U.N. could tax U.S.-based Web sites, leaked docs show

Global Internet tax suggested by European network operators, who want Apple, Google, and other Web companies to pay to deliver content, is proposed for debate at a U.N. agency in December.

The United Nations is considering a new Internet tax targeting the largest Web content providers, including Google, Facebook, Apple, and Netflix, that could cripple their ability to reach users in developing nations.

The European proposal, offered for debate at a December meeting of a U.N. agency called the International Telecommunication Union, would amend an existing telecommunications treaty by imposing heavy costs on popular Web sites and their network providers for the privilege of serving non-U.S. users, according to newly leaked documents.

The documents (No. 1 No. 2) punctuate warnings that the Obama administration and Republican members of Congress raised last week about how secret negotiations at the ITU over an international communications treaty could result in a radical re-engineering of the Internet ecosystem and allow governments to monitor or restrict their citizens' online activities.

"It's extremely worrisome," Sally Shipman Wentworth, senior manager for public policy at the Internet Society, says about the proposed Internet taxes. "It could create an enormous amount of legal uncertainty and commercial uncertainty."

The leaked proposal was drafted by the European Telecommunications Network Operators Association, or ETNO, a Brussels-based lobby group representing companies in 35 nations that wants the ITU to mandate these fees.

The Internet Society's Sally Shipman Wentworth calls the proposal "extremely worrisome."
The Internet Society's Sally Shipman Wentworth calls the proposal "extremely worrisome." Declan McCullagh/CNET

While this is the first time this proposal been advanced, European network providers and phone companies have been bitterly complaining about U.S. content-providing companies for some time. France Telecom, Telecom Italia, and Vodafone Group, want to "require content providers like Apple and Google to pay fees linked to usage," Bloomberg reported last December.

ETNO refers to it as the "principle of sending party network pays" -- an idea borrowed from the system set up to handle payments for international phone calls, where the recipient's network set the per minute price. If its proposal is adopted, it would spell an end to the Internet's long-standing, successful design based on unmetered "peered" traffic, and effectively tax content providers to reach non-U.S. Internet users.

In a statement (PDF) sent to CNET on Friday morning, ETNO defended its proposal as "innovative" and said it had been adopted unanimously by its executive board. It would amend the treaties by saying, "to ensure an adequate return on investment in high bandwidth infrastructures, operating agencies shall negotiate commercial agreements to achieve a sustainable system of fair compensation for telecommunications services," ETNO said.

Such sender-pays frameworks, including the one from ETNO, could prompt U.S.-based Internet services to reject connections from users in developing countries, who would become unaffordably expensive to communicate with, predicts Robert Pepper, Cisco's vice president for global technology policy.

Developing countries "could effectively be cut off from the Internet," says Pepper, a former policy chief at the U.S. Federal Communications Commission. It "could have a host of very negative unintended consequences."

It's not clear how much the taxes levied by the ETNO's plan would total per year, but observers expect them to be in the billions of dollars. Government data show that in 1996, U.S. phone companies paid their overseas counterparts a total of $5.4 billion just for international long distance calls.

If the new taxes were levied, larger U.S. companies might be able to reduce the amount of money they pay by moving data closer to overseas customers, something that Netflix, for instance, already does through Akamai and other content delivery networks. But smaller U.S. companies unable to afford servers in other nations would still have to pay.

The leaked documents were posted by the Web site WCITLeaks, which was created by two policy analysts at the free-market Mercatus Center at George Mason University in Arlington, Va, who stress their Wikileaks-esque project is being done in their spare time. The name, WCITLeaks, is a reference to the ITU's December summit in Dubai, the World Conference on International Telecommunications, or WCIT.

Eli Dourado, a research fellow who founded WCITLeaks along with Jerry Brito, told CNET this afternoon that the documents show that Internet taxes represent "an attractive revenue stream for many governments, but it probably is not in the interest of their people, since it would increase global isolation."

Dourado hopes to continue posting internal ITU documents, and is asking for more submissions. "We hope that shedding some light on them will help people understand what's at stake," he says.

One vote per country
ETNO's proposal arrives against the backdrop of negotiations now beginning in earnest to rewrite the International Telecommunications Regulations (PDF), a multilateral treaty that governs international communications traffic. The ITRs, which dates back to the days of the telegraph, were last revised in 1988, long before the rise of the commercial Internet and the on-going migration of voice, video and data traffic to the Internet's packet-switched network.

The U.S. delegation to the Dubai summit, which will be headed by Terry Kramer, currently an entrepreneur-in-residence at the Harvard Business School, is certain to fight proposals for new Internet taxes and others that could curb free speech or privacy online.

But the ITU has 193 member countries, and all have one vote each.

If proposals harmful to global Internet users eventually appear in a revision to the ITRs, it's possible that the U.S. would refuse to ratify the new treaty. But that would create additional problems: U.S. network operators and their customers would still be held to new rules when dealing with foreign partners and governments. The unintended result could be a Balkanization of the Internet.

In response to the recent criticism from from Washington, ITU Secretary-General Hamadoun Toure convened a meeting yesterday with ITU staff to deny charges that the WCIT summit in Dubai "is all about ITU, or the United Nations, trying to take over the Internet." (The ITU also has been criticized, as CNET recently reported , for using the appearance of the Flame malware to argue it should have more cybersecurity authority over the Internet.)

"The real issue on the table here is not at all about who 'runs' the Internet -- and there are in fact no proposals on the table concerning this," Toure said, according to a copy of his remarks posted by the ITU. "The issue instead is on how best to cooperate to ensure the free flow of information, the continued development of broadband, continued investment, and continuing innovation."

Robert McDowell, a Republican member of the Federal Communications Commission who wrote an article (PDF) in the Wall Street Journal in February titled "The U.N. Threat to Internet Freedom," appeared to reference the ETNO's proposal for Internet taxes during last week's congressional hearing.

Proposals that foreign governments have pitched to him personally would "use international mandates to charge certain Web destinations on a 'per-click' basis to fund the build-out of broadband infrastructure across the globe," McDowell said. "Google, Tunes, Facebook, and Netflix are mentioned most often as prime sources of funding."

They could also allow "governments to monitor and restrict content or impose economic costs upon international data flows," added Ambassador Philip Verveer, a deputy assistant secretary of state.

ITU spokesman Paul Conneally told CNET this week that:

There are proposals that could change the charging system, but nothing about pay-per-click as such. There isn't anything we can comment about this interpretation because, as stated before, member states are free to interpret proposals as they like, so if McDowell chooses to interpret as pay-per-click, that is his right and similarly it is he who should provide pointers for you.

From the beginning, the Internet's architecture has been based on traffic exchange between backbone providers for mutual benefit, without metering and per-byte "settlement" charges for incoming and outgoing traffic. ETNO's proposal would require network operators and others to instead negotiate agreements "where appropriate" aimed at achieving "a sustainable system of fair compensation for telecommunications services" based on "the principle of sending party network pays."

"Not all those countries like open, transparent process"

This isn't the first time that a U.N. agency will consider the idea of Internet taxes.

In 1999, a report from the United Nations Development Program proposed Internet e-mail taxes to help developing nations, suggesting that an appropriate amount would be the equivalent of one penny on every 100 e-mails that an individual might send. But the agency backed away from the idea a few days later.

And in 2010, the U.N.'s World Health Organization contemplated, but did not agree on, a "bit tax" on Internet traffic.

Under the ITU system for international long distance, government-owned telecommunications companies used to make billions from incoming calls, effectively taxing the citizens of countries that placed the calls. That meant that immigrants to developed nations paid princely sums to call their relatives back home, as high as $1 a minute.

But technological advances have eroded the ability of the receiving countries to collect the fees, and the historic shift to voice over Internet Protocol services such as Skype has all but erased the transfer payments. Some countries see the WCIT process as a long-shot opportunity to reclaim those riches.

The ITU's process has been controversial because so much of it is conducted in secret. That's drawn unflattering comparisons with the Anti-Counterfeiting Trade Agreement , or ACTA, an international intellectual property agreement that has generated protests from Internet users across the world. (The Obama administration approved ACTA in 2011, before anyone outside the negotiations had a chance to review it.)

By comparison, the Internet Society, with 55,000 members and 90 worldwide chapters, hosts the engineering task forces responsible for the development and enhancement of Internet protocols, which operate through virtual public meetings and mailing lists.

"Not all those countries like open, transparent process," says Cisco's Pepper, referring to the ITU's participants. "This is a problem."

Last updated at 9:30 a.m. PT on June 8

 

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