Note, this flows from a discussion that initially took place on a listserve sponsored by ISOC on Internet Policy.
The extended discussion is probably only for those with an interest in Internet Governance issues and particularly as they apply to the regulatory regimes (and policy stances) of Less Developed Countries and I would point those with such an interest to research papers prepared by Michael Kende of the consulting firm AnalysysMason on behalf of Amazon, AT&T, Cisco Systems, Comcast, Google, Intel, Juniper Networks, Microsoft, National Cable & Telecommunications Association (NCTA), News Corporation, Oracle, Telefónica, Time Warner Cable, Verisign, and Verizon.
specifically:
and
Internet global growth: lessons for the future, September 2012, Michael Kende
I should say that both of these reports are very interesting and contain a wealth of good information, however, the problem that I have with them and particularly the second report is that it so clearly starts off with its policy conclusion and builds a case to support this. This is not an area of particular expertise for me but my gut is that the conclusions as to the appropriate policy regime for Least Developed Countries (the apparent target for the second policy report from Michael Kende) would look quite different if it was done from/by folks from LDC’s rather than sponsored as Kende’s report was by Google, Cisco, Amazon, Microsoft and so on and so on.
I’m not exactly sure what the LDC sponsored report would say but my guess would be that they would focus rather more on looking at how costs and benefits are and should be distributed as between some of the wealthiest companies from some of the wealthiest countries and LDC’s looking to increase Internet access overall in environments of very low incomes, very difficult physical environments, extremely weak regulatory and taxation regimes, and vast areas and populations who might under some circumstances derive benefit from Internet access but who would under almost any conceivable current situation find paying for this almost impossible.
My hunch is that they wouldn’t start out with indicating as the number one recommendation of the report — the basic point of the overall report from what I can see — the overwhelming importance of:
“Promoting network infrastructure: (by a) Focus on increasing investments throughout the network, from mobile broadband access through national and cross-border connectivity and IXPs, by removing roadblocks to lower the cost of investment, including allocating spectrum for mobile broadband or limiting licensing requirements and fees, in order to promote competitive entry and growth.”
From what I am seeing (and Kende’s report is as good a signal as any) the Internet biggies are running a bit scared (the term “moral panic” comes to mind) as to what “madness” might come out of the World Conference on International Telecommunications meeting that the ITU is hosting in December in Dubai. And they are pulling out all the stops in trying to derail any real discussion on how the costs and benefits might be allocated of improving/extending Internet access in and into LDC’s and within LDC’s to the other 99% or so in those countries who currently have no possible means of access. This is of course, because the ITU as the traditional venue for global telecom “governance” includes among its 195 or so Member States a very goodly proportion, probably a majority, who are currently experiencing net costs (including many regimes who see these costs in terms of lost political control) from Internet access and particularly if attempts at extending access to rural and maginalized populations are taken into consideration, rather than net benefits and not surprisingly they are looking at ways of righting that balance.
And so instead of actually sitting down and trying to figure out a global regime for Internet (and possibly other) governance, that might in some sense lead to an equitable distribution of costs and benefits the biggies are launching verbal, research and whatever types of broadsides infinite amounts of money, easy access to expertise and the current ascendance of neo-libertarian (anti-State, anti-tax) ideology can muster.
I myself am of two minds on this issue. I well recognize the value/benefits that could flow from Internet access even to the poorest of the poor and the overwhelming benefits that Internet access provides to those for example in civil society who can take advantage of its more or less unlimited free flow of communications and information (including through undermining various repressive political regimes). On the other hand, the unlimited unregulated policy environment advocated by reports like that of Kende and others of that ideological ilk would I think, lead almost directly to a further enrichment of the already stupendously wealthy and overall a significant transfer of wealth and benefit from those with the least to those with the most.
The challenge I think is to recognize both of the above as equally likely/possible outcomes. This implies the need to design and implement a global regime which ensures the possibility of universal access to the benefits of the Internet while ensuring that the provision of these opportunities does not further immiserate those currently least able to obtain these benefits at least in part by destroying the means by which such possible access to benefits could through public intervention, regulation and yes, even taxation ensure that such a possibility of benefits can be translated into actuality.
Gurstein's Community Informatics 
Fred Goldstein
October 12, 2012
Mason’s report looks surprisingly sensible. Promoting network infrastructure is s exactly what’s needed. Internet is payload running over infrastructure. No physical medium, no Internet. All the rest follows, iff you allow it to.
So getting access into the LDCs boils down to two questions:
1) How can the cost of providing access(that infrastructure) be minimized, and
2) Where does that money come from?
The first question is what Mason is mostly addressing. Spectrum policy and a national infrastructure policy can optimize for cost, but this mostly needs to be done at the wholesale level. What’s unsaid is that many of these countries are so corrupt that there is no interest in doing so, as the status quo is profitable for the ruling regime or family. Countries with a strong monopoly PTT tradition and firm control over the media don’t want good telecom or Internet, especially if it reduces the very high toll revenues they extract from foreign businesses. But in a country that does care (and some do; Ghana comes to mind), improved submarine cable access makes it worthwhile.
The second question is where the ITU discussion comes in. These countries remember the fun they had milking international telephone-call settlements and want to revive the practice for Internet traffic. And they somehow wish that the cross-subsidy fairy would take money from the West’s use of the Internet and give it to them, so a fraction of it can actually be spent building something while, in too many cases, a lot of it joins Mitt’s money in the Caymans, Switzerland, etc.
But the whole point of Internet is that there is no cross-subsidy money anywhere. It’s a very fluid market system, one where technology, demand, supply, traffic flows and cash flows shift rapidly, where such shifts can’t be predicted the way 10-year telephone calling levels used to be, where demand is extremely elastic, and where technology finds a way to route around regulatory interference. It’s not like squeezing water from a stone; it’s like squeezing rock from an ocean. Not only isn’t it possible, but it looks foolish to even talk about it seriously.
So if these countries want to fund the necessary infrastructure, they need to do so in a way that doesn’t involve breaking somebody else’s internet. They would do better to just ask for foreign aid or even investment and loans. If they were serious about it, rather than wanting strictly-censored national monopoly super-videotex networks, then they would invite development. Fiber itself is cheap. Optronics have gotten quite cheap too lately. Most of the cost of fiber infrastrucutre in the west is labor to install, and that’s pretty cheap in LDCs.
So I don’t think it’s about the west trying to “further enmiserate” the people of the LDCs. It’s about whether those countries’ governments are willing to work with the developed world to join it, rather than to make futile gestures to break how the developed world actually works in hopes of getting a share of their wealth in the process.
Michael Gurstein
October 21, 2012
No question ,Fred that countries–Less Developed as with Developed ones need a “modern” digital infrastructure and suitable links into the global digital system.
But there are challenges from an LDC perspective (and one which is (let’s assume) supportive of rather than predatory towards its own, (for the most part) largely rural, largely poor, largely unconnected population). Thus making these connections to the quality and capacity which is required means either passing the begging bowl (your solution) or giving away the regulatory/taxation farm to get someone somewhere in the private sector to pay for it (evidently Kende’s solution).
Further adding to the mess is that since these “pipes” are two way, and the pretty baubles (which go along with the striking and significant digital opportunities) virtually all are provided by (and provide income to) folks in Developed countries, at least in the shorter run, making these connections means a net outflow of funds from those already strapped (the LDC’s) to those who already have a (relative) abundance (the DC’s).
Now those with the begging bowl can redouble their begging efforts although there is an increasingly diminishing returns here for those efforts, and the rest have (at the urging of the spokesfolks for the current dominant (neo-lib) Washington Consensus have given away the means to do anything much about those imbalances but go further on that road and hope “for something to turn up” (as Dickens said in frighteningly similar circumstances in the 19th Century).
Neither strategy seems to me to be a particularly winning one.
But over to you,
Mike
Fred Goldstein
October 21, 2012
You’re right, Michael, there are no easy winning strategies. That does not however justify hard losing ones.
GM does not pay Cameroon a fee every time it sells a Chevy in the US. Internet is similar: It’s content that they do largely import from the west. The cost of the imported stuff, however, is falling, thanks to new undersea cables. (If local ISPs have to pay too much of a markup, it’s the corrupt government’s fault.) But the cost of the local “road” (communications) system cannot be covered from transactions in the west.
An internet is a voluntary agreement among network operators to exchange traffic for their mutual benefit. Voluntary agreements are often reached by the exchange of money, as when I pay a cable company for my Internet access. From the perspective of value, Internet access is worth more to the LDCs than it is to the worlds’ ISPs, so the LDCs are essentially customers, and thus need to pay. Threatening their suppliers’ business models is not a way to make friends or win concessions.
By putting pressure on worldwide ISPs and trying to fsck up the Internet’s fragile business model, these countries are instead making enemies, and giving the rest of the world more reason to not let them onto its existing Internet. The focus should be on ways to minimize their own costs of building out their domestic networks.
Michael Gurstein
October 21, 2012
Fred, you are missing my point. I’m suggesting that there is a problem and some solution needs to be found. If regulation is unacceptable then perhaps a “new business model” although I have some doubts about how that might work out in practice. Only if you completely accept the neo-lib orthodoxies of the Washington Consensus can folks not see that there is a problem with the fact that LDC’s are being expected/coerced into paying for the rope that is hanging them (revenue wise). In the real world something has to give and your solution of re-passing the begging bowl is not a very good one particularly for those regimes which are not the corrupt ones you are so quick to point to…
M
Fred Goldstein
October 21, 2012
Michael, calling me a neo-lib is a preposterous insult. I’m old left myself, which means that I understand the need for markets to function but don’t mind sensible government intervention either in the form of regulation, as needed, or direct investment. But the Gosplan approach, where you totally ignore market mechanisms, doesn’t fly. And it especially doesn’t fly in The Internet, whose technical basis is extremely fragile and entirely depends upon maintaining the unreliability of delivery. Which the ITU proposals totally fail to recognize, btw.
You keep telling me that there’s a problem — I understand that — but you haven’t come up with a solution that isn’t utterly preposterous. The Internet is not a rope that’s hanging the LDCs — it’s a valuable tool that they can and should be making better use of. Indeed their PTTs have often fought the Internet because it harmed their broken, market-defying settlement-based PSTN business model. Sorry, folks, but you can’t keep up a fiction like that forever.
Packets do not have an inherent value to either party. Usually the receiver requests them (as in video), but sometimes the sender does (as in email). So billing for packets makes no sense; it merely invites fraudulent traffic stimulation. The fix is to help these companies build low-cost national networks, which alas will compete with and reduce PTT revenues. So first the PTTs have to be taken out and shot, and replaced by wholesale utilities that exist to provide infrastructure (and access to upstream international peering) at no more than cost, and build it as economically as they can, allowing absolutely open access to retail service providers and easy availability to both spectrum and rights-of-way. That is certainly not the traditional telco or PTT model. But it’s the only one that’s remotely plausible.
Michael Kende
October 15, 2012
Dear Mike,
Many thanks for providing a wider audience for the debate started on the ISOC mailing list – if this email does not automatically post to the new list, as well as your blog, I would appreciate your forwarding it on my behalf. I would like to raise several comments.
First, the first of the two papers that you link to below (“Driving broadband Africa”) was written by my two colleagues Robert Schumann and Roz Roseboro in our Johannesburg office, and was written as part of our research program, and not on behalf of any clients.
Second, I began to work on internet interconnection issues in the late 1990s, when I was at the US Federal Communications Commission and led the teams reviewing the mergers of the large Internet backbones at the time, including MCI and WorldCom. As a result of that work, I wrote an FCC working paper, entitled “The Digital Handshake: Connecting Internet Backbones”, in which I explain the market dynamics of Internet interconnection and why the unregulated system was working and appropriate – the paper was released in 2000, and can be found here: http://www.fcc.gov/working-papers/digital-handshake-connecting-internet-backbones. At that time, the issue of cost-sharing for international interconnection had already been raised in a number of countries, notably in Asia-Pacific, and in my paper I analyzed the arguments and concluded that it would not be appropriate to regulate international interconnection. Having reviewed the incredible changes and growth in the Internet since then, my analysis and conclusions remain consistent.
Third, with respect to the recommendations on promoting network infrastructure in the current paper (“Internet global growth”) which you cited below, I would like to clarify that I have worked for telecom regulators and Ministries in a number of developing countries in Latin America, Africa, and Asia, all interested in how to promote convergence – both network infrastructure and over-the-top services, and have consistently delivered the recommendations that I provided in this paper. I have also been invited to present on these topics to the World Bank, Inter-American Development Bank, and the ITU, and have delivered the same message.
Finally, I had responded to the original ISOC thread in order to contribute to the discussion, and look forward to continuing these discussions including contributions from a wide variety of authors and viewpoints. Please do let me know if you come across any or if you have any questions or comments.
Best regards,
Michael
Michael Gurstein
October 21, 2012
Thanks Michael and I appreciate your taking the time to post a response on my blog. I’m wondering what your thoughts might be on Juan Fernandez’ comments about the need for “new business models” (rather than my framing–“regulation”) as a response to the issue that he very elegantly characterized as “very few (financial) resources are returning to the “edges” of the internet”?
Mike
Juan Fernández
October 16, 2012
Dear Mr. Gurstein:
I am glad that you are fueling the discussion of the economics of internet from a LDC perspective.
I am intentionally referring to the issue as “economic” instead of “regulatory” because maybe the latter is not the best way to confront the problem
Because indeed there is a problem with the economic model of the internet, that at big strokes can be summarized that very few (financial) resources are returning to the “edges” of the internet.
Maybe not regulation, but certainly new business models are needed.
“Economic sustainability of international telecommunication networks” (http://www.emeraldinsight.com/journals.htm?articleid=1902129) .
Best regards
Juan Fernández
Michael Gurstein
October 21, 2012
Thanks Juan and I agree about shifting the discussion from “regulation” to “new business models”.
M
Michael Kende
October 31, 2012
Michael, new business models are coming all the time. When Google came along no one thought that advertising would be able to sustain content, or that search was profitable. And at that time, as shown in a recent article by Geoff Huston, http://www.potaroo.net/ispcol/2012-07/carriagevcontent.html content providers were seeking support from the ISPs to make their business model sustainable.
Now, of course, content is very profitable and the situation has reversed for some ISPs and imagine what would have happened if there had been intervention that required ISPs to subsidize content providers.
But now content providers are also active in delivering content and not just leaving it to the ISPs – Google is putting caches all over Africa to lower the cost of access in those countries; Facebook is subsidizing free mobile access to text versions of their site; and many pay content delivery networks to deliver the content closer to the end user.
So when Juan says “few financial resources are returning to the edge of the internet” and this shows there is a problem with the economic model, I really do not know what that means, nor can I grasp the magnitude with no numbers to back it up.
Nor can I understand this vision of the Internet that you espouse above and that Fred pushes back on – because when I consult in developing countries, the question always is how can we increase access, not how can we free ourselves from these bonds.
I believe that developing countries understand perfectly well the vast benefits to their citizens, business, and governance of the Internet, and I would be very interested in any citations from stakeholders in developing countries that support your view that they are being “coerced into paying for the rope that is hanging them.”
Michael
Michael Gurstein
November 3, 2012
In reply to you Michael, and to Fred I perhaps need only to point to http://www.independent.co.uk/news/world/europe/cashstrapped-european-news-websites-ask-governments-to-step-in-and-force-google-to-pay-for-story-links-8273744.html where interestingly, if not surprisingly it is developed countries that seem likely to be the first to react to a business model that is wildly out of skew with their national requirements. I tend to agree that regulation via an institution as opaque in its decision processes as the ITU is probably not the way to go, but repeating that open markets will raise all boats isn’t likely to satisfy those whose boats need continuous bailing in the wake of the superluxury yachts steaming past them into the sunset. Perhaps twas ever thus, but it isn’t very reasonable for folks in the leaky vessels to hand over their buckets just because it is causing ripples in an otherwise pristine harborview. And if enough of the folks in the leaky boats decide to get together and set up a chain to prevent further swamping from the superyachts’ wakes it may not be pretty but it could be effective.
Mike
Michael Kende
November 4, 2012
Mike, I do not see this as a new business model, rather an old regulatory model – European governments stepping in to protect local content. The Brazilian example – without government intervention – may be better. http://knightcenter.utexas.edu/blog/00-11803-brazilian-newspapers-leave-google-news-en-masse
Nonetheless, at the end of the day this is old media websites against new media websites, nothing really to do with content vs. ISPs, or developed vs. developing countries.
Michael
Michael Gurstein
November 14, 2012
Thanks for the reference Michael–the issue isn’t simply new media versus old but rather who and how is value extracted from the use of the Internet. That is, how to respond to the inequities which are arising where one player dominates the current range of business models and is benefiting disproportionately from the extension of the use of the Internet platform at the expense of other parties and what (if anything) should/could be done about this.
And if this is an issue now, at the very beginning of an Internet based transformation of international business what will things look like down the road and particularly for those countries without the financial or technological means to gain any significant advantage from the onrushing Internet based transformations.
The introduction of new regulatory regimes via the WCIT/ITU process may not be a very good option — being too blunt a set of instruments and one which is (at least currently) outside of the scrutiny of Civil Society, but denying the need for some means to ensure some degree of equity of return (that there even might be a problem in this regard) is only going to make the undesireable interventions more likely since they will be the result of contestation (as in the Brazil case you are pointing to) rather than negotiation.
Mike
Michael Kende
November 14, 2012
MIke, sometimes a cigar is just a cigar, and this is just creative destruction, nothing more, nothing less.
Michael
Nnenna (@nnenna)
May 17, 2013
Since I was at WCIT itself, I will say one of my concerns still remains: how policy makers see/regard/define the Internet. A whole lot depends on how “the Internet” is seen.