If your TV is not connected to cable or satellite and if it receives its TV signals over-the-air (such as by an antenna), you can qualify for a $40 government coupon that can be used toward the purchase of a converter box, which will permit your analog TV to receive digital signals. This coupon will cover most, if not all, of the cost of the converter box, which is estimated to cost between $40 and $70. Consumers can qualify for up to two coupons per household.

If you need more information, have questions about whether your TV is digital or analog, or want to apply for the coupon program, please visit www.dtv2009.gov.

This focus on creating new jobs raises questions, sure to be debated in the next few months, about what kind of government actions will have the greatest leverage in labor markets. Put differently the new Administration and Congress should figure out what potential elements in a stimulus package have at the margin the highest ratio of expected employment benefits to projected government costs? That suggests analyzing how many, and what kind of, jobs will be created, by “… rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels; fuel-efficient cars and the alternative energy technologies.” To be sure, each of these programs have (de)merits unrelated to employment policies, but given the jobs focus of the stimulus package, they should be debated in those terms as well as in the context of their ability to create jobs – good, high paying jobs.

Labor economists are well aware that different sectors of the economy have different ratios of employment to output (some sectors are more labor intensive than others); they have different ratios of new investment to jobs created (a dollar of new investment creates more jobs in some sectors or companies than in others); and, they have different job multipliers relating them to other sectors (investment and job creation in some sectors lead to more or less job creation in other sectors.

We have not analyzed “Job Leverage” for all elements of potential stimulus packages, but we do know that stimulating investment in broadband networks will yield substantial dividends in the form of new, high paying jobs, directly in the network sector and indirectly among firms in the Internet Value chain and in the rest of the economy.

Studies done by Corning indicate that almost 40% of capital expenditures on fiber-based, broadband communications networks go to and for labor. And, these are good jobs paying well above (42% higher than) the average for manufacturing jobs. Thus, any investment stimulated by, say, broadband network tax relief or new spending, will accrue in substantial measure to labor. The IT sector of which telecom networks are the foundation from which most value is derived, has accounted for nearly half of all new jobs created in recent months. But, the story does not end there. Broadband network investment creates jobs not only for the investing network provider and for the broader IT sector (Google, Microsoft, Intel, Cisco, eBay, Yahoo, and countless applications providers), but also in other parts of the New Economy which rely on broadband connections to create value for consumers, business and government. Our recent review of the literature describing “externalities” associated with broadband investment turned up numerous estimates of growth, productivity, jobs and income economy wide – health care, education, finance, government, manufacturing, retail, etc. – stimulated by growth of broadband networks.

Services provided by networks that offer broadband services are anachronistically taxed, mainly by state and local governments, at roughly twice the rate imposed on average on other services. The new Administration and Congress should revisit and take steps to revise this damper on jobs. A good place to start would be to reduce government levies on broadband networks at the federal level and to take steps to create a national framework for moderating proposed broadband tax increases within the states.

Written by Dr. Larry F. Darby, former chief at the FCC’s Common Carrier Bureau and Senior Fellow for the American Consumer Institute, Center for Citizen Research

Privacy, Security, Labeling and Online Safety

Consumers can make rational choices only when they are given full and accurate information about their options.  Indeed, insufficient, misleading, or otherwise incomplete information is a prime cause of both market and government failure.  Consumers pay, and pay dearly, when they are not given sufficient information to make well informed market choices.  While traditional products and services usually have uniform labeling, information technology services do not always have the same level of nationwide uniformity with respect to service terms, guarantees, limitations, warnings and privacy risks, leaving consumers second-guessing or assuming away risks.  Better information, including fuller disclosure of service limitations, privacy risk and other terms of service can help consumers make better choices, reduce search costs, improve online safety and otherwise benefit consumers.  Consumer welfare would be increased if companies that offer IT services would be more diligent in providing their customers with comprehensive information about practices that may affect consumers or potentially compromise privacy.

The Costs of Imperfect Information

Consumer welfare and the overall efficiency of the economy are undermined by imperfect or asymmetric information, which occurs when sellers have more and better information than buyers.  While many traditional goods and services are subject to standardized labeling, truth-in-labeling laws and child-proof packaging, many online services and products do not have the same level of standardization.  Nonetheless, fuller disclosure would be beneficial in terms of consumer protection of private information, consumer rights, online safety and service choice.  The following examples are illustrative: 

·         Software and Online Applications.  There are many examples of inadequate information, “legalese” of privacy terms, hard-to-understand, or find, service/product policies, software that is uninstalled only to reappear later and so on.  While some companies have gone the extra mile to provide as much information as consumers may want, others have not.  Consumer welfare would be enhanced if online firms provided fuller disclosure of their privacy policy, including how they will use and protect consumer information.

·        Online Safety.  While personal information is being collected on you, with and without your knowledge, it can also be collected on your children.  While the public needs education and better tools for protecting their families, web-centric companies can and should do more to foster a culture of safety, protection and privacy.  

·        Spyware and Behavioral Targeting.  Some have been critical of online privacy policies that permit spyware and cookies onto consumer computers in order to collect online consumer browsing history associated with personal identification information – information that is then used to target advertising.  Several companies retain consumer browsing history for up to 18 months.  One suggestion should be for consumers to be permitted to “opt out” of behavioral targeting and avoid programs that track consumer browsing history, as well as spyware that is routinely saved to their computers.  In any case, consumer welfare would be enhanced if web companies were upfront about their use of cookies to snoop on consumer online activities.  Consumers should have control and be given choices.

·         Online Privacy, E-Mails and Browsing.  Google’s Gmail provides several useful and “free” email search features.  However, consumers that use Gmail accounts have their messages scanned for behavioral targeting.  Moreover, nonsubscribers replying to a Gmail account may also have their emails examined, even though they never consented to such inspections.  Then there is Chrome, a new Internet browser, which, at least initially, collected keystrokes directly from online users’ computers and stored this information for the web company’s use. 

·         Free and low cost Printers.  Our studies indicate that consumers pay about 60% too much for computer ink, because, when buying a printer, the cost of printing a page is not readily available on printer, printer box, feature cards or ink cartridges.  In fact, there are no laws that prevent manufacturers from slack-filling cartridges and selling them to the public.  The costs of printing can vary nine-fold, depending on the printer.  In just three years of use, printing costs can be more then ten times the initial cost of the printer itself.  This means that the “free or inexpensive” printers you got with your computer were not free after all.  Clearly, the industry needs to do a better job of giving consumers the information they need to buy the printer that is right for them, and retailers need to put these ink cost on the shelf’s feature cards.  Simple product labeling would facilitate consumer choice, encourage industry competition and save consumers, in total, $6 billion dollars per year.        

·         Internet Traffic Management.  When Comcast decided to manage network congestion by slowing down so-called bandwidth hogs, it opened itself up to public criticisms and regulatory inquiries.  While an ACI survey found that a majority of consumers believe that ISPs should manage network congestion to minimize the impact of bandwidth hogs, 66.2% of consumers wanted more disclosure of service limitations,[1] which may well have avoided Comcast’s public controversy. 

·         Peer-to-Peer (P2P) Software Providers.  P2P technologies, such as Vuze and BitTorrent, permit online users to download movies and other large files quickly and efficiently.  P2P technologies accomplish this by effectively using the online user’s computer as a server.  However, depending on the application, many consumers do not realize that they could be offering up all of their computer files for the public to see and download.  Consumers deserve to be sufficiently warned and protected from these potential risks.  Again, fuller disclosure by providers is needed to better serve consumer interests.

It’s Time for Industry to Do Better

These examples demonstrate that consumers need better information to make well-informed choices and it’s time for industry to step to the plate with more uniform and prominent disclosure of their privacy policies.  Full disclosure of service and privacy terms is an important part of protecting consumer information.  So far, the industry is a mixed bag of successes and failures.  Industry best practices are needed. 

In summary, information is relatively easy to produce and distribute to consumers, while requiring insignificant costs for manufacturers and providers.  Doing so would make better informed consumers whose decisions would create more welfare for them and for the economy.    

POSTED:  November 29, 2008

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About The American Consumer Institute

The Institute is an educational and research institute. For more information or to contact us, visit http://www.aci-citizenresearch.org.  This ConsumerGram is provided as a free service to consumers.

A major study released by the Institute found that consumers were being lured into buying inexpensive printers, only later to pay substantially more for ink. In a recent ConsumerGram, we concluded that giving all consumers more information on the cost of printing and printer ink would help them to make well-informed purchasing decisions and save $6 billion per year. However, without industry standards to help consumer know the cost of ink over the life of the printer, these savings will never be realized. In this ConsumerGram, we show the divergence in costs between printers and urge the industry to adopt a much-needed consumer labeling standard.

Lack of Information is a Market Failure
Ink is one of a handful of products that are exempt from Federal Trade Commission regulation under the Fair Packaging and Labeling Act. This means that printer manufacturers can “slack fill” their products and profit from them; and evidence suggests that this is happening today, as some ink jet cartridges contain only one-tenth of the volume that some cartridges contained in 1999. Because there is insufficient labeling on printers and cartridges, consumers do not know the true cost to operate a printer before buying one. According to a 2007 TeleNomic Research study released by the Institute, this lack of information has led to increased industry ink prices, excessive profits and high market concentration – all to the harm of consumer welfare. Moreover, better information on the cost of printing would save consumers $6 billion per year in lower printing costs.

Divergence in Printer Costs
Consumers can save money when they can compare prices. For instance, shoppers can compare shelf labels for unit prices on brands and product sizes; and they can read the posted price per gallon before filling up their automobiles with gasoline. Yet, most consumers are completely unaware of printing costs and would be surprised to know that the cost of printing a text page, color graphics or photos can vary considerably depending on the printer they own. Despite this variation, the cost to print is not labeled on the printer, printer box, cartridge, cartridge packaging, or retail shelf label. When it comes time to buy a printer, this omission makes it very difficult for consumers to understand the total cost of owning and operating a printer. As the table below shows, the cost of ink per page varies tremendously among different manufacturers and models. In this example, printing in black text (monochrome) could cost anywhere from 2 cents per page to 9 cents per page; printing color graphics could cost from 7 cents to 19 cents per page; and printing a 4×6 inch color photo could cost from 9 cents to 40 cents. Therefore, there is substantial variation in the cost to print a page, yet there is no easy way for consumers to know about these costs when purchasing a printer.

If consumers do not print very often, these differences in cost are a matter of pennies. Yet, for the average consumer or home office worker, these few pennies can add up to hundreds of dollars over the lifetime of a printer. In fact, knowing the printing costs at the time of purchase could be more important than knowing the price of the printer itself.

The Cost of Ownership
Printers are durable goods – that is, products that are not simply purchased and then immediately consumed, but instead used for several years. As such, it is important to know the full cost of ownership – both the upfront costs to buy the product and the annual or lifetime cost of operation. To make consumers aware of the full cost of ownership at the point of sale, new automobile price stickers provide estimated annual costs of fuel. Similarly, Energy Guide labels on new appliances, like refrigerators, show an estimated annual electricity cost to run the appliance. In both cases, the operating cost is much lower than the initial purchase price. In contrast, over the useful life of a printer, the cost of printing can overwhelm the cost of the printer itself. Simply put, consumers require better knowledge of the lifetime cost of ownership in order to make well-informed choices – not blind ones.

The table below shows the initial retail costs for inkjet printers priced under $150 and their 3-year printing ink costs, and confirms that the cost of the printer pales in comparison to the cost of the ink. For example, the 3-year cost of ink could be more than seven times greater than the cost of the printer itself. Therefore, retailers that show only the cost of the printer are hiding the real cost of ownership.

Need for an Industry Standard
Market alternatives convey value to consumers, but the value of competition and product alternatives for consumers is attenuated if they have insufficient information to choose rationally among them. An industry standard is needed and should be adopted by manufacturers and retailers alike. One solution is to simply add an annual or (as shown below) a 3-year cost of ink on shelf feature cards in stores that sell computer printers. This simple solution creates no appreciable industry costs, but it would enable consumers to compare printers and judge for themselves whether printer and ink costs matter. This will likely lead to increased competition and potentially lower prices for consumers.

Summary
Just as consumers search the shelves for labels and feature cards for information on most goods that they buy, providing consumers with better information on ink costs would allow them to make better choices upfront that suit their printing needs and minimize their costs for doing so. That, in turn, would provide added discipline in the marketplace and encourage price competition that would result in $6 billion in lower costs for the combined purchase of printers and corresponding ink.

Posted: November 7, 2008

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About The American Consumer Institute Center for Citizen Research
The Institute is a nonprofit educational and research institute. For more information or to contact us, visit http://www.aci-citizenresearch.org.  If you would like a copy of this ConsumerGram and its charts, please email us at info@theamericanconsumer.org.

With Google’s Dominance in Online Search and Advertising, Deal Raises Serious Concerns for Consumers

Washington, DC, October 20, 2008 — As the Department of Justice moves closer to deciding whether to take action to block the partnership between Google and Yahoo, or impose conditions on the deal, the American Consumer Institute Center for Citizen Research (ACI) reiterated their previous concerns about the deal.

“We previously raised concerns about the growing market share and dominance of Google,” said Steve Pociask, president of ACI.  “Google’s high market share, high profits and potential for anticompetitive conduct poses a major risk for the industry and consumers.  However you look at it, the market for search advertising is dominated by Google, and one-time rivals appear to be resigned to use Google’s advertising and search features.  This suggests that the market may have irreversibly tipped to Google and there is insufficient competition to challenge the market.” 

“The partnership between Google and Yahoo has only increased those concerns,” added Pociask.  “If allowed to proceed, this deal would by some estimates give Google over 90% of the search advertising market.

“Allowing the top two competitors in the online search market to combine would limit choices for consumers and raise online advertising rates for consumers,” Pociask concluded.  “Government regulators need to take action before this deal goes through to encourage more competition in this industry, not less.”

An ACI ConsumerGram in May of this year took a closer look at the ramifications of this deal.  To retrieve their ConsumerGram or The document is available at www.theamericanconsumer.org.

Last month we had an online survey where we asked readers whether an increase in business taxes would or would not affect consumer prices.  The survey results found that 92% of consumers believe that increased business taxes would ultimately be passed along to them in the form of higher consumer prices.  What this suggests is that consumers are bit more savvy and understanding of basic economics than policy wonks make them out to be. 

Any thoughts?

Our last ConsumerGram analyzed the hidden telephone fees that consumers pay as a result of an outdated system of regulated payments between telephone companies.  We concluded then that these payments represent subsidies that hurt consumers, are inefficient, and are not sustainable in the face of increasing competition.  Moreover, the subsidy scheme works to discourage investment in new technologies in all parts of the country, including high-cost rural areas.  Beyond the problem of how cross-subsidies can misallocate resources, this ConsumerGram provides evidence that this subsidy scheme encourages manipulation that defrauds the public, raises the cost of phone service generally, and increases telephone prices on every long distance consumer.

Hidden Taxes Must Go

Survey research has shown that consumers abhor hidden charges and subsidies.  However, while the Telecommunications Act of 1996 sought to end hidden subsidies, long distance service prices are still laden with hidden fees that provide a subsidy to many telephone companies at the expense of other companies that pass these fees along to consumers.  The senselessness of the current regulatory scheme is clear from the stark differences in fees charged to terminate calls between telephone company providers.  As the chart below shows, small telephone companies often charge more to terminate a telephone call on their network than they are required to pay when their calls are terminated on other networks.  This has the effect of raising other network costs, while artificially boosting the earnings of these small telephone companies, thereby discouraging wireline (labeled CLEC) and wireless competition in the rural areas they typically serve and effectively maintaining rural monopolies.  Likewise, short toll calls (labeled in the chart as intraLATA) often have terminating rates that are several times higher than long distance calls (labeled interLATA), even though these longer calls require more resources, costs and investment.  Similarly, terminating traffic onto advanced wireless and broadband (labeled ISP) networks permits old technology providers to overcharge new technology providers, discouraging investments in newer technology, while funneling dollars into antiquated technologies.    

As we stated in our last ConsumerGram, a consumer making a 30-mile call may well generate five times the charges of a 1,300 mile call.  The cost of the call between two cities, while using the identical telecommunications facilities, can incur vastly different rates depending on which city the call terminates.  While the consumers do not explicitly see these fees on their telephone bills, the telephone companies that lose money on these schemes offset their losses by charging higher rates to every consumer that makes long distance telephone calls. 

Incentives for Fraudulent Schemes

These inter-company payments were initially designed by policymakers to help small rural companies provide service in lightly populated areas, which are often more expensive to serve.  Universal service programs now support service to high-cost areas, but the old subsidies buried in long distance charges still remain.  The variation in costs on terminating telephone traffic, encourages some telephone companies to “game the system” by increasing the volume of terminating traffic and collecting even more fees from other telephone companies without any benefit to consumers or universal service.

How Sex Chat Rooms Boost Consumer Prices                                                            

On October 4, 2007, the Wall Street Journal reported that rural companies were entering deals with sex and chat line operators who would advertise and attract callers (of any age), generating millions of long distance calls to these rural telephone companies.  Because of artificially high rural terminating rates, these deals have permitted rural telephone companies to reap millions of dollars of subsidies, which the rural companies split (as part of the deal) with the sex and chat line operators.  For example, the Journal article mentioned Farmers’ Telephone of Riceville, a very small rural provider, which entered a deal with a firm promoting an “all male chat line” service.  Because terminating rates are so overpriced in this rural town, Farmers’ Telephone of Riceville collected generous fees (subsidies) that were shared with the sex chat line company.  Meanwhile, the company whose lines carried the originating call pays the higher fees, which are then passed along to all of its customers, including the vast majority who had nothing to do with the sex chat rooms.  These sorts of deals have popped up across the U.S, accounting for millions of calls and minutes, while funneling money away from network investment to scrupulous businesses.  One Federal Communications Commission filing (12/2007) noted:

 “… one such agreement provides for payments from the LEC to the calling service partner of $0.007 for the first two million minutes generated by the scheme and directed to the LEC’s exchange, and $0.013 for every minute above 2 million generated by the scheme.  Another such agreement provides $0.005 for the first million minutes, then $0.007 up to 4 million minutes, and $0.01 minute for every minute above 4 million.”

BusinessWeek (April 12, 2007), USAToday (June 6, 2008) and others have written about similar telephone scams.  In fact, ex parte filings with the FCC have reported dozens of examples of telephone companies gaming the system, effectively funneling money from some telephone companies to others with sex chat lines.  Some of these small companies have seen their traffic increase by hundreds of percentage points and even a few by thousands of percentage points.

While long distance rates have plummeted in recent decades, rural access termination rates remain so out of alignment that they have encouraged some providers to offer cheap international calling, not based on competitive pricing, but the arbitrage of rates.  For example, when a consumer calls a phone number that promises cheap international calling, their call is treated as a terminated call and a second dial tone is initiated that permits the caller to make a cheap international call.  In this instance, the rural telephone company collects more money for terminating the domestic call than it pays for completing the international call.  Essentially, other phone companies are bilked into paying the rural company.  While a handful of consumers benefit from the cheap calling scheme, the vast majority of consumers unwittingly pay higher long distance rates in order to finance the scheme and cover these excessive (and hidden) terminating fees.  As a result, most consumers are worse off and a system that defies rational market pricing is kept alive so that manipulative phone carriers can line their pockets with extra profits they’ve done nothing to earn. 

In sum, the lure for subsidies has meant that consumers are unwittingly subsidizing adult entertainment, party, sex, chat line services, free conference bridge services, free International Long Distance Calls, free voicemail, VoIP gateways, and missed call/remote call forwarding.  In other words, consumers who had nothing to do with these schemes are paying higher prices.

Stop Hidden Charges; Encourage Investment

Policymakers need to eliminate the hidden fees that raise costs for all consumers and slow investment in broadband and other new technologies.  Lowering these fees and making them uniform across all geographies, services and technologies would provide telephone companies the right incentives to invest in new technologies and would give consumers greater choice among these technologies.  In turn, providing the correct incentives to invest would benefit rural consumers by reducing prices and encouraging competition in rural service.  If some rural telephone companies truly require subsidies, the universal service fund should be used to identify and explicitly support these companies and their rural consumers.  As Milton Friedman once said – “there’s no such thing as a free lunch.”  Policies that bilk consumers with hidden fees must stop.

Posted: October 21, 2008