Initial government estimates peg the expense to Internet providers alone at as much as 500 million pounds (C$850 million) over ten years.  This includes the costs of identifying subscribers, notifying them of alleged infringements, running call centres to answer questions, and investing in new equipment to manage the system.  As a result, the UK government estimates that 40,000 people could lose Internet access due to anticipated increases in subscriber fees.

The UK recording industry has challenged these numbers, but there is reason to believe they actually understate the actual economic impact. The UK estimates focus exclusively on the Internet provider costs, but provide no accounting for actual enforcement of the system.  When court and regulatory costs are factored into the equation, the taxpayer burden runs into the hundreds of millions.

Moreover, the UK estimates are consistent with a 2006 Industry Canada commissioned study on the costs of Internet provider notification schemes.  The study concluded that the cost of a single notification was $11.73 for larger Internet providers (more than 100,000 subscribers) and $32.73 for smaller Internet providers.  Considering the sheer number of notifications - last summer Bell Canada acknowledged receiving 15,000 notifications each month - the costs quickly run into the millions of dollars.

The disparate impact between big and small Internet providers highlights another hidden cost of three-strikes systems - the negative effect on the competitive landscape for Internet services.  The UK estimates that the costs on small Internet providers are so great that consideration should be given to exempting them entirely, since the additional burden would result in decreased competition.  The same report identifies the disproportionate harm to wireless carriers, who would face massive capital costs and be placed at a competitive disadvantage.

Reducing competition and increasing consumer costs runs counter to Industry Minister Tony Clement's commitment to improving the Canadian competitive environment for wireless and Internet services. Yet the ACTA talks seemingly move in that direction, potentially leading to huge costs for an unproven system that could lead thousands to conclude they can no longer afford access to the Internet.

Internet providers frequently are asked to remove content, yet most reputable firms only do so with court oversight or a clear statutory mandate.  One exception to this general rule involves cases of phishing, which is the criminally fraudulent process of attempting to acquire personal information such as usernames, passwords and credit card details by masquerading as a trustworthy entity. This occurs when fraudsters create websites that looks much like a popular bank or online auction site in the hope of prying personal data from visitors tricked into thinking they are dealing with a legitimate site.  

Phishing operators move quickly, seeking to grab as much data as they can before authorities move to shut them down.  The practice raises serious identity theft concerns, leading host ISPs to shut down alleged sites without waiting for a court order.  While this helps limit potential harm, the Canadian government has become the poster child for how the system can be abused.

Within days of the Yes Men incident, both Environment Canada and the Canadian Cyber Incident Response Centre, which is part of Public Safety Canada, wrote to the hosting ISP to ask that it shut down the fake websites. While officials understandably pointed to trademark and copyright concerns (the sites were designed to look confusingly similar to actual government websites), those claims alone would not have been enough for most Internet providers to act.

Instead, officials used both the persuasive power of an official government request combined with inaccurate claims that the sites were engaged in phishing to escalate the issue.  One email to the hosting company noted the request was sent on behalf of the Minister of the Environment to demand prompt deletion and removal of the hosted sites.  The same email claimed the sites were involved in phishing, leading the German-based Internet provider to promptly shut them down.  

In fact, in the rush to shut down the Yes Men sites, the Internet provider simultaneously shut down an additional 4,500 websites hosted at the same IP address.  Those sites have since been restored.

In the aftermath of the case, the web administrator who shut down the sites expressed regret, arguing he acted under duress.  Yet the real concern arises from the inflammatory government claims.  

While the sites were obviously an embarrassment, there were several avenues to address the issue.  Officials could have filed a complaint with the Canadian Internet Registration Authority, which manages the dot-ca domain (both sites used dot-ca addresses).  Alternatively, they could have turned to the courts for an order to either shut down the sites or suspend the domain name registrations.  Instead, the phishing claim effectively substituted one hoax for another and in the process undermined the trust in a global system designed to guard against identity theft.