WOULD WIRETAP CHIP BE COST-EFFECTIVE?

                        by Robin Hanson
                     Draft, April 21, 1993

  SUMMARY: Compared to an average monthly phone bill of sixty dollars,
  wiretaps are only worth two cents a month to police.  So the
  proposed wiretap chip must raise phone costs by less than one part 
  in three thousand to be cost-effective. 

BACKGROUND

Until now, phones have happened to allow the existence of "wiretaps",
detectors which could pick up conversations on a phone line.  And over
time, law enforcement agencies have come to rely on this capability to
aid in criminal investigations.  However, powerful new encryption
technologies threaten this status quo, by making possible truly
private communication.  A small chip in each phone could soon make it
literally impossible to overhear a conversation without physical
microphones at either end.

In order to preserve the ability of law enforcement agencies to tap
phone conversations, the U.S. government announced on April 16, 1993
that it had developed and begun manufacturing a special "wiretap" chip
to be placed in future phones, instead of the total privacy chips
which have been under private development.  The same day, AT&T
announced it would use these chips "in all its secure telephone
products".

Each chip would be created under government supervision, when it would
be given a fixed indentifier and encryption key.  Periodically during
each conversation, the chip would broadcast its identifier and other
info in a special "law enforcement block".  Law enforcement officers
with a court order could then obtain the key corresponding to the
indentifier from special trust agencies, and could thereby listen in
on any future or previously recorded conversations on that phone.

To date, most concerns voiced about this plan have been about its
security.  The government won't disclose the encryption algorithm, and
many suspect the government will not limit its access in the way it
has claimed.  The track record of previous governments does not
inspire confidence on this point [1].

However, this paper will neglect these concerns, and ask instead
whether this new wiretap chip is a cost-effective tool for police
investigation.  That is, which is a cheaper way for society to
investigate crime: force phone communications to support wiretaps, or
give police agencies more money to investigate crimes in other ways?
Or to put it another way, would police agencies be willing to pay for
each wiretap, if they had to pay their share of the full social cost
of forcing phones to support wiretaps?

To start to answer this question, we might compare the current
benefits wiretaps provide to law enforcement agencies with projected
costs of implementing the new wiretap chip plan.  And since current
benefits are easier to estimate, we begin there.

WIRETAP BENEFITS

1990 is the latest year for which wiretap statistics are available
[2].  In that year, 872 wiretap installations were requested, and no
requests were denied.  (This figure does not include wiretaps obtained
with the consent of a party to the conversation.)  2057 arrests
resulted from wiretaps started the same year, 1486 arrests came from
wiretaps in previous years, and 55% of arrests led to convictions.
76% of the wiretaps were for phones (vs pagers, email, etc.), 60% were
regarding drug offenses, and 40% were requested by federal
authorities.  Each wiretap installation heard an average of 1487
calls, 22% of them incriminating, among 131 people, and cost an
average of $45,125 (extrapolating from the 794 installations
reporting costs), mostly for labor.

Thus a total of about $40 Million was spent on wiretaps, to obtain
about 4000 arrests, at $10,000 per arrest.  Thus these arrests are at
least four times more expensive than the $2500 per arrest figure one
gets by dividing the $28 Billion spent by all police nationally by the
total 11 Million non-traffic arrests [3].  Thus the $30 Million per
year spent on phone taps is only one thousanth of the total police
expenditures.  And if we divide this by the 138 Million phone "access"
lines in the country [3], we get about 23 cents spent per year per
phone line, or about two cents a month.

In general, we deter a given class of criminals through a combination
of a perceived probability of being caught and convicted, and some
expected punishment level if convicted.  So the social value of having
wiretaps is no more than the amount that we would have to pay to get
the same criminal deterrence through other means.  If unable to
wiretap a particular suspect's phone, police might instead use hidden
microphones, or investigate that suspect in other ways.  Or police
might focus on suspects more easily investigated without wiretaps.  Or
we might raise the fine or prison time for certain types of crime.

If we generously assume that these substitutes for wiretaps would be
on average twice as expensive as wiretaps, then the annual social
benefit of phone wiretaps is about equal to the current spending level
of two cents a month per phone line.

WIRETAP COSTS

Let us for the moment optimistically assume that the US government
encryption scheme is as secure as whatever private enterprise would
have offered instead, protecting our conversations from the spying
ears of neighbors, corporations, and governments, both foreign and
domestic.  Even so, the need to support wiretaps would add many
additional costs to build and maintain our communication system.

Extra law enforcement blocks would be added to phone transmissions,
increasing traffic by some unknown percentage.  A special process must
be used to add encryption keys to chips, while securely distributing
these keys to special agencies, which must be funded and monitored.
The chips themselves are designed by a military contractor, whose
design is to remain secret, and are manufactured through a special
process so that the chip becomes nearly impossible to take apart.
(Chips are now offered at the relatively high price of $30 a peice in
lots of 10,000 [4].)  Private encryption systems not supporting
wiretaps would require none of these extra costs.

Perhaps most important, government degree would at least partially
replace private marketplace evolution of standards for how voice is to
be represented, encrypted, and exchanged in our future phones.  It is
widely believed that governments are less efficient than private
enterprise in procuring products and standards, though they may perhaps
perform a useful brokering role when we choose between competing private
standards.  How much less efficient is a matter of debate, some say
they pay twice as much, while others might say only 10% more.    

Currently, a total of $96 Billion is spent as operating expenses of
U.S. phone companies [3], which comes out to about $60 per month per
access line.  If we compare this to the wiretap value of two cents per
month, we see that if wiretaps raise average operating costs by even
as much as one part in 3000, then wiretaps are not cost effective!
And this doesn't even include extra costs phone owners pay because
their encryption chips are more expensive.  Of course most phones
wouldn't have encryption chips for a while, but the wiretap benefit
per phone is still the same, so this argument still applies.

CONCLUSION

Given this dramatic difference between the total cost of running the
phone system and the value of wiretaps, we can justify only the
slightest modification of the phone system to accommodate wiretaps.
When the only modification required was to allow investigators in to
attach clips to phone wires, wiretap support may have been reasonable.
But when we consider substantial modification, the burden of proof is
clearly on those proposing such modification to show that the costs
would really be less than the benefits.  

If consensus cannot be obtain on this cost/benefit estimate, a
compromise might be to tax phones which do not support wiretaps at a
rate of say five cents per month, a tax payable to police agencies
nationwide to compensate them for their loss of wiretap abilities.

[1] The Invisible Weapon, Oxford Press, ISBN 0-19-506273-6

[2] Report on Applications for Orders Authorizing or Approving the
    Interception of Wire, Oral, or Electronic Communications, 1990,
    Administrative Office of U.S. Courts, Washington, DC 20544.

[3] U.S. Statistical Abstracts, 1992.  

[4] Dorothy Denning, "The Clipper Chip: A Technical Summary",
    distributed to sci.crypt newsgroup April 21, 1993. 