knowledge centre

Internet global growth: lessons for the future

Michael Kende Senior Adviser, Consulting

Evidence shows that the current model effectively promotes Internet growth and access in developing countries, and argues that any fundamental regulatory overhaul could halt such growth and find users cut off.

Report on impact of internet exchange points (IXPs) on emerging markets                    

The International Telecommunication Union (ITU) will hold a treaty conference, the World Conference on International Telecommunications (WCIT), in December 2012, which will revise a 1988 treaty, the International Telecommunication Regulations (ITR).

The ITR treaty established how operators compensate each other for terminating international voice calls through the payment of settlements.

This paper demonstrates that adapting the ITRs to the Internet is not only unnecessary, but could harm the growth of the Internet in developing countries.

Download the report

Extract from the report

The Internet is governed under a multi-stakeholder model with no global regulation, but well accepted and efficient 'rules of the road' allowing business arrangements to be based on commercial considerations.

There is significant evidence that this model works – including in developing country regions such as Africa, Asia and Latin America – and does not need a fundamental regulatory overhaul. The striking progress of the Internet, based on its inherent flexibility and perpetual adaptations, makes the possibility of revisions to the ITRs concerning for the following reasons:

  • The Internet and the international voice network are fundamentally different: The two networks differ substantially in terms of technology, architecture and market structure. Any attempt to impose settlements, which are increasingly difficult to apply even to voice, to the Internet are likely to hinder its development and evolution.
  • Imposing ITU accounting rules on the Internet will harm developing countries: Any attempt to impose settlements would lead some providers to take actions to lower their settlement fees, while others would take actions to increase their settlement earnings, which could impact the availability of content and corresponding investments in developing nations.

In particular, the Internet is far more susceptible to impacts from the imposition of settlements than the voice system, due to an intrinsic difference in traffic flows.

While voice traffic between two countries must originate with a caller in one country and terminate with a caller in the other country, many Internet services do not have to originate from a fixed location, as up to 98% of Internet traffic consists of portable data traffic such as file sharing (peer-to-peer), video or web pages.

Such content can be stored in servers located in multiple locations around the world, and from there traffic can be delivered to users faster and at lower cost. This has led to dramatic ongoing shifts in usage patterns and global Internet traffic flows – For example, the vast majority of international Internet bandwidth from Africa has shifted from the US to Europe, and now, increasingly it is being stored in servers in Africa where it can be accessed domestically or regionally. Such movements would be disrupted by imposing settlements on the flow of such content.

Significant investment will be required to maintain the growth of Internet access in line with current projections that show the number of global Internet users increasing from 2.2 billion today to 3.5 billion in 2020. Instead of imposing international economic regulation, policies should focus directly on developing a robust Internet ecosystem.

  • Promoting network infrastructure: Focus on increasing investments throughout the network by removing roadblocks to lower the cost of investment, including allocating spectrum for mobile broadband and limiting licensing requirements and fees.
  • Telecom liberalisation: As demonstrated in numerous studies, establishing policies to increase competition at all levels of the Internet value chain is a prerequisite for developing information societies and attracting sustainable investment flows. According to a World Bank report, increased competition under independent regulators lowers costs and raises private investment by 50 percent.
  • Policies to increase demand: Finally, actions can be taken to increase demand for services, such as promoting entry and development of content that is critical to demand. Further, reducing taxes on equipment such as smartphones will promote ownership and increase demand for services.

Shifting costs for international transit is unpractical, and may serve to reduce investment. Even in the best case, however, settlements are not directly targeted towards promoting investment in national infrastructure and traffic hubs, nor stimulating demand for Internet services, and thus there is no assurance these purported goals will be realised.