Remarks at Broadband Policy Summit VI

Philip L. Verveer
Coordinator for International Communications & Information Policy 
Washington, DC
June 11, 2010

In November, 2012, the International Telecommunication Union will convene a meeting in Geneva, Switzerland. It could turn out to be one of the most important developments affecting the use of broadband since the privatization of the Internet in 1995.

The meeting is the World Conference on International Telecommunications. The purpose of the WCIT is the review and possible revision of the International Telecommunication Regulations. You have no cause for self recrimination if you have never heard of either the conference or the regulations. But that does not diminish their potential importance.

The importance arises from the opportunity that they present to countries that would like to increase intergovernmental controls over international broadband services and transport. Although not quite the same thing, for simplicity’s sake, let’s call it the Internet.

The United States consistently has opposed the extension of intergovernmental controls over the Internet. Remitting it to intergovernmental control—whether the ITU or otherwise—would produce two very bad outcomes in our view. First, it inevitably would diminish the dynamism of the Internet. For reasons that cannot be overcome, intergovernmental institutions are notoriously slow in taking decisions. Second, it just as inevitably would open the way for the introduction of extraneous considerations, the most noxious of which would be content controls.

Why would any administration wish to see this happen? This is simultaneously difficult and easy to see. The easy part: clearly, there are numerous administrations that see the openness of the Internet as a threat to the security of their entrenched political regimes, to internal order, and to traditional culture. They would gladly sacrifice the dynamism and efficiency of the Internet to these considerations. The harder part: there are administrations that are troubled by the anomaly that an asset as important to national wellbeing as the Internet is not subject to national control, or at least some form of shared control with other nations. In this regard, there also tends to be an exaggerated sense of the extent to which the United States controls the Internet. These sovereignty considerations—although more benign that the alternative inclination to limit the Internet for political purposes—also would put the dynamism of the Internet at risk.

Some history is in order.

The International Telecommunication Union was founded in 1865. It is the second oldest international organization in existence. Over time, it developed very detailed regulation for international telegraphy and rather less detailed regulation for international telephony. Separate Telephone Regulations emerged in 1932. Five plus decades later, in 1988, at the World Administrative Telegraph and Telephone Conference in Melbourne, the previously separate Telegraph Regulations and Telephone Regulations were merged into a single set of regulations—the International Telecommunications Regulations dealing with the international telephone network, methods of charging, and international accounting. And in 1992, in Geneva, another ITU conference abolished the WATTC in favor of future World Conferences on International Telecommunications (WCIT).

And that is where things stand today.

To be explicit, we have the 1988 ITRs that are subject to revision in the first ever WCIT, the possibility of which has been with us since 1992. Now even if you were not invested in the world of information and communications technologies and services, you might tend to the belief that the world has changed substantially in the intervening years. For example, you might conclude that by observing that the document reflecting the creation of the ITRs was signed, among others, by the Socialist Federal Republic of Yugoslavia and the Soviet Union.

Before we get to the substantive point of all of this, a little ITU constitutional law also is in order.

The ITU Convention in effect today was agreed to in Nairobi in 1982. It is binding on the signatories—the United States and 190 other nations as of today. That is to say that it has the status of a treaty. This is critical. The United States takes its treaty obligations seriously. And those obligations can be affected by the one nation-one vote governance structure that prevails at the ITU. In addition to the Convention, the ITU Regulations also are binding on the Members—the nation states that have subscribed to the Convention. The Members are to observe the Regulations and to enforce them vis-à-vis the regulated entities that they have authorized. In addition to the Regulations, there are Recommendations which are not binding. However, the ITRs prescribe that “[i]n implementing the principles of these Regulations, the [authorized providers] should comply with, to the greatest extent practicable, the relevant … Recommendations … .” In sum, the ITRs are binding obligations and the Recommendations are not, but should be observed to the greatest extent practicable. There are numerous qualifications to that summary, but it remains essentially accurate.

The 1988 ITRs—unavoidably—reflect the narrowband world in which they were created. They also reflect and reinforce—for different reasons, unavoidably—the conventions that governed international telephony at the time. As I noted, the ITRs address the functioning of international networks, methods of charging for international communications, and methods of accounting for the charges. You can observe vestiges of the regime it both described and helped to maintain by looking at the International Accounting Rates entry on the FCC International Bureau’s web site.

That regime, as some of you will remember, was one predominantly of government owned, monopoly carriers on the foreign end and of significant internal subsidies. Many carriers charged very high per minute rates for delivering traffic that originated in the United States. Through the 1980s and early 1990s, because the United States had permitted competition and most foreign administrations did not, there was a constant concern over “whipsawing”—the playing off of one U.S. carrier against another by foreign monopolies to secure disproportionate percentages of the revenues from international service. The FCC introduced significant regulations in an attempt to moderate these practices. Simultaneously, call back services, transiting, and various efforts to use private lines to avoid high foreign calling rates developed. Overall, it was not an edifying proposition.

For present purposes, the more important part of the story involves the high prices paid foreign carriers to deliver traffic. The high prices had two principal justifications in theory. First, because the foreign carriers had higher costs than their U.S. counterparts due, among other things, to considerations of scale, it was thought appropriate to permit them to charge more. There was a certain logic to this. It was a time, as some of you will remember, when cost considerations dominated price regulation. The notion that prices appropriately followed costs was conventional wisdom. Second, there was a sense that the higher settlement payments would assist foreign carriers in improving their networks, a kind of private sector foreign aid program.

The actual consequence of this was not especially attractive. In many countries, there was much less development of telecommunications infrastructure than one would have hoped. On the other hand, there were determined efforts to safeguard the high traffic termination prices.

These were not the only high prices being defended. The price of international calling between the United States and many foreign countries had an extraordinarily asymmetric quality. A call to country X initiated in the United States had a relatively low retail price; a call initiated from country X to the United States had a relatively high retail price. Unsurprisingly, since, once established, there was nothing to distinguish the call, the process invited all manner of inventive arbitrage activities—which high calling price countries made great efforts to fend off.

This then was the context for the 1988 ITRs. Monopoly narrowband companies selling expensive international services in a politicized above-cost settlements regime making strong efforts to fend off competitors using innovative ways to provide equivalent services at lower prices. The ITRs reflect these then-prevailing practices.

At the time they were adopted, the ITRs were deeply committed to the status quo and extremely hostile to innovation. This is exactly the opposite of what the international community has come to expect and should continue to expect from the Internet.

Against this generally unhappy history, it is somewhat disconcerting to learn that there are administrations that advocate replacing the narrowband regulations with similar broadband regulations. This may be a function of a misplaced view that an equivalent regulatory regime for broadband would be desirable. It just as likely is a function of the view that asserting the comparability of narrowband and broadband is the most promising way to achieve intergovernmental control of the Internet.

There are numerous reasons why any attempt to apply updated ITRs to broadband would be counterproductive.

First, as the brief recitation of history indicates, the ITRs did not secure an efficient interconnection and service delivery experience when applied to narrowband. In that sense, they make a strange candidate for replication.

Second, the broadband competitive milieu is very different from that of narrowband. In most countries, owing principally to mobile wireless, we have actual or incipient broadband competition offered by several independent providers.

Third, unlike the typical narrowband architecture, there are likely to be several points of interconnection with broadband networks in any given nation.

The arguments posited in favor of applying renovated ITRs to broadband go beyond a simple extension of the existing regulations. The two most frequently articulated are, first, that the United States and others are imposing costs on the networks of smaller countries that should be compensated; and, second, that the United States and others benefit from the existence of network externalities and thus should pay something for the benefit.

The imposition of cost argument goes something like this: the United States is the point of origin for vast amounts of spam, pornography, and other unwanted material that makes use of and imposes costs on our networks. U.S. Internet companies are making money on this objectionable material and shouldn’t be permitted to free ride on our networks.

The network externality argument goes something like this: U.S. service providers and U.S. customers benefit by virtue of their ability to reach additional subscribers, web sites, and so forth enabled by our networks—essentially the standard rendition of network externalities or network effects.

There is a great deal to be said against these arguments, including the reality that pointing to the United States as the source of unwanted material is quite different from saying that U.S. entities are the sponsors of it, given among other things that data storage tends to be cheaper in the United States than elsewhere.

But the larger point, I think, involves network externalities. There is another sense in which broadband transmission services and the Internet create externalities—in this case, positive externalities. One of the central realities surrounding broadband networks is that they facilitate the creation of so much value, both to those that distribute products and services over the networks and to those who consume the products and services. The investors in those networks could not possibly capture the entire value they produce. That incidentally would be true even if the authorities permitted them to engage in the most sophisticated price discrimination schemes practicable—a great deal of wealth would be left for the other participants in the ecosystem.

From this point of view, other countries and their network operators are not in any meaningful sense disadvantaged. Quite the opposite is true. The benefits the Internet makes available to them are immeasurable. This is not something that any country should wish to put at risk if it has any regard for the welfare of its producers and consumers, let alone for the broader, non-material aspects of its citizens’ wellbeing.