BACKGROUND

The rapid growth of the Internet, a global "network of networks", has a major impact on global communications and on people's timely access to information. Recognizing this new medium's emergence, governments around the world are seeking ways to maximize its benefits. Many governments are exploring whether or not to add new regulations for this new medium.

The unregulated computer industry brought tremendous advances to the consumer in offering fundamentally new capabilities and rapidly increasing performance at decreasing cost. "Moore's Law," in which processing speed doubled every 18 months with no additional cost, has brought the benefits of the computer revolution to millions of individuals and businesses around the world.

The Internet plays a key role in the evolution of the Global Information Infrastructure. Internet participation and usage can be tools to enhance a nation's economic position in an increasingly competitive global market. Policy decisions on Internet participation and usage made in each country should be made with the knowledge that others are considering the same issues, often with a somewhat different historical and cultural perspective as well as different legal and regulatory frameworks. With a global medium such as the Internet, national policies have implications far outside national borders, creating a unique shared interest. At the same time, it is also clear that nations making policy decisions that encourage electronic commerce using the Internet will have a significant competitive advantage over nations whose policies impede such progress.

As the Internet is rapidly evolving from primarily educational and research use to support a variety of commercial and non-commercial uses, and from government subsidized sustenance to commercial models for growth, it has become evident that key issues influencing competition and the adoption of proper policies to foster growth must be addressed.

Below are the broadly accepted principles which lay out the direction of this emerging medium.

INTERNET EMERGENCE PRINCIPLES

The environment

• Today, the Internet is viewed primarily as a means of transmitting text and graphical information.
• It has significant potential to carry voice and video signals as well, with broad impact on telecommunications services.
• As the Internet embraces these new media, it will fundamentally change the way that consumers, companies and governments view it. This emergence of the Internet will be paralleled by a convergence of markets and industries.
• Today competition and regulation are often viewed as specific to individual, segregated markets.
• Internet emergence will cause a fundamental reevaluation of how companies view their markets, their customers and their competitors.
• Internet emergence also causes government regulators to reassess both the purpose and the effectiveness of their regulations.
• For the next several years, we should expect markets to churn as they respond to and accommodate this emergence.
• We should also expect government regulations to be in a state of flux in the near term, as governments try to adapt to new market realities.
• Politics and the maneuvering of industries that are trying to protect vested interests in the face of heightened competition and uncertainty will also play a major role in the path that regulations take.

• Promote the growth of the Internet worldwide and maximize benefits for individuals and businesses.
• Create an economic climate that breeds innovation and competition.
• Work with governments around the world to minimize regulatory burdens and to foster the growth of the Internet as a useful medium.

   

  • During times of transition, governments often feel compelled to establish regulations prematurely that are overly rigid.
  • These regulations stunt economic growth and cripple innovative market solutions.
  • The essential challenge is to let markets unfold without rigid government regulations in ways that satisfy the demands of consumers and businesses, and to promote competition and innovation.
  • Governments must resist the temptation of superimposing on the new digital world regulatory frameworks that existed during the industrial era, and must focus instead on evolving to a competitive framework for traditional as well as newly emerging industries.
  • For the next several years, industry must work actively with governments worldwide to promote understanding of the evolution of markets in the context of the emergence of new media and the implications for public policy.

   

• Among the core issues that must be addressed are the following:
  • How to foster competition in telecommunications, software and related industries
  • Appropriate roles of government and industry in standards and interoperability
  • Responsibility for content, its use and appropriateness --roles of industry and government
  • Appropriate roles of government and industry in protecting intellectual property

   

• National debates have already begun around the world in many of these areas, but because technology is racing ahead and markets are still evolving, policy debates in these areas are far from resolved. These debates should be cast not in narrow technical terms, but in broad economic and political terms that capture the fundamental choices facing each nation.

The GIP has identified several specific categories where governments must tread carefully to make certain that new segments of the industry are not regulated even as historically regulated telecommunications markets are becoming more open to competition in countries around the world.

Four questions must be asked by governments as part of a fundamental reassessment of their existing and proposed regulations:

• Does the proposal increase competition?
• Does the proposal increase choice and access for users (consumers and businesses)?
• Does the proposal distort market economics?
• Does the proposal increase technological and marketplace innovation?

POLICY DISCUSSION AND GIP RECOMMENDATIONS

Specifically, the GIP has identified the following areas - which will have a significant impact on the growth of the Internet - for careful scrutiny:

I. Regulation of Communications Networks and Transport

A. Basic vs. Enhanced Services
B. Interconnection Charges - Access and Settlements
C. Competition and Regulation of Underlying Transport
D. Competition among Internet Service Providers (ISPs)

III. Regulation of Content

IV. Intellectual Property Protection and Rights

The GIP positions and recommendations in each of the above areas are discussed below.

I. Regulation of Communications Networks and Transport

A. Basic vs. Enhanced Services

Background:

Will governments around the world treat the Internet as an "enhanced service" and leave it largely free from government interference? Or will the distinction between "enhanced services" (which governments largely do not regulate) and "basic, common carrier telecommunications" (which they do) become blurred, with the Internet falling under an old regulatory regime? Or will all communications become as free from regulation as the Internet? Does the Internet belong in a special category by itself?

Since its Computer I Final Decision in 1971 and then the Computer II decision in 1980, the policy of the U.S Federal Communications Commission has been to support the dichotomy described above. In addition, several international agreements and EC papers have also created a clear line between basic and enhanced services. For example, the annex to the General Agreement on Trade and Tariffs during the Uruguay Round has addressed this issue. Japan's MPT has created a similar dichotomy, and a European Green Paper on Telecommunications Policy in 1984 also took a similar stance. If the principles enunciated above are not considered and incorporated in national policies, the Internet could risk becoming regulated at the very time that many countries are liberalizing their telecommunications policy and removing regulatory obstacles to competition.

Recommendations:

The GIP believes that the market-driven computer industry is the right model for the Internet. The telecommunications industry is now undergoing a sea change from a largely regulated regime to a deregulated environment. The GIP believes that the Internet should be at the vanguard of the deregulatory trend – reflecting the current dynamic of the computer industry and leading the future trend of the telecommunications industry which should rapidly be deregulated and made fully competitive as well.

B. Interconnection Charges - Access and Settlements

Background:

While widespread access to the Internet and other advanced telecommunications is a goal of the GIP, the best course to achieve this goal is a regime that recognizes the benefits of market forces to foster innovation, drive down costs, enhance interconnectivity, and improve user choice. However, an expansive universal service mechanism which taxes software and other high-technology businesses will result in less innovation, higher costs, and reduced access for users.

In the global trend toward multiple interconnecting telecommunications and Internet service providers, there are many financial settlements schemes for the use of infrastructure belonging to one entity by another. Examples are international inter-carrier settlements and the "access charges" levied by local communications providers in the U.S. As competition and interconnection among multiple service providers becomes more widespread worldwide, the guiding principle should be that non-economic charges should be avoided under all circumstances.

For example, in the U.S, access charges to connect to a local access provider represent a potential cost element that can stifle the growth of the Internet if these are not cost based or if they discriminate against some forms of end user pricing. Currently such access charges are not levied on Internet Service Providers (ISPs). However two points need to be noted.

i. There is some clamor for imposing access charges on Internet Service Providers similar to those imposed on long distance calls.

ii. These access charges today far exceed the true economic cost of providing the access facilities, and reflect an old paradigm of extensive network subsidization.

The above items can negatively impact Internet usage and growth and they should be viewed as related issues. While we have used a U.S example, the generic issue of avoiding non-economic charges would apply world-wide.

Recommendations:

1. Implement rules that utilize, to the greatest extent possible, market forces to drive down costs for access to advanced telecommunications technologies - for instance by eliminating the hidden universal service subsidies built into telecommunications rates that impede competition. Universal service subsidies should be targeted at needy users and be provided directly to end users in a way that does not distort the market or handicap some providers relative to others. Such rules, whether national, state, local or regional, should be harmonized to avoid confusion.
2. Interconnection charges such as access charges and international settlements between interconnecting carriers should be driven to the economic cost of providing access or terminating services, in conjunction with a competitive marketplace for the provision of such interconnection. The imposition of excessive, uneconomic charges for access or interconnection at any level, domestic or international, hampers the development of competitive markets, and should be avoided. This will significantly reduce the risk of impeding the growth of the Internet as well as other innovative service capabilities.
3. Encourage innovation by avoiding government regulation of the Internet, and in particular, preclude any efforts to regulate the Internet by political subdivisions of a country such as state, provincial or local governments.

C. Competition and Regulation of Underlying Transport

Background:

Internet Service Providers typically buy private lines in large quantities to create a backbone network. The price structure of this underlying private line transport impacts the price that the ISP ultimately charges the user. Studies have shown extensive disparities in private line prices around the world. In general, competitive telecommunications markets for underlying transport lead to dramatically reduced prices for private lines. This disparity is a key component that is ultimately reflected in major Internet price variations.

The price of dial-up access (for most consumers) or dedicated access (for business users and most content providers) to the nearest point of presence of an Internet Service Provider is also a significant variable cost element. Seen in a global context, this is a variable that is directly affected by regulatory policy. For example, in the U.S many users have a free local calling area whereas in Europe users generally pay for even short-distance calls based on usage.

In the U.S, high access charges on long distance have led to an uneconomic build out of large numbers of local points of presence to avoid access charges. In the U.K, the low access charges on long distance (which were based on voice telephony usage) has led to the building of few points of presence. In both cases the imposition of uneconomic charges has led to non optimal networks being implemented which increases the cost of providing service overall. In some cases this serves to increase the disparity between service choices available in rural and urban areas.

Recommendations:

Competitive environments for the provision of both local and long distance transport underlying the provision of Internet services should be encouraged. This will help provide greater choice, functionality and value to Internet Service Providers for building their services on top of the infrastructure, and will ultimately benefit users. We should build on the momentum created by the recent global accord on trade in telecommunications services which liberalizes global markets.

The Global Internet Project welcomes the World Trade Organization’s recent agreement on basic telecommunications services which opens telecommunications markets to competition – another helpful step to promote the Internet.

D. Competition among Internet Service Providers (ISPs)

Background:

Many countries still maintain a monopoly provider of Internet access, or restrict the number of competing providers by adopting a licensing process that serves ultimately to limit competition, thereby reducing the choices available to users. OECD studies have shown positive correlation between the freedom to compete and provide Internet services within a country and the attractiveness of price and feature packages for consumers and businesses in that country.

Recommendations:

Governments should encourage the development of competitive markets without burdensome licensing requirements, with a view to facilitating competition among ISPs and providing better value to users. Monopoly or duopoly arrangements for ISP licensing limit the incentive for these ISPs to be efficient, and should not be adopted.

II. Interoperability, Standards and Interconnection

Background:

Developing technical standards for information communications constitutes a very important theme in securing Internet interconnectivity and interoperability. The Internet's development was based on voluntary industry standards and global interoperability. This key strength should continue to be fostered for its future growth. Governments should promote interoperability by encouraging industry-led global standards-setting processes, and by advocating open interfaces where multiple providers can interconnect. Such essential interfaces, where they are not open, can be used to diminish user choice by forming bottlenecks to access which limit or deny competition. Market-driven processes should be encouraged wherever feasible in order to facilitate interconnection that can keep up with the rapid pace of technological and industry growth.

Recommendations:

1. Standards to promote the GII should be developed in the framework of international standards bodies, focused on essential open interfaces developed through market-driven, international, voluntary and industry-led initiatives.
2. Permit consumers to access the widest variety of advanced technologies at the lowest cost by not mandating standards except where
   a) private, industry-led standard setting bodies have failed;
   b) a proposed standard is needed to remedy a legitimate consumer harm that otherwise is not addressed by industry, even after a clear opportunity has been provided; and
   c) the standard does not unnecessarily limit options for its technical implementation and offers a level playing field for all competing products.

    

3. Increase market competition and innovation by ensuring that existing and proposed standards do not discriminate against any particular industry segment.
4. Intellectual property involved in the technology of essential open interfaces should be licensed for use on reasonable terms and conditions and on a non-discriminatory basis.

III. Regulation of Content

Background:

The Global Internet Project recognizes that the diversity of individual nations enriches the global environment. The promotion of diversity of content and respect for national culture and traditions are important. Encouraging trade in content (by removing barriers) is a means of promoting diversity of content, including cultural and linguistic diversity, and of preserving and maintaining the various national and regional cultures.

The open environment of the Internet and other on-line services has spawned for many cultures a concern regarding exposure of citizens to content of an objectionable nature. The two basic issues involve protection from inappropriate content and control of dissident political views.

1. There is concern on the part of various governments regarding access to inappropriate information over the Internet. In the U.S this concern primarily focuses on protecting children from pornographic content. The level of concern varies with the norms of each society, but countries as varied as the U.S, the U.K, China and Singapore have varying levels of concern. Censorship by governments can significantly dampen Internet growth and use. The Internet industry, including the GIP member companies, are developing and deploying content filtering mechanisms as a form of industry self-regulation, and are committed to supporting continued progress in this area.
2. Certain governments view the Internet's free flow of information across borders as a political threat and are putting in measures that stifle its growth. This kind of censorship and government controls pose major challenges to the Internet.

1. Industry needs to continue to lead through self-regulation. The Internet industry has made considerable headway in this area by creating mechanisms for empowering users to select and/or screen content. For example, the Platform for Internet Content Selection (PICS) holds great promise in enabling content selection tailored to varying norms worldwide. The GIP strongly supports such efforts.
2. While acknowledging and sharing governments' legitimate concerns relative to content and the need for users to have access to screening capabilities, the GIP believes that absolute access prohibitions are not the most effective means for addressing the issues of content protection. Most diverse cultural needs can be addressed with content rating, blocking and filtering technologies that enable users and parents to selectively screen Internet and other on-line content.

IV. Intellectual Property Protection and Rights

Background:

The Internet permits rapid and efficient dissemination of information in digital form. It has the potential to be a major medium for distribution of content in various forms, for example, textbooks, papers, drawings, music and video. Appropriate policies governing the rights to use and distribute this information are being put in place on the heels of the landmark global conference on intellectual property held in Geneva in December 1996 and the two treaties that resulted from it. The balancing act is to give the creators of intellectual property rights over their works, while recognizing that providers of Internet software and services cannot monitor every single transaction for appropriate use.

Recommendations:

1. Intellectual property protection implemented in the era of the Internet should provide appropriate rights to authors to control dissemination of their content. However, this must be done recognizing that in order to assure the broad usage of the Internet, users' access to and use of such content should be warranted. Industry is developing technical capabilities to enable authors of content to track reproduction and dissemination of their intellectual property over the Internet, and these efforts should be encouraged to proceed in a market-driven environment. In the context of the Internet, technical solutions created through open standards are more desirable tools to protect intellectual property than the threat of litigation.
2. However, it should also be recognized that Internet service providers and software providers do not generally screen and control material that they transmit, and therefore cannot be held liable for reproduction by end users. Internet Service Providers should be given a safe harbor for transmission of content that they do not control but that uses the connectivity they provide. Likewise, transient copies of content that is incidental to functions such as caching and browsing should be treated as such and not subjected to any regulation.

Note to users: All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the facts of the particular situation.
1997 GIP (Global Internet Project) All rights reserved.