-Caveat Lector- From http://www.monde-diplomatique.fr/en/1999/05/14tele.html > > > > > LE MONDE DIPLOMATIQUE - May 1999 > > > > > RICHES ON THE INFORMATION HIGHWAY > > Unequal terms of electronic trade > > > ---------------------------------------------------------------------- > -- The strategy patiently pursued by the United States in > telecommunications since the 1980s is now bearing fruit. It involved > deregulating the American domestic market, using competition to create > competitors powerful enough, financially and technologically, to go on > to attack markets outside. Europe and Asia, which had refused to > develop their own infrastructures, are now seeing these firms take > control. by PHILIPPE QUÉAU * > > ---------------------------------------------------------------------- > -- > > > > > > > The power of the American telecommunications operators is such that > the United States has become the hub of world telecommunications, > especially for the Internet. Their financial muscle, growing > competitive advantage and widespread deregulation mean that they are > now in a position to set up their own switching systems in Europe and > Asia and to negotiate even more advantageous interconnection tariffs > with local operators, putting an end once and for all to the > international system of accounting rates. > > The accounting rate represents the total cost of an international call > between two countries: the use of two "local loops" (the parts of the > network that connect the user's home to his telephone company), > switching and international link. Traditionally, the country where the > call is billed pays half that rate to the receiving country. > > But since January 1998, the US Federal Communications Commission (FCC) > has unilaterally decided to abandon this system of payment, arguing > that the growing imbalance between the traffic leaving the United > States and that coming in was creating a deficit of more than $6 > billion a year for American operators. But a good part of that deficit > has in fact been encouraged by the practices of the American operators > themselves, such as call back and re-routing (passing the > communication through a third country with more competitive tariffs). > > The situation is made worse by the political shortsightedness of the > European and Asian authorities, whose lack of alternative regional > strategies and inability to stand up to their own national monopolies > have strengthened American domination. The case of Internet access > provision is particularly enlightening: the forecast has it that by > the year 2002 world telephone traffic will be no more than 1% of > Internet traffic. > > How did it happen? A formidable combination of radical technological > progress making possible massive reductions in costs, an ingenious > commercial strategy exploiting the inherent weaknesses of the > accounting rate system, a structural advantage for the biggest > operators (the phenomenon of "increasing returns"), and the inability > of non-American operators to devise effective strategies in time, or > rather their keenness to deliberately contribute to the imbalance, as > we shall see. > > It was competition, made possible by bringing in deregulation much > earlier than in other countries, and the ability immediately to turn > technological progress into a commercial strategy, that brought about > the first major tariff reductions in the US. This heightened > competition on the American home market was encouraged even more by > the fact that the payments that American operators received from > international ones under the accounting rate system was proportional > to their shares of the export market. In other words, the bigger an > American operator's share of the national market, the more he > "automatically" earns on the international one. > > This keen competition led to the development of systems for > concentrating and diverting telephone traffic (call back and > re-routing), artificially inflating their shares of the export market > even more, and thereby killing three birds with one stone: weakening > the non-American regional markets and introducing them to competition > at a time and according to a timetable not of their choosing; > increasing in size to obtain effects of scale on the export market and > artificially creating a deficit; and thus giving themselves an > excellent pretext to call the accounting rate system into question. > > The decision provoked the wrath of the developing countries. Its first > effect was that revenues poured into the pockets of American operators > at the expense of the already weak local ones. It also called into > question the equally ancient system of crossed subsidies that were a > part of national policy (1), allowing the local telephone system to be > funded out of the income from international calls, for example. > Technical and financial globalisation is therefore resulting in a > "globalisation" of the telecommunications policies of the developing > countries, who find themselves obliged to conform to the logic of the > most developed country without having had the time to complete their > basic infrastructure (2). > > The accounting rate system was very cosy, it is true. It allowed all > telecommunications operators to chug along for years, supplying the > receiving countries with a wad of dollars: the developing countries > used to receive about $10 billion a year in accounting rates from the > developed countries. The problem is that this manna often encouraged > the national monopolies in their lethargy, and was used to finance > "supplementary budgets" that were very useful to governments short of > foreign exchange, as well as to allow non-competitive practices to > survive, and all too rarely to upgrade local telecommunications. > > While competition was increasing in the US, the bounds of technology > were being pushed back (it is estimated that in 2010 a one-hour > telephone call between Paris and New York will cost 15 centimes (about > 2.5 cents) and traffic concentration systems were being perfected, the > rest of the world was falling further and further behind, both in > technology and strategy. The non-American national monopolies failed > to pass the tremendous reduction in technical costs on to their users. > Worse than that, it took them a long time to grasp the appearance of > totally new concepts like the Internet (remember the blindness of > French officials wanting to make Minitel a "French Internet"). > > Then the trap closed. It started with the diversion of traffic made > possible by an extraordinary difference in tariffs between the United > States and other countries. But this competition, called "dumping" by > some observers, failed to cause much concern initially. Quite the > reverse, the national monopolies let it happen, reaping easy benefits > from US activism. But the Americans blew the whistle on the game, > having first acquired a dominant position that also benefits from the > iron law of "increasing returns" with similar knock-on effects in > networks and the economics of the intangible. > > The evidence speaks for itself. With Internet traffic having overtaken > world telephone traffic, the world's 13 biggest Internet access > providers are all American. British Telecom (BT), Europe's biggest, > brings up the rear in 14th place (3). Worldcom, owner of the biggest > supplier, UUNet, is well placed to dominate the world market with its > recent acquisition of the second supplier MCI Communications. And the > rest of the world can only look on helplessly as global networks fall > into their hands. > > Again, it is the law of increasing returns. If there are more users on > the UUNet federative network, it is because it has the widest > geographical coverage and because it has also signed many association > and partnership agreements for the transfer of data flows with other > federative networks, thus making for better access and greater > security for users. One should not forget that the deep logic of > networks encourages groupings, synergies, which in the language of the > market are also called oligopolies, collusion, or even monopolies. > > > > Towards the single "web" > > > > The "invisible hands" of networks and the market are naturally at work > weaving a single fabric. It is a familiar lesson, one we have already > learned from Microsoft (4). It has turned the geography of Europe and > Asia upside down: America has now become virtually the heart of these > regions. On average, the cost of dedicated lines between European > countries - the famous "information highways" or "backbones" along > which Internet traffic passes - is between 17 and 20 times higher than > that of equivalent links in the US (5). A Paris-New York or London-New > York link is cheaper than Paris-London or Paris-Frankfurt. Virginia > has become the hub of intra-European links (6). > > As a result, European Internet access providers are obliged to give > priority to connecting to the US. But they pay a hundred times more > than their American counterparts (7). Less, however, than it would > cost to build equivalent links within Europe. Likewise in Asia, over > 93% of the Internet infrastructure is focused on the US (8). As in > Europe, the Internet circuits to the US are paid for in full by the > Asian access providers to the tune of some $1 billion a year. The > world subsidy paid by non-American access providers to American access > providers is around $5 billion a year (9). > > Another result is that American access providers get de facto free > access to the rest of the world's Internet resources. In fact, > regardless of any regional development considerations, the European > and Asian companies that provide the infrastructure (the "information > highways") look for the cheapest connection - which, by the law of > increasing returns, is offered by those who got there first. > Competition also precludes cooperation between companies, their > differences being settled by their American elders who switch the > traffic. Moreover, when demand for "bandwidth" is very high, the > dominant operators are the first to be able to install high capacity > cables (80 gigabits per second), which encourages connections to > American territory. Finally, Internet traffic is highly unbalanced, > with far the most "producers" based in the US. Non-American users are > therefore digging into their pockets to subsidise American Internet > users' access to the Worldwide Web. > > This Trojan Horse strategy has worked perfectly, and the US can now > move to the next phase: control of the world's electronic commerce. > > > > *Director of the Information and Informatics Division of Unesco. > > Translated by Malcolm Greenwood > > (1) See the site of the UNESCO Observatory on the Information Society > - http://www.unesco.org/webworld/observatory/ > > (2) The World Telecommunication Development Report 1998, International > Telecommunication Union, Geneva, March 1998 - http://www.itu.ch > > (3) Data Communications, Paris, No 1, October 1998. > > (4) See James Love and Ralph Nader, "What to do about Microsoft? ", Le > Monde diplomatique English Internet edition November 1997. > > (5) Phil Sayer, "The Future of Telecoms in Europe. The User > Perspective" at the Milan Economist Conference, Milan, February 1998. > > (6) The Effects of Telecoms Pricing Policies on the European Internet, > EuroISPA, Brussels, January 1998. > > (7) Phil Sayer, op. cit. > > (8) The Regional Meeting on Settlement Rate Reform, 29-30 August 1997, > Chiangmai, Thailand, organised by the Asia-Pacific Telecommunity > (proceedings published by the organiser, Bangkok). > > (9) Report for APEC Telecommunications Working Group on Sustainable > International Internet Infrastructure Financing, Asia Pacific Internet > Association, Singapore, September 1998 - http://www.apia.org > > > > > ---------------------------------------------------------------------- > -- > > > ALL RIGHTS RESERVED © 1999 Le Monde diplomatique > A<>E<>R ~~~~~~~~~~~~~~~ The only real voyage of discovery consists not in seeking new landscapes but in having new eyes. -Marcel Proust + + + + + + + + + + + + + + + + + + + + + + + + + + + + A merely fallen enemy may rise again, but the reconciled one is truly vanquished. -Johann Christoph Schiller, German Writer (1759-1805) + + + + + + + + + + + + + + + + + + + + + + + + + + + + It is preoccupation with possessions, more than anything else, that prevents us from living freely and nobly. -Bertrand Russell + + + + + + + + + + + + + + + + + + + + + + + + + + + + "Everyone has the right...to seek, receive and impart information and ideas through any media and regardless of frontiers." 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