Keep Government Out of Internet Pricing

Sender-pays proposals which would charge for more for international internet usage must not be approved.

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Eli Dourado is a research fellow at the Mercatus Center at George Mason University. While he is a member of the U.S. delegation to he World Conference on International Telecommunications, the views expressed in this post are his own, not necessarily those of the U.S. government.

Today marks the start of the World Conference on International Telecommunications in Dubai. The conference is a U.N.-convened meeting where governments will update a treaty that sets rules for international public correspondence services, like telephones and telegraphs. Because the treaty was last revised in 1988, when government officials did not anticipate the importance of the Internet, the current text does not cover anything Internet-related.

International political neglect of the Internet, although probably inadvertent, has been more than benign—it has been salutary. Imagine if governments, and not engineers, had been in charge of innovation on the Internet for the past 25 years. We would probably have separate "national" Internets and have to pay international long distance charges to send data across national boundaries.

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Does this sound far-fetched? It's not. In fact, some telecom companies and governments want to use the treaty revisions this year to explicitly enable "sender-pays" rules for the Internet. Under such a system, if a user in, say, Cameroon wants to watch a YouTube video, Google would have to pay the Cameroonian government or telecom company for the privilege of sending the video to the user, or—more likely—block access from Cameroon so that they don't incur high charges. The result would be an Internet where you can't access all content from everywhere, an Internet that is fragmented on national boundaries.

Why do governments want to impose these rules? They want the money. International telephone rates have plummeted in the last 20 years, largely because people can now substitute technologies like Skype and E-mail for expensive phone calls. This means that the governments and telephone monopolies that relied on international revenues need a new source of income.

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The official rhetoric is obviously not this crude. The countries that want sender-pays for the Internet say that they need the money in order to finance new telecom investment. The argument says that any income they derive from these new charges will be used to expand their telecom systems. So I decided to see if this argument has been true in the past. Did the countries that charged high rates for telephone calls over the past 20 years use that revenue to grow their telecom sectors?

In a new paper released by the Mercatus Center at George Mason University last week, I show that the answer is a resounding "no." Countries that charged more for international telephone calls had slower, not faster, rates of growth in the mobile, Internet, and broadband segments of their telecom industry. You can see some of the data for Internet users in the figure below. Countries that had high growth in Internet users per 100 people from 1992-2010 tended to charge low international telephone rates, not high ones.

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This negative relationship remains statistically significant even when one controls for GDP per capita and region of the world, and also when one looks at annual changes rather than changes over the full 19-year period. The bottom line is that countries are unlikely to use "long distance" Internet revenue to expand their telecom sectors because they didn't seem to do it with long distance telephone revenue.

Fortunately, sender-pays proposals for the Internet face significant international opposition, so it is unlikely that they will be included in the final treaty text. But there are numerous other proposals under consideration at the World Conference on International Telecommunication that are nearly as bad—on security, on making U.N. technical standards mandatory, on Internet routing, and more. We need to appreciate how lucky we have been that the Internet has grown up with minimal state interference—and work to keep governments from messing up one of the most remarkable innovations in history.

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