Why The ITU's Plans To Divert Money To Lazy Telcos Will Slow Internet Buildout, Not Increase It

from the damn-history dept

We've noted that among the proposals being pushed this week at the ITU's World Conference on International Telecommunications (WCIT) are a few that are solely designed to divert money from innovative internet companies to stodgy old telcos who haven't adapted. The ITU has defended such proposals as being about sharing revenue more fairly, which tends to be a warning sign for most folks that failed organizations are about to take money from successful ones. Indeed, a number of proposals have suggested a form of "sending party pays" infrastructure for peering, claiming that such a system was successful (via the ITU) for telco buildout, and so they could do the same thing for the internet. Of course, this leaves aside the vast differences in how the networks work and where they came from -- and how a "sending party pays" internet system would almost certainly lead to a balkanized and fragmented internet.

But, it's even worse. A new study by Eli Dourado looking at how well "sending party pays" actually worked in the telco system found that it tended to hinder growth, rather than accelerate it:
The possible extension of the telephone system’s “sender-pays” rule to the Internet is a contentious international political issue under consideration at the World Conference on International Telecommunication (WCIT). This paper examines whether higher international telephone rates support or impede telecom sector growth in the receiving country. It uses data on international telephone rates from the US from 1992-2010 to explain growth in foreign telecom sectors during the same period. I find that higher international calling rates are correlated with slower growth in the telecom sector, which suggests that countries are not primarily using higher charges to finance additional expansion. These findings cast doubt on proposals that would extend sender-pays to the Internet sector.
In other words, the key argument the ITU likes to make for this diversion of funds... isn't actually supported by the facts. Instead, it's what we expected: about helping big telcos (often either state-owned, or formerly stated owned with still close connections) get a bunch of money for nothing... which they then won't invest in expanding the network (why should they?). And, oh yes, the implementation of such a system might just also make it easier to limit internet access and/or spy on nearly everything people do (how else do you charge if you're not monitoring activity?).

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  1. identicon
    Androgynous Cowherd, 4 Dec 2012 @ 8:07pm

    Same old story again.

    You'd think people would realize by now. Every supply-side policy to promote infrastructure build-out, job creation, or etc., every single one, has been a dismal failure (at doing what it was sold to the public as being for -- while, of course, doing a good job of lining the pockets of the already-wealthy, purely coincidentally I am sure).

    Companies build something or hire people and thereby increase capacity if they must do so to make more money. In other words, if they have to work for that money rather than just being handed it.

    To make companies have to work for the money it cannot be given to the companies; it must be given, instead, to their customers. Which means to people, rather than to companies, if you want trickle-up effects all the way through the supply chain.

    Which, in turn, means demand-side policies are the ones that work to produce economic growth.

    All policies that are purportedly to produce growth, but which effect wealth transfers from the consumer or taxpayer to business, are thus inherently wrong. (Note: this includes copyrights and patents; a monopoly right is another form of wealth transfer to the supply side! How can it not be when it creates monopoly rents? Obviously, it also includes subsidies and bailouts.)

    This leads to counterintuitive results, ones which especially will give libertarians conniptions. For instance, you increase growth much more by taxing the rich and giving out welfare, health care, and education to the poor -- horror of horrors! -- than with laissez-faire. This grows the demand side relative to laissez-faire, and because past a certain wealth level a person gets diminishing marginal returns per added dollar of wealth, the impact through reduced incentive to do whatever work rich people do is much less than the impact through increasing the purchasing power of the 99%.

    Likewise, farm subsidies to keep food prices low are inferior to taxing the rich a bit more and using it to give free food (or just free money) to the poor. Demand for food is inelastic enough that the farms will still have all their business. But they'll have to earn the money by doing a better job. Subsidies promote inefficiencies and distort the market, while moving some money from the top of the wealth pyramid back to the bottom to "fertilize the base of it" doesn't. Nowhere are the distorting effects clearer than with the recent corn-ethanol subsidies.

    The one area where government market distortion is desirable is in the area of pushing the costs for diffuse negative externalities back onto their causers. Taxing emissions would be the classic example. This corrects the market failure from diffuse negative externalities. Diffuse positive externalities, by contrast, are a feature, not a bug. We want those.

    Wait, what? The government might like to ban addictive drugs, say, or at least ban being able to go to your local corner gun shop and buy a megaton nuke? Well, destructive products being misused (or, in some cases, used at all) is a type of negative externality.

    As for public goods that the market would undersupply, half the time the feared undersupply is a myth (e.g., in the case of copyrightable goods) and the rest of the time the undersupply is either the result of excessive regulation (e.g. broadband (lack of) competition) or best addressed by the government supplying it itself (e.g. national defense).

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