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Global Community Troubled Over Telecom Taxes
Even the Internet, hailed as being able to break down barriers and unite the world in ways never imagined, is not immune to old-economy global battles over U.S. dominance and the way its firms treat other countries. Internet connection prices, usually negotiated among U.S. businesses, have raised the ire of foreign competitors who say the agreements do not acknowledge that Internet traffic is two-way and complain that the terms of those agreements are unfair.
To level the playing field, the International Telecommunications Union (ITU), led by efforts in Australia and Asia, has offered a proposal to adjust the cost structure of international Internet transmission to reflect traffic flows. The costs for international Internet traffic connections is generally not shared between carriers or backbones, but rather one carrier pays for the entire circuit.
While the issue is grounded in practical concerns over money and equity, it also stems from a deep-seeded resentment of U.S. dominance and what is perceived as arrogance as the United States often dictates terms in business deals and on the world stage, according to observers of the international telecommunications market.
The Internet connection issue, in part, stems from frustration over disputes within the World Trade Organization on bananas and beef and the foreign sales corporation tax credit, sources say, and a desire to prevent the United States from using what are considered strong-arm tactics to dominate this economy-driving force, U.S. observers say.
Unless all sides can reach a compromise on this proposal, up for discussion at the ITU World Telecommunications Standardization Assembly last week and this week in Montreal, there will be political fall out in other world trade venues, sources say.
A number of options are being considered in Montreal, but the United States is pushing for further study of the issue.
The Problem
"While all of us outside the U.S. pay for access to American sites, U.S. carriers and ISPs [Internet service providers] do not pay for access to our sites, nor for the transport of their customers' traffic to or from our countries. They are getting a free ride, and we are paying for it," said Richard Thwaites, general manager-international, of Australia's National Office for the Information Economy.
Most Tier 1 ISPs are located in the United States and provide a gateway to highly desired content. In order to access that content, all Internet users are dependent upon their own ISPs to reach a deal with those Internet hubs that can provide it. And those deals are negotiated with a take-it-or-leave attitude and the outcome is patently unfair, the Australians say.
"The current system is negotiated under market conditions," said Scott Marcus, chief technology officer of network service provider Genuity at a recent seminar on the ITU proposal. "Nothing short of a regulatory imposition will produce another outcome, but it will be worse," he said.
The United States leads in both government and private sector investments in Internet infrastructure while other countries have chosen not to make those early investments. "Not a single country has the Internet infrastructure or Web hosting facilities that the United States does," noted one industry source.
Because the United States has so much market power, it has the upper-hand in negotiations, both sides admit.
The ITU Proposal
"We believe that the answer to the problem lies in a fairer basis of commercial negotiations between providers of network services which reflect the contribution of each network to the communication," Australia's Thwaites said.
But Michael Kende, director of Internet policy analysis at the Federal Communications Commission's Office of Plans and Policy, said the traffic-based cost sharing proposal "would essentially impose legacy international regulations on the Internet."
In other words, the plan would impose a traditional telephony price structure on Internet connections. But Internet connections don't work that way. It is impossible to track Internet traffic in the same way one can tack a phone call, because the traffic bounces from one hub to another and is handed off in a "hot potato" fashion that keeps the traffic at one backbone and one ISP for the least amount of time possible.
"You can't put a stethoscope to the side to see where the packets of data are going," a U.S. industry source said. "It is an entirely different structure than traditional voice systems."
But the Australians see that argument as a bit disingenuous. "We know from experience that it is possible to measure or at least sample traffic to gain a valid indication of costs and benefits resulting from traffic flow," Thwaites said. In fact, many American firms are improving measurement metrics "because they all recognize it is the key to future e-commerce and content-based industries that use the Internet as a communication medium," he said.
Traffic Flow
Traffic flows 70 percent to 30 percent in favor of the United States to Australia, but the price structure does not reflect that reality at all, the Australians have said.
Much of that traffic is pouring into the United States from Australia because it is cheaper for an Australian ISP to send it through the United States first and bounce it back to the other side of Australia than to go through its own country, sources said. The United States does not benefit from rerouting the traffic so why should its companies pay, industry sources ask.
According to a recent report by Kende, traffic flow is not the proper way to determine costs.
"Traffic flows are not a good indicator of the relative benefits of an Internet interconnection between backbones and therefore provide a poor basis for allocating any costs," the report said. "If the transmission is a Web page, it is not clear who received more benefits from the transmission."
But a source from Australia thinks that argument is a bit "metaphysical" when foreign companies are arguing for an equitable cost structure.
Competition
American firms call the traffic flow issue a "red herring" when the real issue is lack of investment and competition within other countries.
Americans say if countries complaining about the prices would relinquish their monopoly control over the telecommunications infrastructure and let competition develop, prices would naturally come down and Internet traffic would remain within their own country.
"Australia now has one of the most open and competitive telecommunications markets in the world. Australia's telecommunications market is far more open to new entrants, including foreign entrants, than that of the USA," Thwaites said.
Australia has more than 50 licensed facilities-based carriers competing with Telstra "in whatever markets they choose" and hundreds of resellers — "all for a market of only 18 million people," Thwaites said. Telstra is the Australian telecommunications firm in which the government has a 50.1 percent ownership.
Thwaites said he agreed with the American desire to reply upon competitive, market-based solutions.
"However, it is normal behavior for market-oriented companies to make life as difficult as possible for their competitors and seek market dominance where possible," he said. "It's the responsibility of governments to ensure that competition remains fair and vigorous."
 | - by Teri Rucker |
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