Estimating The Cost of a Three-Strikes and You're Out System
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Tuesday January 26, 2010
Canadian officials travel to Guadalajara, Mexico this week to resume negotiations on the still-secret Anti-Counterfeiting Trade Agreement. The discussion is likely to turn to the prospect of supporting three-strikes and you’re out systems that could result in thousands of people losing access to the Internet based on three allegations of copyright infringement. Leaked ACTA documents indicate that encouraging the adoption of three-strikes - often euphemistically described as "graduated response" for the way Internet providers gradually send increasingly threatening warnings to subscribers - has been proposed for possible inclusion in the treaty.
My weekly technology law column (Toronto Star version, homepage version) notes that while supporters claim that three-strikes is garnering increasing international acceptance, the truth is implementation in many countries is a mixed bag. Countries such as Germany and Spain have rejected it, acknowledging criticisms that loss of Internet access for up to a year for an entire household is a disproportionate punishment for unproven, non-commercial infringement.
Those countries that have ventured forward have faced formidable barriers. New Zealand withdrew a three-strikes proposal in the face of public protests (a much watered-down version was floated at the end of last year), the UK's proposal has been hit with hundreds of proposed amendments at the House of Lords, and France's adventure with three-strikes has included initial defeat in the French National Assembly, a Constitutional Court ruling that the plan was unconstitutional, and delayed implementation due to privacy concerns from the country's data protection commissioner.
Much of the three-strikes debate has focused on its impact on Internet users, yet the price of establishing such systems have scarcely been discussed. That may be changing due to the UK government's own estimates on the likely costs borne by Internet providers and taxpayers in establishing and maintaining a three-strikes system.
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.
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Tuesday January 26, 2010