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By David Maher, Vice President, Public Policy,

For most Internet users, one of the major obstacles to getting
connected is the cost of telephone service to a service provider
or other network connection. Whether you're on a network or
connecting by modem, telephone charges are a subject of
considerable interest. A recently updated report, from OECD, on
costs of access to the Internet provides 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.

The Internet Society has always strongly favored a fair and
reasonable access system for Internet users. In general, the
Society believes 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 (e.g. a
number of hours per month) are not unfair to users. This ideal is
not generally attained throughout the world, however. 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."


In the United States, most residential users have unmeasured local
rates for Internet connection, while in Australia, users pay a
flat rate per local call, 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 bears 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 questions that have been in the news
this month. 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 relating to telephone charges as
regulated by the Federal Communications Commission (FCC) of the
United States government.

The World Telecommunications Standard Assembly (WTSA) has been
meeting in Montreal, Canada. The International Telecommunications
Union (ITU) as a participant in the meeting has floated a proposal
recommending that each country of the world be reimbursed for the
cost of carrying Internet traffic generated by users in other
countries. Without going into detail, what this means is that US
Internet backbone providers would be required to compensate non-US
telecoms for carrying U.S.-generated Internet traffic, since the
vast majority of countries outside the U.S. are net "importers" of
Internet traffic. It is not surprising, then, that the Clinton
administration is actively opposing the ITU proposal. A lot of
money is at stake; one estimate is that the non-US telecoms are
paying up to US$5 billion per year to the US companies. The issue
is extremely complex, and the US argument is not simply based 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. The FCC has
released a report which urges that market forces, not
international interconnection regulations, are the best way to
promote universal connectivity through competition among backbone

A purely local concern in the United States involves a pending
bill in the US Congress. The bill is deceptively simple - it would
reclassify telephone calls made by users to service providers
(ISPs) as local and not long distance. Because of "reciprocal
compensation" arrangements, the current system requires local
telephone carriers to compensate the carriers that serve ISPs for
termination of calls as if they were long distance. The pending
bill (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. Some estimates are that average user costs in the US
would be doubled. US 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.
Howard Flack        http://www.unige.ch/crystal/ahdf/Howard.Flack.html
Laboratoire de Cristallographie               Phone: 41 (22) 702 62 49
24 quai Ernest-Ansermet             mailto:Howard.Flack@cryst.unige.ch
CH-1211 Geneva 4, Switzerland                   Fax: 41 (22) 702 61 08

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