To all NZNOG subscribers & ISOCNZ members: This is pretty long so if you or, more particularly, your organisation have no interest at all in international Internet connection costs please pass by. Last year I circulated some information to NZNOG about an APEC TEL study on Internet costs, especially the costs of connection across the Pacific (the concern being that non-US Internet users and ISPs are subsidising US users and ISPs). This is stated to be because, unlike telephone charging, where the costs are taken up by the teleco whose subscriber originates the call, non-US ISPs have to rent circuits and thus pay for all traffic irrespective of origin. The study is now known as ICAIS (for: International Charging Arrangements for Internet Services). An interim report has been prepared for the ICAIS Task Force. The report concludes inter alia that about 90% of the costs of Internet connection for Pacific Rim countries is due to the local loop, about 7% is national backbone and a mere 3% is due to international link costs (however the consultants who wrote the report consider this is still considered sufficient to justify further work). The Task Force is now preparing a report for the APEC TEL Ministerial meeting which is scheduled for May. It would be fair to say that there is much disagreement between US and Canada on the one hand and just about everyone else on the other. Having set the ball in motion, Singapore has been happy to let the Australian's carry the torch for reform and Japan, the China and Chinese Taipei, Korea have all agreed with their position. The two positions can be briefly summarised as: the reformers claim that Internet development is being held back unfairly because everyone else subsidises the US costs of connectivity. The opposing viewpoint (and one that I personally hold to) is that there is no evidence of slow take up in NZ and Australia (both are in the top 10 countries in terms of Internet use, along with similarly 'disadvantaged' nations such as Finland, Sweden etc). Most of the rest of the OECD group come well behind but, of course, well ahead of the 2nd and 3rd world. Slow take up in Asia is due to other factors, especially local connection costs and heavily regulated markets. *************** The issue I want to raise here is: does the NZ Internet/ISP industry perceive there to be a problem over this issue? I have asked this question on the NZNOG list at least twice before and received essentially no feedback. I have taken this to mean that there is not an issue for NZ generally, and the ISPs in particular. ************** For this reason, NZ has not advanced any particular position within the APEC TEL but tends to side with the US and Canada. Our position is quite different from that of Australia on this issue (although I cannot see how they can seriously argue evidence of market failure in their case). The brief paper below sets out a draft NZ statement for the Ministerial meeting. I would be interested in any feedback at all (needs to be within a few days, say Friday 14 April). We intend to snail mail a paper version to CEOs of ISPs and other organisations but quick comment from the more technical community would be helpful before we undertake that task. I would emphasise that the NZ position is far from fixed at this point and no statement has yet been made internationally. It may be helpful to quote para 5.1.2 from the draft report as we think this fully encompasses the NZ position (there is a reference to this statement in para 6 below.) <para 5.1.2 draft report> 5.1.2 -- Other economies consider that international charging arrangements are only one element in the total costs and value exchange of international Internet interconnection. They note that these international charging arrangements have not been shown to be a significant factor in overall costs, and that these arrangements have produced rapidly falling bandwidth prices. They note the Internet is a new, dynamic industry where business models are developing rapidly in response to market conditions. They see the Internet as fundamentally different from PSTN networks, note that traffic flows can not be used to infer which party receives the benefit from such traffic, and believe government mandated allocation of costs based on traffic flows potentially detrimental to the growth and functioning of the Internet. They believe the current international Internet market to be operating in a competitive market and note that high prices for consumers appear to be associated with the level of competition and pricing for consumer Internet connection in domestic markets. Therefore, consistent with APEC's APII Principles, they believe there is no basis for government intervention at this time, and that responses to these commercial arrangements will be worked out most quickly if the Internet market is left unhampered. " </para 5.1.2 draft report> I have included the full draft even though it makes reference to parts of the Task Force report that you will not have seen... unfortunately as a draft, the Task Force report is confidential. I would be very interested in any comments on paras 10 & 11. DRAFT NEW ZEALAND POSITION ON ICAIS (for possible circulation to the ICAIS Task Force) 1 New Zealand has not taken an active role in debate at Task Force meetings, largely because the International Internet charging regime has not been drawn to the government's attention by New Zealand industry players or users as a matter of concern. Therefore, there has not been a mandate for New Zealand's TEL delegation to put forward substantive views on this. 2 Nonetheless, we have followed the discussions closely and wish to make some comments as an input to the process of finalising a TEL position for the TELMIN4 meeting in May. 3 We agree that the final report to Ministers should be as brief as possible, consistent with enabling them to appreciate the range of views held by member economies, and the valuable work undertaken by the consultants. Any consideration of this issue also should take account of the fact that the consultants report indicates that international connectivity makes up a very small proportion of the total costs involved in Internet traffic. 4 Some comment has been made about the current funding arrangements hindering the growth of the Internet. Although we do not know what the optimum growth of the Internet might be, there seems little if any evidence of market failure to date. 5 Even if that were the case, there are many other factors which impact on growth and take-up of Internet services, other than the costs of the international element of carriage. Important among these are: the level of the economy's domestic telecommunications market liberalisation and competition, foreign investment restrictions, the effect of local as well as international cost/price structures on the actual cost to end-users, the impact of compliance/regulatory requirements on the development and availability of the Internet, roll-out of domestic infrastructures and the availability of bandwidth, the amount of local Internet content, consumer confidence in the case of e-commerce, open market access for ISPs. 6 We have not entered the debate over the text on what is agreed or not: there are already plenty of economies putting forward their views on this: we would, however, support the US wording for para 5.1.2 (e-mail of 8 April). 7 As far as the conclusion of the report is concerned, we are not convinced that a case has been made for substantive recommendations in terms of the requirement to study and if appropriate to make recommendations on the issue. We are quite attracted by the Canadian paper (TELWG/21/ICAIS/12), as a useful way forward, except for the use of the rather subjective term "affordable" in relation to the cost of internet access. 8 The applicability of any recommendations must also be borne in mind, recognising APEC's voluntary nature. Any recommendations which are arrived at would not have mandatory force. 9 However, we accept that the majority of participants seem to want to have recommendations to put to Ministers who, in turn, are likely to be expecting something concrete to discuss at TELMIN4. 10 The impact of Voice over Internet Protocol (VOIP) needs to be taken into account. At this stage of technical development and with the declining relevance of ITU SG3 recommendations on international telecommunications traffic (accounting rates), we would not want to see any arrangements that imposed unjustified compliance costs or that endeavoured to mandate negotiations that would subject Internet traffic to similar costing regimes as voice telephony (for these reasons, New Zealand has not supported active ITU-T involvement in Internet charging arrangements either). 11 The task group must avoid any outcomes where the cost of measurement or monitoring exceeds the cost/value involved. Unlike telephony, the Internet is not measurable in terms of traffic flows: the flows themselves do not indicate where the value of traffic lies, even if you could measure it. 12 Looking at the recommendations as they stand in the latest draft report, we would prefer that section 6.1 (Recommended international charging arrangements for Internet services) be deleted. If it is to stay, recommendations 6.1.1 and 6.1.2 should be prefaced by the words "Where bilaterally agreed". It is accepted that this would leave unsaid the approach to be taken if- as seems probable in many cases- the 2 parties cannot agree. 13 In general, we could support the suggested APEC principles (section 6.2), except that 6.2.5 (a) should be amended to read "efficient market principles", rather than "fair market principles". 14 Any reference to further TEL work in this area should also include the need to continue a strong focus on the points raised in our paragraph 5 above that need to be addressed as an integral part of Internet development. The current recommendation 6.3.1 tends to imply that there is a problem to be addressed, and we are not convinced this is appropriate. Frank March Specialist Advisor, IT Policy Group Ministry of Economic Development, PO Box 1473, Wellington, NZ Ph: (+64 4) 474 2908; Fax: (+64 4) 471 2658 --------- To unsubscribe from nznog, send email to majordomo(a)list.waikato.ac.nz where the body of your message reads: unsubscribe nznog