When I walked into a Montreal hotel lobby late one evening in October 2000, I was a newly minted American government employee, in my third week on the job. The Canadian city was the venue for the International Telecommunication Union’s (ITU) World Telecommunications Standardization Assembly. 

Internet connection costs represented one of the main agenda items. Dull speeches, long discussions, and obscure queries about voting lay ahead. After my first day, spent listening to debates for 11 hours, I returned to the hotel wondering about my assignment. 

My experience was limited. I was a few years out of graduate school, a late addition to the US delegation. Most of the other 72 other members of the US delegation had spent months preparing for the 10-day Montreal conference, while I was just dropped into it. 

More than 1,000 people crammed into a convention room. At a contentious moment, a new colleague leaned over and said, “Don’t worry, in time this will all make sense.” Little did I appreciate the truth behind those words. The debate about Internet traffic and revenue flows would continue to provoke tension and conflict for the rest of my government career. 

In Montreal, the fight centered on an acronym — ICAIS, short for Internet Charging Arrangements for Internet Services. Who should pay for Internet traffic flows, and how much? Should it be the sender of the data, who in responding to a request for information by an Internet user, was clearly sending more in terms of volume? Or should it be the source of the initial data request that should be responsible? 

The “right” answer to these questions depended on where you sat. The US and Europe, the source of most transiting data, preferred private commercial negotiations. Some countries in the developing world fretted about their poor Internet connectivity and the high price of connections at the time. They demanded a more “equitable” sharing of the costs. 

The ITU seemed sympathetic. Starting in 1998, its secretariat had carried out studies warning of “the high costs of the international circuit for Internet connectivity between least developed countries and the Internet backbone networks.”

The ITU’s role complicated the debate. The organization predates the modern United Nations. It was born in 1865 as the International Telegraph Union, with a mission to coordinate telegraph signals. After Alexander Graham Bell invented the telephone, the ITU expanded its mandate in 1885. At that time, a specific article was added to the Telegraph Regulations establishing a five-minute unit as the base charge for international telephone calls. The circuit-switched accounting rate regime soon emerged. 

In 1932, the ITU was renamed the International Telecommunication Union, and expanded to also cover radio. Based in Geneva, the ITU’s global membership now includes 194 countries and over 1,000 businesses, academic institutions, and international and regional organizations. It occupies three large office buildings in the Swiss city’s UN district. 

Under the ITU’s Public Switched Telephone Network system, a caller initiates a connection on a dedicated circuit, establishing a pathway to the receiver. This direct link over copper wires could be used for the duration of the call by the two specific parties, making the concept of splitting or sharing the associated costs straightforward. 

The ITU specified how to distribute the costs and the exact rates that would be paid. Since most telephone providers were government-owned (France Telecom, Telecom Italia, etc.) or government-sanctioned monopolies (AT&T), it made sense to negotiate those rates inside an intergovernmental system. 

For the most part of the 20th century, little changed. In 1988, ITU members agreed to the International Telecommunications Regulations, which merged the old telegraph and telephone regulations into one treaty. 

Subsequent disagreements over the actual rates flared. The US deregulated. Much of the rest of the world did not. Incumbents, often still state-owned in the less competitive markets, demanded artificially high international termination rates. Between 1985 and 1998, US telecom operators paid roughly $35 billion in settlement payments to operators in these less competitive markets.

A majority of ITU members blocked efforts to bring the rates down toward the true cost of carrying calls. The funds were supposed to be used for infrastructure development. Instead, they often went into foreign government bank accounts, with limited transparency regarding their final deployment.

Washington became frustrated. The Federal Communications Commission issued a Benchmark Order in 1997 that set rates based on a country’s economic development and required US carriers to renegotiate rates downward to comply. By acting unilaterally, the US reduced its net payments. 

Internet and IP-based services and applications upended the entire ITU system. They allowed companies to bypass the telephone accounting rate regime. Telephone payments to the Global South dropped — fueling the ICAIS battle that exploded in Montreal. 

Operators in less competitive markets argued that Internet charging was unfair and unbalanced because they paid what they perceived to be a disproportionate amount of the costs. During the Internet’s early days, North America and Europe housed most Internet exchange points. When a network query came from Africa or elsewhere, it traveled to North America or Europe, where the data was stored, before a response was returned. 

The appropriate solution, from this perspective, was to develop a cost-sharing regime similar to the one used for the old telephone network. The proposal ignored how Internet traffic differs from traditional telephone connections that depend on a dedicated circuit-switched line to connect to a single voice call. The telephone system is inefficient, using lines only for voice transmission, and then only within a limited audio frequency range. 

In contrast, the Internet uses a packet-switched system that breaks data into small packets, each with an address, and sends them independently along various paths. Since the Internet shares bandwidth among many users and types of data, it is efficient and versatile. Multiple users and different types of data (voice, video, text) can share the same physical lines by using different channels or frequencies. All types of data, including voice (through VoIP), video, and files, travel at speeds far exceeding traditional phone lines. 

How could the new dynamic Internet be squeezed back into the old telephone box? Developing world supporters of a cost-sharing model suggested stipulating that payments should be the result of bilateral commercial negotiations, not an international treaty, as with traditional telephony. Sound familiar? Indeed, the obligation for commercial negotiations echoes the recent European calls for a “dispute resolution mechanism” to impose Network Fees. 

In Montreal in 2000, most governments supported forced commercial negotiations. The US, however, remained unconvinced. Greece also objected, though on procedural, not substantive, grounds. The rest of Europe went along with a compromise out of a desire to reach a consensus, though it succeeded in stipulating that negotiations would be conducted on a commercial basis and not between governments. Details were agreed to be sorted later, an approach common in Brussels, where legislation is often followed by “explanatory guidelines” on compliance after a rule is put in place. 

That approach is not typical in Washington. The US issued a press release calling the ITU recommendation “premature,” containing “a number of internal contradictions and ambiguities, which will make its implementation problematic, if not impossible.” Internet charging “arrangements are commercial in nature and that it is inappropriate for the ITU to adopt any recommendation at this time, which suggests that certain conditions should be imposed on such commercial arrangements.” 

How to bring fast, affordable Internet to the developing world remained unresolved. While the US said it “strongly supports the goal of developing telecommunications and information infrastructure globally,” it believed that private sector leadership would best accomplish this task. The ITU “recommendation does not help to advance that goal,” the US argued, warning that “the ITU must tread carefully and refrain from unnecessary regulations or recommendations that might hinder the spread of the benefits of the Internet.” 

The US did not apply the ITU standard. Far from settling the battle over Internet charges, Montreal did not even result in a ceasefire. It left a festering dispute that left the door open for Network Fees debates to become a recurring nightmare. 

Fiona M. Alexander is a Non-resident Senior Fellow with the Tech Policy Program at the Center for European Policy Analysis, a Distinguished Policy Strategist in Residence at the American University School of International Service, and a Distinguished Fellow at the Internet Governance Lab. She serves as a member of the International Telecommunication Union’s Academic Advisory Body on Emerging Technologies, a member of the Freedom Online Coalition’s Advisory Network, and as a Member of the Marconi Society Internet Resilience Advisory Council.

Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.

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