Müberra
GÜNGÖR / Telecommunication Expert
Gökhan EVREN / Telecommunication Vice Expert / Telecommunication Authority
Internet,
Financial, Technical and Regulatory Approaches
Internet sector has displayed
a rapid development, especially in the last decade, exceeded well beyond being
used for limited aims and caused the rise of a totally new industrial phenomenon.
It is such that, it is defined as the greatest technological advance of our
age. Since internet emerged by the development of such networks with scientific
objectives as ARPANET AND NSFNET the connection among the networks has been
unrestricted and this has brought about an unequalled rapid expansion. Besides,
the interest of the countries to 
the
sector, the emergence of the new tendency in the form of transition to information
society, the fact that developing internet sector has given rise to new job
opportunities and income resources and its convergence with other sectors and
even including the latter into its body are important signs that the sector
will continue to develop rapidly in the future, too.
The number of the persons who use internet in their daily lives is increasing
day by day. While the number of internet users worldwide, was 900,000 in 1993,
this number reached to 304 million in 2000. By February 2000 this number was
realised as 544.2 million.1 However, as in every new technology, this global
expansion was not realised in a similar fashion in every region. The use of
internet was rapidly increased in North America and Europe as well as in Japan
and such East Asian countries as Korea, Taiwan, Hong Kong, Singapore. Latin
America, Africa, Middle East and India, on the other hand, lagged behind this
development.
By February 2002 181,23 of total users are living in North America. In the countries
of Europe and Asia-Pacific this number is 171,35 and 157,49, respectively.2
It is estimated that the number of internet users will reach to 1 billion in
2005.
Interconnection
Local Area Network, briefly refers to the physical connection of the network
owned by two different firms and it makes possible the communication of users
in different networks. Previously, the flow of datum between firms with networks
of equivalent size was realised free of charge within the framework of peering
principle. However, by the increase in the number of the companies, which conform
to the criteria that were determined for the implementation of peering principle
and the transformation of internet into a commercial sector rather than an academic
one, the firms began to abandon this practice and tended towards those practices,
which depend on the determination of interconnection charge per traffic.3
By interconnection, the first thing that comes to mind is the interconnection
between internet service providers (ISP) and consumers. In simple terms, the
user pays charge to ISP and acquires the right of connecting to internet over
constant network or by means of rented line. Another form of interconnection
is that realised between ISP and ISP. The simplest example of this interconnection
is regulations of equivalence between network process of similar size, which
are mentioned above. Multiple ISP interconnection, on the other hand, can be
realised by means of Internet Exchange Points (IEP) which make it possible for
more than one ISP in one region to form interconnection.
Access
and Capacity Pricing
Especially in those markets where liberalisation is completely achieved it is
necessary that the problem of pricing be resolved for the continuity of ISP
under competitive conditions. Among the criteria that shall be taken into consideration
in the determination of ideal pricing system, especially financial competence,
network efficiency, economic efficiency, regulation sufficiency and competitiveness
come to the forth. Since wholesale and retail internet services address different
consumer groups and have different market structures, they have been subjected
to different pricing methodologies. For retail services, those pricing models
with fixed charges, which depend on usage and process are among the most frequently
used models. For the wholesale market, on the other hand, spot pricing, capacity-based
pricing, nonlinear pricing, Paris metro pricing and long-term increasing cost
pricing are included in the literature.4 It is possible to come across examples
where varieties of pricing listed for retail and wholesale services are practiced
in both markets. Although it is considered that some of these varieties of pricing
will give optimum results in theory, each and every one might face with some
difficulties and thus it is not proposed to use only one methodology.
Secrecy
and Security
Although the concepts of secrecy and security are closely related to each other
they do not have the same meaning. In essence, both of these two concepts serve
for the objective of protecting information. While security is a method for
providing secrecy, it is not its "sufficient condition". Security,
contains more the prevention of datum from being destroyed by physical means,
overcoming the weak points of network, the avoidance of unauthorised accesses.5
By the beginning of the use of internet and especially web for such practices
beyond advertisement as e-trade and the development of such job models as B2B
(Business to Business) and B2C (Business to Consumer) the issue of internet
security has come to the agenda. Security effects the way society views electronic
trade and the development of this sector, directly. Effective security measures
can only be provided if network and system operators or managers know in detail
the processes that are realised during the traffic flow in their own system.
However, despite the tremendous increase in cyber-crimes many network operators
do not take the necessary precautions before they themselves encounter attacks
against security and secrecy.
On the other hand, the objective of e-state, which has rapidly been adopted
and become popular, envisages that besides the private sector the state improve
the effectiveness and efficiency of the services that it provides by using the
opportunities of internet. Especially such opportunities as reducing bureaucratic
processes and providing more rapid service to society, enabling tax-payment
over internet, realising such high-cost services as census and elections more
rapidly and efficiently reinforce the attractiveness of e-state objective. However,
in the application stage of the opportunities mentioned we face with the criteria
of security and secrecy, Within this framework it is possible to say that the
steps that will be taken in relation to internet security are the prerequisites
of e-state objective.
Regulation
Policies
Since internet was initially constructed to serve academic world rather than
being commercial it was not thought to be subjected to any regulation. There
are different views between countries about the issue that those subjects of
internet, which developed with such an understanding and became a commercial
sector, as interconnection, content supply, sound transfer over internet might
be a matter of regulation. In general, the view that the regulation of internet
by state will negatively effect the development of sector and that the establishment
of the environment of competition in the sector shall be preferred to regulations
is prevailing. Starting from this understanding, especially internet access
sector is subject to ex post practices rather than ex ante regulations. In other
words, when a situation that violates competition in the sector is realised
regulatory authorities prefer the form of intervention, otherwise it is expected
that market dynamics give form to the sector. On the other hand, it is commonly
accepted that the schedules of prices related to capacity services supplied
by backbone providers - which in fact refer to a different market from internet
access sector - be cost-based due to the fact that these services are generally
provided by the enterprises, which have monopoly status or that there are no
other services that would replace this service. In this framework, it is possible
to meet regulations related to the market, frequently, just as in our country,
in the Maximum Price Notification published by our Institution on 11.01.2002,
the B Basket contain rented digital lines and it is envisaged that these services
shall in priority be approved within the framework of existing conditions according
to Maximum Price Formula and additionally - starting from 01.01.2003 - according
to cost principal.
Effective competition conditions shall mold the internet sector rather than
the intervention of regulatory authorities. In this scope the countries shall
encourage the establishment of competitive market in the sector. As in many
sectors the indicator of the level of competition in the market can be determined
by resort to such criteria as whether it is available for the entrance of new
actors, opportunity of growth for existing small entrepreneurs. These conditions
can be provided by keeping such elements at a reasonable axis as the distribution
term, capacity, schedules of prices of rented lines supplied to ISPs by backbone
provider, which possesses dominant/effective market power and the establishment
of interconnections that it should form with the other backbone companies. The
ISPs, that provide retail internet access service to the last user are dependent
on the entrepreneurs that are located at a lower layer internet value chain
(such as backbone providers, capacity services provider). The appearance of
enterprises in the value chain concerned in markets that are located at other
layers (vertical unification) and the preference of the enterprises to unify
among themselves (consolidation) reduce the level of competition and opportunity
of selection in the sector.6 Therefore the regulatory authorities should be
cautious against such practices that might prevent the development of competition
in the sector.
Not disregarding those practices that might arise as a result of dominant or
effective market power as price discrimination, fatal pricing that might restrict
competition is also important for the future of the sector.
Internet
in Turkey
In our country internet was first introduced by a connection with 64 KB/sec
established with the USA within the scope of a project supported by TUBITAK
on 12 April 1993. Although internet has been used in our country for approximately
10 years, development was not realised as rapid as it was in other countries.
In our country, the - estimated - number of users which was 1.5 million in 1999
has reached to 2 million in 2000 and to 2.5 million in 2001. The number of personal
computer has displayed a development of similar proportion and increased from
2.2 million in 1999 to 2.5 million in 2000 and 2.7 million in 2001. The number
of hosts in our country was 106,556 in 2001 and realised 35 % increase compared
to 1999. The low number of personal computers and income level can be cited
among the reasons behind this slow development. However, it is prospected that
there is a great potential of development for internet sector in our country
and in the coming years there will be a more rapid increase in the proportion
of understanding the real meaning of internet as compared to the past years.
For the time being, a great majority of the market of internet access market
in our country is constituted of dial-up networking and such technologies ADSL,
Cable Modem are yet in the process of development. However, in the process of
transition into information society, developments in this respect are still
rather insufficient in the direction of the principle of "more rapid and
cheaper internet access for society". The technologies concerned have great
importance due to the fact that possess potential for providing broadband access
opportunities by realising some investments on existing networks. As known,
by the use of a digital modem by the user and such instruments as ASAM/DSLM
by the operator on the ADSL, PSTN infrastructure the capacity of existing copper
cables can be increased by many folds. In the network of Turk Telecom there
is ADSL port capacity that support 3072 users and 2964 users.8 Apart from that
in the meetings conducted with Turk Telecom it was stated that a bid for a new
ADSL port that will support 500,000 users countrywide was opened, which will
be finalised in near future. The realisation of the concerned development will
form a very significant development for Turkish people and mean an escape for
Turkish people from being restricted to dial-up internet access.
On the other hand, it is clear that analysis regarding the supply of ADSL service
by other ISPs will be appropriate for the sake of both service variety and improvements
in the level of schedule of prices as well as the survival of operators that
are located outside TTNet in the market.
Another technology, which provides broadband internet access opportunity by
means of a reasonable investment in existing networks is internet access over
Cable TV network. For the time being, due to the "Income Sharing Partnership"
system such indicators as each and every company provide service to a very limited
number of customers with very different schedules of prices in different regions
show that this system operate in a rather unhealthy mode. Although it is not
found to be possible for all ISPs to share the same network technically due
to the infrastructure of Cable TV, it is required that this market be also opened
to competition and expansion of networks be encouraged by means of some of the
ISPs' sharing the frequency band or bandwidth. In this respect, with the aim
of improving the efficiency of the system the companies should immediately be
taken into the license system.
In accordance with the view of "more rapid and cheaper internet access",
which was also mentioned beforehand it is considered that internet access telephone
prices be kept lower and a fund be formed in order that possible service losses
not be met only by Turk Telecom and that the whole sector and state must contribute
to this fund. Apart from that, state policy should be formed and some conveniences
like tax reduction should be provided with the aim of keeping internet access
prices at lower levels.
In the end of the studies carried out by our Institution it was revealed that
many ISPs have a complaint about the quality levels of (QoS) Turk Telecom. In
this respect, it was demanded that Service Level Agreements, which contain such
matters as supply term of the services demanded especially in relation to capacity
services, how the troubles that arise in the use of the service will be overcome
and guarantee service quality be prepared by Turk Telecom and submitted to Telecommunication
Authority. The existence of Service Level Agreements will first provide that
the services that ISPs receive be at a certain standard and second give rise
to the opportunity that consumers receive better service.
For the constitution of competitive market in telecommunication sector, increasing
consumer welfare to high levels and taking the most appropriate decisions related
to the future of the sector it is required that effective cooperation be provided
between regulatory authorities and companies and civil society organisation
representing the consumers. In this context, with the aim of removing the phenomenon
of "asymmetrical information" it is of utmost importance that all
companies transfer accurate information in proper time to Telecommunication
Authority.
In accordance with the "ideal of establishing information society"
the issues of security and secrecy in the internet have taken their place in
the agenda of our country. Utilisation of internet by the whole society and
establishment of e-state are considered to be the principal touchstones in the
constitution of information society. As also mentioned beforehand, the improving
the efficiency and effectiveness of the services provided by the state and facilitating
such high cost activities as census, elections reveal the importance of the
e-state objective. In order that all these services be provided individuals
must be defined in the virtual environment. It is estimated that the final form
of Draft e-signature Proposed Law, which was prepared in this respect will be
realised soon. However, beyond this it should not be disregarded that social
consciousness and concern will have more effective contributions in reaching
the concerned goals.
Internet has rapidly developed without being subject to opposite regulations
of other industries in communication sector and thus many regulatory authorities
pursue a non-interventionist approach. Besides, it should not be overlooked
that there is a rather fragile point within the framework of this approach.
In the case of total disregard of the sector there is a risk that the subject
might turn into a great mess with respect to the relations both among the companies
themselves and between the former and consumers. In this context, experiences
gained from world practices underline the fact that observations of regulatory
authorities and policy of pursuit represent great significance.
References
1. Global Research, Global Internet Statistics
2. www.nua.com
3. Telecommunication Reform, Interconnection Regulation, ITU, 2001
4. Comparative Pricing Methodologies for Wholesale Broadband Services, Christian
Michael Dippon, National Economic Research Associates, June 2001.
5. Privacy Enhancing Technologies, OECD, 9-10 October 2001.
6.Interconnection in the Telecommunication Industry: A Techno-Economic Introduction,
M.A. Poell, Prof. Dr. P. Verhoest, March 2001.
7. ITU Telecommunication Indicators, 2002.
8 .Turkish Telecommunication Joint Venture.