Distributing the Future:Regulation and the Future

of IT in Africa

iWeek, Johannesburg17 September 2003

Andrew McLaughlin

© 2003

© 2003 McLaughlin

“The future is here. It’s just not evenly distributed yet.”

-- William Gibson

© 2003 McLaughlin

My Unlawful Habit

First, I want to show you something that I do in the privacy of my own home that

would make me a criminal in most of Africa…

© 2003 McLaughlin

The Scene of The Crime

© 2003 McLaughlin

Cable modem[US$40/month]

IP-Voice Adapter[US$30/month]

Cordless phone[US$30]

© 2003 McLaughlin

Memo to Africa’s ICT Policymakers:

If you are not panicking, you don’t understand the issues.

I.e.,:If you see your government going to

war against ISPs, WiFi, VoIP:Be afraid.

Be very, very, very afraid (for the economic future of your country).

© 2003 McLaughlin

The battles that the ISPs in this room are fighting are battles for the economic future of Africa…

© 2003 McLaughlin

Why It Matters• Bad ICT regulation means artificial barriers to

technology, which means:– higher costs, – fewer services– less reliability– lower quality of service– unequal distribution of access and services

for every individual, every company, every sector of the economy.

• The regulation of information technology is totally within the control of each African country.

© 2003 McLaughlin

Africa Needs the IP• Duh! Everyone agrees, but…• Africa has 816 million people (2001):

– 21 million fixed lines (over 100+ years)• N. Africa: 11.4 million• South Africa: 5 million• Rest: 4.6 million• I.e., 10% of world population (626m), but 0.2% of lines

– 24 million mobile subscribers (over ~5 years)• Low-cost, highly-reliable communications networks enable

business, government, civil society, family life, education• IT services require communications infrastructure requires

regulation that fosters, rather than blocks, IP networks• The poorer you are, the more you need affordable,

reliable, resilient information & communications technology (i.e., IP)

© 2003 McLaughlin

So:• If Internet protocol technology today has the

ability to give every African (rural & urban) access to low-cost, high-reliability, high-quality communications services, African governments had better have some really good reasons for slowing or blocking it.

• We’re going to look at how and why African governments are typically regulating IT, and consider how they might do it better, to serve the interests of their people better.– “African governments” = a composite of what most

(not all) of the larger African governments are doing

© 2003 McLaughlin

Telephones vs. Internet

Don’t be fooled by appearances: the Internet is not just a new network that competes with the telephone system:

Internet represents a new and different method of communications (& way of thinking)– Internet = packet-switched, decentralized,

distributed, ad hoc, flexible, end-to-end, intelligence at the edge, open standards

– Telephone = circuit-switched, centralized, top-down, hierarchical, controlled, inflexible, intelligence at the core, proprietary standards

© 2003 McLaughlin

The All-IP Future• The future of all communications is the Internet

Protocol– That’s the reality; it’s already happening– Even telecom carriers are moving to IP

• MCI currently carries 10% of its voice traffic via IP; expects 25%by end of 2003!

• African governments must either embrace this coming reality – i.e., embrace IP – or condemn their countries to fall further and further behind the developed world– In the Information Age, there will be little economic

development without affordable, reliable communications

© 2003 McLaughlin

The Old World

Broadcast

Radio

Copper

Telephone Cable TV

Coax

Vertical integration of facilities and service, with matching regulation.

TV

Telecom Law /Telecom Authority

Cable Law /Cable Authority

Broadcast Law /Broadcast Authority

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The emerging order

TV

Copper

Telephone Internet

ISP

CLEC

Coax Wireless Satellite Broadcast

HFC

Radio

ADSL

Fiber

Communications Law /Comm’s Authority

Cable Law /Cable Authority

Broadcast Law /Broadcast Authority

IT Law /IT Authority

© 2003 McLaughlin

The Future• Services (voice, data, TV, etc.) will no longer depend on

specific facilities (copper, radio, coax, satellite)• All services will be available over all communications

facilities– So: Regulators should allow all infrastructures to compete in an

open market to offer the cheapest, highest-quality services

• A vision of the future: Any (licensed) communications provider should be allowed to offer any communications service, using any available facilities, and should be allowed to use or avoid the incumbent telecom’s network as it thinks best.

• There is no technical reason to force a particular service onto a particular kind of infrastructure– Q: Is there a good economic or political reason?

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Unhealthy Incentives• Government has an interest in maximizing the

value of state-owned telco: to get the most money from privatization

• Government owns telco and is responsible for setting IT sector rules and for enforcement– Can benefit telco at the expense of its competitors– Terms of network access; Interconnection Pricing;

Spectrum; ISP & service licenses; Limits on international gateways

• Regulator is not independent; lacks experience & expertise in IT regulation– May be vulnerable to pressure from (privatized) telecom– Example: War on VOIP services

© 2003 McLaughlin

Voice Over Internet Protocol

• VOIP is not another form of telephony– Traditional telephone service is a network-level

function– VOIP is an Internet application, just like any

other• To the Internet, packets are packets are packets• VOIP follows users anywhere, over any network

VoIP – A consumer perspectiveCommercial VoIP services allow a customer to:

• Use a VoIP box to connect his/her ordinary telephone into any broadband Internet connection (keeping the same phone number)•Make very inexpensive national & international long distance ($0.05/min to China, for example) •Take the VoIP box anywhere in the world (except where illegal!), plug it in to a decent Internet connection, and make and receive calls as though at home• Retrieve voicemail via the web• Control features like call forwarding, call waiting, voicemail from anywhere, via the web• Also available: Full business VoIP systems; VoIP over WiFi; computer-to-computer VoIP ; computer-to-phone VoIP

Why should Africans alone – of all people – be deprived of the least expensive, most reliable communications platform in the world?

© 2003 McLaughlin

VoIP – Options for PolicymakersFormally ban VoIP – Protects incumbent telecom, damages ISPs. Likely to drive discount calling card vendors out of business, or into doing business with telecom. Difficult to enforce; ISPs may continue to carry VoIP on a pirate basis. Higher communications costs for consumers. Incumbent telecom revenues may continue to fall as more customers turn to email, or voice email, and as the international PSTN settlement regime continues to collapse.

Legalize VoIP, don’t license ISPs – Essentially, formalize the situation that already exists. Will hurt incumbent telecom, will not gain new revenue from VoIP. Easy to implement.

Legalize VoIP, license participating ISPs – Loss of revenue for incumbent telecom, gain of new revenue from licensing fees & taxes on ISPs. Will require strong regulatory guidance – must guarantee that BT makes it possible to interconnect with licensed ISPs. Some pirate ISPs may still operate.

Legalize and license VoIP, encourage telecom to use it – Telecom could lower its operational & network upgrade costs, offer competitive rates to calling card vendors and other customers and steal market share back from ISPs.

© 2003 McLaughlin

© 2003 McLaughlin

Arguments against VOIP• Universal Service / cross-subsidization

• Loss of Revenues from International Settlement Regime – [Really a question of how long the country

wants to protects its telecom monopoly from competition]

• Quality of Service

• Need for Surveillance / Interception of voice traffic

© 2003 McLaughlin

Fear of a VoIP Planet• Telcos (and some policymakers) fear that VOIP will

become a substitute for traditional wireline & wireless PSTN telephony. But:– VOIP is an opportunity for fundamental reform of telecom

regulation, the achievement of truly universal service, and reform of interconnection pricing using cost-basis forumulas

– Same goals, new technology new regulatory framework– Legacy telephone regulation does not fit VoIP. – Customers using underlying landline or wireless facilities to

access a VoIP provider will continue to pay universal service contributions and taxes.

– VoIP providers will generate licensing & tax revenues– And everyone gets a general cut in the cost of communication

• The Threat of the US$ 10,000 Telecom Carrier• Look at little Coldwater, Michigan, USA (pop. 10,000)

– Fight monopoly + competitive advantage vs other towns

© 2003 McLaughlin

Unlicensed Spectrum / WiFi• African countries, almost alone in the world, typically require

licenses for frequencies that are set aside for unlicensed use in other countries (example: 2.4ghz range)

• Purpose of spectrum licensing: (1) maximize efficient use of frequency; (2) prevent interference– African countries UNDER-utilize radio frequency– Standards like 802.11b (WiFi) are designed to avoid interference, and

operate at low power• Licensing these frequencies is a very bad approach

– Inhibits the single cheapest tool for bridging the digital divide, achieving universal access, etc.

• Wireless access should be encouraged as much as possible• Wireless LANs: legal or not?

– Often unclear; ambiguity creates opportunities for corruption.• Recommendation: African countries should adopt a super-set

of unlicensed frequencies from US, Europe, Japan– Assure access to the best & cheapest hardware

© 2003 McLaughlin

Access to Submarine Fiber• New & cool: SAT-3/WASC cable• Consortium consists of incumbent telecoms• Only consortium members have direct access

to the cable– Incumbent telecoms are generally both wholesale

& retail ISPs– Ability to undercut the prices of all competitors

• Recommendation: Don’t allow monopoly over fiber access– Require the incumbent telecom to choose

between privileged fiber access and retail ISP

© 2003 McLaughlin

International Gateways• Typically, African governments restrict

international links to the incumbent telecom– Exceptions: D. R. Congo, Mozambique, Nigeria,

Tanzania, Zambia (but no longer Uganda)– Attempt to tie as much traffic as possible to the

international PSTN settlement regime– Result is very high international tariffs, lack of

redundancy & single points of failure– Surveillance / interception is not a serious rationale

• Recommendation: Loosen up

Source: IDRC, Acacia Project (2002)

© 2003 McLaughlin

How developing countries regulate ICTsThe Regulators

- Parliament- Ministry (PTT, Communications, Infrastructure)- Regulatory authority (often ~“independent”)

The Regulated- State-owned telecom (typically with wireline monopoly)- Competitive (typically wireless) telecoms- Internet service providers (ISPs)

The Infrastructure- Public switched telephone network (PSTN), radio spectrum (WiFi frequencies), fiberoptic links, VSAT satellite links, international gateways

The Services- Telephony, data, interconnection (prices, access conditions & requirements), international connectivity, VOIP

© 2003 McLaughlin

Focus on Ghana IThe Regulators

- Telecommunications Law- Vague on many key issues

- Ministry of Communications- Responsibility for Ghanaian government’s majority stake in Ghana Telecom

- National Communications Authority - Purportedly “independent”- Very close to Ghana Telecom- Chair is Minister of Communications- Record of ignoring anticompetitive behavior by Ghana

Telecom

© 2003 McLaughlin

Focus on Ghana IIThe Regulated• Wireline telecoms (50,000+ lines):

– Ghana Telecom (majority state-owned)• dominant wireline provider + control of fiber cable access• partially privatized, then effectively renationalized• management contracted out to Norway’s Telenor• increasingly desperate financial situation• 7000 employees for 50,000 lines• reportedly lost US$30m last year, mostly due to decreases in

international calling revenue– Westel (newly licensed wireline competitor)

• not really a significant force yet)• less than 5% of GT’s number of lines

• Wireless telecoms (220,000+ subscribers)– Two major GSM providers, one of which is owned by GT

• Internet service providers (ISPs)– Numerous ISPs; vigorous competition– Totally unable to cooperate; lots of bitter rivalries

© 2003 McLaughlin

Focus on Ghana IIIThe Big Issues• GT exclusive access to SAT-3/WASC cable• VoIP

– Complex history– Not obviously forbidden by law; arguably a legitimate data service, allowed to

anyone with a VSAT (satellite) data service• GT and Westel monopoly over international call termination expired in February 2002

– Contrary argument: VoIP is a telecommunications service; and VoIP providers must be licensed by the NCA – any ISP offering VoIP is essentially running an unlicensed phone company

– CEOs of several ISPs arrested and jailed for several days in 1999; police confiscated

– GT believes it is losing huge revenue to inbound international VoIP calls that are received by Ghana ISPs and terminated directly into the PSTN

– GT’s responses: (a) Do the same thing; (b) detect and shut-down VoIP traffic; and (c) turn off regular phone service to Ghana’s ISPs

• IXP– Ghana’s ISPs just haven’t been able to organize themselves– Some direct cross-connecting, but also lots of domestic traffic sent abroad– No trust = no IXP– As a result, Internet access is slow, costly, and unreliable

• Idea: Citizens Infrastructure Corporation?

© 2003 McLaughlin

Hope for the Telecom?Q: Is there any hope for the African telecom in the

All-IP Future?A: Yes:

– Diversify into IP networks, the sooner the better– Telecom as “connectivity cloud”, selling various avenues

of access (copper, GSM, 3G, WiFi, cable, whatever)• Offer integrated services (voice, text, audio, video), over a single

connection• Retain customers and expand traffic!

– Leverage your core asset (the local PSTN loop, which has the best quality of service), while expanding your service offerings (SMS, calling cards, call center services)

– Realize cost savings with IP switching equipment instead of costly PSTN upgrades

The challenge of creating good policy

Then: o Clear dividing lines between telephone/fax, data,

computers, radio, television and technology research. o Different government departments with different

expertise: Ministry of Communications handles telephones, post, and broadcast; Ministry of Science and Technology handles data, computers and research, etc.

Now: o Issues cut across all communications and technology

issues – unclear whether a particular issue is about telephones, computers or broadcast.

o Increasing need for government departments to work closely together or combine.

o Need for technological expertise within the government to understand implications of new technology.

© 2003 McLaughlin

© 2003 McLaughlin

Regulatory Process

IT Sector Regulation should be:– Open & Transparent– Predictable– Neutral & Objective– Expert– Designed to reduce regulatory risk and set basic rules,

not to promote any particular technology or company

Same for EnforcementAbove all: Independent!

– If the regulator has an interest in the financial success of one the competitors, it will not be seen to be independent (even if the staff are good & fair)

Investors care – a lot – about Regulatory Risk

© 2003 McLaughlin

The Future is Here:The Internet protocol is spreading in all directions, for all services.

Before long, the vast majority of communications (voice, text, pictures, data, broadcasting, movies, multimedia, web, email, etc.) will travel over Internet-based networks.

The question for developing countries:

Embrace this coming reality, and regulate in a way that fits the new technology.

Or: Cling to yesterday’s regulations, try to shove the new technologies into them (and hope the future goes away).

© 2003 McLaughlin

Thank you!

Andrew McLaughlin

http://cyber.law.harvard.edu/mclaughlin.html

<mclaughlin@pobox.com>

© 2003 McLaughlin

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