Issue # 64  January 12, 2002
NOTICE:  All contents © 2003 by George A. Ure, MBA except other authors as noted.  This document is intended for the sole use of subscribers and may not be transmitted, reproduced, or in other way used without the written prior express consent of the author.  This publication is by subscription:  $50/year for web browser accessed delivery to a password protected site or $150/year delivered by personalized email in HTML..  Please pass along a copy to your friends and suggest that they subscribe.  To subscribe, send a check to: Guru Press, 1355 West Palmetto Road, #281, Boca Raton, FL  33486-3383.  You may also subscribe using PayPal.  Your username and password are both your email address, in all lower case to access the protected web site, so don't forget to include it!   Address comments and correspondence to: george@ure.net.    Read the disclaimer: http://www.urbansurvival.com/disclaim.htm This report is based on sources believed reliable and makes no specific investment advice.  Before you invest in anything, seek professional advice and remember, you can only spend it once, unless you are a member of the Fed, in which case you can spend it as fast as you can print  it.

Within Four Years?

Licensing the Web?

Summary:  Although the Internet is generally seen as a fixture in modern American homes, a general business case is growing that suggests some form of licensing will evolve over the coming several years.  By studying historical cases where technology lead to regulation, we can estimate the timeline and prime motivators that will likely lead to regulation. The corporate world, what Buckminster Fuller calls the "Grunch of Giants", on the one hand needs the wide access and purchasing channels provided by the web, but on the other sees its very existence as threatened by to many people knowing to much about the extent and cost of corporate control. Because of the free intellectual exchange facilitated by the 'net, underlying assumptions - the bedrock upon which corporate structures are built - are under attack.  Licensing is therefore coming in some form in order to "preserve order" another ways of saying to preserve the corporate hold on Western people.

Introduction:

Growth of the Internet has been nothing short of phenomenal.  According to Telecommunications Reports, Online Services reached 20-million U.S. households in 1997 [1] and by 2000 that number had increased to 62.3 million users.  Also in 2000, free Internet Access was causing a realignment of market leadership [2]. By 2001 however, Internet growth had slowed dramatically.  The small amount of growth of the Internet overall was dwarfed by the transition from slow speed dial up accounts to high speed access accounts.  Indeed, the number of dial-up accounts actually declined in 2001 [3].

There are two extremely important characteristics of the Internet which remain hotly debated to this day and which will shape the evolution of the Internet going forward. One aspect is content of the Internet and the other is message length. Both are diligently explored, and a direction forecast in Andrew Odlysko's paper "Content is Not King" [4] in which he proposes that as networks grow, their value changes from a broadcast medium to a point-to-point value proposition.

In some sense, the use of radio illustrates Odlysko's point.  When radio was extremely young it began as a point to point communications system.  That's what Marconi and early experimenters were about.  Over time, however, the nature of the medium changed.  Radio morphed from a point-to-point enterprise to a broadcast medium.  With the addition of television, the point-to-many concept evolved until it has become the general framework of the modern broadcast network "empire". 

It's here that we see the devolution back to a point-to-point service presently evolving, albeit in slow motion.  There has been a general increase in pay-per-view programming available in American homes, although it has evolved in two stages. 

First came the explosive growth of the video rental business. As Richard Roehl and Hal R. Varian have noted, there is an interesting parallel between the advent of circulating library in England circa 1725-1850 and the proliferation of video rental stores in the U.S. between 1980-1990 [5]. They describe the growth rate this way:

"After the VCR was first introduced as a consumer item, it was viewed as a device for ``time shifting'' television shows to more convenient viewing hours. However, it subsequently became clear that there was significant market demand for pre-recorded videos. The first company to sell pre-recorded videos was Andre Blay's Video Club of America. He acquired fifty titles from Twentieth Century Fox studios that had all been previously sold to network TV. At the time of his first ad (in an October 1977 issue of TV Guide), there were fewer than 200,000 VCR owners, but more than 9,000 of them joined Blay's video club.

By December of that year competition between RCA and Sony had pushed video machine prices to below $1,000 for the first time. By the end of March 1978 Blay had sold 40,000 cassettes, and by the end of the year he had sold over 250,000.

While Blay explored the video sale market, the first individual to see the possibilities for a video rental market was one George Atkinson who ran a ``Mickey Mouse little business'' in Los Angeles called Home Theater Systems. Atkinson rented Super Eight film projectors, screens and old movies for $25 a night. He bought one Beta and one VHS copy of each of the fifty Fox titles sold by Blay. In order to raise capital quickly he charged fifty dollars for an annual membership and one hundred dollars for a ``life membership.'' Members could rent videos for $10 a day. (Lardner (1987), pp. 176-7)

Atkinson encountered many skeptics. Most studio executives thought that American audiences preferred to buy rather than rent. At the time, video machines were a luxury that were only affordable by the wealthy who could easily afford to buy videos at the approximately $50 price that was then charged. Since the video machine was widely expected to remain a luxury item, most Hollywood executives did not anticipate the emergence of a mass rental market. Atkinson's great insight was that that video machines would continue to decline in price and become a mass market item ...and middle class users would prefer renting a video at $3 to buying one at $50. " [5]

The second stage of development, made possible by recent advances in computing capability and delivery mechanisms, is pay-per-view. InDemand and DirecTV pay-per-view efforts have resulted in an evolution of consumer purchasing habits.  Although the retail video business is brisk, certain types of content are finding greater acceptance in the pay-per-view arena than in rental.  For example, in a 2000 report, the New York Times notes that:

The General Motors Corporation, the world's largest company, now sells more graphic sex films every year than does Larry Flynt, owner of the Hustler empire. The 8.7 million Americans who subscribe to DirecTV, a General Motors subsidiary, buy nearly $200 million a year in pay-per-view sex films from satellite, according to estimates provided by distributors of the films, estimates the company did not dispute.

EchoStar Communications Corporation, the No. 2 satellite provider, whose chief financial backers include Mr. Murdoch, makes more money selling graphic adult films through its satellite subsidiary than Playboy, the oldest and best-known company in the sex business, does with its magazine, cable and Internet businesses combined, according to public and private revenue accounts by the companies. [6]

Despite all the hype, the reality of pay-per-view has been slow arriving in most households.  A recent article in "Wired" [7] makes the point that not only is pay-per-view fairly expensive technology, but the inertia of the home VCR market is sizeable:

"This [pay-per-view] all works in laboratories at least. No one has shown that this can work for a large group of fussy viewers. And even if the technology can operate as planned, there are basic limitations built into it. A single video server can handle the viewing demands of about 30,000 households, according to Ben Linder, director of technical marketing for Oracle Corp.'s Media Server software. Oracle is supplying video database technology to Bell Atlantic and other companies conducting trials. The software giant impressed cable companies earlier this year with claims that it could supply the technology for approximately $500 per household. Some industry analysts don't believe it. Taking all the costs into account, many analysts estimate that it would cost $30 million to set up a typical 30,000-home network (about $1,000 per household). Time Warner's Orlando system, meanwhile, is reportedly costing $5,000 per viewer. No matter whose figures you use, the conclusion is the same: households will have to spend a lot more than what it costs for 2.5 movies per month for cable companies to break even on this stuff in a reasonable amount of time.

The technology also has some stiff and obvious competition. The corner video store seems anything but an endangered species these days. Indeed, the video rental industry shows no sign of retreat. A full 80 percent of American homes have VCRs. In 1993, these households spent record sums, renting 3.2 billion videos - an average of nearly one per week. There are roughly 28,000 video stores in the US, each serving an average of about 2,600 families. Although Blockbuster and a few other chains have dominated the business press a lot, most of America's video stores are independently run. These mom-and-pop operations are an entrenched part of neighborhoods all over the country.

Believe it or not, many people actually enjoy visiting them. And walking through a typical video store is actually a highly efficient way to search for what you want. Movies are all categorized and displayed in full color. When you select one and bring it home, you are actually transporting more than 100 Gbytes of data with you. Even if the new release that you want to see is out of stock, it's not that big a deal. Most people can wait a week or two. If it wasn't important to see something in the theaters, it isn't so important to see it the minute it hits the video stores.

The inhabitants of Littleton seem to agree with this. Even during a particularly harsh winter, even with Fran-on-demand delivered right to their living rooms, many of the 300 families in the VCTV trial continued to go to video stores. The market research showed only a slight decline in video store rentals among these families. Cable companies may yet build some sort of interactive infotainment superpipe. But they will probably have to come up with some other killer app, some other reason for people to subscribe to a new generation of cable services.

How does the evolution of pay-per-view figure into our forecast of licensing of the Internet? 

The Case of Radio:

The answer is that radio is provides a wonderful illustration of how a technology may be evolved from a "free" thing to something that the general population will pay for if the transition occurs at the right moment in the technology and against the proper economic background. 

On December 12, 1901, the first radio signal was sent from England to North America [7]. Although titled the "Communications Act of 1934", the actual enactment of the law extending near total control of transmitters used in radio was enacted on June 19, 1934 [8]. In other words, it took about 32 years for radio to evolve from a scientific novelty to a totally government regulated enterprise. 

If we can agree that governmental regulation of the Internet is a possibility at some point, then it may be instructive to consider the Communications Act exemptions from regulation to see where exemptions from licensure may be expected for the Internet.

The first major exemption of licensing deals with Government use of radio spectrum, especially military use.  For one thing, the language of the Act specifically makes radio something "free" for government use:

"(d)(1) The application fees established under this section shall not be applicable (A) to governmental entities and nonprofit entities licensed in the following radio services: Local Government, Police, Fire, Highway Maintenance, Forestry-Conservation, Public Safety, and Special Emergency Radio, or (B) to governmental entities licensed in other services." [9]

Thus, as we see movement toward licensing of the Internet, there will undoubtedly be exemption for government use.

The second major exemption from radio licensing requirements under the Communications Act is Part 15 use, which exempts low power transmitters from regulation provided that they do not cause harmful interference to licensed services and 2, provided that they accept any and all interference received from licenses radio services.  In a discussion about shared use of certain radio spectrum between licensed services and Part 15 devices, Chris Imlay, then General Counsel for the American Radio Relay League observed that:

"Avoiding licensing is a big benefit to users, but it comes with the price tag of the complete absence of protection from interference and the absolute obligation not to cause any."[10]

In order to see the parallel between Part 15 use and its analog on the Internet, you need to understand that Part 15 devices are generally designed as low power, very limited range devices.  The general idea was that a Part 15 unlicensed device would not have a range of more than a few hundred feet at most. 

While this initially Part 15 devices lived within happily within these limits, there has recently been a good case made for expanding the range of Part 15 devices for specific purposes using a new kind of radio technology called ultra-wideband (UWB).  The notion is that UWB devices high be very useful and relatively inexpensive for certain applications, although they would exceed the power and range limits set forth in Part 15. Examples of UWB devices include helicopter power line avoidance radar for low altitude use, and high precision low altitude ground proximity measuring devices for precision aircraft landing.  Put simply, UWB technology allows for high resolution radio imaging [11].

When one looks at Part 15 exempted devices, it's clear that they are to radio what intranets are to the Internet.  Both are designed for specific missions with limited range.  Just as traffic on Part 15 devices, such as certain types of wireless LAN cards can facilitate one-to-many, many-to-one and many-to-many modes, so too does the Intranet provide for such limited use.

A second attribute then of Internet licensing is that it will likely provide exemptions for Intranet uses which are equivalent to short-range radio uses.  Definition of an Intranet is that it is a "Browser based network for a specific audience, not open to the public." [12]

What we have developed so far is the idea that the Internet has just been through its "wild west" days, not unlike radio in the 1920's when rumors and hype caused stocks like Radio Trust to reach previously impossible valuation levels, not unlike the recent "impossible valuation levels" of the Nasdaq-100.  But if the prediction that licensing is coming is to come true, we must seek to answer two important questions. 

The first is what are the economic reasons for regulation of the Internet and the second is to ascertain who will gain power and control over the regulated Internet and for what purpose?  Let's begin with the money question first, because it's more obvious.

Internet Lost Tax Revenue

As recent U.S. news reports indicate, all 50-states are now facing tax shortfalls that will result in declining state budgets for at least several years.  This is in keeping with the ideas expressed on the author's web site that the U.S. is likely in a second economic depression of the scale of the 1929-1940 event [13], a view echoed by other sites such as the Lancaster/Nystrom site that reminds us "The Second Great Depression will not be televised". [14]

One type of revenue loss is related to software piracy.  Here, lost taxes on software alone are something approaching $1.6 billion per year according to the Business Software Alliance's figures for 2001 [15].

Another example of lost revenue is offered in a Tobacco Outline Online article, that says:

"Still, there are those Web tobacco retailers that maintain they do business according to the laws. Esmokes.com, headquartered in Tampa, FL, for 2.5 years, is one such business. "We pay our taxes and we're a good corporate citizen," says Gary Kirschner, president.

Forecast: US Online Tobacco Sales: 2001 to 2005
Year:	2001	2002	2003	2004	2005
Online tobacco sales (US $billions):	0.75	1.2	2.2	3.2	5.0
Lost tax revenue (US $billions):	0.2	0.3	0.6	0.9	1.4
% tobacco sales online:	2%	3%	6%	9%	14%

But he's referring to excise taxes. Keeping within the laws, limited as they are, state sales tax is applied only in states where the company technically operates. For the majority of purchases, reporting state sales tax is left up to the consumer, much like it is when they purchase from a catalogue." [16]

Remember that the lost tax revenues above are only those related to tobacco sales on the Internet.

Nor is the  issue of lost tax revenue a U.S. only phenomena.  An article published in Canada this year puts the lost revenue for 2001 north of $13 billion:

"Canada will lose millions of dollars in tax revenues from cyberspace
transactions unless federal tax law is overhauled, a Queen’s University cyberlaw
expert warned yesterday.  

As the law stands, Canadian companies must collect and make GST payments to the federal government but “foreign companies don’t have similar obligations,” said Arthur Cockfield of Queen’s faculty of law. 

In an interview, Cockfield said he has pressed the Canada Customs and Revenue
Agency (CCRA) to revise tax laws so that e-businesses outside the country are
charged GST and international income tax. No one knows how much Canada is losing to foreign ventures that don’t have to add taxes to the products they sell to Canadians
over the Internet. 

And the problem isn’t just lost tax revenue. The system also puts Canadian businesses at a disadvantage since they have to pay taxes that foreign companies don’t. For the same reason, it could make Canadian firms less attractive to acquire. 

Cockfield believes that the costs of the uneven playing field are low but will rise in the long term. 

A recent Canada Customs and Revenue Agency internal report estimates Canadian
e-commerce transactions will total $200 billion by next year. 

“I can tell you that the Americans have estimated … that state and local governments are losing up to $13 billion US per year because of their inability to impose sales tax on e-commerce transactions,” Cockfield said. 

He suggests Canada use so-called trusted third-party software.  

It works with a retailer’s Web site to assess the appropriate GST payment on e-commerce transactions, automatically calculates the GST and submits it to a government database. 

In July 2003, the European Union will begin imposing value-added tax on foreign
e-commerce companies, but neither Canada nor the United States has similar plans,
Cockfield said. “It may be that … Canadian regulators don’t want to upset the U.S.,” he said. “Or, I think there’s a concern at the CCRA that if they impose collection applications on foreign companies this will create significant tax compliance costs.”

The issue of international income tax is also problematic, he said. Before e-commerce, firms that sold to Canadians could be taxed under an international tax agreement by taxing the company’s Canadian operation.  

With the growth of the Internet, companies no longer need to have operations in the countries where their products are sold. To address this taxation dilemma, the federal government made up a new tax category allowing it to tax a company based on the location of its Internet server – where the company’s Internet files are kept. The problem with that solution, said Cockfield, is that foreign firms don’t need servers in Canada to sell to Canadians and therefore can still avoid paying Canadian taxes." [17]

The problem of the Internet causing a loss of tax revenue is fairly clear.  Even if a form of taxes could be developed that worked for companies, there would remain a sticky problem of individual Internet sales.  This can range from anything as small as an occasional sale of a household trinket on eBay to something as complex as illegal gun sales over the Internet.

Internet Control and Politics

Radio Free Europe published a remarkable list in 1999 of 20 countries that could be counted as "enemies of the Internet" because of their Internet policies that include government control:

• Belarus
  In line with its repressive attitude towards other media, Alexander Lukashenka's government does not leave its citizens free to explore the Internet independently. Access is supplied by a single ISP, Belpak, which belongs to the state.

  Burma
  Censorship is total, due to a state monopoly on access. In addition, a law passed in September 1996 obliges anyone who owns a computer to declare it to the government. Those who fail to comply may face up to 15 years in prison.
   

• Central Asia and the Caucasus
  In most of these countries, the authorities control or restrict Internet access. In Tajikistan, a single ISP, Telecom Technologies, owned by the government, offers web access - and only in the capital, Dushanbe. Turkmenistan, a "black hole" where information is concerned, offers even more restricted access. Although there are privately owned ISPs in Uzbekistan and Azerbaijan, their operations are controlled by the telecommunications ministry, which is responsible for chastising those who speak out against the government. In Kazakhstan, and to a lesser extent in Kirghizia, the authorities demand prohibitively expensive usage and connection fees from private ISPs.

  China
  Although Internet use is spreading rapidly, the government is trying to keep up pressure on users. They are closely monitored and are supposed to register with the authorities. In January 1999 a computer technician, Lin Hai, was sentenced to two years in prison by a Shanghai court for giving the email addresses of 30,000 Chinese subscribers to a dissident site that publishes an online magazine from the United States. Meanwhile officials fearing disturbances as the tenth anniversary of the Tiananmen massacre (4 June 1999) drew near ordered the closure of 300 cybercafÈs in Shanghai, on the pretext that they did not have the necessary authorisation. In order to prevent the Chinese from finding information on the web, the authorities have blocked access to some sites. This happened to the BBC in October 1998. Zhang Weiguo, editor of the New Century Net (www.ncn.org) site, in Chinese, launched in the United States in 1996, estimates that it takes two months on average for the Chinese authorities to track down the relay server of a site and block access to it. The sites then change their address. Some censored pages are distributed by email, like underground newspapers that are photocopied and passed around secretly.

  Cuba
  The government controls the Internet, just as it does other media. There is no free expression in Cuba at national level. About ten independent - and illegal - news agencies such as Cubanet and Cuba Free Press telephone reports to organisations based in Miami which publish them on their web pages. But this news is still the subject of repression: in October 1998, a foreign ministry official filed a complaint for "insult" against Mario Viera, of the independent agency Cuba Verdad, following publication of an article criticising him on the US-based Cubanet site. The journalist is still awaiting trial, and faces an 18-month prison sentence if convicted.
   

• Iran
  Censorship of the Internet is identical to that affecting other media and covers the same subjects: sexuality, religion, criticism of the Islamic Republic, any mention of Israel, the United States, and so on. Because of the filters put in place by the authorities, access to some sites is banned: medical students are denied access to web pages that deal with anatomy, for instance.
   
• Iraq
  People in Baghdad have no direct access to the Internet. Web sites of the official press and certains ministries are maintained by servers based in Jordan. In any case, because of the embargo very few people own computers.

  Libya
  It is impossible to explore the web from Libya. The government carefully keeps the population away from international information networks with the aim of maintaining control of their minds.

  North Korea
  People in Pyongyang cannot access the Internet. The government deliberately prevents the population from seeing any news other than its own propaganda. The few official sites aimed at foreigners (the national news agency, newspapers and ministries) are maintained by servers located in Japan.

  Saudi Arabia
  Even though 37 private companies have been given permission to operate as ISPs, all traffic at the moment goes through the servers of the Science and Technology Centre, a public body, which is equipped with filters banning access to sites that provide "information contrary to Islamic values". The Internet is officially regarded as "a harmful force for westernising people's minds".

  Sierra Leone
  As part of their repression of the opposition press, the authorities have also attacked an online newspaper. In June 1999, two journalists from the daily The Independent Observer, Abdul Rhaman Swaray and Jonathan Leigh, were arrested. They were accused in particular of collaborating with the online newspaper "Ninjas", which is published on a site based abroad (www.sierra-leone.cc) by journalists who have gone into hiding.

  Sudan
  Through Sudanet, the only ISP, the state controls the few connections to the Internet possible in this country where freedom of expression is often suppressed.

  Syria
  Internet access is officially banned to individuals. Offenders may face a prison sentence, just as they may for "unauthorised" contacts with foreigners. Only official organisations are allowed access to the Internet through the public telecommunications authority, whose ISP maintains web sites for state newspapers, the national news agency and a few ministries.

  Tunisia
  The Tunisian Internet Agency (ATI) controls the two privately owned ISPs, which are in fact connected with the authorities: one is run by President Ben Ali's daughter and the second by another person close to the government. Their central servers control the access of certain users. In November 1998, following publication by Amnesty International of a report on human rights violations, a web site with the address www.amnesty-tunisia.org, deliberately designed to create confusion with the non-government organisation, praised the president's work for human rights. The director of the public relations agency that launched the site - one of whose biggest customers is the Tunisian government - claimed that he was merely coming to the country's defence. Meanwhile, access to Amnesty International's official site was blocked by the authorities.

  Vietnam
  Anyone who wants to access the Internet has to ask for permission from the interior ministry and sign up with one of the two state-owned ISPs. Access is blocked to sites maintained by Vietnamese organisations based abroad and international human rights organisations. On 9 June, the Police Ministry ordered the post office to cancel the journalist Nguyen Dan Que's Internet account, after this former political prisoner had released a communique through the Internet calling for freedom a month earlier. [18]

Since the British handed back control of Hong Kong to the Chinese, there has been a slow but steady movement to erode commonly held freedoms in Hong Kong, in order to impose controls of society more like those in China.  If successful, the Chinese efforts would amount to an abrogation of rights previously enjoyed in the one time Crown Colony.  In an article reviewing the state of freedom in Hong Kong today, Freedom House, an American organization that monitors the state of freedom around the world (and which was co-founded by Elanor Roosevelt, incidentally) gives the following account in footnote 51 of its report:

"Kadeer is an example. Kadeer was charged with state secrets for sending her husband, who resides in the United States, daily newspapers containing articles about the Uighur independence movement. She was sentenced to eight years in prison for this offense. More recently, in September 2002, Web writer Chen Shaowen, who wrote about social inequities and unemployment, was also arrested for subversion. The Public Broadcasting Service (PBS) reports that 14 journalists are currently in prison for publishing and distributing material online; of those, 11 were charged under Article 111 for state secrets violations. Dr. Xu Zerong, who wrote about the role of the PLA in the Korean War and the Mao-Stalin relationship, the subject of his doctoral research at Oxford, was sentenced in January 2002 to a thirteen-year prison term for illegally providing state secrets to unknown persons and for brining banned books into the mainland. Chen Shaowen, the Web writer, was accused of falsifying information and slandering the communist party, officially of "using the internet to subvert state power". His essays were allegedly posted on reactionary websites. The topics included as previously mentioned social inequities, unemployment, and the legal system." [19]

Clearly, there is a political agenda behind control of Internet access in most of these countries, and since the horrible events of 9/11 the U.S. has seen building pressure to begin tracking activities of individual citizens.  One such move has been the granting of federal access to previously sacred personal information about reading materials.  Ask a librarian these days if the government has checked up on your selection of books to check out and you'll be told "Sorry, we're not allowed to talk about that."

Senator Patrick Leahy of Vermont was one of many who spoke up in advance of the passage of the Homeland Security Act and sounded a warning about the potentially dangerous parts of the Act:

Wrong.  It did. Welcome to the land of keystroke logging and Internet monitoring, previously known as the land of the free...

But this week is not about considering the implication of Internet tracking as it related to terrorism, because clearly, the militant Islamists are disinclined to use the Internet.  Instead, as numerous military experts have pointed out, they are more likely to use the telephone, intermediaries, and even the mail to accomplish their foul missions. 

Related: The Electronic Frontier Foundation has a web site you might want to bookmark at http://www.eff.org/Censorship/Terrorism_militias/antiterrorism_chill.html which gives you a running account of the chilling effect that the Homeland Security Act has had - and will continue to have - on America from now forward.

One could assert that the recent scramble to enact vast new powers to "protect us from terrorism" constitutes a veiled effort to stifle political dissent, as there has been no demonstrated role of email in the major terrorism events to date, such as the two bombings of the World Trade Center and the (now shown related via Terry Nichols) Oklahoma City bombing. 

Regardless of the motive, it's clear that the Internet could be used for destructive purposes if a person or group had that particular bent.  We should observe, as in the case of automobile licensing, that if something presents a potential threat to society at large it can be licensed effectively

Internet Fraud

As if the issues of terrorism and lost tax revenues were not sufficient, there is also an issue of fraud relationed to the Internet.  According to the FBI's 2001 report of its Internet Fraud Complaint Center, Internet fraud amounted to $17.8 million:

• "Internet auction fraud was by far the most reported offense, comprising 42.8% of referred

complaints. Non-deliverable merchandise and payment account for 20.3% of complaints, and

Nigerian Letter fraud made up 15.5% of complaints. Credit/debit Card fraud and Confidence

fraud (such as home improvement scams and multi-level marketing) round out the top five

categories of complaints referred to law enforcement during the year. Among those individuals

who reported a dollar loss, the highest median dollar losses were found among Nigerian Letter

Scam ($5,575), Identity Theft ($3,000), and Investment fraud ($1,000) complainants.
 

• Nearly 76% of alleged fraud perpetrators tend to be individuals (as opposed to businesses), 81%

are male, and half reside in one of the following states: California, Florida, New York, Texas, and

Illinois. While most are from the United States, perpetrators have a representation in Canada,

Nigeria, Romania and the United Kingdom.
 

• Over 70% of fraud complainants are male, half are between the ages of 30 and 50 (the average

age is 38.6), and over one-third resides in one of the four most populated states: California,

Texas, Florida, and New York. While most are from the United States, the IFCC has received a

number of complaints from Canada, United Kingdom, Australia, and Japan.
 

• The amount loss by complainants tends to be related to a number of factors. Business victims

tend to lose more than individuals and males tend to lose more than females. This may be a

function of both online purchasing differences by gender, and the type of fraud the individual

finds themselves involved in. While there isn’t a strong relationship between age and loss,

proportion of individuals losing at least $5,000 is higher for those 60 years and older than it is for

any other age category.
 

• Electronic mail (E-mail) and web pages are the two primary mechanisms by which the fraudulent

contact took place. Nearly 70% of complainants reported they had e-mail contact with the

perpetrator."  [21]

Frankly, the small loss levels associated with fraud on the Internet are remarkably low.  The most recent figures I've been able to locate indicate that for the first six months of 2002, the Internet fraud reported to the National Fraud Information Center was only $7.2 million - meaning that the level  of fraud has remained relatively constant.  Interestingly, the largest area of fraud has been online auctions, which account for 87% of fraud on the Internet. [22]  When you spread the losses repored across the estimated 98 million Internet U.S. Internet shoppers online in December, the loss is a mere $0.15 per user - not much of a fraud problem right?

But, while "pure fraud" is not an extensive problem on the Internet, perhaps due to the relatively higher education level among Internet users [23], there is another area where licensing of Internet use could massively improve things in my life - and I expect yours too...

That area is junk mail.  How many of these massive time wasters have shown up in your email lately? 

• Urban Legend Zeitgeist:
  • Free Gift Certificates From Victoria's Secret Hoax
  • Free Money From The Newell Company Hoax
  • Free Phone From Nokia Email Hoax
  • Free Phone From Ericsson Email Hoax
  • Free Coke Email Hoax
  • Free Gap Gift Certificates Email Hoax
  • Free EMI Gift Certificates Email Hoax
  • Intel-AOL Merger Email Hoax
  • J. Crew Email Hoax
  • Amy Bruce Email Hoax
  • Bath & Body Works Email Hoax
  • Honda Email Hoax
  • Microsoft-AOL Merger Email Hoax
  • Disney Email Prizes Hoax
  • Gap Email Tracking Hoax   [24]

Yes, junk mail is a huge problem.  I don't even count it anymore, but the president of the company I work for mentioned that he routinely gets 50 to 100 emails a day that are "junk".

Let's see:  We have radio as a prototype, we have a growing loss of tax revenue

Blurring the Line

As the Internet evolves, a couple of things are becoming very clear.  One is that transactions and shopping, along with point-to-point communications will be at the center of Internet activity. Another is that holding a credit card or its Internet equivalent (such as a PayPal account) is the only practical way to conduct transaction on the web.

Thus, as shopping evolves on the web, there will be continuing competition among various payment mechanisms for consumer business.

It seems likely then that a kind of defacto Internet license will evolve, taking the form of a bank card (or payment mechanism) portal to the balance of the web and offering the best attributes of portals, banking and commerce, one-click ordering, and an email account subject to strict inbound control.

When?  Probably within 4-years or less. 

The pressure of the Homeland Security Act, the pervassive nature of spam, and the need for government control and knowledge of even its most "trusted" citizens argues for segmentation of Internet users.  The financial institution "portal" approach will assure a financial institution that a competing form of payment won't be used, thus it argues for increased market share on the provider side.  At the same time, because all kinds of personal information is already known by your bank (and through them your credit history), you'd be a safer risk than most to be allowed access to the web.

The people who are not priveledged and not uysing a financial portal?  It's becoming easier to run them away from the net through a combination of spam and slow service response. 

Ubiquitous web access can still be touted by supporters of electronic freedom, but when you get right down to it, a 28k dial up account loaded with spam becomes virtually useless compared with a well fire walled broadband account with mail scrubbers up and tuned right.

I expect the web will remain predominately unlicensed, but "thicker" pages, more spam, and a proliferation of hacktivism will result in some of us being a little more "equal" than others.

Look for it soon from banks and credit card companies near you....

References

[1]   http://www.tr.com/tronline/tr/1997/tr7018/tr701854.htm
[2]   http://www.tr.com/tronline/emms/2000/em081100/em081100-06.htm
[3]   http://www.tr.com/tronline/tr/2002/tr030402/tr030402-17.htm
[4]   http://www.firstmonday.dk/issues/issue6_2/odlyzko/#o7
[5]   http://www.sims.berkeley.edu/~hal/Papers/history/
[6]   http://www.criminology.fsu.edu/transcrime/articles/Technology%20Sent%20Wall%20Street%20Into%20Market%20for%20Pornography.htm
[7]   http://www.wireservices.com/n9zrt/live-wire/events/marconi/
[8]  http://216.239.51.100/search?q=cache:Ez-c17wnQVAC:www.bartleby.com/67/2204.html+%22Communications+Act%22+%2B%221933%22&hl=en&ie=UTF-8
[9]   http://www.hemplinglaw.com/cases/ca1934.htm
[10]   http://216.239.39.100/search?q=cache:QpwbGKY7foEC:www.isp-planet.com/letters/2001/ham.html+%22Communications+Act%22+%2B%22Part+15%22&hl=en&ie=UTF-8
[11]  http://216.239.51.100/search?q=cache:myjrBaDvuIYC:www.sss-mag.com/pdf/UWBRULES.pdf+%22Part+15+device%22+%2Bmaximum+range%22&hl=en&ie=UTF-8
[12]  http://216.239.51.100/search?q=cache:OgDU6ALVYhMC:www.efinitytech.com/AltSite/support/netsmart1.asp+%22specific+audience%22+%2Bintranet&hl=en&ie=UTF-8
[13]  http://www.urbansurvival.com
[14]  http://www.depression2.tv/2003/p-nystrom.html
[15]  http://216.239.51.100/search?q=cache:uUG-2jGk7oAC:www.bsa.org/usa/press/newsreleases/2002-09-09.1280.phtml%3Ftype%3Dpolicy+%2Binternet+%2B%22lost+tax+revenue%22+%2B2002&hl=en&ie=UTF-8
[16]  http://www.tobonline.com/ArticlePages/ArticlePagesVol52/vol52p64.htm
[17]  http://qsilver.queensu.ca/law/news/inthenews/cockfieldwhig.htm
[18]  http://www.rferl.org/nca/special/enemies.html
[19]  http://www.freedomhouse.org/pdf_docs/hongkong/article23.pdf
[20]  http://www.senate.gov/~leahy/press/200211/111902c.html
[21]  http://www1.ifccfbi.gov/strategy/IFCC_2001_AnnualReport.pdf
[22]  http://www.fraud.org/02intstats.htm
[23]  http://cyberatlas.internet.com/big_picture/demographics/article/0,,5901_579671,00.html
[24]  http://www.urbanlegends.com/ulz/emailtracking.html

On to the charts!

Write when you get rich!

George Ure