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Hi this is a second of our chats with experts you may have seen the one with
Bob Pepper
a while ago now this time we have Geoff Huston
with me he is the chief scientist 0:00:18.839,0:00:23.230 of APINIC and last but not least he is a former board member internet society and secretary of the board
Geoff,
welcome,
there has been quite a lot of discussion recently on the Internet Model
and there have been proposals that this model should be changed to a sender pays
model
what do you think about that?
It is a good question and I must admit one that I find
fascinating and
i get back along way in the Internet
one of the things that i remember around this issue of sender pays
was a very early models of around 1995
as you might recall cause it was a long time ago
uh...
we used modems
it was a slow experience
the web had just come up and we were trying to populate it with content
but the content folk were finding it extremely difficult
to actually set up a model
of how to get compensated
so they could set up webpages and you might recall there were various portals that looked smart and some what 0:01:25.450,0:01:26.630 and they
were all having a fine time
but know one was making any money
so
they decided that what they would do was they would try and pressure the access providers
i thought they were making the case
was that you know
you wouldn't be able to sell these Internet access services It wasn't the us generation content 0:01:44.940,0:01:49.010
new model signing
so we roll forward
about fifteen years and all of the sudden
in that period the content folk managed to find
u model of interacting with users to generate
revenue
enormous amounts of revenue
so now the content folk literally were the richest folk on the Internet
and guess what
haha
the access folk are now saying
actually
you owe us money
that proposition was about as silly as the proposition from 1995
that kind of structural cross subsidization
with the current carriers are asking for
goes back to the models of telephony
this is not the telephone those models are completely inappropriate and wrong
and that kind of hankering for distortions and structural cross subsidization
may make some old telephone company executives nostalgic
that you know quite frankly for the Internet
this is disastrous
Sender pay is very crude
of trying to extort money from the content providers
unlike any form of crude extortion blackmail 0:03:03.369,0:03:10.369 has no credence it really isn't valid in policy sense.
all right,
Some of the carriers they say
they are running out of capacity and somebody has to
pay them to build our networks
and they don't have the money so they ask others to pay for them. What do you tell them?
I have a lousy business model you owe me money, this is stupid
literally that's really what they are saying their business model doesn't work
somehow
someone else should pay
i find this amazing that the airline industry has managed to create a
business model where the most frequent of their flying passengers are the ones the
airline company loves the most
They cocoon them in this gentle embrace of prices
comfortable seats
bars at airports
the people who use the online service is the most
are the airline services heroes
but in this communications industry
quite particular in the in carriage industry
the folk who really do use their services
are demonized
sent to the (inaudible) They are the folk they hate.
Their business model is broken
and I don't actually understand why they think the world owes folk a living
when the any reason why they are crying poor is they just haven't quite figured out
what the appropriate model is.
i think they are lazy
I think they are lazy and i also think that they are greedy
these are folks who come for the long history of monopolies
the telephone companies were largely unaltered
since the national monopolies with those started in the 1920s
and ever since then they never really had to think
they came with money
government money
prices were set
by fit there was no competition
they did what they wanted
and life was incredibly easy
the bathrooms had gold-plated taps in their buildings
these guys minted money
but we liberalized in most national regimes
we said look this is time for competition to enter the praise
this is time to actually stop using public money to build communications
infrastructure
and then the private capitol
carry that role
the price of that kind of competition and private investment
are the rigors
of a competitive environment
the rigors of being more efficient then your competition
creating business models that work
for many of the new competitors they have succeeded
Google is brilliant
Crown Corning making fibre i think is doing just fine
there are phenomenal success stories i didn't say that Three in France 0:06:01.580,0:06:04.699 has an effective business model
but we still see
folk particularly legacy telecos
wingeing
but despite competition
despite liberalization
despite requiring
public investment
the rest of the world owes them a living 0:06:19.939,0:06:23.559 most of the world doesn't
Developing countries they say they find it harp to get the cost down
internet
usually
$50 in a developed country
is not that much of a
salary
several thousand dollars but in some developing countries I heard
after attending a meeting in africa one woman she pays $50 a
month it seems ok the price but her salary is $250 a month
which is of course a huge chunk of her salary
at some point what would your recipe be for developing countries to bring down the cost of access
the business of economics is often harsh
I live on a small rock, a very large rock at bottom of the south pacific
ocean
it costs a huge amount of money
to drag undersea cables to that rock
it's at least seven thousand miles to get there
and to take undersea cable projects
cost somewhere in the order
of $500000000 dollars to $1000000000 to install
i did not ask
and my country men do not ask the rest of the world to pay that deal
that's our problem
we look at the bottom of the south pacific
one of the real 0:07:46.629,0:07:49.179 poor moves to be done in the
1950s in the ITU-T
at the time but also the ITU-D
was to confuse
intergovernmental aid
with the business of international telecommunications
because you did at the time
was introduce and
inter-administrative charging regime because they are all government monopolies
but they introduced a regime introduced
structural distortions
and inefficiencies
into that industry
they confused
aid
and infrastructure
aid is wonderful
aid is a way of helping developing countries
but make it aid
use the existing channels to
provide money
and let the developing countries themselves
work out their agendas of how to use those resources
yes it costs a lot of money telecommunications into remote areas of the world
telecommunications is a scale placed industry
the more folk you service the lower the unit cost
the larger the pipes
the cheeper the per kb bandwith
we can have computing what you see is
more you can produce the cheeper the unit cost
so yes
where the market is small where the market is a long way away
it costs a lot to get that
those (inaudible) costs
don't ask the rest of the world to cross subsidize those costs that's never
going to work it's simply creates dependents
and resentment
dependents on the part of those you've got to cross subsidization
and resentment on those
part of those who pay
don't forget these aren't governments anymore
this is private capital
and the role of aid
the role
that kind of assistance
is governmental
i think it's actually governments shying away from what is an natural
responsibility
in aid funding
and trying to covertly slip it across into private investment
that's not a very good idea
it simply creates as I said before massive structural inefficiencies
and these days in the
context of ITRs and WCIT
what we are seeing is precisely that fight all over again
over the last 40 years the telephone industry has created
a bunch of countries
who now consider themselves economically and (inaudible) dependent
on their structural cross subsidies from telephony
and because the telephone companies are largely privatized
and now a different bunch folks report to the old government monopolies
they'll resent that
they don't want to pay
little wound up
that more than 2/3 of international voice calls these days
care on skype
its cheeper
it isn't distorted by the structural inefficiencies
I say to those folk in developing countries
structural crosssubsidization and distortions in telephony
is not very good answer
it harms everybody
both the recipient
tanned indeed the donor
this is not the way to proceed
lets call a stop to that and call aid
including infrastructure
exposing infrastructure the real costs of production
and take on the public governmental program of aid
and call it what it is
as i said economics is a harsh business
yes thank you
the other arguments
that other countries often
going forward
yes it was outcome of the digital divide and
not much has happened in the
well its only in information society
they did ask for global solidarity fund which never took off
so if this aid doesn't come
what do you expect will happen?
This is
is a much longer standing issue
of the relative roles of governments and private industry
governments typically need
to say nice things now about what they should be doing about their agenda
they raise taxes from their own populace and use a fair bit of it on their own but
also use a certain amount of that public fund
or developmental programs this is fine
their trying to expand that agenda
and tie in what are essentially private activities
tends to lead to failure
it's never been the case
that private companies structurally cross subsidize as far as i'm aware
the cost of a McDonald's hamburger is almost a universal unit
the economist at one point i think it's half tongue in cheek
used it as indeed the real exchange rate between currencies
why because in fact they don't cross subsidize
many years ago Nintendo gameboy were the same cost all over the planet
they don't cross subsidize
and these days Apple
selling the goods and equipment with the same price
all over the planet
the cost of production
obviously because we're all quite aware
folks income
varies incredibly
and the certain goods are much more affordable in some economies than in others
But to say to the manufacturer of those goods
oh you must sell your goods
for 1/10 the cost of production
in some country that is in the developing world
but sells the same goods ten times the price somewhere else
never worked
and never will work
its too big an inpost
and it creates opportunities for customers
us folk
the people who fund this
to go to the country where the price is cross subsidized and buy all our goods from
it
governments trying to say to industry
its your role to do this kind of structural distortion
is never a good idea never going to work
and we have actually seen a lot of progress in developing countries in recent years
and the prices have come down quite a lot
countries with the right policies in place the competition
works that it's transparency
setting prices and obviously
they have cables that give them access to internet so they are
so certainly good examples
that's certainly true because don't forget
Africa is now done (inaudible ) projects all around the entire continent
and for many of those countries like in South America about 80% of the
cost of delivering traffic
is indeed the cost of getting it off and on that continent
So yes this is actually been working it is not as if either of those
places are completely isolated they actually built and entire new
infrastructure post-telephony
using indeed the economics of the internet
they didn't build these structural costs cross subsidies they didn't build
these cables on half circuit funding models
they built them in a standard (inaudible) environment
so don't really believe that the
distortions in the market to actually make the internet work for them
it actually has been successful in the existing models
throughout the world we are very pleased to have a study with the OECD local content
with UNESCO and
local content and there relation to cost we found
the economic confirmation what we always had been preaching like this
great local content
and great Internet exchange points and that keeps down the cost, keeps the traffic local
and keep it and create the content and
then you get
much cheaper access. Well I think it actually does a number of things in some of them even
more subtle
and it's hard to me in my culture to notice that as much
we're english-speaking country in Australia
and everything is in english oddly enough about 70% of the traffic
(inaudible) if you push a customers using is imported into the country
from predominately other english-speaking countries
but let's move into unknown native english-speaking country
interestingly what you actually see initially is a divide
because in many cases the language of power and money is the language used by
multinationals it is english
the language used by everyone else is not
computers and the Internet go to the english-language environment
the others lose
local content
is actually about local language as well it's about local culture it's about
having in my pocket latest iPhone or whatever
the weather forecast here
not somewhere oceans away
eventually having stuff that's relevant what's happening around me
in my own language
so some of this is bringing down the cost
and some of it is also a little more subtle it's changing the language of empowerment
you don't need to learn english to be able to communicate with your friends and people
to be able to influence the world around you and have access to this
anymore
local content means local language that is a very subtle butI think very powerful shift.
Absolutely yes I think would make a commercial for this study for our
website
reading
obviously UNESCO
made these points very
eloquently
But it is more than just bring down costs it is about empowerment all collects
to create local content in local languages
well I thank you very much for this talk 0:18:07.070,0:18:08.820 We will continue to invite other speakers 0:18:08.820,0:18:14.919 Thanks for Geoff Huston and see you online soon! Thank you
thanks bye bye