Internet as a critical infrastructure: lessons from the backbone experience in South America

1. Internet as a critical infrastructure: lessons from the backbone experience in South America F. Beltran, A. Bourdeau de Fontenay, & M. Wohlers Presentation: IDATE, Montpellier 22 November 2005 A. Bourdeau de Fontenay & J. Liebenau

2. Agenda Given Internet’s strategic role in economic activities around the world, • Is Internet a critical infrastructure & what is it that is “critical” in Internet? • What can we learn from and for the South American experience?

3. South America’s Internet Infrastructures • Analysis restricted to: • Argentine, Brazil, Chile, Colombia, Peru, & Venezuela; • Below IP: backbones & interconnection/NAPs; • How can we understand different governance structures? • Is Internet perceived/treated as an infrastructure? • How to compare various governance? • Only a preliminary research step: • Internet not studied from that perspective; and • Limited empirical information.

4. Problem • Is the backbone sector “competitive”? • Contestability (role of vertical integration); • Efficiency. • South America policy perspective • Historical & growth; • Universal access; vs. targeted access; • Suggest some “infrastructure perspective.” • Internet as an infrastructure • Markets & market structure; • Governance & exchange commons; • Internet geography.

5. Telecommunicationsin Latin America • Significant overall progress • Fixed telephones almost doubled • 53 million to close to 93 million; • Mobile grew 8.5 times • 20 million to 172 million; • Internet users increased twelve-fold • 6 million to 72 million. • Growing digital divide • 14% penetration in Latin America vs. 50% access in developed countries; • Substantial population without access. • Policy concern • Universal vs. localized-targeted.

6. Emergence of South America Internet • Access characteristics • Use of IBPs (international broadband providers); • All traffic routed via US. • Mid-90s: commercial access • New entrants; • Existing data networks; • Some incumbents.

7. 1998: NAP Cabase Argentina • Cabase: Argentine Chamber for Databases and On-line Services; • ISPs • Initially: 3 ISPs • Now: 12, a mix of ISPs, data networks, & telco. • Not-for-profit • NAP outsourced to Comsat Argentina • Advocacy • NAP • 100% of national interconnection - all must be peering • Exclude international links (bilateral agreements)

8. Cabase Argentina governance Open-Policy “equalitarian” NAP governance • Uniform membership requirements • Largely consensus; • Egalitarian • NAP contracts are uniform • Exclusively peering; • Members’ routing tables available to all

9. Governance sustainability • 2003: Defection by 4 members • Commercially motivated (expected due to VOIP) • Traffic scale-based justification but • Disruptive to others (e.g., routing tables) • Request for compensation • Originally partial & eventually total. • Governance problem • No provision for defection foreclosure • No provision for dealing with conflicts among members • Appeal to government • Available but not pursued

10. NAP Chile • Initiated by 6 ISPs • Led to Internet Provider Association • Regulation • Non-discriminatory, e.g., • Access to content • Access to backbones • Peering obligation (national traffic) • Quality requirements

11. 1998: NAP Colombia • 12 ISPs create the Colombian Chamber of Informatics and Telecommunications (CCIT) • Egalitarian governance • Exclusively peering • Member-shared routing tables • 90% national traffic • Overall cost saving estimated at $1 Million • Operating costs migrated from equally shared to traffic-based

12. Lessons from South America • Geographically-based NAPs; • Significance of NAP creation • Commercial/tier-based vs. equalitarian • Ability to evolve through time & potential for disruption • Significant cost considerations • Possible lessons • Critical infrastructure • Justifications for government intervention • Short run vs. long run • Peering vs. transit • Discrimination

13. Background • Is Internet a critical infrastructure? • What constitutes Internet’s infrastructure? • Layer & function-based • Utilization routines • Interaction between infrastructure and market structure • Governance efficiency & sustainability

14. What’s an infrastructure? • Intuitive and, yet, complex: • “The basic underlying framework or features of a system or organization.” • Conventional views: • Capital-intensive high sunk cost activities (e.g., streets); & • Society-wide activities (e.g., health). • Ignored by modern economic analysis • Today’s analysis based on goods & services & market-type environment • Limited integration of “exchange commons” dimensions: • Externalities • Governance

15. Critical infrastructures • What is happening to infrastructures? Is infrastructure still a relevant concept? • Established • New? • How are infrastructures evolving through time? • Are infrastructures context-specific? Today’s FCC Internet regulatory policies • Yes: 9-11/terrorism • No: Deregulation of incumbents • Yes? Broadband as primary strategic goal

16. Adam Smith & infrastructure economics • Government’s 3 duties • Defence • Justice • Infrastructures • The extent of the market & competition conditional upon the government’s duties • Minimization of government’s role conditional upon the government providing infrastructures

17. Infrastructure economics:government & market roles • Infrastructures generally evolve from markets • A review of Coase’s lighthouse analysis: • Private sector • Can provide infrastructures; • Inadequate treatment of rivalry & excludability • Externalities • Regulation &/or licensing • “Exchange commons” governance is what matters

18. Infrastructures and “round about” production • Young (1928): division of labor evolved to “round about”/layered production/transaction activities • Growing complexity of outputs • Increasing layering of processes • Innovation-based discontinuities • Implications for infrastructures • What layers are infrastructures? • Are “systems” (e.g., Internet as a system) infrastructures? Modern infrastructures support a very wide range of activities across the economy

19. Infrastructures and “exchange commons” • Exchange commons • Conceptualization of transactions taking place in a generalized exchange regime within which markets of various kinds are subsets • Infrastructures are operated within exchange commons • Market inadequacy • Role of governance

20. Internet’s geography • Internet transforms rather than eliminates the geographical dimension of economic activities • Good for some regions & bad for others • Human exchanges can only be partially “codified” • Codification leads to geographical independence • Hard-to-codify knowledge implies geographical limitations (e.g., exchange of personal views, complex transfer of information)

21. Conclusions