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September 18, 2012

Trouble Ahead as ITU Wants to Create New Settlement Regime for Internet Traffic?

By Gary Kim, Contributing Editor

The International Telecommunication Union (ITU) plans to hold a treaty conference – the World Conference on International Telecommunications – in December 2012, which will revise a 1988 treaty, the International Telecommunication Regulations (ITR). At stake are the ways communication network owners compensate each other for terminating international voice calls through the payment of settlements. 

But there are wider implications; the ITU proposes to change the way the Internet is governed in ways that will harm the Internet by raising the cost and complexity of exchanging traffic, Analysys (News - Alert) Mason researchers argue. Basically, the ITU wants to create a new Internet traffic “settlements regime” modeled on voice precedents that will be difficult to administer and raise overhead costs. 

There could be other significant effects, however. First, operators might be induced to maintain their customers’ websites abroad. One of the significant benefits of establishing an Internet exchange point is to make it attractive for domestic websites to be hosted at home, in order to increase their performance and lower costs, Analysys Mason notes

However, given that foreign websites will generate a source of incoming settlements, the incentive to keep them abroad would increase.

At the same time, foreign operators, in order to compensate for the settlements, would likely raise the price of hosting websites serving countries with high settlement rates, which might lead websites to develop less content targeted at a particular country in order to limit their costs. 

While this could be seen to increase the incentives to locate content in the target country in order to avoid settlements, that is often not efficient, particularly for small or undeveloped markets from which access to a regional server may be sufficient, Analysys Mason argues. 

In addition, it is likely that infrastructure investment decisions would be affected, as providers would be reluctant to invest in providing infrastructure to a particular country to which it is expensive to deliver traffic. In other words, there will be financial reasons not to build more undersea links to certain countries, for example. 

Further, large volumes of Internet traffic could be artificially generated in order to arbitrage a rate-regulated model, to generate inbound payments, alter traffic balances, or otherwise unfairly leverage any accounting rate regime that may be applied to the Internet. 

Entities that believe they would be net recipients of settlements, based on current projections of traffic flows, might find themselves net payers as a result of the manipulation of traffic flows by other players.

In summary, aside from the intrinsic difficulties of successfully imposing regulations on international flows of Internet traffic, there could be unintended consequences that would harm the Internet if such a system were imposed.

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Edited by Allison Boccamazzo
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