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IllustrationAccess to the Internet: The Costs of Connecting
By David Maher, Internet Society Vice President for Public Policy

For most Internet users, a major issue in getting connected is the cost of telephone service to a service provider or other network connection. Whether your connection is by network or by modem, telephone charges are a subject of considerable interest. The Internet Society has always strongly favored a fair and reasonable access system for Internet users. In general, the society says that users should not be required to pay for access time measured by the minute (or second or hour), although reasonable charges for total usage over a longer period—for example, a number of hours per month—are not unfair to users. However, this ideal is not generally attained throughout the world. A recently updated report—from the Organization for Economic Cooperation and Development on costs of access to the Internet—contains some very useful data for residents of OECD countries. (OECD has 29 country members in Europe, North America, and the Asia-Pacific area.) The report also provides background for news on two hotly contested issues involving connection charges.

In the words of the OECD report, “The predominant model for pricing local calls in the OECD area is measured service. In other words, the cost increases in proportion to the duration of the calls. The main exceptions are Australia, Canada, Mexico, New Zealand, and the United States” (More information). In the United States, most residential users have unmeasured local call rates for Internet connection, while in Australia, users pay a flat rate per local irrespective of the duration. In France online time is purchased in advance and users pay additional charges if they exceed this amount. In many developing countries, measured rates are the norm, and the end result is that Internet connection is economically constrained in the very countries that are most in need of advanced communication systems.

Of course, the type of call charges bear no necessary relation to the total amount of these charges, whether by the second, minute, hour, or month. For most users, a very small charge per minute may be preferable to a very high flat rate per call or a very high rate for monthly unlimited service. This leads us to two interesting public policy issues that have been in the news recently. One is an issue of global interest—the question of who covers the cost of international Internet traffic. The other is a more parochial issue related to telephone charges as regulated by the U.S. Federal Communications Commission (FCC).

In September 2000 the World Telecommunications Standard Assembly (WTSA) met in Montreal, Canada, under the sponsorship of the International Telecommunications Union (ITU). One of its official recommendations is that the telecoms of the world “negotiate and agree to bilateral commercial arrangements enabling direct international Internet connections that take into account the possible need for compensation between them for the value of elements such as traffic flow, number of routes, geographical coverage, and cost of international transmission, amongst others” More Information.

The press release on the WTSA action states: “The purpose of the recommendation is to set out the principle according to which there should be bilateral agreement when two providers establish a circuit between two countries for the purpose of carrying Internet traffic. The possible need for compensation between the providers has also been recognized. At present, when providers install Internet circuits, they generally have a choice between the sender-keeps-all or peering system of bilateral connections when traffic is more or less balanced, or the asymmetrical system whereby the initiating provider pays for the whole connection with the other country (full-circuit cost)” More Information.

What this means is that U.S. Internet backbone providers are being urged to negotiate an arrangement for compensation to be paid to non-U.S. telecoms for carrying U.S.-generated Internet traffic and vice versa. However, the vast majority of countries outside the U.S. are net importers of Internet traffic, and the impact of the recommendation would bear far more heavily on U.S. telecoms. Although the WTSA recommendation is nonbinding and is characterized as representing “a very delicate balance” between the various interests and the U.S. delegates to the assembly actively opposed the resolution. At the conclusion of the Assembly, the United States and Greece “made reservations” to the recommendation and stated that “they would not apply it in their international charging arrangements.”

A lot of money is at stake; one estimate is that the non-U.S. telecoms are paying up to $5 billion per year to the U.S. companies. The issue is extremely complex, and the U.S. argument is not based simply on financial self-interest. There is a very serious question whether the old-fashioned model of reciprocal compensation for voice telephone calls should be applied to the Internet, where there is still no accepted model for measuring traffic. This is implicitly recognized in the WTSA press release, which also states: “The recommendation requires only that the two providers involved reach a mutual agreement and does not prescribe any particular formula or system, thus leaving to providers their freedom to determine the forms or methodologies to be used in implementing the principle.” The U.S. position is expressed in a report released by the FCC, which argues that market forces, not international interconnection regulations, are the best way to promote universal connectivity through competition among backbone providers.

A related issue involving reciprocal compensation has arisen in the U.S. Congress. A bill (H.R. 4445) is now pending in Congress; there is some question whether it will come to a vote before this session of Congress adjourns. The bill is deceptively simple: it would reclassify telephone calls made by users to Internet service providers (ISPs) as local and not long distance. Under normal U.S. practice for local telephone carriers, the local carrier retains all charges for local calls, but because of reciprocal compensation arrangements, the local carrier must compensate a long-distance carrier for its carriage and termination of long-distance calls. Calls from an Internet user to the user’s ISP might seem to be local, but most ISPs are served by carriers separate from the local carrier, with the result that the current system requires the local carriers to compensate the carriers serving the ISPs for termination of these calls as if they were long distance. H.R. 4445 would relieve local exchange carriers of all obligations “to make any payment for the transport or termination of telecommunications to the Internet or any provider of Internet access service.” The financial effect on ISPs would be substantial. There are estimates that average user costs in the U.S. would be doubled. U.S. telecoms argue that they are currently being forced to subsidize the operations of the service providers, but one of the curious arguments being made to support the pending bill is that the present situation “encourages excessive use of the Internet.” This hardly seems like a valid reason for change.

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