Regulatory Challenges in the Emerging Internet Media Environment

Madan Mohan RAO <>



Will the Internet be allowed to develop as a completely unfettered medium, or will telecom and content regulators from government, industry, civil society, and international organizations play the major role in overseeing the future of the Net? Whichever way the dust settles on this issue, the tension between free and regulated flow of online information will continue to spark heated debate among academics, policymakers, entrepreneurs, and activists across the globe.

A key regulatory challenge for dealing with cyberspace governance stems from the fact that the Internet simultaneously means infrastructure, information technology, services, and media entity, all of which are intertwined in complex and ever-evolving ways since the Internet itself is morphing while it changes everything in its wake.

Allowing for universal access, deciding on the permissibility of Internet telephony, and negotiating international settlement rates for the burgeoning Internet service provider (ISP) industry will pose tricky challenges in the area of telecom and datacom regulation. As for the growing use of content management and distribution technologies on the Web, governments -- especially authoritarian ones -- will face challenges in prohibiting access to content deemed offensive or objectionable by some members of their constituency.

This paper will examine the impact of emerging Internet technologies from the point of view of two parameters: the Internet as a tool, and the Internet as a market. In other words, what policies can a government enact in order to be able to successfully leverage Internet tools, content, and online media properties? And what policies can boost the Webware development market, viz. Web-based platforms, software and media services for the Internet economy? The discussion also highlights some of the special challenges facing emerging economies in this regard, some of whom are developing pockets of excellence in creating and harnessing Internet technologies, but many are falling seriously behind in the information age. Greater creativity, cooperation, and commitment from policymakers, industry, academia, civil society, and Internet professionals are clearly called for.

Given this backdrop, the paper analyzes Internet environment regulation along the following seven categories: basic protocols, ISP infrastructure, content, user behavior, e-commerce, universal access, and national/government services.

"The Internet is like a knife which can be used either to kill or to carve a beautiful sculpture."

--Malaysian Prime Minister Datuk Seri Dr. Mahathir Mohamad

"A sense of balance is required, and some control [of the Internet] is required to ensure that we can reap the benefits and shut out or minimize the dangers."

--Singapore National Information Technology Committee Chairman Teo Chee Hean

"Are people learning from the Internet how to make the same sort of trouble in the United States that was made in Japan with sarin gas?"

--U.S. President Bill Clinton


Perhaps the biggest challenge for national policymakers dealing with the Internet comes from the convergence ushered in by the Net. Issues relating to the Internet economy necessarily involve inputs from the departments of commerce, broadcast media, print media, telecommunications, electronics, information, education, infrastructure, labor, and national security.

Bringing together these diverse departments and finding domestic Internet policy expertise from academics or the industry is a big challenge, especially for emerging economies who have been somewhat slow to respond to the challenges of globalization and new media.

Regulations governing the Internet as a medium and as infrastructure fall into the following seven categories: basic protocols, Internet service provider (ISP) infrastructure, content, user behavior, e-commerce, universal access, and national/government services.

1. Basic protocols and naming

Much of the cutting-edge development of the basic Internet protocols -- though in a highly consensus-driven manner -- continues to happen in the United States, a few European countries, and Japan. Most emerging economies are still struggling to keep up with the infotech revolution, and unfortunately are unable to devote precious resources to participate in fundamental discussions which will ultimately shape information structuring, online privacy mechanisms, and domain naming.

2. Infrastructure and tariffs

Deregulation of basic telecom and datacom infrastructure markets still has to take root in most countries of the world, though it is spreading rapidly. For instance, India opened up its ISP market to private players only late in 1998, and the first international gateways to the Net operated by private ISPs are expected to be operational and legal only this year.

Many governments still continue to restrict the number of possible ISPs in the country, or collect exorbitant license fees from them. For those ISPs that do operate, services like Internet telephony are sometimes banned (especially in emerging economies). Revenues from long distance and international telecom charges account for a large contribution to central government coffers in emerging economies, and hence there will undoubtedly be some stiff opposition to Internet telephony until the tradeoffs between consumer convenience and government revenue pressures are carefully evaluated. Telecom providers and ISPs are well advised to proactively explore Internet telephony products and services and invest in alliances for such efforts.

Following the lead of countries like the United States, a number of Asian countries like South Korea, Singapore, and Malaysia have adopted policies for the creation of a national information infrastructure (NII) or an "information superhighway." Singapore has launched initiatives for the creation of a "digital island" or "intelligent island," and could face stiff competition from Hong Kong's proposed Cyberport.

In terms of policies of international Internet connectivity, disputes are emerging between ISPs in the United States on the one hand, and other parts of the world like Asia on the other, regarding settlement rates for international Internet traffic. Asia-Pacific ISPs have still been paying for the entire cost of leased lines to the United States -- in contrast to non-Internet leased lines, whose cost is equally shared between the United States and Asian parties.

This was highlighted in a joint statement early in 1999 by eight Asian telcos (Communications Authority of Thailand, Chunghwa, Indosat, KDD, Korea Telecom, Philippine Long Distance Telephone, Singapore Telecom, Telekom Malaysia). Such issues have been raised at gatherings of the Asia Pacific Internet Association ( Australian carrier Telstra has for some years already been pleading this cause at the U.S. Federal Communications Commission, the G-7, and other fora.

It is difficult to estimate how much money ISPs in emerging economies are losing on account of such tariff imbalances, due to the secrecy surrounding many interconnect agreements. Organizations like Telegeography therefore call for more publicly available research and better tools to measure how Internet traffic is routed, where it travels, and so on. Unlike telecommunications tariff settlement via global fora like the International Telecommunications Union, governance in the Internet world has evolved without such bodies.

ISPs in emerging economies are still struggling to form regional hubs, peering points, and cooperative agreements for capacity sharing (on the lines of sites like, and content providers in these countries are only beginning to promote locally relevant content to increase domestic usage of the Net.

3. Online content

Media regulation in the content arena currently falls in two categories: regulation of information published on the Web or circulated via email; and regulation of content flowing through Internet information conduits (ISPs).

Countries such as Singapore and China have adopted a policy where the government decides what is acceptable (in terms of political or sexual content) and acts as a filter of information at the international ISP gateway level or at the level of monitoring registered Web sites domestically. The Australians put into place last year a system where ISPs are required to produce and obey a code of conduct and take corrective measures against objectionable content.

At the site level, some private companies (e.g., NetNanny) have come up with their own lists of what are unacceptable sites to children and the general public, and have devised filters that block out these sites. Other schemes are based on a content self-rating mechanism (e.g., Recreational Software Advisory Council), with parents and other users being able to set filter levels on home or school devices to appropriate levels of tolerance.

In response to the increasing globalization of the Internet, the U.S-based Internet Content Rating Association (ICRA) launched a re-vamped version of a major ratings and filtering system called RSACi in the hope that it can appeal to parents and Web publishers worldwide. It is felt that Europeans as a whole have less concern about online nudity and more concern about violence than their American counterparts. But groups like the Global Internet Liberty Campaign, composed of 17 human rights organizations and policy think tanks, oppose ratings plans such as those proposed by ICRA out of concern for potential abuse of ratings schemes.

Other challenges lie in determining what media category the Net falls under. Due to the convergence of traditionally distinct forms of communication -- print, wire, radio, television, and interpersonal communication -- on the Internet, it is difficult to categorize the Internet under existing legal classification schemes. For instance, the Internet and online services have some elements in common with print publishers, telephone service, magazine distributors, bookstores, public streets, broadcasters, toll roads, and even shopping malls.

Singapore has gone ahead and treated the Internet in the same category as broadcast media, subjecting Internet communications in the country to the same standards of libel under the Singapore Broadcasting Authority as well as the Sedition Act, Penal Code, and the Maintenance of Religious Harmony Act.

Other related issues include verification of traffic figures on popular content sites, though this is more an industry issue than a government regulatory matter. For a robust Internet economy, the Net needs to have matured as a medium. Measures of a country's online media maturity include the total number of Web sites about (and published in) the country, local relevance and usefulness of this content, local language standardization and usage on the Web, sub-national content (about states, provinces, cities), presence of meta-content like directories and search engines, significant ad revenues targeted at online audiences via these sites, and the presence of third-party services from online traffic auditors, ad revenue auditors, market research groups, and consumer behavior analysts.

Such third-party auditing and measurement services are key to providing economic assurances of the viability of the Net as a medium for local advertisers, online merchants, content sites, and government planners. But such services -- provided in the United States by companies like I/PRO ( -- are still prohibitively expensive in most emerging economies.

Much confusion thus prevails when determining the most popular national sites in such countries. Such confusion can be averted by developing cheaper measurement services, or forming national consortia for online advertising standards based on cooperation and trust.

In terms of emerging platforms, the cutting edge of Internet media regulation is happening with technologies like Webcasting, streaming video, and MP3 music encoding; these can particularly tricky when disputes straddle international borders.

For instance, taking legal action to stop the "theft and unauthorized performances of U.S. copyrighted films and television programs," 10 motion picture and three broadcasting companies in the United States have filed a complaint against Canada-based site iCraveTV, which has been Webcasting U.S. TV programs.

Some music industry groups in the United States are suing music Web site, alleging the company brazenly violated copyrights with new features that send music to any computer. The Recording Industry Association of America (RIAA) has filed suit in a District Court in New York City, claiming the site had illegally compiled an online library of 40,000 copyrighted albums.

4. Online user behavior

Regulations related to online user behavior are closely related to the content category, but are determined more as a consequence of activity by the user than on content published by some other third party. Regulations falling in this category cover behavior like hate speech, cyberstalking, online pedophilia, cybercrime, privacy violations, and software piracy, many of which are generally illegal or deemed unethical (though not strictly enforced in most countries). Such instances have occurred in countries ranging from the United States and Russia to Thailand and Germany, as shown below.

Problems of unauthorized entry and access to computer systems and resources have multiplied through proliferation of the Internet. For instance, hackers have broken into computer systems in the United States, Russia, and India via the Internet. Many countries are only now contemplating laws with provisions against unauthorized access to computer systems (e.g., India's Information Technology Bill '99).

Japan called an emergency meeting in January 2000 to boost computer security after humiliating raids on government Web sites by hackers, who linked one to a pornographic site and attacked Japan's war record in China on another.

The United Nations has held annual conferences highlighting the problems law enforcement officials face when dealing with organized, international crime networks who have access to global technologies like the Internet.

Another concern has been the fueling of activities like child prostitution and solicitation of minors via computer networks. The Bangkok-based organization called End Child Prostitution in Asian Tourism has urged governments to take action against those who use the Internet for promoting child prostitution and child pornography.

Under the purview of hate speech laws,, the online bookseller and retail giant, announced in November 1999 that it would stop sending Adolf Hitler's book "Mein Kampf" to customers in Germany.

In Britain, the Internet Watch Foundation (IWF), a self-regulating agency funded by British ISPs, has announced that it will begin rooting out illegal hate speech on the Internet. The IWF has set up a hotline and will investigate all complaints it receives to gauge whether the offending speech is actually illegal under British law. But civil liberties groups claim the IWF is essentially a censorship organization enforcing politically correct speech in an area where the law is extremely fuzzy.

As for privacy concerns, Internet profilers such as DoubleClick, Netgravity, and Adknowledge are coming under pressure to obey online privacy norms and claim they will boost their efforts at self-regulation in an effort to stave off regulation by the U.S. Federal Trade Commission and other agencies, but privacy advocates seem doubtful such efforts will allay concerns.

Countries like the United States and parts of Europe differ to some extent on the manner in which user information gathered on various sites is sold to third parties. Citizen groups on both sides of the Atlantic are calling for stronger enforcement of privacy laws and monitoring of privacy practices.

According to a study from the Electronic Privacy Information Center (EPIC), the top 100 e-commerce sites on the Web fail to live up to all of the "fair information practices" of privacy protection. EPIC is calling upon lawmakers to produce legislation to enforce the practices. Fortunately, some companies like IBM have begun to require Web site operators to post privacy statements online; otherwise, advertisement support will be withdrawn.

5. E-commerce

Regulations dealing with online trading, public offers, digital certificates, e-commerce taxation, settling consumer disputes, and handling mergers and acquisitions fall in this category.

Countries across the world are scrambling to recreate the Silicon Valley engine of the Internet economy by enacting favorable start-up capital markets, lax e-commerce taxation, and climates conducive to foreign investment in Internet media properties.

For instance, according to a study published by the Boston Consulting Group, Canada has the highest Internet usage in the world, but an unfavorable tax regime and lack of start-up capital are causing the country to trail well behind the United States in electronic business. The study blames the comparatively slow growth of Internet business on disadvantages created by Canadian taxes, government regulation, and capital markets and recommends improvement along all these fronts.

The ease of distributing and duplicating information and products from e-commerce sales across borders also raises serious issues of copyright, encryption, taxation, trademark, and regulation of currencies and financial markets. The U.S. Federal Trade Commission and the Treasury Department have issued warnings against the proliferation of commercial scams, credit card frauds, and potential money laundering by unscrupulous agents operating via the Internet.

In terms of taxation structure to retain local Internet expertise, senior Internet e-commerce experts in Britain are reportedly lobbying their government for a reversal in a change in tax laws that they say may cause a "brain drain" of Internet experts from the United Kingdom.

In India, the infotech industry has successfully called for easier norms for Internet and e-commerce companies offering initial public offerings (IPOs) in India. The Securities & Exchange Board of India has relaxed its norms and done away with the mandatory three-year profitability track record for IPOs, especially with regard to Internet and e-commerce companies.

6. Universal access

Some countries are trying to avoid the "digital divide" between information haves and have-nots by trying to ensure universal or near-universal Internet access as well as boosting domestic skillsets and capacity for the Internet economy.

For instance, the British Chancellor of the Exchequer plans to help people buy computers and learn how to use them, so as to help overcome some of the effects of the digital divide.

Spain's government has announced plans to fund public access endeavors and improved infrastructure in rural areas in order "to bring the information society to all Spaniards" and "to put Spain in the leading pack of developed nations," according to Industry Minister Josep Pique.

The European Commission has far-reaching plans for an initiative called "eEurope" to transform Europe into a computer-savvy society where every European would have access to the Internet.

Cash-strapped governments in emerging economies, however, are unable to fund such schemes.

7. National/government-level e-environment policies

Provisions regarding freedom of information, easy access to government services, ensuring national security, and preservation of local linguistic and cultural identity fall in this category of Internet regulation.

On a more proactive note, several governments have taken prominent measures to communicate their policies and promote trade and tourism via Internet sites. Japan's Ministry for International Trade and Industry and the Environment Agency, Hong Kong's Trade Development Council, and Indonesia's Ministry of Industry and Trade have set up Web sites promoting their activities. In addition to governments in power, opposition parties in Asian countries like Japan, Singapore, and Malaysia have also set up Internet sites to communicate with the electorate and lobby for votes.

In the United States and Canada, concerns of national security have been expressed over the availability of bomb-making information on the Internet (especially in the aftermath of the Oklahoma bombing), and its use by separatists (during the Quebec referendum). Similar concerns arise in Asia. Activists and dissidents in Asian countries like China and Indonesia have been leveraging the Internet to the hilt, drawing international support for their causes. As a result, quite a few Asian countries have been giving the Internet a mixed reception. As a result, countries like Vietnam and Myanmar have slowed down the diffusion of the Internet, while China and Singapore have passed laws against use of the Internet for purposes that would undermine national security and public order.

According to rules passed by the Chinese government in January 2000, any information conveyed via the Internet must first be viewed and approved by security forces. Those running online chat rooms must face security checks as well. The government has also demanded that corporations and individuals report the specifics about the encryption devices they possess. News stories not initially written and published by official news services must gain government approval before they can be transmitted on the Internet.

Myanmar's military regime has issued tough restrictions that forbid the posting of political writings in cyberspace. Myanmar Post and Telecommunications, a government agency, prohibited publishing anything on the Internet that is "directly or indirectly detrimental to the current policies and secret security affairs of the government."

And just as countries like France have been concerned about the threat of the English-oriented Internet to the French language and culture, so also some Asian analysts are worried about the potential of "cultural pollution and social invasion" via the Internet.

The issue of encryption of information transmitted over the Internet -- a necessity for confidential business transactions --clashes with government interests in national security, in countries like the United States. Citing concern over terrorism, drug trafficking, and money laundering, the United States forbids exporting certain kinds of encryption technology for Internet use outside the United States, though this may be relaxed slightly.

Other proactive government measures revolve around the creation of suitable environments for the Webware sector. In areas like software development, the Internet has played a key role in changing the economic fortunes of countries like India, where many companies are moving up the value chain from "body shopping" for software programming to off-site development and finally online marketing of shrink-wrapped software packages.

Information-technology-enabled services are estimated to generate $250 billion in revenue over the next decade. While countries like Ireland and Australia have already had a significant lead in this market, companies in countries like the Philippines and India have been tapping markets for medical transcription for U.S.-based doctors, ticketing for European airlines, and online customer support for U.S. companies.

Distance education is now being offered via the Net not just by institutes like the Open University of Britain (, but also by the University of Monterrey ( in Mexico. Software training institutes like India's NIIT ( are tapping into markets in dozens of countries across the world via the Net.

Human resource management work, financial accounting, engineering design, patent filing, billing, product development, and even medical advice are other ripe areas for emerging economies to tap into via the Net. Good Internet infrastructure, low access rates, low customs duties and taxation levels, and cyberlaws to facilitate online transactions can help emerging economies tap into the Net-enabled services markets.

Despite these global opportunities, challenges still arise from abroad for emerging economies via perceived cultural and political threats (e.g., political dissidence, or a predominance of English-centric U.S.-dominated content), economic competitive pressures (e.g., in the struggle between home-grown domestic portals and U.S.-backed portal alliances), and in stemming brain drain arising from better payscales for Internet workers in the United States and Europe.

The economics of the labor force in the Internet age will become a key determinant in the struggle to retain skilled Internet workers by organizations in emerging economies, who can rarely afford to match the wage levels and perks of U.S. competitors who are hungrily searching for talent to drive their global growth.

8. Closing thoughts

No communications technology has presented as rapidly evolving a challenge to governments as the Internet. Within the short span of a few years, they have been confronted with a technology which not only is a strategic tool for the research, educational, and business communities, but also opens up unprecedented forms of computer-mediated communication which can challenge existing cultural sensitivities, religious standards, and political discourse.

Formulating and implementing policies that ensure equitable access to the Internet for private and public sectors is itself a complex task. Most emerging economies face daunting challenges in socioeconomic development; harnessing technically sophisticated systems like the Internet raises tough questions of resource allocation.

Advocates of greater and freer Internet diffusion should keep in mind that few governments like to be confronted with a technology over which they are told they can exercise no control; fewer governments like to inform their citizenry that they can exercise no control over the technology despite public concerns. In fact, though governments are aware that laws regulating Internet content can at times be unenforceable, they feel they must pass these laws for reasons of political posturing.

In the long run, the advantages of the Internet -- its potential for boosting trade, business, education, and better living standards -- will be able to outweigh its more controversial aspects, especially if aided by responsible and responsive policy measures of governments. While the details will vary for each country, the key challenges will be in equitable access, copyright law, content regulation, and international cooperation.

The main tasks up ahead then would lie in ensuring sufficient speed in decision-making processes, allowing widespread participation in policymaking, guaranteeing accountability of decisionmakers and stakeholders, and encouraging responsible behavior among all Netizens.

Given the rapid pace and wide extent of developments in the Internet world -- most of the developments analyzed here have occurred merely in the past year or two -- it is imperative to call for frequent, broad, and open dialogues between the various sectors of society to best address the daunting challenge of utilizing the Internet without adverse effects on the socioeconomic fabric.