During my career, I spent countless hours in windowless conference rooms debating the illogical idea of imposing rules developed for the telephone age onto the Internet.
Governments, angry about declining telephone revenues, attempted to dictate the terms of commercially negotiated Internet interconnection arrangements. Proposals for an Internet accounting rate regime ignored how Internet traffic flows worked. Suggestions that the underlying Internet standards should be scrapped and redesigned neglected the success of the powerful bottom-up rollout.
Most debates took place in Geneva at the International Telecommunication Union (ITU) headquarters under the auspices of blandly bureaucratically named Study Group 3 (SG3) of the organization’s standards sector. Like all ITU-T study groups, SG3 produces ITU Recommendations (voluntary standards) and other technical reports.
Study Group 3 was born back in 1928 as a working group to study telephone tariffs. It addressed the old analog circuit accounting rates. As Internet-based services displaced those revenue streams, the group searched for a new assignment. It grabbed onto the issue of Internet traffic flows.
Battle lines formed.
On one side, some countries argued that the Internet peering and transit system was unfair and failed to recognize their development needs. They pushed for a shift to a sender-pays transit model under which large content providers would pay extra for sending their traffic.
On the other side, the US formed a coalition that included European governments and the European Commission. Both European and American telecom operators fought to fend off forced terms and conditions for Internet transit. They argued that such a shift would lead to inefficient Internet traffic flows and higher costs for consumers. Instead of imposing Network Fees, developing countries should focus on adjusting their domestic regulations so that competitive markets would develop Internet exchange points.
The OECD examined the issue, hoping to break the deadlock. In 2002, it produced a 52-page study that concluded that market liberalization and privatization, not incumbent rent-seeking, represented the best path forward for spreading low-cost Internet access. It endorsed “the current arrangements,” saying they “provide the right incentives for developing backbone markets.”
Peering deals were spreading. Prices were decreasing. In short, the market was working.
The OECD rejected calls for Network Fees, saying they run “the risk of fundamentally altering the incentives for commercial responses and solutions to any perceived problems.” It warned against any move to “strengthen existing distortions where monopoly power exists.” The “best guarantee this will occur is to ensure there is sufficient competition in backbone markets.” The two most competitive telephone markets, the UK and the US, have spearheaded Internet adoption.
After the OECD report, SG3’s work in this area shifted away from efforts to impose Network Fees. Discussions continued on a slow burner, while the rollout of the Internet accelerated around the globe. Cables were laid. Internet exchange points were deployed.
Even so, critics of the existing charging system did not give up. They criticized the OECD as a “rich man’s club,” since its membership only includes advanced industrialized economies. They brought a call for equity and fairness in Internet arrangements issues into the preparations for the United Nation’s World Summit on the Information Society (WSIS).
Proposals rejected by Study Group 3 reemerged. As a key member of the US delegation at WSIS, many meetings sounded like a broken record to me, once again featuring calls for direct government intervention in commercial Internet transit markets. The US, European governments, and others stood firm in opposition.
The conflict came to a head in Tunisia, at the WSIS 2005 Tunis conference. The agenda recognized developing countries’ concerns — but called for competitive, commercially negotiated arrangements. The Internet marched on. Traffic flows adjusted. New cables were laid. Connectivity in developing countries improved. The battle over Network Fees looked finished.
Wrong.
Network Fees soon reemerged — and with a dangerous new twist. The setting was the 2012 ITU World Conference on International Telecommunications (WCIT). It took place in December in Dubai, and as delegates sweated away in a hot convention center, it proved the most controversial and conflicted in the ITU’s long history.
A coalition led by Russia and China mobilized, with the goal of setting controls on the free and open Internet. Russia proposed giving the ITU control over the Internet’s operation. “Member states shall have equal rights to manage the internet, including in regard to the allotment, assignment and reclamation of internet numbering, naming, addressing and identification resources and to support for the operation and development of basic internet infrastructure,” the Kremlin said in a submission.
This would have marked a shift from the current set-up, in which non-profit bodies manage the Internet. Other proposals supported by Russia, China, and the Gulf states would have permitted governments to censor legitimate speech, even allow them to cut off internet access — and not least, to charge Network Fees on services like YouTube, Facebook, and Skype.
The ITU leadership leaned towards such proposals. It brought Network Fees into the center of the debate, saying that the Dubai meeting should “address the current disconnect between sources of revenue and sources of costs,” adding that telecom companies had the “right to a return on [the] investment” needed to avoid congestion.
In Dubai, the coalition against these unsavory ideas came close to cracking. Out of the blue, the European Telecom Network Operator’s Association (ETNO), home to incumbent telephone operators such as Deutsche Telekom, Orange, and Telefonica, stunned delegates with a proposal to address the new Internet ecosystem. ETNO highlighted what it perceived as shortcomings in the Internet interconnection market, proposing that the ITU develop a “reference” model for commercial negotiations. The model, based on the concept of sending party pays, would allow improved compensation for Europe’s telephone operators for carrying Internet services over their networks.
The reaction was swift and decisive. The US said no. Japan said no. Most important of all, the European Union said no.
The US delegation met with ETNO’s Executive Board Chair. Why should governments intervene to bail out these operators as opposed to telecom companies actually innovating? We asked. The board chair had no response. In a speech, my boss, Lawrence E. Strickling, the US Assistant Secretary of Commerce for Communications and Information, derided the ETNO proposal as “a bad idea.” It is a “solution in search of a problem, and it most likely would disadvantage the developing world, which has the most to gain from continued growth and expansion of the Internet,” he insisted.
The Dubai conference collapsed. Many countries, including all of the European Union governments, refused to sign the proposed change, citing concerns about the potential negative impact on the free and open Internet. International institutions originally designed for a world of monopoly providers operating within national borders do not work well in the borderless, global, multi-layered world of the Internet. And governments struggle with how to define their roles in this new reality.
Back in Europe, regulators rejected ETNO’s Network Fees proposal. BEREC, the coordinating group for European national telecommunications regulators, rejected the idea of government intervention, saying it risked “shifting the balance of negotiating leverage between market participants and inducing an abuse of market power by telecoms carriers in relation to terminating traffic.” The European Council also rejected the recommendation, and the European Parliament passed a negative resolution.
The OECD took up the issue again. It released an Internet Traffic Exchange paper that confirmed that an efficient market for Internet interconnection existed and that it had “produced low prices, promoted efficiency and innovation, and attracted the investment necessary to keep pace with demand.”
Network Fees looked dead. Or so I thought. Once again, I was mistaken. Regions with rapidly expanding Internet access no longer occupied the front lines. The main battleground turned to Europe.
Fiona M. Alexander is a Non-resident Senior Fellow with the Tech Policy Program at the Center for European Policy Analysis, a Distinguished Policy Strategist in Residence at the American University School of International Service, and a Distinguished Fellow at the Internet Governance Lab. She serves as a member of the International Telecommunication Union’s Academic Advisory Body on Emerging Technologies, a member of the Freedom Online Coalition’s Advisory Network, and as a Member of the Marconi Society Internet Resilience Advisory Council.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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