is also proposing that all competitors contribute a minimum of 5 per cent gross revenues to pay for Canadian content (3%) and community channels (2%). Both the cable and telephone companies would like to see more of this money go to their souped-up community channel.
We are proposing that companies be required to contribute 6 per cent of gross annual revenues. The NAPO/FNACQ position is that the money should be used to support the public not-for-profit community channels (1.5%), a neutral Canadian content production fund (2.%), and a new fund to help develop and sustain community not-for-profit computer networks (2.5%).
Most governments and many of the companies are planning to provide information and new services online. It is likely that some of these will only be available online. It is our position that these services should be accessible and affordable for all Canadians and that community networks are one means to help achieve this goal. All companies should make some contribution from revenues to help make this new form of community channel or public space available and sustainable.
The CRTC has also proposed that cable companies will continue to be regulated until a new competitor is available to 10 per cent of customers in a market area. This does not mean that a new competitor will even have that many actual subscribers, but just be available to 10 per cent of customers. We feel that this will not lead to competition for the simple reason that the cable companies will start a price war to kill competition before new companies have a chance to make it in the market.
Instead we are proposing that the CRTC adopt a proper test to determine if sustainable competition exists in each local market before the traditional cable companies are cut loose. Under the CRTC’s plan, new competitors will also likely flock to the high density urban markets and ignore the rest of Canada. Even then, they may not survive given cable’s advantage.
We have also argued on behalf of NAPO/FNACQ that the CRTC should continue to regulate pricing where competition fails to develop so these customers don’t end up paying for the competitive losses of companies elsewhere or for new services which these subscribers may not use.
The CRTC will be conducting an oral hearing on its proposals commencing October 7. NAPO and FNACQ have asked to appear at this hearing. New draft regulations will be released publicly by the CRTC for further comment in the new year.

Local Phone Service – Will You Have a Choice?

What happens to your telephone number if you decide to let the cable company provide local phone service? Will rural customers get the benefit of local phone competition?
These are just some of the questions that the CRTC is attempting to answer in the current proceeding that is now underway on the rules needed to get competition into the market for local phone service. PIAC has been active at these proceedings representing the Fédération Nationale des Associations de Consommateurs du Québec (FNACQ) and the National Anti-Poverty Organization (NAPO). PIAC is also working closely with the Consumers’ Association of Canada (CAC) to ensure that the needs and interests of ordinary residential customers are met in the new competitive environment.
We remain sceptical that competition can result in lower local phone prices, or for that matter, maintaining a consistently high quality network. The US and British experiences, to date, present a very mixed set of results.
Nevertheless, competition is currently the flavour of the day and our job is to make competition work. This is what we hope to do:

• identify where there is competition and where there is not, to ensure that adequate protection exists for those ratepayers who only have one local provider;
• show what competition can deliver and what it can’t deliver, making sure that consumer are protected where market forces are unlikely to achieve policy objectives on their own;
• suggest rules that will lay the groundwork for real competition – the kind that benefits small customers, as well as big business;
• make sure that all telephone services pay their fair share in the form of contribution. In a competitive environment, this is necessary to keep rates for the basic service and the universal network affordable to all Canadians; and
• keeping the same extent and quality of telecommunications service that Canadians are used to.

The US experience with competition in the telephone industry has resulted, to a large extent, in real problems for local networks particularly in smaller populated areas. PIAC is working to make sure that competition in local service does not simply mean more choice for high end users and higher prices for ordinary customers.

Survey Shows Importance of Telephone Service

In January of this year, PIAC together with other consumer, public interest groups, and labour unions sponsored a national survey to help with representation of consumer interests at upcoming CRTC hearings. There has been much industry hoopla concerning the need for competition and to raise local rates. PIAC was concerned that decision makers might forget that phone service is not just a commodity like any other. Not surprisingly, 86% of respondents said they could not manage without telephone services. In addition, despite the telcos enthusiasm for local measured service (pay-per- call) most Canadians came down of the side of fixed monthly rates for unlimited local calling. The majority also felt that providing services to low income households at a cheaper rate was a good idea.
The survey is thought to be the first in depth independent sample of customer attitudes concerning telephone service. The results are now available in publication form: Local Telephone Service Pricing Options For Canada $8.00 to order by phone: (613) 562-4002 ext. 40, by fax: (613) 562-0007, by e-mail: PIAC@WEB.NET, by mail: 1 Nicholas Street, Suite 1204, Ottawa, ON, K1N 7B7

Negative Option Marketing – Is It Dead?

The great Canadian cable consumer revolt of January, 1995 demonstrated the folly of the CRTC turning a blind-eye to the marketing practices of the cable company, in order to establish new Canadian channel services. In the immediate aftermath, politicians, cable operators, and bureaucrats were all wringing their hands saying this could not happen again. We wonder.
The practice of negative option marketing had been a wildly successful ploy by Canadian cable companies. In 1990, Canadian cable companies sold their Extended Basic Service package to customers through negative option marketing. All basic service cable users were provided with extended basic and billed for the same unless they called to cancel. By 1993, a survey showed that 66% of Canadian cable consumers still thought they were receiving the lowest priced basic service package, while, in reality, only 8% continued to do so.
The CRTC, for years, has been indifferent to the anti-consumer aspects of this practice, preferring to see it as something harmless that enabled Canadian programming services to be established. “What consumers didn’t know wouldn’t hurt them”, was the implicit suggestion.
This myth exploded in January 1995, when consumers lined up in droves to cancel cable service and to voice their displeasure at being treated like sheep.
A private members bill, Bill C-216 was introduced this year by Roger Galloway, M.P., that would outlaw these practices. Predictably, Bill C-216 has run into opposition from the usual sources. The cable industry claims it will freeze programming. Producers of speciality programming are afraid that it may prevent the CRTC from foisting channels without the consumers consent onto a cable package.
There is nothing wrong in ensuring Canadian content and a preponderance of Canadian programming on cable. However, to remove consumer choice by implicit exploitation of the market, is not right and should be stopped. PIAC has twice attended before the House of Commons Heritage Committee to argue for Bill C-216’s adoption.
Bill C-216 goes before the House of Commons for a third reading in September. Contact your local MP to urge that he/she support Bill C-216. The government has been quick to support competition and choice where the customers are the powerful business interests. Lets make sure they do the same when the customers are ordinary Canadians.

Newsletter – March 1996, Vol.2, No.1

IN THIS ISSUE
Pats Coalition takes on Phone Giants
“Blueprint for Action” for Phone Battle
Consumers Push for Real Competition in Telecommunications
New PIAC study: Citizen Utility Boards – Can They Work in Canada?

Ontario Government Ignores Public Process to Assist Utilities Pats Coalition takes on Phone Giants

On February 15, 1996 a report that was both historic and unprecedented was issued by PIAC on behalf of People for Affordable Phone Service (PATS). PATS is a coalition of over 60 member organizations across Canada including consumer, seniors, students, labour, and public interest groups. PATS was formed in the fall of 1994 in response to the CRTC decision increasing local telephone rates through rate rebalancing. The February 15, 1996 report urged low- volume consumers of long distance services to switch to a competitor if they were subscribing to long distance services offered by Canada’s traditional telephone companies (Bell Canada, BC Tel, AGT and others).
The PATS report came about as a result of events that occurred after the CRTC issued its rate rebalancing decision on October 3, 1995. That decision ordered local rate increases of $2.00 in the upcoming years of 1996 and 1997 and a further unspecified increase to be determined in 1998. Telephone companies were instructed to reduce their basic long distance service (DDD) rates by an equivalent amount of the benefit of the local increase. The CRTC decision meant that telephone bills for most Canadians would be going up. However, it also ensured that at least some benefits would be provided in the form of long distance rate discounts on DDD rates.
The Stentor telephone companies were not happy with this decision. They successfully lobbied the federal cabinet to allow them to keep the increases without giving customers the discounts. Needless to say PIAC and the members of the PATS coalition were very disenchanted with this result. DDD rates had scarcely come down since competition began. The cabinet decision meant that over $4.5 billion dollars of consumer money would be used to financially enhance one set of competitors, the traditional telephone companies at the expense of ordinary users of telephone service.
PIAC set to work advancing the PATS grievance. In early January PIAC filed another petition with the federal cabinet asking to limit the cancellation of the DDD discounts to a two year period. We wrote to all Stentor telephone companies and their competitors to see if they would offer a rate that would be equivalent to the reduced DDD rate that would have been offered had the federal cabinet decision not taken place. The Stentor telephone companies (with the exception of SaskTel) did not reply. However, eight new entrant long distance providers told us that they would provide rates that would be less (in some cases much less) than the DDD rates that the CRTC had ordered and the federal cabinet had overturned.
Because most Canadians do not make enough long distance telephone calls to qualify for the threshold amount under the savings plan of the Stentor telephone companies, the basic long distance or DDD rate is the most significant for the average telephone user. All eight of these companies boasted a significantly lower rate.
On February 15, 1996, the PATS report was issued recommending that most Canadian residential telephone consumers would be better off getting their long distance services from the following eight companies:

• ACC Long Distance Inc
• Distributel
• Westel
• Sprint Canada
• Cam-Net
• Fonorola
• Unitel
• CTI Telecommunications Inc.

Michael Janigan, Executive Director of PIAC, and spokesperson for PATS put it this way:
PIAC thinks that the Stentor companies will lower their rates to respond to the market signals and the PATS report is one way to put the information in the hands of the consumers. If rates come down, the billions of dollars that were supposed to bailout the telephone companies can remain in the hands of the consumers.
“The decision to cancel the discounts to basic long distance services taken by cabinet in December was the biggest corporate welfare program in Canadian history. We want to take Canada’s traditional telephone companies off of welfare and put them on workfare – they are going to have to work to get the business of ordinary Canadians”.

“Blueprint for Action” for Phone Battle

Over the past two decades, PIAC has been assisting lower income consumer groups in their fight to maintain affordable phone service. In recognition of the effects of its decisions to allow rate increases, and after repeated requests from the National Anti- Poverty Organization and other consumer groups, the CRTC finally initiated a proceeding to determine the best way of ensuring affordable phone service into the future. The proceeding is called “Local Service Pricing Options”.
At issue are such key questions as: What is “basic phone service”? At what point do rates become unaffordable? Can local service options such as pay-per-use or toll blocking solve the problem? Is a targeted subsidy a good way of addressing the problem?
After weeks of discussions with consumer group representatives from across Canada, a common position emerged: that no option proposed by any telephone company to date in Canada adequately addresses the problem of affordability and rising rates for basic phone service.
This position was based on the results of two nation-wide surveys: one, a membership/constituent survey of 294 mainly low income households conducted by the consumer groups themselves; and the other, a random survey of over 1,000 Canadians conducted by Ekos Research Associates Inc.
One message came across loud and clear from these surveys: Canadians consider both flat rate local service and access to long distance service as key elements of basic phone service. As well, low income households use local phone service more than average. In other words, pay-per-use service, or toll blocking, simply do not meet the needs of low income Canadians.
On behalf of its three client groups, the Federation Nationale des Associations de Consommateurs du Quebec (FNACQ), the National Anti-Poverty Organization (NAPO) and One Voice – the Canadian Seniors’ Network, PIAC filed a detailed submission, which included the following “Blueprint for Action”:

1. Define “basic telecommunications service”, identify the specific components of “basic telecommunications service” in 1996, and create a process for updating the definition as technology and market forces evolve.
2. Establish a benchmark for affordability which reflects the situations of lower income Canadians.
3. From the list of components of basic service (identified in step #1), separate out those which are appropriately charged for on a recurring monthly basis. Ensure that this package of services is provided to lower income Canadians at a price no higher than the affordability benchmark.
4. With respect to those components of basic service which are appropriately charged for on a lump sum basis, establish policies to ease the burden of these lump sum payments on customers in need. Such policies should include discounts on connection fees, and provisions for instalment payments.
5. Examine all other policies of the telephone companies with a view to enhancing affordability of basic service, and revise those (e.g., security deposit policies, disconnection policies) which pose obstacles to affordability.
6. Require telephone companies to develop and adopt policies to address specific problems faced by low income consumers in obtaining and keeping telephone service (e.g., toll blocking service, optional extended area local calling zones).
7. Establish a competitively-neutral targeted subsidy program, based on the California model. This “Universal Connectivity Fund” should provide lower priced connection service and basic telephone service to self-certifying households with incomes below the poverty line.

For more information, or for a copy of the February 19th submissions by FNACQ/ NAPO/ONE VOICE, please contact Pippa Lawson (ext. 24) at PIAC.

Consumers Push for Real Competition in Telecommunications

While competition in the long distance telephone market has been getting off the ground, consumers are still faced with monopoly provision of local phone service. But this may change.
PIAC has been assisting consumer groups with the development of guidelines for competition in telecommunications. We have learned some lessons from the experience with long distance competition (eg: the need for clear, comparable information on offerings from different companies), but many more issues are raised by the prospect of competition in the local service market. For example, to what extent should the existing local telephone companies have to open up their networks to competitors, so as to avoid costly duplication of facilities?
How can we be sure that existing companies are charging fair rates to competitors for interconnection? Will consumers be able to keep their telephone numbers if they switch to a competitor? How can we ensure that subscribers in high cost areas continue to be served?
How can we ensure that consumers continue to get emergency (911) service and relay service (for the deaf)? Will consumers have to consult a variety of directories when looking up a number, or can we continue to have a single comprehensive directory for each local calling area? Should competitors be able to define their local calling areas as they wish? If so, how will people know if a call is local or long distance? What kinds of service standards (e.g.: quality of service, privacy protection, disconnection and security deposit policies, billing practices, prohibited fees, blocking services) should be applied to competitive local service providers? How should consumers be protected from improper solicitation and switching by new entrants? What kind of information should be provided to consumers about their competitive alternatives?
One big issue that no one seems to be addressing is how much will competition in the local telephone market cost consumers? As the price tag for each prerequisite to competition becomes clearer, consumer representatives are left wondering the same question as always: who is going to pay, and who is going to benefit? PIAC is committed to ensuring that the proper regulatory mechanisms are put in place to ensure that everyone, not just large business customers, benefits from competition in telecommunications and that costs to consumers are minimized.
All of these issues, and more, are being addressed by the CRTC in its proceeding to set the rules for local competition. PIAC is representing the National Anti-Poverty Organization and the Fédération Nationale des Associations de Consommateurs du Québec, and is working together with the Consumers’ Association of Canada, to provide an informed consumer perspective on the key issues. The three groups have jointly filed three detailed submissions with the CRTC, entitled “Consumer Safeguards under Local Competition”, “Mechanisms for Recovering Contribution”, and “Principles for the Appropriate Regulatory Treatment of Telephone Company Stranded Investment”. PIAC is also publishing a report on local telephone competition, and its implications for consumers. Call PIAC Publications phone line (613) 562-4002 ext. 50 to order your copy.

New PIAC study: Citizen Utility Boards – Can They Work in Canada?

In the early 1980’s, as a result of work done by Ralph Nader and other consumer advocates in the United States, a number of states enacted legislation that provided for the establishment of so called “Citizen Utility Boards” (CUBS) these CUBS were consumer organizations funded by monies obtained in appeals to consumers of utility services by way of materials put in the utility billing envelopes. These organizations proved successful until a US Supreme Court decision struck down the ability of straight legislators to mandate inclusion of such organizing material.
This study by PIAC looks at the US experience and makes recommendations on how it could be implemented in Canada, and in particular in the cable industry. Copies $15 ea., 115 pages, soft cover.

Ontario Government Ignores Public Process to Assist Utilities

Across North America, consumer advocates have been rightly suspicious of efforts by utilities to expand into non- regulated businesses. This usually entails the use of the resources or the good name of a utility to get into a business that would not be subject to regulation and would be operated purely for the profit of the shareholders of the utility.
The main difficulty is that such business enterprises involve risk for the utility that may impact upon ratepayers in the event of financial failure while no possibility of reward exists for the ratepayers in the event of success. Over the years in Ontario, the Ontario Energy Board has been vigilant in attempting to get utilities such as Consumers Gas, Union Gas, Centra Gas out of ancillary or external businesses operated by each utility. The experience of several of the utilities including Consumers Gas and Union Gas in the 1970’s and 1980’s with outside enterprises was close to disastrous.
Unfortunately, last year the utilities were able to persuade the Ontario Minister of Energy Brenda Elliot to agree to exempt them from their undertakings to the government not to engage in activities external to their utility operations, for the purpose of their potential participation in the York Region Water Project. To complicate matters further, the exemption was supposed to be first approved by the OEB by the terms of the undertakings themselves. It wasn’t. Finally, the Minister asked the OEB to give consideration to further exemptions to enable utilities to participate in even more projects. The OEB, decided that it would hold a consultation rather than a proceeding on the issue limiting the ability of the participants to participate fully in the process and ensuring that no money would be available to public interest groups to put forth the consumer case.
PIAC objected strenuously to the way these matters have been dealt with by the Minister and the OEB and has participated in a consumer coalition to protest such action. PIAC sees no benefits for the consumers who financially support these utilities and enable them to be in a position to bid on external work.

Newsletter – September 1995, Vol.1, No.2

IN THIS ISSUE
CRTC Convergence Report: Is GoodBad News for Consumers!
Basic and Essential Service
Consumers Make Waves at CRTC Hearing
Local Competition Rules Next on Agenda
Bell Canada Raises Prospect of Pay-as-you-go Local Service
Deposit Insurance Report Released
PIAC-Fights Telephone Company fee hikes.
Consumer Protection Report Released.

Information Highway Update!

CRTC Convergence Report: Is GoodBad News for Consumers!
In May, the CRTC released its report on convergence issues in telecommunications entitled “Competition and Culture on Canada’s Information Highway: Managing the Realities of Transition.” (Convergence means the increasing ability of the telephone, cable, and computer networks to deliver the same services).
The report came about as a result of a federal government Order in Council in the fall of 1994, requesting that the CRTC study and report on how Canada could best develop policies that would provide for the new communications technologies and services that comprise the “Information Highway”.
PIAC was pleased to see that the report acknowledges that services on the Information Highway cannot be simply market-driven and that the public must have affordable and non discriminatory access to all information systems. The report outlines sensible standards for the licensing of programming service to ensure that future producers have sufficient resources to produce quality Canadian programming.
The CRTC report also concludes that telephone companies should not be allowed to compete directly with cable companies until all barriers to local telephone competition are removed. While PIAC has no quarrel with this equality of treatment for the telephone and cable companies, we are concerned that the CRTC has decided to do nothing in the meantime to rein in the consumer practices of the cable industry. PIAC wants reasonable profitability and quality controls on the cable monopoly while we await competition.
As well, real local telephone competition may not appear for some time. In the United States, local competition in telephone services has been a goal for almost a decade in some states. No significant local telephone competition has yet developed in those states. Canadian cable consumers want effective control over cables unregulated monopoly over most of the services it now delivers.
If you agree write to – no postage required:
Honourable Michel Dupuy, P.C. M.P
Minister of Canadian Heritage
Room 230 Confederation Bldg., House of Commons
Ottawa, Canada, K1A 0A6
or fax (819) 957-2956

Basic and Essential Service

Government policies on basic and essential services have been cornerstones in the development of affordable telephone service and the availability of Canadian television programming. Canadians in most areas of Canada are able to use their phones for a number of necessary activities. These include contacting family and friends, volunteer and community activities, allowing communication for the disabled and housebound; and to contact doctors, social agencies and for emergency services, among other activities. For cable and broadcasting, federal policy has made sure that viewers have access to a wide range of Canadian and international programs, educational, cultural and community channels for their entertainment and personal needs.
There are no guarantees that existing basic and essential services in telephone or broadcasting/cable will continue to be available the same way or at the affordable prices many of us have today.
Some companies would like to change the rules so customers not only pay more for a basic connection but also for each of the services or channels which they now get in a flat rate package. This “unbundling” could cost people more money to get the same services they have now! It also means Canadians may have to pay a lot more just to get access to publicly funded services which are put on the Information Highway.
Basic and essential services must remain affordable and be offered in a package or basket of services at a flat rate so all Canadians can access and use our communications networks. If traditional subsidies can no longer be used to help keep these costs low and affordable then new funding mechanisms must be found. Those companies who are going to benefit from these networks – cable, telephone and new content competitors – should contribute to the cost of accessing our homes. Like subscribers, they should pay their fair share!
To make sure that all Canadians have affordable access we believe that the federal government should direct the CRTC to hold hearings to define an affordable basket of basic and essential services for cable, telephone and satellite systems. The public should be included as these decisions are made. If you agree please write or fax:
no postage required
Honourable John Manley, P.C. M.P.
Minister of Industry
Room 356 Confederation Bldg.,
House of Commons,
Ottawa, Canada, K1A 0H5
or Fax: 613-992-0302
or,
Honourable Michel Dupuy, P.C. M.P.
Minister of Canadian Heritage
Room 230 Confederation Bldg.
House of Commons,
Ottawa, Canada, K1A 0A6
or Fax: 613-957-2956

Consumers make waves at CRTC Hearing

In one of the most wide-ranging proceedings on telecommunications, PIAC led consumer forces opposing local rate increases and challenging the telephone companies’ plans for multi-billion dollar network upgrades. Representing the Fédération des Associations de Consommateurs du Québec (FNACQ) and the National Anti-Poverty Organization (NAPO), PIAC worked closely with the Consumers’ Association of Canada (CAC) and consumer coalitions from B.C, Alberta and Manitoba to make sure that the voices of ordinary residential subscribers were heard, in the face of tremendous pressure from the telecommunications industry for local rate increases.
PIAC called several experts to the witness stand, who explained why rate rebalancing is not necessary at this time, and who suggested rules by which the CRTC can promote competition (the new religion) without harming residential customers. The telephone companies seemed most rattled by evidence that their costs of local service may be greatly overstated – their cost claim of $27 per line was challenged by PIAC’s independent expert calculations of app.$17 to $21 for three representative communities.
In addition, PIAC filed the results of a survey of almost 900 lower income Canadians, showing among other things that the price of local service is more important to these people than are long distance rates, and that poor people use the telephone as much, if not more, than others.
While the Commission’s decision is not expected until later this fall, there is no question that consumer interests cannot be ignored. PIAC’s intervention in this hearing was much larger in scale than ever before, and included original testimony never before considered by the CRTC. Consumer groups were unanimous in their positions on the major issues in this hearing, and in their support of the evidence submitted by PIAC – all agree that ordinary Canadians should continue to receive high quality telephone service at affordable rates.
Local Competition Rules Next on Agenda
Following on its decision last fall to open up the local telephone market to full competition, the CRTC is now examining what rules are necessary in order to ensure that real competition develops in this highly-monopolized sector. PIAC is once again representing consumer groups in this important process.

Bell Canada Raises Prospect of Pay-as-you-go Local Service

After an abortive first attempt, to introduce mandatory measured rate local business service, Bell Canada is expected to resubmit its application to the CRTC, this time making the new pay-as-you-go service optional. “Measured rate” service means that each call would be billed according to time spent on the phone. The same way long distance calls are billed. While this proposal only affects business customers, a number of public interest groups (including the Coalition for Public Information, Telecommunities Canada, the Ontario Library Association, and the Fédération des Associations de Consommateurs du Québec) are concerned that it is only the first stage of a longer term strategy to eliminate affordable flat rate local calling.
At the same time, Bell has proposed to restructure rural and urban local business rates, so as to better align them with costs. This means, according to Bell, higher rural rates and lower urban rates for businesses. Again, PIAC is helping a coalition of groups, including Rural Dignity of Canada, who are concerned that this will mean similar restructuring for residential customers and will further diminish and isolate rural communities.

Deposit Insurance Report Released

The Canadian Deposit Insurance Corporation (CDIC) is a federal crown agency that insures deposits in banks and trust companies up to a maximum of $60,000. In the wake of some spectacular flameouts in the financial world and huge payouts to insured depositors, the government is examining ways of preventing financial failures.
A study commissioned by PIAC, written by social policy consultant, Dr. Martin Loney, concludes that deposit insurance has primarily benefited wealthy Canadians seeking to secure maximum interest rates on deposits. Wealthy investors buy into deposit taking institutions (primarily trust companies) and access much larger sums of capital for speculative investment, knowing that their money is fully insured.
The result is that all consumers are subsidizing a small number of investors compensated by large payouts on claims arising from financial institution failures. The CDIC has accumulated a debt of $1.65 billion dollars and has paid out over $3.7 billion dollars on claims arising from trust company failures over the last 4 years. CDIC insurance premiums have risen tenfold, a cost passed on to all bank and trust company customers. Loney concludes “the consumer therefore bears a direct burden from the existing system by ordinary Canadians being asked to pay higher service charges to fund a system which provides higher earnings for trust company owners or sophisticated depositors seeking to maximize their income.”
Loney believes that making depositors responsible for 5% of their existing deposit will cause the large depositors to be wary of institutions which are not appropriately managed and to demand sufficient information prior to making investments. This would likely result in fewer failures and lower CDIC premiums. The study is available at a cost of $25.00 from the Public Interest Advocacy Centre.

PIAC-Fights Telephone Company fee hikes.

Sometimes telephone companies are clever enough to realize that it is easier to persuade the CRTC to increase charges related to telephone use than to get an increase in basic local rates. That’s why you pay a $2+ fee for the touch tone. The problem for consumers is that this ploy simply means having to pay more for the same service.
Recently, PIAC has had to deal with a number of different attempts by the telephone company to charge consumers for services that were once included in the basic package:
In June, on behalf of the National Anti-Poverty Organization, (and together with FNACQ) PIAC appealed the decision of the CRTC to allow Bell Canada to charge $96.00 per hour for installing and repairing inside telephone wiring. This means a whopping repair and installation bill when your wiring breaks down or to install wiring, if it is needed when you get a phone.
Two years ago, the telephone companies won a questionable decision to allow them to charge for providing information services for long distance telephone calls. Now they want to increase that fee by 50%. How anyone is supposed to be able get a long distance number without calling information is a question left unanswered by the CRTC. PIAC is opposing the new charge.
PIAC believes that it is time to ensure that basic service is not eroded by telephone company manouvering. If the telephone companies ran supermarkets, we would likely be charged for the use of the grocery cart, the weigh scales, the cashier’s services, the bags, and parking on the theory that these things are not part of buying groceries!
We believe Canadians want to pay a basic charge that includes the normal expectations of telephone use. PIAC intends to continue the fight against “the death of a thousand cuts” approach in telephone bills.

Consumer Protection Report Released.

Enforcement of Federal Consumer Protection Law: We Can Do Better (1995), written by Bill Jeffrey, observes that the problems of marketplace misconduct will never be properly addressed in Canada until three developments in consumer protection law occur:

1. consumers are empowered to, on their own initiative, enforce legislation designed to protect them;
2. the quasi- criminal legislative regime is replaced by a less cumbersome, decriminalized civil compensation-based scheme;
3. a class action scheme is introduced to more evenly balance the economies of scale of enforcing prohibitions against dangerous and fraudulent marketplace misconduct.

It is an essential reading for anyone concerned with the consultations related to planned amendments to the federal Competition Act and the anticipated revisions of many of the other consumer protection statutes.

Basic Telephone Service in the Information Age: A Consumer Perspective

A Paper Prepared for Presentation to The Canadian Association of Members of Public Utility Tribunals (CAMPUT)

by Philippa Lawson, Counsel
Public Interest Advocacy Centre
1 Nicholas Street
Ottawa, Ontario
K1N 7B7

INTRODUCTION

Increasingly, telecommunications is seen as a strategic investment. There is no doubt that widespread and innovative uses of advanced telecommunications technology by Canadian business will improve our economic health. But in this enthusiasm to embrace the information age, we must not lose sight of the public utility function of the technology. As much as it has become a strategic investment, telecommunications remains a public utility, which should be available to all citizens regardless of income level.
A strategy designed solely to enhance the competitiveness of Canadian business will not benefit the ordinary consumer, especially if that consumer is stuck with the bill. Whatever benefits actually trickle down are unlikely to compensate the ordinary consumer who ends up paying more for some fancy technology or capacity he neither wanted nor needed in the first place.
Universality must not be sacrificed if we are to enter the information age ahead. The challenge is to guide our transition to the new economy in a way that brings everybody along, that spreads the direct (as well as indirect) benefits of shared investments among all ratepayers, and that requires only those who actually benefit from a given investment to pay for it.
The question you are asking, and which I am here to speak about today, is “universality of what?”. And I will get to that – but first, I feel compelled to say a few words about your role as regulators.
We have been barraged, in recent months, by a endless stream of academic and industry polemic (most of which is aimed at the CRTC’s regulatory review) on the evils of regulation and the wonders of the free market. The problem with this approach is that it compares apples and oranges – that is, it compares the current practice of regulation (which we all agree can be improved) with the theory of competition. What they – and you – should be comparing is the practice of regulation with the practice of competition. Or, perhaps even more appropriately, the theory of regulation with the practice of regulation.
If you do the latter, you will be reminded that regulation is a social, as well as economic, exercise. Efficiency, the ultimate concern of economics, is desirable, but it is not the only purpose of public utility regulation. Equity is at least as important, especially with a service as potentially crucial to individuals as telecommunications. When the two conflict, as they are bound to do, we often choose to sacrifice a little efficiency in order to gain greater equity. This is entirely appropriate in a democratic society, the proper functioning of which requires equality of opportunity.
[As it happens, equality of opportunity is one of the key assumptions upon which the theory of competition is based: we assume that everyone has full information. In the real world, of course, this is not the case: there are vast disparities in knowledge and expertise]
I urge you not to lose sight of the ultimate goals of regulation, which are primarily social. Economic tools should never become ends in themselves, no matter how desirable they may seem at a given point in time. Greater reliance on market forces seems to be a good thing right now, but will we find that it is always the best approach? Telecommunications is a rapidly developing industry. Who knows what is going to happen with the local market, with wireless technologies or with convergence of cable and telephone industries? And if we don’t know what the market is going to look like ten or twenty years down the road, how can we confidently say that one method of managing that market is better than another?

AN ESSENTIAL SERVICE

No one that I have met disputes that the telephone has become an essential service. Not one person that we have polled, in our informal survey of low income consumers, said otherwise. The only holdouts are people trying to escape society, and even they end up relying on someone else’s telephone for emergencies and the like.
Poor people who are unable to afford a telephone find that routine activities become complicated, and important messages don’t reach them on time. Job hunting without a telephone presents a real challenge. With current caseloads, welfare workers often have to use answering machines – and if you are calling with your last quarter, you’re not left with many options. Yet, strangely enough, welfare in most jurisdictions does not include an allowance for telephone service. And even if it did, that is no solution for the 1.4 million Canadians living below the poverty line, who don’t receive welfare.
A telephone in the home has become necessary to full participation in society. It wasn’t always the case, of course: the telephone began as a luxury good, and evolved into a sort of “fancy telegraph”, used mainly for emergencies and business transactions. Gradually, the use of telephones as means of maintaining social contacts and planning everyday events grew, to the point now where we rely on the telephone for all sorts of important things:

• social contact over the telephone is far more important than it used to be, with an increasingly mobile population, a high rate of family break*up, and a generally faster pace of life;
• businesses rely heavily on the telephone to stay competitive;
• voluntary organizations and individual volunteers are able to accomplish a great deal through telephone networks;
• disabled and housebound individuals are able to function more independently;
• Schools, health care practitioners, social agencies, employers and potential employers * all assume that their students/patients/clients/employees have telephones; and
• a sophisticated emergency response service is now available in most places over the telephone.

DEFINING BASIC TELEPHONE SERVICE

Where people differ is on the bundle of telecommunications services that they consider essential to daily life. For example, there are still a significant number of people who choose to stick with rotary dial telephones, despite aggressive marketing of touch tone by telephone companies: app.25% in the jurisdictions I have looked at.
Yet touch tone is becoming necessary for more and more applications: information services using interactive voice response, banking from home, utility metre reading, and so on. While none of these applications themselves may be essential to daily life for most people, they are becoming the norm. And as they become the social norm, those who don’t have access to them fall behind.
To what extent should the people who choose to remain with old technology be second*guessed? To what extent should a regulator decide that it is in their best interests to upgrade?
This is a difficult question, and I’m sure that you have wrestled with the answer. It will always be difficult, since new technology is not adopted overnight. There will always be a period of time during which a service improvement is neither a luxury nor a necessity. And there will always be holdouts – people who are perfectly happy living without a service that has become part of everyday life for most others.
The challenge is to provide all citizens with affordable access to those services they need to participate fully in society, without forcing those who don’t want fancy new services to pay for them.
The point of defining basic telephone service is to ensure that it, at least, is affordable to everyone, including poor people. I will discuss affordability later on * but first I’d like to talk a bit about content of basic service, now and in the future.
If we define basic service as that level of service required for full participation in society, then I would suggest that the following elements make up basic telephone service in 1993:

• Access to local and long distance
• Single Line Service
• Touch Tone Service
• Local Directory
• Directory Assistance
• Special Services for Disabled
• Operator Service
• Caller ID Blocking
• Call Trace
• 911 service (where available)

These services, whether bundled or not, should, taken together, be priced in such a way as to be affordable to everyone. (1% of average poverty line * 1% of 15K * $15?)
As technology and social norms evolve, so must the regulatory definition of basic service. One challenge for the regulator, as I have mentioned, is to move along right with the evolution; to be neither way ahead of it nor lagging far behind it. Another is to ensure that this evolution is driven by consumer demand, and not be telephone company interests nor by overly*eager advocates of a technology*rich information age.

Consumer Driven Evolution

If the evolution to the information age is to benefit everyone, not just the manufacturers and suppliers of the technology, or just the high*end users, then pricing is going to be key. The expansion of basic service to include a new service, such as touch tone or single line, must be accompanied by appropriate price adjustments, in order to keep the package of basic services affordable.
The current move to single line service and touch tone standards throughout the country is happening partly in response to consumer demand, but largely as a result of telephone company interests. Those interests are clear: to maximize revenue*generating opportunities. While there is nothing inherently wrong with this * it is normal, profit*maximizing behaviour * prices, as a result, do not necessarily reflect the essential nature of the service.
For example, while touchtone service is gradually becoming the service standard throughout the country, premiums for touchtone, generally in the $2.00 * $3.00 range, are still imposed. In other words, consumers are forced to pay extra for touch tone service even if they don’t want it. It’s appropriate to allow current rotary dial customers to maintain that level of service, and to do so at a lower price. However, it’s inappropriate to disguise a basic rate increase as a “premium”, which sounds optional to most people.
When approving the inclusion of what used to be an optional service into basic service, regulators should look closely at pricing implications, and should ensure that any consequent increase to basic rates is justified.
In this age of rapid and sometimes unanticipated technological development, it’s easy to allow ouselves to be led by the technology. The problem is that behind the technology are powerful companies, who of course have their own interests at heart. The onus is therefore on you – the regulators – to ensure that the evolution of basic telephone service responds to legitimate consumer demand and promotes social well*being.
Given that telco revenue potential is maximized when more people have access to new and enhanced services, I think it is likely that you, as regulators, will be responding to telco requests for basic service upgrades, as opposed to initiating such upgrades. I can’t think of a service improvement that the telcos would not want eventually to become standard.
For this reason, I think you should be wary of speculative social benefits put forward by telcos as the rationale for treating a new service as basic. We’ve been wrong in the past * just look at what has happened to 900 service: it’s become a depository for vendors of lewd entertainment. (While I don’t watch cable TV myself, I understand that late*night viewers are inundated with advertisements for erotic entertainment over the telephone lines).
These, therefore, are the criteria that I suggest you apply when faced with applications to upgrade basic service:

• that there be a demonstrable net social benefit (eg: applications that have been demonstrated as socially useful; value of the service outweighs its cost to all ratepayers); and
• that there be a certain level of consumer demand, definitely over 50% take*rates, and perhaps substantially higher.

Using these criteria, where might we be in terms of basic service ten years down the road?

THE FUTURE

We’ve already come a fair distance, from a time when mere access to the public telephone network was all that people expected. Now we demand private access to that same network * we’re making too many calls and we’re spending too much time on each call for sharing to work. Party lines are fine for people who use the phone for emergencies and quick calls only. They don’t make sense for people who rely on the phone for daily operations. We also now want to be able to access all the information and other services that touchtone opens up. This is POTS+.
What’s likely in the future? It seems to be pretty much agreed that we will, sooner or later, be demanding access to a much broader array of services, including video and data as well as voice communications. These will be interactive, not just one*way. They won’t necessarily all be offered over the same network, nor by the same company. But they are coming, one way or another.
Much of the necessary technology is already in place. Digital switching, in particular, will soon be universal. International standards have been set for ISDN * the new network intelligence that, in conjunction with digital compression, will enable multimedia services to be offered over existing transmission facilities.
The possible applications are endless:
In education, opportunities are opened up for distance learning, multimedia language instruction, specialized programs for advanced students or for students requiring remedial assistance, parent/teacher video*conferences, and on-line multimedia libraries. Learning possibilities for people with language difficulties or sensory disabilities would be greatly expanded, with computerized conversions between languages and types of media.
In the health field, video applications, in particular, offer new possibilities for patients and practitioners in remote areas. A specialist in Edmonton, for example, could diagnose and give instructions to a paramedic in Fort Vermilion. Or, indeed, a surgeon in Edmonton could actually conduct an operation on a patient in Fort Vermilion by remote robotics. This application, I am told by Bell Canada officials, is currently under trial.
New and enhanced databases, easily accessed, would make looking for a job much easier. Job training could also be greatly improved through the use of multimedia and remote imaging. Telecommuting and home*based businesses will be given a boost, providing greater flexibility to the work force.
Community applications are already evident in the growing number and size of community computer databases and billboards. In Ottawa, for example, we have a service called FreeNet, which is accessible at no charge to anyone with a computer and a modem, and which provides all sorts of community information, from weather and sports news to electronic messaging and information on local service organizations. It is, of course, in its infancy, but the fact that it is usually busy when you try to access it indicates that at least some consumers are ready for such new ways of getting and sharing information. Video conferencing will be next, allowing people to meet face*to*face over the public network.
Applications in the entertainment field may well lead the way, given the unprecedented success of Nintendo and other computer games. Multimedia games, interactive video and video on demand are virtually here, on the cable side. But telcos will have the same capabilities, once digital switch conversion is complete.
Of course, one of the great promises of these new services and capabilities is for disabled people, for whom the rhetoric of equal opportunity and accessibility may finally have some basis in reality. Public information may finally be available in alternative formats, at low cost.
There is not much debate that this vision will eventually be attained. There is debate, however, on how it should be achieved. This debate centres on three interrelated issues: How fast should the transition be? How should the new information age services be priced, initially? and What technology should be used?

SPEED OF TRANSITION

The Alliance for Public Technology in the USA argues for an aggressive, proactive approach to entering the information age. They argue that the inevitable evolution to a PANS service standard, if left to develop at its own pace, will be business*driven and will not serve residential consumers well. They warn of the development of an “information elite” if everyone, rich and poor, educated and uneducated, is not provided with the new technology up front. They also point out that these new technologies and services are far more likely to succeed, the more people are hooked up and using the system. Their agenda therefore includes universal provision of the new services, as quickly as possible, accompanied by a massive consumer education program, teaching people how to use their new equipment.
Others, including the Consumers Federation of America, argue that the transition should occur gradually, in response to demand. It is more important, they argue, to keep what we now consider to be basic service affordable. Ubiquity in the short term will require huge up front capital costs, which will have to be recovered through rates. The costs of building the social infrastructure (which is equally necessary if genuine universality is to be achieved), will also be large. Who is going to pay? Governments sure don’t have a lot of extra cash sitting around right now. Better to spread these costs over a longer period, they argue, in order to soften * or indeed eliminate * the rate impact.
Proponents of gradualism also point out that their approach is far less risky: even if everyone is hooked up, who is to say that they will all use it? An “information elite”, so to speak, will always exist; it is not simply a function of available resources. Computer literacy is not developed overnight * it will take time for people to adjust to a new way of communicating and accessing information. As long as public institutions such as schools, health centres, libraries and community centres are hooked up early on, so that people have access and begin to appreciate the uses of this new technology, predictions of worsening social inequality are overstated.
Also overstated, argue the gradualists, are the concerns that the new network, if not made initially ubiquitous, will leave consumers behind. Business applications have almost always preceded applications in the residential market. This is not necessarily a bad thing. As long as the public network is gradually upgraded in response to demand from both business and residential subscribers, there is little, if any, risk that consumers will miss out.

PRICING IN THE SHORT TERM

Proponents of immediate ubiquity always leave the question of who pays to the end. But surely this is the key question – few people would oppose modernization on a mass scale if it cost them nothing. The proponents argue that it won’t in fact cost so much, and that in any case, consumers are willing to pay the price. They argue for increased basic rates in order to cover the cost of upgrading the entire system. Every telephone subscriber would pay for the new capabilities, whether he or she uses them or not. Subsidies would be necessary for poor people and for regions where the cost of service is unusually high.
Consumer advocates disagree. They don’t want to have to pay for high-tech capabilities they neither want nor need. Before these new services pass the test of universality, or basic service, they should be offered on an unbundled basis at prices that cover costs, including a contribution toward access costs. As costs fall and as the new enhanced network becomes ubiquitious, PANS prices can fall, eventually becoming universally affordable. But until then, I agree with those who argue that POTS+ should remain affordable for all citizens, and should be offered as an alternative for those uninterested in PANS. In any case, revenues from POTS+ should definitely not subsidize PANS.

COMPETING APPROACHES TO THE INFORMATION AGE: UBN VS. N*ISDN

Most observers agree that broadband will eventually become the standard transmission medium throughout the network. Fibre optic lines already make economic sense for new installations, particularly in the interoffice and long distance network. But where experts disagree is on whether copper wire to the home needs to be replaced before it has reached the end of its useful life.
(i) The Ubiquitous Broadband Network (UBN) Approach
Proponents of a ubiquitous broadband network now argue that television*quality two*way interactive video is an essential part of the package of information age services that should be available to all. This capability is the only one that ISDN cannot now deliver over copper wire.
They argue that a univeral broadband telecommunications platform should be put in place as soon as possible, so as to provide to everyone at once a single network with multiple channels of switched interactive multimedia communications. (Optic switching is currently being developed to facilitate switched TV*quality video; it could not be provided immediately).
Consumers would have a choice of using their own personal computers to hook up with the network, or renting low*cost easy*to*use communication terminals, that would give them access to a variety of services.
Network intelligence would therefore be centralized in a public gateway, through which consumers would have to go in order to access the service they require. Information services could still be provided by private vendors, through the public gateway, but presubscription would not be required * the public gateway could handle billing.
(ii) The Widespread Integrated Narrowband Network (WINN) Approach
The other approach, favoured by those consumers concerned about price, is to rely on narrowband ISDN technology to deliver the same services. Mark Cooper, of the Consumers Federation of America, advocates what he calls a “Widespread Integrated Narrowband Network”, at least until the ubiquitous broadband network is achieved.
Using ISDN and compression technologies, virtually all of the services promised by broadband enthusiasts can be delivered over copper wire, at a fraction of the cost. Cooper has estimated the cost of upgrading to narrowband to be app.$300 per subscriber, versus app.$3000 per subscriber for an integrated broadband network.
In fact, good quality two*way interactive video is already being offered over copper wires. Just last week, Bell Canada demonstrated its current switched video capabilities to us in Ottawa, and the quality was very good, certainly adequate for conferencing, which is promoted as the big advantage of broadband for ordinary consumers. Furthermore, compression and other technologies are constantly improving, so that the the differential in the quality of video sent over fibre and over copper is constantly narrowing. Distance learning, remote imaging, teleconferencing * all are available over existing transmission facilities through the use of exisiting technology.
There are other advantages, besides cost (the big one), to relying on narrowband technologies to deliver information age services in the short term. WINN emphasizes computer skills, which are crucial for economic advancement in the decades ahead. By relying on decentralized intelligence * that is, in the customer premise and in the customer * it avoids problems associated with centralized computing, promotes competition in the delivery of information services, and capitalizes on the burgeoning computerization of society.
WINN also leaves open more room for cable companies to play a role in the delivery of information*age services in the future. Given the remarkable penetration of cable television in Canada (94% of television households are passed by cable; of these, 82% subscribe; in all, 77% of Canadian households have cable TV), it makes sense to leave something to the cable companies to provide.
The public network, with its captive base of ratepayers, is not the place to undertake risky ventures that have uncertain demand. The beauty of WINN is that it responds to demand; those who neither want nor need enhanced services aren’t forced to pay for them.
Digital switching (which is required for either a UBN or a WINN) and CCS#7 technology (which is required for much of the new capability) have been treated as common network costs over the objections of consumer advocates who questioned the benefit that POTS subscribers would get from them. Telephone companies will undoubtedly attempt to treat the much larger costs of ubiquitous broadband networks as common network costs, to be paid by everyone. In contrast, the incremental costs of ISDN services * upgrades, line cards and jacks * need not be spread over all users.
Whatever route you allow the telephone companies to pursue, clear policies will have to be put in place to ensure:

• least cost provision of service: a strict economic test should be applied to all deployment of broadband, so that ratepayers are not saddled with the financial burden of unnecessary capacity;
• competition: mass market*oriented tariffs and open access policies should be used to encourage decentralized information providers to develop and market consumer*oriented services;
• interoperability: common standards, like ISDN, will be needed to ensure easy translation between various systems; and
• usability: databases and directories should be user*friendly, and accessible to people with various types of disabilities.

h3.PRICING OF BASIC SERVICE
I mentioned earlier that the whole point of defining basic service is to ensure that everyone, regardless of income level, can afford at least that level of telephone service. But affordability means different things to different people; I don’t think it has ever defined in this context.
(i) Affordability
Affordability cannot be measured simply by whether or not one subscribes to the service * the fact that basic telephone service is so essential to daily life means that people will stretch themselves financially to keep it. Those on low budgets will cut back elsewhere * most likely on food * in order to hang on to their telephone. This is not affordable. Penetration rates are useful to see what is happening at the margin; they say little about financial hardship.
A better measure of affordability, I would suggest, is the percentage of income spent on the service. Obviously, at a given price, telephone service will consume a higher percentage of a poor family’s income than of a wealthy family’s income. And the same is true of price increases: poor people must put out a much greater proportion of their income for the increase than must wealthier folk.
This is illustrated in the following graph, which shows the total percent of income that households of varying income levels must spend on basic telephone service, as rates go up. High income earners spend no more than half a percent of total income on basic service, even when rates are $40/month. But low income earners, at the other end, have to put out more than six times that proportion of income to get the same service.
Clearly, lower income families are going to hit a limit long before higher income families. The question is: where is that limit? At what point does the price of telephone service become unaffordable?
It’s a difficult question, but it needs an answer, even if some form of targeted subsidy is put in place to ease the financial burden of higher rates on low income families.
(ii) Cost-Based Pricing
There is tremendous pressure on regulators right now to move from a regime of value-based pricing to what the telephone companies and their economists call “cost-based” pricing.
There are two big problems with cost-based pricing in an environment of inputs with mixed uses. One is the impossibility of getting it right. The other is that cost*based pricing comes into direct conflict with social goals.
Even as someone trained in economics, I have some difficulty with this concept in the field of telecommunications, where all services rely upon the maintenance of access facilities, and where a single piece of equipment such as a switch is used for all sorts of different applications. The CRTC’s Phase III Costing Methodology attempts to resolve these problems, and I think that it’s a noble effort. But when you are relying on the telephone company for the information on which the cost breakdowns are made, and when in many cases the breakdown is arbitrary, the validity of the results has to be questionable.
As discussed above, social goals such as equity are just as important to telecommunications policy as economic efficiency.
Cross-subsidies which achieve social goals are entirely appropriate in the context of a public utility. Even if the economists are right, and there is some efficency lost as a result of geographic price averaging, surely the equity gains outweigh the efficiency losses. Similarly, a policy of contribution from long distance revenues to the cost of access achieves a key policy goal in Canadian telecommunications: that of universality. It should not be dropped simply because the telephone companies find it a nuisance, and hire academic economists to tell you it makes no economic sense. If we lived by economic sense alone, we wouldn’t have telephone service in many rural and remote areas, we wouldn’t have a national telephone penetration rate of over 99%, and many of our less fortunate citizens wouldn’t have a service that both makes their lives more livable and better enables them to break out of poverty. In sum, we would have a very different society, one that I am not sure we would like.
(iii) Information Age Services as a New Revenue Source
Even if the telephone companies are right that they have to raise basic rates in order to make up for lost long distance revenues, how long will this situation last? Given new information services that the telephone companies can deliver now over existing facilities at minimal cost, there are likely to be all sorts of other sources of contribution in the near future. These new revenue sources will only grow in number and potential, if current forecasts prove accurate. We needn’t wait for broadband; we needn’t pad the ratebase with broadband: narrowband ISDN services can and should be treated now as a contribution source whose significance will grow quickly. Call Display, a tiny forerunner of what is coming in the next decade, has already shown that, with proper pricing policies, telephone companies can make significant amounts of money from enhanced services.
It may well be that telephone companies have neglected the development of narrowband ISDN capabilities because they would rather pursue the more capital*intensive route of broadband, which would give them a strong platform from which to enter the video entertainment market. Perhaps also telcos want to jack basic rates up while they can, before bringing new profitable services on stream. Such a strategy would of course make sense from a telco perspective, but any strategy which unnecessarily raises basic telephone rates cannot be socially beneficial.
(iv) Problems with Alternative Pricing Proposals
The telephone companies are not so uncaring ore impolitic as to ignore the effect of basic rate increases on low income families. They recognize the value in having as many subscribers on the network as possible, and have therefore proposed that some version of a discount service be made available to those who qualify or who have no other choice.
So-called “lifeline” programs were instituted in the United States as a way of softening the impact of the subscriber line charge and other local rate increases allowed by regulatory authorities. Such programs have operated for several years, with mixed results, depending on the nature of the program.
There are a number of problems with lifeline programs. First, lack of receptiveness from the target population. Many people view special rates for poor people as yet another stigmatizing public subsidy.
Second, lifeline programs tend not to reach a significant proportion of the target population. Participation rates among eligible groups in the United States averaged only 30% in 1989 (the last year this measure was taken). Whether because the subsidy was too small, or because of illiteracy, pride or simple lack of awareness, many poor people with and without telephones were not taking advantage of the programs.
Another problem has to do with the threshold that is chosen. There will always be a number of families and individuals who just barely fail to qualify. If the threshold is set low (eg: welfare recipients), then a large number of low income individuals who actually need assistance won’t get it. The determination of eligiblity criteria in Canada will be particularly difficult, since welfare reaches only 65% of Canadians living below the poverty line. If all needy citizens are to be eligible, lifeline programs cannot simply piggyback on other low income programs, as in the USA.
Self-certification programs, which provide assistance to those who assert that they need the help, get around this problem, but there may be a perception that they invite fraud. If verification of income is politically necessary, it will of course add to the costs of the program. Any sort of means testing is unacceptable to the target population and would therefore be counter-productive. If applicants must sign a consent, authorizing the telephone company to check their tax returns, the participation rate is likely to be further reduced.
In sum, lifeline programs and other targeted subsidies may raise more problems than they solve.
Local measured service has also been suggested as an alternative to universally affordable flat rates. The problem with this is that there is no evidence to suggest that poor people use local service any less than do higher income people. In fact, local measured service makes most sense for working people, who spend long days at an office from which they can make local calls free. It makes very little sense for people who are stuck at home with children or with disabilities, and for whom the telephone truly is a lifeline.
People who are unemployed, housebound or just plain poor need to make calls during peak hours just as much as, if not more than, other folk. Potential employers, government agencies, and other social services cannot usually be reached between 9pm and 8am. Offering local measured service as an option may increase consumer choice, but it does not respond to the needs of poor people.
For all these reasons, I caution you against buying into the telephone company’s theories that local rates have to rise in the long term, and that there is a better way of meeting the needs of low income citizens. Basic telephone service, whatever it includes at any given time, should be within the financial means of all Canadians.

Digital Authentication and Consumers' Privacy

Report commissioned by:
Electronic Commerce Task Force
Industry Canada
Prepared by:
Angie Barrados, Researcher
Public Interest Advocacy Centre
1204 – 1 Nicholas Street
Ottawa, Ontario
K1N 7B7
barrados@web.net
www.piac.ca
April 2000

Table of Contents

INTRODUCTION
A. OVERVIEW OF DIGITAL AUTHENTICATION
B.SECURITY
B1. Securing Entire Systems
B2. Security Problems with Digital Signatures
B3. Use of Best Available Technology
B4. Social Systems
B5. Security: Conclusion
C. MANAGEMENT OF PERSONAL INFORMATION
C1. Centralization of Personal Information and Data Matching
C2. Certification Authorities
C3. Certificates and Names
C4. Management of Personal Information: Conclusion
D. INDIVIDUAL CONTROL OVER PERSONAL INFORMATION
D1. Choices and Ability to Evaluate Systems and Certification Authorities
D2. Key Rings
D3. De-linking Authentication from Identification
D4. Individual Control Over Personal Information: Conclusion
CONCLUSION

Digital Authentication and Consumers’ Privacy

INTRODUCTION

This paper identifies and discusses the main implications of digital authentication to consumers’ privacy based on two sessions of the Tenth Conference on Computers, Freedom and Privacy (CFP) held in Toronto from April 4-7, 2000: “Who Am I and Who Says So? Privacy and Consumer Issues in Authentication” and “Everything You Need to Know to Argue About Cryptography”(1). The material from the conference is supplemented by selected secondary sources.
The paper provides a brief explanation of what authentication is, and provides definitions of some key terms relating to digital authentication. The main potential problems and issues for protecting consumers’ privacy in the context of systems that use digital authentication are then discussed under three headings: security, management of personal information and individual control of personal information. Experts’ main recommendations on protecting consumer privacy in these three areas are also noted.

A. OVERVIEW OF DIGITAL AUTHENTICATION

Generally, authentication means “the process of establishing confidence in an assertion”(2) and is the basis of being able to conduct transactions of many kinds. Authentication is often related to establishing the identity of someone entering into a transaction, such as when consumers show their driver’s license to have a cheque accepted. Methods of authentication can also be used establish someone’s authority, as in a diploma, or to establish someone’s privileges, as in a membership card. Also, statements can be authenticated as being endorsed by a specific person by means of a signature or a seal.
Authentication methods currently in use for electronic transactions such as magnetic strips on cards, credit card numbers, PINs and passwords share some major flaws. They are not very secure, since they can be stolen relatively easily, either through low-tech methods (looking over someone’s shoulder at an ATM) or higher-tech methods (breaking into someone’s computer). Also, they cannot be tightly bound to one person. Consider buying something over the Internet with a credit card for instance; the credit card number alone does not tell the vendor that you are who you say you are. Added to these problems is the fact that much electronic communication is occurring over relatively insecure media such as the Internet that can easily be eavesdropped on.
Public key cryptography potentially offers a secure way of authenticating digital transactions over the Internet, and thus a great deal of attention is being paid to the development of systems that use public key technology, and the infrastructure needed to support such systems. In particular, digital signatures that use public key cryptography have great potential to facilitate electronic transactions. Generally, “digital signature” means a scheme using public key cryptography that functions much like a physical signature to authenticate the origin and integrity of documents.
Public key cryptography is distinct from traditional cryptography, because traditional cryptography uses the same key to encrypt and decrypt messages, while public key cryptography uses two keys to convey one message: one key to encrypt a message and another key to decrypt the message(3). One key cannot be derived from the other, so that one key can be made public, while the other can be kept secret. The way that public key encryption works is explained by the following example of how it can be used to send a message securely:
Say that Alice wants to send Bob a message. We assume they both own a key pair and they both know each other’s public key. Alice encrypts the message using Bob’s public key, and sends it over an insecure channel. Bob decrypts the message using his private (secret) key.
In this case, Alice can send a message to Bob over an insecure channel knowing that only Bob can read the message. But it does not authenticate the message (ie. confirm that the message comes from Alice). In order to authenticate the message, Alice must use her private key as a digital signature to the message in the following way:
Alice computes the “hash” of the message using a “hash function”(4). She then encrypts the hash with her private key: this is the digital signature. She sends this signature to Bob along with the message.
When Bob receives the message, he computes the hash of the message. He then decrypts the signature with Alice’s public key, and compares the resulting hash to the hash of the message he computed. If they are the same, he can be sure that the message was sent by Alice, and was not tampered with.
In this example, Bob can only rely on the digital signature if he can be sure that Alice’s public key in fact belongs to Alice. Alice’s public key must be tied in some way to Alice herself. This can be done through a certification authority that checks Alice’s identification, and certifies that the “real” Alice owns the public key. The certification authority would issue a certificate that Alice could send with her signature to validate her public key. It would be important that the certification authority be trustworthy, so that a certificate signed by the authority could be relied upon.
The establishment of certification authorities is the main part of the infrastructure needed to support the use of digital signatures (known as “public key infrastructure” or PKI). By and large, PKI is still a conceptual notion and not a reality, but there is a great deal of interest in establishing certification authorities and standards for their operation. Creating PKI may seem like a primarily technical issue, but in fact, once PKI is in place, it could lead to the widespread use of digital signatures. This has quite important implications for consumers. Digital signatures will facilitate the further use of electronic communication and storage of personal information in many fields. The new systems that use digital signatures as authentication will introduce new ways of identifying people, change individuals’ responsibilities and liabilities, and provide new ways to centralize information.

B. SECURITY

Digital signatures have a great deal of potential to increase the security of electronic transmissions, but the reliance on digital signatures in itself would create new security concerns (discussed below). Also, digital signatures will probably facilitate the development of new electronic systems through which to carry out transactions, and these systems in turn will have to be secure.
The importance of system security to the individuals who use these systems was made clear by the hypothetical example that was discussed by the CFP panel. The hypothetical system used public key technology to control access to a database of emergency medical profiles, and was accessible to doctors and insurance companies with certain certificates. Individuals could access their own files using a smart card containing a biometric identifier. An Orwellian scenario was given of an individual finding that her file had been altered without her knowledge. Her private key (the smart card) had in no obvious way been violated, so she had no way of proving that she did not make the changes to her file. If the culprit was not found, she could be held liable for the misuse of her card, and expenses to her insurance company.

B1. Securing Entire Systems

Computer security experts find that people are dazzled by public key cryptography, and that they tend to assume that it can be used to completely secure systems(5). However, most ordinary operating systems are vulnerable to attack by hackers. In many cases using digital signature technology will be “like putting a vault-door on a cardboard box”. For instance, a security expert on the CFP panel explained that in sending a digital signature over the Internet, a user’s browser may have access to the user’s private key. In this case, the digital signature itself may be hard to attack, but it would not be hard to attack the user’s browser and find the private key.
The layperson may assume that one cryptography function is all it takes to secure a computer system, but in actual fact, most security problems require many functions in different parts of the system (a cryptographic protocol)(6). Designing good cryptographic protocols is “amazingly hard”, and applying them to software is even harder, according to cryptographers. However, many systems designers consider security at the last minute, and do not realize how hard it is to apply cryptography to security problems. In many cases, the use of cryptography may give a false sense of security.
In setting up systems using public key cryptography, it is important that the limitations of the technology be clearly understood by both system administrators and users(7). It can never be assumed that systems are completely secure.

B2. Security Problems with Digital Signatures

A digital signature can be less secure in some ways than a physical signature in authenticating a transaction. As discussed above, a digital signature relies on the use of a private key; the private key is actually a string of digits that would most likely be stored on a card accessible with a PIN. Proponents of digital signatures tend to assume that the private key and certificate is controlled by the certified keyholders, but if the private key is kept on a card, there is clearly a danger that the card and PIN could be copied or stolen. Critics feel that the problem with relying on digital signatures is that it would be as easy to steal a signature as it is to steal a credit card(8).
In the case of a forgery of a physical signature, an individual can try to prove that he was not the person who physically signed a document through a number of methods. He can show that the forged signature does not match his real signature, he can call on people who witnessed the signing of a document, and he can try to prove that he was in a different location at the time the document was signed. A digital signature cannot be related to a person in the same way, unless there is a video camera recording who is at the computer monitor conducting a particular transaction.
To tie private keys more strongly to individuals, private keys could be based on biometrics (such as fingerprints, or iris scans). If biometric data was downloaded to a card for use, there would be the same danger of the card being copied or stolen. However, if the public key was an actual scan of one’s fingerprint, for instance, it would be harder to forge, although some computer security experts feel that even biometrics are not secure(9).
An investigation of a fraudulent use of a digital signature would depend on the audit trail of the suspicious transaction. It is, therefore, important that systems be designed to keep such audit trails(10).

B3. Use of the Best Available Technology

Designing secure systems is expensive, and the companies that build these systems may not always have the incentive to use the best available technology(11). The extent to which this incentive is present will be determined by the assignment of liability in the case of a security breach. Contracts between individuals and service providers will likely specify who is liable for misuse of the individual’s private key. If providers bear liability for misuse of the private key, they will have a strong incentive to use the best available technology. This assignment of liability would be analogous to the liability banks have for misuse of ATM cards. Banks bear the liability for misuse of ATM cards provided customers take reasonable security precautions, so they use good security methods such as video cameras at ATM machines.
In future, individuals may be able to choose among different service providers that have varying levels of system security. It will probably hard for individuals to be able to understand and evaluate security issues, since these issues are complex, even for experts. Also, individuals may not understand the potential risks that security breaches pose for them. Therefore, consumer protection laws should clearly place responsibility for security on service providers.

B4. Social Systems

Even if technology can provide good security for a computer system, there may be serious security problems if the people using the system are not security conscious. The CFP panel on authentication discussed the difficulty of ensuring security of medical files in a hospital or clinic setting. Typically, security is based on a “firewall” concept, that allows the insiders (say hospital staff) to have access to all files(12). This means that a great many people have access to the files, which increases the possibility of abuse. Also, there are typically many low-tech ways of accessing personal information (such as reading files left in easily accessible places). Introducing an electronic system based on public key cryptography will not solve these problems and may indeed introduce greater potential for abuse because of increased centralization of personal information.
To provide data security, attention needs to be paid to the social system that uses the computer system, as well as the computer system itself. The panelists agreed that changing these social systems to ensure data security can be just as hard as designing technological solutions to security problems.

B5. Security: Conclusion

The application of public key cryptography is not enough to solve all security problems. In fact, the new systems that will be facilitated by public key cryptography create a whole set of complex security concerns that must be addressed to ensure the protection of personal information.

C. MANAGEMENT OF PERSONAL INFORMATION

Digital signatures could lead to the development of much larger, more complex electronic systems than have previously been used. These systems may raise significant concerns about how individuals’ private information is collected and exchanged by private entities.

C1. Centralization of Personal Information and Data Matching

The systems that will be facilitated by the use of digital signatures will likely increase the centralization of personal information. For instance, it will soon be possible for all of an individual’s medical information to be stored and updated in one electronic file. This may be advantageous to doctors and patients in many ways, but it also means that patients would have less control over their medical information. A patient would no longer be able to withhold parts of her medical history from a new doctor. Also, unauthorized access to the file would disclose the entire medical history and potentially create far more problems for an individual than disclosure of a partial file.
A major privacy concern will arise if one digital signature is used for multiple purposes. In this situation, the public key would become a de facto universal identifier, and allow for matching of diverse databases. This means that comprehensive files on individuals could be compiled by authorities with access to many different databases, or by hackers. Also, all of an individual’s electronic transactions could be recorded, and traced back to the individual.

C2. Certification Authorities

Certification authorities will likely play an important role in PKI; they will issue digital certificates to individuals to certify that an individual is the rightful holder of a public key. Through the process of issuing certificates, a certification authority would keep records about individuals identification, registries of public keys and certificates, as well as certificate revocation lists(13). The revocation lists in particular raise concerns because anyone relying on digital signatures would have to check the revocation list each time they accept a signature. In the process of checking the revocation list, a data trail would be created that would show every inquiry about a particular certificate. Therefore, everyone with whom an individual transacts could potentially be recorded by the certification authority.
Certification authorities could have a great deal of power over individuals by virtue of their function in issuing/withholding certificates, and revoking certificates. This power will be greater to the extent that the following factors are true:

• individuals need to obtain a certificate in order to engage in important or essential transactions;
• individuals do not have a choice as to which certificate authority they deal with, or all certification authorities offer the same service;
• eligibility requirements are not regulated;
• identification requirements and application criteria are not publicly disclosed.

Privacy advocates are concerned about the creation of authorities that could potentially exercise a great deal of power over individuals, and would hold significant amounts of information about them.

C3. Certificates and Names

Identification requirements to establish an individual’s eligibility for a certificate will have to be established. Privacy advocates are concerned that these requirements may be too onerous, and thus privacy invading. This problem will be more pronounced with certificates that actually establish identity, compared to certificates that establish some type of eligibility without identifying the individual.
Another privacy concern involves the personal information that the certificates would potentially display. The subject’s name and public key may not be enough information, because names are not always enough to unambiguously identify someone; other information such as an e-mail address or a driver’s license number may be required. A subject’s privacy could be compromised by having to disclose personal information in a certificate every time she uses a her digital signature.
The identification and eligibility requirements used by certificate authorities will have very important privacy implications. Many companies have an interest in securely identifying their customers. In the context of digital signatures they may see an opportunity to improve identification by pushing for more onerous identification requirements for certificates than the identification that is currently used to verify physical signatures. Any such push towards identifying individuals more comprehensively needs to be counterbalanced by privacy considerations.

C4. Management of Personal Information: Conclusion

To protect individuals’ privacy, personal information held by certification authorities and systems managers would need to be protected from misuse, and any authorized use of the information would have to be carefully evaluated to ensure that it is not privacy invasive. These privacy protections rely on good data management practices which could be promoted by sound rules and oversight. However, it will be impossible to completely avoid misuse of information or security breaches. It is important therefore, that PKI build in privacy protections apart from private-sector information management practices.

D. INDIVIDUAL CONTROL OVER PERSONAL INFORMATION

As digital signatures allow systems to be built that increase the centralization of information, it will become more and more important to ensure that individuals do not lose all control over their personal information, and thus any ability to protect their privacy. There are three main ways that individual control over personal information can be maintained in a digital environment: allowing people to choose privacy-enhancing services, allowing for the use of a “key ring” rather than one multipurpose key, and the de-linking of authentication and identification in many situations.

D1. Choices and Ability to Evaluate Systems and Certification Authorities

In the future, individuals may or may not have a choice about whether to acquire a digital signature, and which certification authority to use to validate it. It is important that individuals be able to choose options that maximize their privacy. As PKI is developed, it is important that individuals not be forced by mandated use of certain systems to acquire digital signatures. People should be free to acquire digital signatures when they are confident that their privacy is adequately protected.
If individuals are given choices about which systems and certification authorities to use, they must be able to evaluate the security and information management practices of a particular service. This will require the disclosure of key information about services, and some sort of independent evaluation of them, made available to consumers in understandable language.

D2. Key Rings

As mentioned above, there is a major concern with the public key becoming a de facto universal identifier. A public key would not become a universal identifier if an individual owned different key pairs (public and private keys) for different transactions, so that, for instance, an individual’s public key for accessing her bank account would be different from that used for accessing her medical records. Ari Schwartz of the Center for Democracy and Technology suggests that individuals should possess a “key ring” of different keys. This would be preferable to a single key, according to Schwartz because:
Given the choice between a ring with multiple keys or a single key to open all doors, most consumers would stick with the key ring – despite the initial appeal of the single key. The single key could be easily lost or misused and its functions couldn’t be isolated; … by giving someone the key to your car you would in effect be giving them the key to your life(14).
There are a number of factors that suggest that single keys may indeed become the norm. As mentioned above, powerful companies would like to have their customers identified conclusively, and will probably try to set up PKI so that one key will be the norm. Also, having multiple keys could mean additional expenses for individuals and the responsibility of managing multiple cards with multiple PINs. Nonetheless, the key ring concept should be promoted, as it could be the single most important way of maintaining individuals’ control over their personal information.

D3. De-linking Authentication from Identification

The potential for systems managers and certification authorities to invade individual privacy would be greatly reduced in cases where digital signatures did not function as identifiers. It is important to remember that authentication also applies to credentials, eligibility and reputation in ways analogous to diplomas or membership cards. There are many potential applications for digital signatures in which identification is not disclosed, and “blinded” digital signatures in which identification is hidden. To protect individual privacy, individuals should only be identified in digital transactions when it is necessary to do so(15).

D4. Individual Control Over Personal Information: Conclusion

In envisioning PKI, it is important not to assume that individuals will use one type of identifying digital signature for all of their transactions. The extent to which individuals can use different keys for different purposes, and choose whether or nor to identify themselves with a key, will determine how much control individuals will retain over their personal information. Also, the extent to which individuals can choose different types of certificates will determine how much individuals will be able to opt for privacy-enhancing options.

CONCLUSION

This overview of the privacy issues surrounding the development of digital authentication indicates three overall recommendations to maintain and protect individual privacy:
1) The limitations of public key cryptography in securing systems must be taken into account. Ensuring that information is secure throughout a system is a complex task that requires a number of methods, including providing incentives through assigning liability for misuse of information, and changing social systems. Systems must be auditable so that suspicions transactions can be investigated.
2) In the future, certification authorities and other service providers could possess a great deal of personal information. To protect individual privacy, information held by private entities would need to be protected from misuse, and any authorized use of the information would have to be carefully evaluated to ensure that it is not privacy invasive. These good information management practices should be promoted by sound rules and oversight, but this will not be enough to ensure individual privacy; PKI should also be designed so that individuals retain control over their personal information.
3) PKI should give individuals the choice to opt for privacy enhancing services. People should have the option to own multiple keys, and to use keys that do not identify them. As PKI is developed, people should not be forced to acquire digital signatures, but should rather be allowed to acquire them when they have confidence that there are adequate consumer safeguards in place.
As PKI is being developed, there will be a need for much more investigation of how these general recommendations can be implemented in practice.
1. Appendix A gives a description of the sessions and who contributed to them.
2. Roger Clarke, Personal Notes on Computers, Freedom & Privacy 2000
Toronto, 5-7 April 2000 at http://www.anu.edu.au/people/Roger.Clarke/DV/NotesCFP2K.html accessed on April 18, 2000
3. The following discussion on public key cryptography relies upon Brian A. LaMacchia of Microsoft “Everything You Need to Know to Argue About Cryptography” Cryptograph Tutorial, CFP 2000, April 4, 2000.
4. A hash function reduces a message to a fixed size, and is a “one-way” invertable function. This means that knowing the hash function and the hash of the message does not allow someone to be able compute what the initial message was. Therefore, Alice can choose a well-known hash function; it does not need to be kept secret.
5. This paragraph is based on remarks by Carl Ellison of Intel at “Who Am I and Who Says So? Privacy and Consumer Issues in Authentication”.
6. This paragraph is based on Brian A. LaMacchia “Everything You Need to Know to Argue About Cryptography” Cryptograph Tutorial, CFP 2000, April 4, 2000.
7. This point was made by Phil Hester of IBM at “Who Am I and Who Says So? Privacy and Consumer Issues in Authentication”
8. This point was made by Margot Freeman Saunders of the National Consumer Law Centre at “Who Am I and Who Says So? Privacy and Consumer Issues in Authentication”
9. This was suggested by Carl Ellison at “Who Am I and Who Says So? Privacy and Consumer Issues in Authentication”. Roger Clarke reports that fingerprints are very easily forged, and that most biometrics will probably be “forged with ease” in Privacy Requirements of Public Key Infrastructure at www.anu.edu.au/people/Roger.Clarke/DV/PKI2000.html accessed on 18/4/2000.
10. This point was made by Phil Hester at “Who Am I and Who Says So? Privacy and Consumer Issues in Authentication”
11. This paragraph is based on comments by Margot Freeman Saunders of the National Consumer Law Centre at “Who Am I and Who Says So? Privacy and Consumer Issues in Authentication”.
12. This point was made by Carl Ellison at “Who Am I and Who Says So? Privacy and Consumer Issues in Authentication”
13. Certificate revocation lists would list certificates that have been revoked because they have been compromised, or have expired.
14. Ari Schwartz, “Smart Cards at the Crossroads: Authenticator or Privacy Invader?” Center for Democracy and Technology at www.cdt.org/gigsig/idandsmartcards.shtml accessed on 12/4/2000.
15. Roger Clarke, Personal Notes on Computers, Freedom & Privacy 2000.