ETNO’s ITU Proposal Threatens to Raise the Cost of Innovation on the Internet

by Ross Schulman on September 24, 2012

Lots of people have heard about the upcoming World Conference on International Telecommunications (WCIT) at the International Telecommunications Union, and how it may serve as a forum for repressive governments to gain some measure of control over the underpinnings of the Internet at the expense of more open multi-stakeholder forums. There are a number of different resources available for those who are curious or concerned about that process and I’m spending a lot of my time here in Washington working on fighting against that outcome. One of the other proposals that may come up at the WCIT, however, doesn’t raise the specter of government control of the Internet and yet could pose a serious threat to disruptive competition in the marketplace. That proposal is from the European Telecommunications Network Operators Association (ETNO) and it calls for what is generally known as “sending party pays.”

We already know what sending party pays is, because it’s how telephone calls work, both domestically and internationally. Whoever picked up the phone and dialed the number pays for the call; the recipient does not (other than any monthly fee he or she already pays). In the world of international termination of telephone calls, what it means is that the network that originates a call pays the network that receives the call for the use of the circuit carrying the call. In nearly all circumstances of course, the network operator then passes that cost on to the customer making the phone call. The ETNO proposal would take this means of accounting and apply it to the Internet. Internet users would be required to pay recipient networks to which they wanted to send information. ETNO claims that this payment would recoup the expenses they incurred building out the network and make possible future expansion.

Unfortunately, ETNO’s proposal betrays a stunning lack of understanding in how the Internet actually works. They complain that there is a category of users (they refer to them as Over the Top players but you and I know them simply as the services that make using the Internet worth it) who they say are not contributing to network investment. Of course, the websites and services we use every day are contributing massively to network investment. At the very least services must pay their own Internet Access Providers for the bandwidth they use in delivering their service. Content delivery networks are also busy spending large amounts of money to build out server clusters around the world to better serve video and image content to users.

More importantly, sending party pays, which makes at least some sense in the world of circuit-switched telephone calls, falls apart when you try to fit it on top of the phenomenally complex packet-switched network that is the modern Internet. When one telephone call takes up a single entire circuit for the duration of the phone call, it is easy to tell who should be billed. An Internet communication is split up into hundreds of thousands of packets (or more), each of which can choose from a multitude of different routes to reach its destination. This functionality is the strength of the Internet, but it makes figuring out which networks each packet transits for the purposes of billing a tall order.

At the end of the day, though, ETNO’s proposal is all about avoiding disruptive competition. The companies that make up ETNO are used to being monopolies (either by default or because they are affirmatively state-sanctioned telecommunications companies) and are not accustomed to the idea of having to adapt to changing circumstances. As Mike Masnick explained recently in his usual fashion, ETNO is proposing yet another tax on innovative companies that would be paid directly into the coffers of monopolistic telecom operators who are already being paid for service by their own customers. Monopolies that fear innovative competition shouldn’t be allowed to run to governments (or inter-governmental bodies in this case) and have taxes created just to ensure their own continued existence.

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