Government and the Internet

Sept 11, 2012 (LBO) Last night I watched Bill Clinton nominate Barack Obama as the presidential nominee of the Democratic Party. Clinton is a classic speaker.

I’ve always studied his major speeches. His first major speech was a fail. He was given the nomination speech for Dukakis in 1988 and he bombed.

But he wasn’t called the Comeback Kid for nothing. His speeches kept getting better. The speech he made after the Oklahoma bombing held a nation together.

I lived in the US when Clinton was president. Those days, you had to be organized. Had to have the TV on when the speech was made. Or have C-SPAN on cable to watch reruns. Otherwise, you’d never get to hear the whole thing; just the excerpts the news editors thought were of value.

But last night, all I had to do was click on YouTube. Here I was, on the other side of the world three-four days after the speech and I could still watch every nuance.

This is what the Internet has wrought.

Will we let them break the Internet?

The European Telecommunications Network Operators Association (ETNO)has come up with a proposal with the support of the International Telecommunication Union’s (ITU) Secretary General that will break the Internet business model that permits me to watch YouTube from the other side of the world.

This proposal is coming up for adoption at the World Conference on International Telecommunication (WCIT) in Dubai in December 2012. For most people in the developing world,its implementation will mark the end of the Internet.

Is there a cost to delivering me the video of Clinton when I want it? Yes. Have I contributed to meeting that cost? Yes, by paying for the broadband connectivity that connected me to YouTube. My money has gone to my broadband provider. He kept it all, not sharing it with the people who maintain the server, made the video and did all the other things that made my viewing possible.

I have no commercial relationship with YouTube, or its parent, Google, who paid the bills for the rest of it. They see me as part of what they sell to advertisers. Whatever they spend on enabling me to watch the video when I want to, they recover from ad revenues.

Currently, people living in places like Sri Lanka are not very valuable to advertisers, but Google and other Over-The-Top (OTT) players must be thinking that we will be valuable some day; or that they better serve people like me, so we do not give our “eyeballs”to current or potential competitors. End result: I get to watch Clinton; some kid gets to learn calculus from Khan Academy, and so on.

Everybody, including Google, makes money. Attractive content makes more people use broadband. More broadband users help make more money for the companies. The model works.

ETNO’s members could think of the business model in a positive way: if not for attractive content like that found on YouTube, they will not get people using their networks as much; if not for this business model, they’d still be flogging voice calls. But they do not.

They could try to work out commercial arrangements with the principal OTT players, whereby they would contribute to the costs of upgrading the access networks to handle the rapidly increasing traffic. After all, no one is served by content that does not load. And the OTT players are mindful of the problem, investing in undersea cables that will over time result in faster connectivity and lower prices for international backhaul.

But greed trumps good sense and old habits die hard.

For the most part, ETNO is made up of incumbent telecom operators, used to running to government for the smallest thing. One would have thought that decades of competition would have cured them of this habit, but apparently it has not. So they’ve run to that most bureaucratic of all international organizations, the ITU, asking for help to get the OTT players to pay them to upgrade their networks.

Do they realize what will actually happen?

Consequences

Once the governments get involved, there will have to be controlled gateways, like they have in Bangladesh. Will the government charge for its services? You bet it will. If Bangladesh is a guide, it will be a lot. Over 60 percent of the revenues of the termination operators goes directly to government.

There will be rule books and penalties for violation of rules. Quite a contrast from the peering arrangements that govern the Internet today, where it is rare to even find a written contract. There will be illegal bypass. More rules will have to be made to control bypass. More enforcement too.

How will the payments for incoming data be enforced? Agree to our terms or we will block your traffic. So, you can expect a lot of traffic to simply not come through, should the ETNO-ITU proposal get adopted in Dubai.

How would the rates be set? Are there standard costing methodologies in place to easily calculate what Facebook should pay Indonesia, for example? No. And I cannot imagine such methodologies being constructed given the complexities of Internet data streams. There will be no incentives. Incumbent operators did not carefully calculate cost of terminating voice traffic in the bad old days. They simply set prices. High, like any self-respecting monopolist. That will be the case with data too.

So now the OTT players will have to ask whether it’s worth their while to be paying high prices to governments in Europe and the developing world. The arrangements will be so complex that there will be arbitrage opportunities, legal, unlegal and illegal. Why not invest in exploiting them, some might think. Others may decide to forego the small markets altogether, for no reason other than high transaction costs.

Under these circumstances, will it make sense for YouTube to let me watch Bill Clinton’s speech sitting at home in Sri Lanka? Will it make sense to permit a student watch Khan Academy videos sitting in Bhutan? Not only do we not generate ad revenues; YouTube would have to pay our countries for the privilege of delivering us free content.

That raises an important point: YouTube is not pushing content at people living in the developing world. We are requesting content; they are only responding to our requests. There is something illogical about making them pay for a transaction we initiate.

End of an inclusive business model

So implementing the ETNO-ITU proposal will completely change the business model for delivering Internet content. There would now be no reason to serve all customers, rich and poor. The only logical end point will be a completely different business model, one that rests on payments from the end user to the content provider.

One could argue that this is not unreasonable. After all, if we consume services we should pay for them. There was a time when most newspaper content was free. Now that content is increasingly being moved behind paywalls. Now one has to pay for the pleasure of unlimited access to New York Times content. Why not the same for Khan Academy and YouTube?

In the short-to-medium term paywalls will result in the exclusion of the great majority of people from the developing world. Not only because they cannot pay, but because they do not have the means of making the payments: internationally recognized credit cards.

That is no concern of the European telecom operators. They are responsible only to their shareholders. Who must speak at WCIT on behalf of the poor kid from Anuradhapura wanting to access Khan Academy? Her government.

Will her government speak for her? Or will it ally itself with the European telecom operators seeking to make some easy money in the short term, even if the result is the end of the Internet as we know it?

Rohan Samarajiva heads LirneAsia, a regional think tank. He was also a former telecoms regulator in Sri Lanka. To read previous columns go to LBOs main navigation panel and click on the ‘Choices’ category.