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.