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Industry Structure at the Core of WCIT Problems

At the WCIT in Dubai it is interesting to follow the debates surrounding the many issues being addressed at this world congress.

There are the issues of internet governance in the broadest sense of the word—these have received widespread attention. But if we look at the core issues that an organisation such as the ITU can address then the scope widens—to topics such as the rules for the International Telecommunications Regulations (ITRs), and particularly those in relation to the rules for rates and charges.

The ITRs are aimed at ensuring that the infrastructure that underpins the internet, and indeed the digital economy, is sound, safe and future-proof. Most people will not give this infrastructure a second thought, as they are used to a highly reliable telecoms system and simply don’t expect anything less than what they have been used to for many decades. So let us make sure that we use the ITRs to keep it that way.

The other key issue for the ITU is to get the two-thirds of the world’s population that is not yet connected to the internet on board also; and the key there is broadband infrastructure, as is, for example, discussed at the UN Broadband Commission.

Basically all the issues that are creating controversy in this particular area at WCIT involve how to secure the investments needed that will allow for a continuing upgrade of the infrastructure in order to keep pace with exploding consumer demand in the market.

Rather than trying to ‘tax’ traffic or to increase regulations it becomes increasingly clear that the industry will first need to take a good hard look at itself.

We have seen that digital economy developments are creating havoc among many of the traditional sectors—music, retail, media, newspapers, etc—and the same applies to the telecoms industry. Like all those other sectors they also will have to transform.

In the 1990s the telcos failed to take a leadership role in the internet, and they also failed to develop proper business models for mobile broadband, where they operated their ill-fated portals. So now they face the same problems as the other sectors that are under siege, with over-the-top (OTT) companies beginning to eat into their revenues, and, in particular, into their profits.

So what does a telecoms transformation look like? The key issue here is the vertically-integrated model of the industry. This is simply not going to work anymore in the new environment. The telecom operators are unable to successfully compete with the OTT companies on the one hand, while at the same time they are failing to attract sufficient investment to upgrade and extend their infrastructure.

What this means is that these two sides require different business models. One is a utility infrastructure model and the other one is a retail/services model.

Just looking at the infrastructure—this has now become critical national infrastructure and as such countries need to generate national broadband plans that ensure that these networks will be capable of underpinning societal changes and the rapidly emerging digital economy. No country can afford not to foster this development. The burden of infrastructure investments should therefore be a shared one and combined industry/government initiatives need to ensure that this infrastructure is ubiquitous; affordable; has sufficient capacity and low latency; is reliable, secure and protects privacy.

Only once the industry has embarked on this transformation can some of the issues that are now being discussed at WCIT be resolved. The future of competition will be on the services that are delivered over the infrastructure, while the infrastructure itself will have to be treated in a similar way to other forms of infrastructure, like roads, electricity, water, gas, etc, from both a government policy or regulatory viewpoint and an investment position. We already see that companies following this structural separation do receive funding from investors.

Adding extra taxes or fees to the infrastructure will actually deliver the opposite. It is essential that infrastructure is seen as a utility and is made available at the lowest possible cost, so that others can build their services on top of it. If that telecoms utility is too expensive businesses and government agencies will not be able to use it and a country will fail to build its own digital economy.

There are good and positive examples of industry transformation all round the world: Australia, New Zealand, Singapore; but the European Framework is also an excellent starting point for this. The success of Dutch FttH utilities-based construction companies can be judged by the fact that they are now extending their projects into Germany.

While these structural issues will not be solved at WCIT it is important that they are discussed here in Dubai, and it is to be hoped that the recommendations are issued at the end of the process which will show that the industry has vision and is prepared to start the transformation process. WCIT can assist in bridging the gap that will lead to connecting the rest of the world—and this does not apply only to developing economies; it pertains equally to regions within developed economies, and to people with disabilities everywhere.

The greatest gift from WCIT to those who are not yet connected would not be a ‘tax’. It would be providing them with the knowledge, the tools and the business and investment models that will enable them to build their own digital economies. And the ITU/UNESCO Broadband Commission for Digital Development is one the organisations that can assist them in that.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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