Telecommunications in Transition and the Ascendance of the Internet

Monday, 13 December 2004

 

Overview

The advent of increasingly powerful Information and Communication Technologies (ICTs) offers the potential to revolutionize national and global economies and societies at large, but brings with it a series of hard questions that call into question the structure of traditional national and international legal regimes. In particular, the convergence of the telecommunications networks, media distribution networks, and the Internet during the last decade raise important questions about where the locus of control ought to lie with respect to these converged networks, the level of control that governments and others ought to exert, and the relationship between national and international law. The provision of Internet access and content to lesser-developed regions presents a series of thorny policy and legal challenges, as well as the prospect of business opportunities for entrepreneurs and the big technology companies alike. The means of regulating these networks, once established, and enforcing the law on the Internet is one of the central, pressing questions for decision-makers around the world. Decisions made today about the law and regulation of this space will have consequences for years to come.

 

Convergence: What law applies? What’s the interplay between law and realpolitik?

An essential concept with respect to telecommunications and the Internet is convergence. To date, regulatory regimes have treated very differently three modes of communication. First, the law has treated the transmission of voice and data over the traditional telephony networks as subject to substantial national regulation and certain international coordination. Second, the law has considered content transmitted over myriad networks as subject to a separate regime of media laws. Both of these modes of regulation have traditionally been national in reach and based on the primacy of the nation-state. Third, communications over internet-protocol-based networks have, in their short history, often been left largely unregulated, for a variety of reasons, in an overtly legal sense, but subject to many less formal types of regulation by private and public entities. The growth of the importance and the scope of the internet, as well as its growing ability to transmit rich data streams across geographic boundaries, presents a conundrum for the law by causing a convergence of technologies and challenging the old nation-state-based regulatory regime.

There are several issues that affect the choice of policies that govern the traditional telecommunications networks and internet protocol-based technologies. Chief among these issues is whether telecommunications and media law and policy should be applied to internet-based technologies as is; whether the telecommunications and media rules should be adapted to the new environment and then applied to the converged technologies; or whether separate regulatory regimes should exist to cover these two types of networks differently. Some optimistic assessments have concluded that adopting new ICT may allow nations at various points along the development spectrum to revitalize their economies and even skip ahead in generations of technology development. Whether the focus is on developing an ICT infrastructure, leveraging ICT to promote learning, or encouraging local digital entrepreneurship, sound policy choices are essential both to support new strategies and to decide among them in the allocation of limited resources.

 

Emerging IP-based technologies.

The development of new intenet-protocol-based technology infrastructure has been recognized as an important tool for development. Much current attention is focused on Voice over Internet Protocol (VoIP) and other last-mile technologies such as WiFi, WIMAX, WLAN and satellite communications.

VoIP serves as an example to illustrate the connection between the challenges related to establishing the design of a legal framework and the emergence of digital entrepreneurship. VoIP is a generic term that refers to all types of voice communication using Internet protocol (IP) technology instead of traditional circuit switched technology. By packetizing and compressing voice traffic, VoIP is able to provide up to six voice circuits in the same bandwidth of a traditional telephone line (56kbps). A transmission of digitalized and packetized voice over an IP network has many advantages. For instance, it can offer low cost of service delivery, universal access to the service, simplicity of user interface, and high quality and functionality of service offered. From an economic perspective, VoIP not only drives down the costs of calls, but lowers barriers of entry since both capital and operating costs are significantly lower. VoIP can be especially important in developing countries where monopolized long distance service is too expensive for many users. However, certain regulatory trade-offs plainly exist if a regime decides to favor voice of IP networks as opposed to the traditional telecommunications providers.

Another important new technology is Wireless Fidelity, or WiFi. In its most common incarnation, WiFi is a popular term for the 802.11b (or, increasingly, the more powerful 802.11g) standard for high-frequency wireless local area networks. Over the past years, WiFi has become the leading standard for wireless home and office networks. WiFi uses the Ethernet protocol and operates in the 2.4 GHz range, offering data speeds up to 11 megabits per second. WiFi networks are spreading, providing very inexpensive and competitive broadband "last mile" access to the Internet. The regulatory issues related to expansion of this simple idea into WiMax and related technologies which seek to use this protocol to provide greater internet access to wider areas are beginning to present themselves to policy-makers. For instance, in the event that a municipality or a rural area seeks to make wireless internet access freely available, should anyone regulate such access?[1]

IP-based systems are challenging existing regulatory models for communications around the world. Consider the advent of Internet Exchange Points (IXPs), which are means of ensuring that internet traffic is routed locally rather than through gateways (and toll-stations) thousands of miles away. In the first instance, IXPs raise the problem of cooperation and competition among ISPs and traditional (often state-run or monopoly) telecommunications providers. In the second instance, once aggregated, local internet traffic through IXPs might allow for heightened government or ISP surveillance and blocking of packet-flow – perhaps in extra-legal fashion. Decision-makers face difficult choices as they develop policies aimed at tapping into the potential of ICTs for economic growth and development while preserving the revenue and stability provided by legacy telecommunications infrastructures, as well as important political and social freedoms sought by citizens.

The prospect of driving economic and other forms of growth through the expansion of ICTs has been harder than the promoters of such policies anticipated. Part of this struggle relates to the hard regulatory and legal choices to be made. In some instances, problems have stemmed from a lack of government support or, in fact, government policies to block competition in fields like telecommunications. Meanwhile, some nations that have adopted liberal attitude towards Internet Service Providers (ISP) licensing and ICT development have experienced success. Well-balanced policies could deliver the basic promise of ICT: effective two-way communication services that bridge distances and lower costs, available 24 hours a day. Such policies might lead, likewise, to a future where all telecommunications flow over an Internet Protocol (IP) based network. Much of this effort has been directed toward promoting greater access to ICTs that in turn enables a class of digital entrepreneurs to emerge, who in turn can help drive further growth and social change.

 

From Telecommunications and Media to Internet Governance.

The key question that quickly arises is: who controls activity on the net? Can it be done at the national level in all instances, or must countries cooperate more than in the past? Are new institutions required? The answer one gets from reading the relevant national law in this area, such as it is, rarely tells the whole story; the space’s dominant realpolitik dictates that decisions are often made in an extra-legal environment. Internet governance – whether in the context of a old-style “telecommunications” or “media” regulatory regime or not – raises issues related not just to the provision of internet services or combating spam, but also censorship, surveillance, and related security issues.

“Internet governance” has taken on a series of new meanings over the past two years as many of the world’s governments and many in civil society have taken part in the World Summit on the Information Society process. As a result of the rapid growth of the internet and the problems of regulating activity on the internet, a variety of players have called for a more centralized, coordinated means of “governing” activities the Net. The debate has been fraught, right from the start: the very definition and meaning of Internet governance has been subject of heated debates. The discussions revolve around key questions such as who controls the net, how is that control expressed, and why it matters. In these sessions, we will seek to distill the relevant parts of the Internet governance debate.

The structure of the Internet has led to diverse and largely decentralized governance of its operation. Likewise, most governments have adopted a much less heavy-handed mode of regulation when it comes to internet than when it comes to traditional telecommunications. However, a variety of concerns have recently led to calls for greater centralization of governance functions, or even for some kind of general purpose, international, Internet governance body. This governance debate has become a central issue in the World Summit on the Information Society (WSIS), which is presently between its Geneva (2003) and Tunis (2005) phases. Many who have called for international centralization of Internet governance have pointed to ICANN as a precedent or justification, while some complain that ICANN remains dominated by the United States and has lost legitimacy (if it ever had legitimacy in the first instance). As a consequence, others have proposed that, given the importance of the Internet, ICANN’s functions should be undertaken or overseen by an international intergovernmental body.

We will focus on the development of Internet law and policy that may help to foster technological innovation and growth, and the protection of civil liberties, in the developed and developing countries of Europe and the CIS. Special emphasis will be placed on the issues raised by the convergence problem and the aspiration to harmonize national and international regulation and governance regimes, with consideration of UN, ITU, WTO, WIPO, EU Directives and RSS Resolutions. The purpose of the discussion will be to identify public policy issues that are relevant to Internet governance, taking into account the interests of the different stakeholders that participate in the process, and to analyze possible courses of action.

 

CASE STUDIES

I. Readiness for the Networked World: Implications of an ICT Strategy for Uzbekistan

Uzbekistan is a country with a primarily agricultural economy and severely underdeveloped ICT infrastructure. The percentage of Internet users is only .6% of the population (rising to 5.5% in the capital city of Tashkent). At the end of 2000, there were 1.8 million main telephone lines, constituting an average of 6.8 lines per 100 people. The mobile telephone network is even more poorly developed with only 0.4 telephones per 100 people. In 2001, the United Nations Development Programme identified ICT as a priority area for intervention in support of national development and, with the support of the national government, commissioned a report on e-readiness in Uzbekistan. The report outlines a strategy for stimulating ICT use in the Republic to achieve its development goals of “economic growth, raising living standards and modernizing cultural activity”. (Consider the eReadiness Assessment report, at http://ndaventures.com/Uzbek_UNDP_ereadiness_assessment.pdf.) Among the reports proposals are a plan to improve ICT infrastructure, adopt policies that encourage private investment and privatization of state owned ICT enterprises.

During the last three years, some developments in the area of telecommunications have occurred in Uzbekiztan, resulting in the increase of mobile network and use of the Internet. The government in Uzbekistan is attempting to carry out reforms and implement development policies in the ICT sector. A special governmental ICT coordination agency has been established, and laws on telecommunications, informatization (information policy), e-commerce, EDI and e-signatures have been adopted. On the other hand, the development of infrastructure seems to be lacking support. In particular, the privatization of the Uzbektelecom agency is still in the stage of consideration so the development of additional broadband networks depend entirely on establishing the new enterprises which are in turn dependent on Uzbektelecom."

What values are implicit in the proposal? Consider the proposal’s assertion that a “genuine commitment to the free flow of information in society speeds the transition to a market economy and dramatically improves social welfare.” Should the international development community seek to harness the democratizing effects of new technologies in Uzbekistan or is this a form of cultural imperialism? To what extent does the report assume that Uzbekistan wants what the developing world has? Are cultural and political differences respected? To what extent should the “free flow of information in society” mean that government and businesses should not be tapping into the communications of their citizens and customers?

Consider also what compromise must be made between competing interests reflected in the proposal. Are education and training, for instance, adequately prioritized? What about the protection of civil liberties? What factors are missing in the proposal? Consider whether there are cultural barriers to implementation that are not addressed (for example, is it possible that the people of the Republic will fear government misuse of new technologies as tools of censorship and control given the uneasy political history of the country and uncertain political future).

Consider how the initiatives may be financed, and what are the advantages and disadvantages of private versus public ownership of ICT infrastructure. Do you agree with the report’s assertion that the greatest threat to a national ICT strategy is “to not act fast or aggressively enough”?

(The full Uzbekistan ICT development case may be found in context at: http://cyber.law.harvard.edu/bold/devel03/modules/episodeIV.html#case)

 

II. Grameen Telecom’s Village Phones

In Bangladesh, 97% of homes and virtually all rural villages lack a telephone, making the country one of the least wired in the world. This lack of connectivity has contributed to the underdevelopment of the country and the impoverishment of individual Bangladeshis. To address this problem Grameen Bank, a micro-finance institution, formed two entities: 1) Grameen Telecom, a wholly-owned nonprofit organization to provide phone service in rural areas as an income-generating activity for members of Grameen Bank, and 2) GrameenPhone Ltd. (in partnership with U.S., Norwegian, and Japanese companies), a for-profit entity that bid on and in 1996 won a national GSM cellular license. GrameenPhone (GP) has since become the country’s dominant mobile carrier, providing service in urban areas and along the major railway routes via a network of cellular towers linked by fiber optic cable.

Grameen Telecom (GT) has the explicit goal of helping Grameen Bank’s members shift from relatively low-yield traditional ventures like animal husbandry into the technology sector, by creating micro-enterprises that can both generate individual income and provide whole villages with connectivity. GT uses GrameenPhone’s advanced GSM technology in stationary village phones owned and operated by local entrepreneurs. These entrepreneurs purchase the phones with money borrowed from Grameen Bank, and sell phone service to customers by the call. Rates are generally twice the wholesale rate charged by GP plus taxes and airtime fees. On average, 70 customers a month use each phone; this shared-access business model concentrates demand and creates relatively high cash flow, even in poor villages, enabling operators to make regular loan payments and still turn a profit. Repayment rates to Grameen Bank are 90-95%. Rural telephones are also very profitable for GrameenPhone. However, rural phones represent less than 2% of the phones used on GP’s network and bring in only 8 % of the company’s total revenue, so that the company’s profitability depends primarily on its urban business.

Grameen Telecom’s original goal was to have a phone in every one of Bangladesh’s 65,000 villages by 2000, but only 4,543 village phones were in service as of March, 2001. The primary constraint has been a distorted telecommunications market controlled by a monopolistic government provider, BTTB. Because BTTB has been unwilling to increase its interconnect capacity, despite GP’s offer to pay for the upgrading, GP and other mobile companies have been unable to connect additional phones to the national switched network and instead have had to offer primarily mobile-to-mobile phone services. This infrastructure barrier has also limited expansion of the rural phone network.

A second constraint is GP’s use of cellular technology for fixed phone centers, a choice that is neither efficient nor probably competitive over the long run. GSM is far more expensive than fixed wireless local loop (WLL) systems used by Grameen Telecom’s competitors. While GSM towers can provide service within 5 kilometers, WLL towers provide coverage within 50 kilometers. Moreover, WLL provides better bandwidth for data transmission and at a lower cost.

Key to the success of the village phone has been the development of a cadre of entrepreneurs nurtured by Grameen Bank. After the Bank approves financing of a phone, GT buys a cellular phone subscription on behalf of the entrepreneur and provides the connection, necessary hardware, and training to operate it. GT also tracks trends in phone use and identifies operators who are having difficulty marketing or collecting payments for the service. The village phone network also yields important secondary benefits to the women who live in the villages that they serve. There is some evidence that, because the phones are so important for whole villages, having female operators has helped to enhance the status of women in the communities where they work.

Bangladesh’s telecom regulatory regime is both antiquated and anti-competitive. One consequence has been BTTB’s ability to maintain control over the switched network without expanding its capacity, even in the face of high demand. Scarcity forces Bangladeshis to pay large sums to BTTB officials in order to obtain phone service. BTTB’s control of the network is likely to become an even more significant market disadvantage to GP and other mobile operators when BTTB launches its own GSM mobile network this year.

Grameen Telecom’s village phone venture as structured in Bangladesh would not be feasible without access to the credit and bill collection services provided by Grameen Bank and the infrastructure and urban network provided by GrameenPhone. Village phones would be far less successful if GP were not able to discount by 50% the rate charged to GT for a phone call, an underlying subsidy made possible by a transfer of profits from the more profitable urban part of the business to the rural sector—and a significant advantage unavailable to rural-only competitors BRTA and Sheba.

Demand for telephone service in rural Bangladesh remains high despite relatively limited marketing and no overt content development by GT or GP. In large measure this is because the village phones offer tremendous economic value to the users who would otherwise have to spend hours or days traveling to other towns to make a phone call.

Bangladesh is also a labor-exporting country with many rural people working overseas. As a result, one of the most important functions of the village phone is to facilitate remittances from relatives. Local business people and farmers use the phone to reduce costs, get better prices for their products, and plan shipments to reduce spoilage of perishable products. Were it not for policy and infrastructure barriers, Grameen Telecom’s village phones might already serve all of Bangladesh’s 65,000 rural villages. The high revenues generated by the shared-access business model suggest how powerful market drivers for such approaches can be. And as a development-centered IT strategy, the village phone program promises broad development benefits, including enhanced productivity and social welfare and new sources of rural income.

(Case adapted from “What Works: Serving the Poor Profitably” C.K. Prahalad and Allen Hammond, available at http://pdf.wri.org/whatworks_serving_profitably.pdf)

 

BACKGROUND MATERIALS

Global Internet Policy Initiative (Andrew McLaughlin), Internet Exchange Points (2003), at http://www.gipiproject.org/practices/ixp.pdf.

Global Internet Policy Initiative, Voice-over-IP: The Future of Communications (2002) at http://www.internetpolicy.net/practices/voip.pdf.

Andrew McLaughlin and Ethan Zuckerman, "Architecture," at http://cyber.law.harvard.edu/bold/devel03/modules/episodeI.html. BOLD Series on ICT and Development, 2003.

Asian Development Bank, Does Connectivity Mean Productivity? The Grameen Phone Project – An ICT Success Story, Toward E-Development in Asia and the Pacific: A Strategic Approach for Information and Communication Technology (2003), at http://www.adb.org/Documents/Policies/ICT/ict230.asp.

Written Statement of Michael K. Powell, Chairman of FCC, ON voice Over Internet Protocol (VoIP) at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-244231A1.pdf.

Herding Schrodinger's Cats: Some Conceptual Tools for Thinking about Internet Governance, at http://www.unicttaskforce.org/perl/documents.pl?id=1321.

Paper on Internet governance prepared for the UN ICT Task Force, at http://www.internetpolicy.net/governance/20040315paper.pdf.

Papers on Information Technology and International Cooperation, at http://www.ssrc.org/programs/itic/governance_report/memos_gov.page.

ICANN and Internet Governance: Getting Back to Basics (July 2004), at http://www.cdt.org/dns/icann/20040713_cdt.pdf.

The CDT’s resource pages on VoIP: http://www.cdt.org/digi_tele/voip.shtml.

The OpenNetInitiative’s reports on internet censorship and surveillance: http://www.opennetinitiative.net.

---

[1] A common ICT for development strategy, this issue has arisen in a number of developed country settings as well. The city of Philadelphia, PA, for instance, has sought to offer free wireless internet access to its residents, but has met stiff resistance from the incumbent telecommunications providers and their legislative supporters.