New report illustrates global Internet growth is driven by flexible governance, not restrictive regulation

Evidence shows that the current model effectively promotes Internet growth and access in developing countries, and argues that any fundamental regulatory overhaul could halt such growth and find users cut off

Geneva, Switzerland 10 September 2012- A new report released today by Analysys Mason, global telecoms, media and technology (TMT) specialists, finds that recent proposals to regulate the global Internet will harm growth and innovation worldwide. After assessing the current state of the Internet in under-served and developing regions worldwide, the report provides recommendations for governments on developing a robust Internet ecosystem without imposing any form of rate regimes on the modern Internet.

The report, ‘Internet global growth: lessons for the future’, authored by Michael Kende, co-head of Regulation at Analysys Mason, examines the impact of proposals that seek to apply the antiquated settlement system for terminating international voice calls over the legacy telecommunications network to Internet traffic.

The proposals addressed in the paper are to the International Telecommunications Regulations (ITRs), which are being readied for the World Conference on International Telecommunications (WCIT) to be held in Dubai this December by the United Nations’ International Telecommunication Union (ITU).

In the report, Kende assesses the proposals by focusing on the following areas:

• the success and growth of the Internet under the current model
• the negative impact of applying rate models developed for an obsolete telecoms system to the modern Internet

Kende concludes with recommendations for governments in developing countries on fostering a robust Internet while avoiding rate regulations.

The report highlights the Internet as a driver for growth and opportunity, noting its increasingly central role to consumers, businesses and governments alike.

Kende argues that the Internet has successfully evolved based on commercial considerations as opposed to regulatory dictates, noting that: “Content has transformed from largely text-based to multimedia delivery, global demand and usage has exploded, and access has moved toward wireless over wired. Significant investments must continue to occur in response to these patterns, as current projections show that the number of Internet users worldwide will increase from 2.2 billion today to 3.5 billion in 2020”.

The report confirms the continuing increase in Internet deployment using mobile broadband throughout the entire world, especially in Africa, Asia and Latin America, and that such investments are best achieved without internationally sanctioned regulatory intervention.

Multimedia content requires high bandwidth and can be expensive to deliver, but it is estimated that up to 98% of Internet traffic now consists of content that can be stored on servers, such as streaming video or web pages. These servers can be located in multiple locations around the world, and then delivered to users faster and at lower cost. The result is a shift in usage patterns and global Internet traffic flows. For example, 70% of international Internet bandwidth originating in Africa went to the USA in 1999, but by 2011 this figure had plunged to less than 5% as bandwidth shifted to Europe. Now, content is increasingly being stored on servers in Africa, where it can be accessed domestically or regionally.

These changes in content flows highlight significant differences between the Internet and traditional telecoms as it existed when the ITR treaty was last updated in 1988. Applying unwarranted static voice regulations to the dynamic Internet would negatively impact users across the globe and slow or reverse current growth trends. Furthermore, the rate regime system would be difficult to design and expensive to implement, and even then would increase the cost of content delivery and hinder network investment at the expense of end users.

Lastly, the report offers recommendations for governments in developing countries on cultivating a robust Internet ecosystem without imposing any form of accounting rates on the Internet. Specific suggestions include removing roadblocks to investment while stimulating demand, as well as full liberalisation of the sector while removing barriers to foreign investment and ownership.

“Spurring access and adoption of the Internet has the ability to transform and improve entire economies, and no one stands to gain more than those in developing nations,” added Kende. “Applying a settlement regime as some countries are proposing is a solution in search of a problem, which would ultimately slow Internet penetration and the availability of content.”

To view the full study, click here or type http://www.analysysmason.com/internet-global-growth-lessons-for-the-future into your browser.

About Analysys Mason

Analysys Mason is a global specialist in telecoms, media and technology (TMT). Our consultants work with clients across the TMT sectors and around the world and help shape their understanding of the future so they can thrive in demanding market conditions. We never forget that the point of consultancy is to make a tangible difference to our clients’ businesses and as such we have developed rigorous methodologies that deliver real-world results. In terms of our research, many of the world’s leading network operators, vendors, regulators and investors subscribe to our research programmes and rely on our insight to inform their decision making. Clients also have the opportunity to engage one-to-one with our subject-matter experts for tailored advice on critical business issues. To learn more, please visit www.analysysmason.com.

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