Traffic Termination Charges Challenge the Internet Economy
Demand for telecom access and policy change will drive globalization of the Internet economy as emerging nations seek slices of bigger markets. Internet access by fixed or mobile will vary widely by country short- to medium-term, according to an OECD report published Thursday.
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The main difference will be among countries whose tariff termination models differ, said the report, a background document for a June Internet economy ministerial meeting. More traffic will be terminated using the Internet’s commercial model in the move to all IP networks, said the report, with significant international differences possibly emerging.
Telephony and text messages from an Internet connection and terminating on a wireless network can cost twice as much in some OECD countries compared with costs in some developing countries, the report said. Large price differences that are not cost oriented could impede trade between developing countries and the OECD, a patter n counter to World Trade Organization principles for cost-oriented interconnection rates to public telecommunication networks, it said.
Developing countries already are capturing big pieces of global telecom business. Indian firms own about 25 percent of undersea cables by length, 44 percent by capacity and about 70 percent of capacity that can be upgraded, said Sam Paltridge, an official in the OECD Directorate of Science, Technology and Industry. The push for undersea cables reflects Indian demand for access and a change to their economy, said Paltridge, who prepared the report. Ownership shifted 2000-2005 from North America and Europe to Asia, the report said.
Historically, the U.S. had the most telecom subscribers, but even with strong growth and market consolidation, only Verizon, AT&T and Sprint Nextel number among the world’s top 20 firms when ranked by proportionate subscribers for fixed, mobile and Internet, the report said. A 2007 study suggested that 80 percent of world networks could communicate without their traffic touching the largest players, the report said. One company, Akamai, says it delivers 10 to 20 percent of the world Internet traffic from 20,000 servers in 71 countries, the report said.
Efficiently managed, an Internet Exchange Point (IXP) quickly saves money and generates economic and social benefit, the report said. Installing IXPs in each of the 92 countries without one would cost less than $4 million. “The barriers to establishing IXPs… are largely non-financial,” the report said. A monopoly service provider may get in the way; ISPs may not trust each other, or they may not understand the economic benefits of having one.
Policy approaches should reflect the commercial opportunity of getting billions more people online, the report said. Burdensome policies or regulations such as sector specific taxes or tariffs stunt economic and social development. Telecom policy reform is key to getting the next billion people online, Paltridge said. Unlike the first billion online, subsequent billions will be low income, he said.
The report is for use at the June 17 to 18 Future of the Internet Economy Ministerial conference session on globalizing the Internet economy. Thirty ministers have said they will attend the conference, Paltridge said.