Evolution of the internet model does not need ITU intervention at this time
James Robinson, Associate Analyst, Regulation & Policy, OvumDuring December 2012, International Telecommunications Union (ITU) member states are meeting to debate the future regulation of the Internet. Members are discussing proposals by the ITU to amend the International Telecommunications Regulations (ITRs), which have provided rules for global telecoms for over two decades.
The ITU feels that the existing regulatory framework is ill-equipped to deal with the challenges stemming from increasing data volumes and the risk of an investment shortfall. It believes that the ITRs need updating to help encourage broadband rollout and to address the current disconnect between revenues and costs. Its opponents, however, fear that the proposed revisions may impact the freedom of information and expression on the Internet.
The ITU has proposed that operators adopt a “sending party network pays” system in order to fairly compensate those that carry Internet traffic. Under this regime companies such as Google will have to pay operators more to carry their traffic. The plans have faced fierce opposition in countries such as the US, where commentators have likened them to a “toll for the Internet superhighway.”
Eventually, however, there will need to be some change to the Internet model, change that recognizes the two-sided nature of the market. We have already witnessed this on occasion, which suggests that the ITU’s involvement may not be required. And with such proposals unlikely to receive unanimous backing, it is doubtful that we will see any change to the model as a result of this year’s congress.
The economics of interconnection is the primary issue at stake
On December 3, 2012 members of the ITU convened in Dubai at the 18th annual World Conference on International Telecommunications (WCIT) for a fortnight of negotiations. The talks will provide an opportunity for ITU members to collaboratively review the ITRs, which have governed the development of the telecoms industry for over 20 years. It has been claimed that the WCIT will serve as a forum for some countries to advance their own political agendas and for others to attempt to censor the information available online.
In the US, the House of Representatives believes that it is the duty of the US to promote a global Internet free of government control. It is slightly ironic, therefore, that the bodies that oversee the Internet, including the Internet Corporation for Assigned Names and Numbers (ICANN), operate under the umbrella of the US Department of Commerce.
Ultimately, the issues up for debate are interconnection, how upgrades to infrastructure are going to be made, and who should pay for them. While the ITRs have provided a general framework that has facilitated the development of international telecoms services, the ITU believes that a revision is needed in order to encourage future growth and technological innovation. As such, it has proposed an amendment to Article 3 that aims to ensure an adequate return on investment in high-bandwidth infrastructures.
Under the plan, operators will be able to negotiate commercial agreements to achieve a sustainable system of compensation for telecoms services. This is based on the principle of sending party network pays, which is commonly used for mobile voice call termination.
The Internet has flourished so far and should be allowed to evolve
As Ovum’s report Net Neutrality: The Approach of Regulators and the Industry explains, the ITU’s view forms part of the general consensus that some change to the Internet model is needed to encourage future infrastructure investment and to ensure that innovation continues. The sending party pays regime would take profits from such parties to cover the required investments in infrastructure.
However, the ITU is wrong to assume that the cost of change should be borne entirely by those that provide content for Internet users; it must consider the fact that it is actually customers who are responsible for driving the growth in Internet traffic. Consumers are used to paying less and less for their broadband subscriptions, and would be very reluctant to suddenly begin paying more.
Parties on both sides of the market will have to contribute in order to create a sustainable business model for the future. Content providers and ISPs (via their customers) must expect to pay more in the long run. There will have to be changes to the current free-peering model of the Internet, and in fact content providers are in some instances already paying more to telecoms operators for the prioritized delivery of their content. This situation has the potential to work for both sides without the need to change any global rules and without the involvement of the ITU. Ovum believes that the ITU need not step in at this time: the Internet must remain an open platform and be given its own chance to evolve, as was the case when the ITRs were first enacted.
The new plans will not receive universal backing at the WCIT
The view from the US is that the Internet has thrived under the existing ITRs and the system of bilateral and multilateral agreements currently in place. We expect that the US will seek to preserve this environment of private sector competition and minimal regulation. To a certain extent, the US will also look to protect the big content houses, which are US-based and which will wish to have a say in any attempt to alter the regulatory framework.
The ITU’s proposals have been described as essentially a tax on the US firms whose content creates large volumes of Internet traffic. It is clearly in the interests of the US to protect its content providers, which would suffer if the proposed rules were adopted, and it will therefore argue to protect the status quo.
Fortunately for the US, the ITU’s secretary general has stated that, should disagreements arise between members, a majority vote would not decide the outcome of the debate. Several countries, including Russia, back the ITU’s proposals, although a leaked document from the Russian government suggests that its primary motivation is reducing the degree of control of the Internet that the US currently enjoys.
In addition, we are still at an early stage in the process of revising the ITRs. The ITU generally moves at a slow pace, and many parties will have to be convinced to buy into the proposals. The outcome may, therefore, not be decided at this WCIT, and could take several years. Even if nothing comes of the discussions, it is promising at least that these issues are being debated publicly and at an international level.
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