The Internet is an international “network of networks.” In order to provide the physical connections between widely separated broadband resources and consumers, countries must establish international links (gateways) to connect to the world’s Internet and telephone networks. The technologies providing long-haul transmission, such as fiber optic cable and satellites, typically have very high investment costs. While initial “sunk” costs are high, they have very low incremental costs to accommodate additional users. These technologies also enable carriers to activate additional capacity on an incremental, graduated basis as demand grows.

5.4.1 International Links

The vast majority of international telecommunications traffic is carried by undersea cable systems—more than 95 percent according to some estimates (Bressie 2010). This reflects the advantages of fiber optic cable in terms of bandwidth and latency compared to satellite. Undersea fiber optic cables can transmit data at speeds measured in Tbit/s, while even the newest communication satellites offer speeds below 1 Gbit/s as well as higher latency. As of early 2011, there were more than 120 major submarine cable systems, with another 25 planned to enter service by 2015.9 TeleGeography, “Submarine Cable Map,” www.telegeography.com/telecom-maps/submarine-cable-map/index.html. Submarine cables are quite expensive to deploy, with costs that routinely reach into hundreds of millions of U.S. dollars. As such, many are financed by consortiums of operators rather than a single investor. For example, the Eastern Africa Submarine Cable System (EASSy) has landing points in nine countries and connects to several additional landlocked countries; it is funded by 16 African and international shareholders, all of whom are telecommunications operators and service providers.10 EASSy, “EASSy Ownership,” www.eassy.org/ownership.html. EASSy’s largest shareholder is WIOCC, which is owned by 14 African telecommunications operators and partially funded by several development financial institutions, including the World Bank.

While undersea fiber optic cables may be the preferred option for international connectivity, it is not a viable option for some countries and operators. Landlocked countries, for example, do not have direct access to the sea and thus are constrained in their ability to exploit submarine technology fully. Transit costs to tap into an undersea cable can be significant (national and regional fiber backbones may not be available to tap into the undersea cable), but this is becoming less of an issue over time, as landlocked countries complete some type of fiber connection to international cables through neighboring countries. Landlocked countries may be able to negotiate a virtual coastline so that they own and operate a cable landing station in a neighboring country’s territory but otherwise depend on the neighboring country to provide reliable and reasonable prices for transit. Many small island developing states (SIDSs), mainly in the Pacific Ocean, are distant from undersea fiber routes, and the economics of connecting to undersea cable are problematic. Regulatory restrictions or high costs may restrict service providers from accessing undersea cables. These factors tend to encourage the use of satellite connectivity. Another issue is that, even where countries have access to undersea cable, they still may want to deploy satellite as a backup to ensure redundancy.

Service providers need to contract physical international connections in order to support their end user broadband requirements. They do so either by participating in ownership consortiums of the physical facilities or by leasing connectivity through wholesale operators. A relatively small number of Internet service providers (ISPs)11 In this context, ISPs include wireless operators that offer Internet connectivity. have the financial resources needed to invest directly in capacity in international backbone broadband networks, so most lease capacity from larger international operators. This can present several business and regulatory challenges:

• Monopoly or dominant control of international backbone routes. Physical backbone networks are generally owned by a few operators or consortiums. The restricted ownership can be a barrier for nonaffiliated ISPs that need international connectivity.
• Monopoly or dominant control of international landing points. Landing stations for undersea cable and satellite earth stations are generally controlled by a few entities. Even if an ISP has successfully contracted for capacity on a fiber optic cable or satellite transponder, it may be constrained in its ability to connect that capacity to its domestic backbone network. For example, a service provider may lease capacity on a satellite transponder, but may have to come to a separate agreement with the owner or operator of the international gateway that receives the satellite’s transmission.

The potential for international connectivity to be a bottleneck in the development of broadband connectivity cannot be overstated. Submarine cables connect to domestic backhaul networks at a cable termination station, which is—but may not be—the same facility as the cable landing station (that is, where the cable makes landfall). Because all operators in a market, particularly new entrants, may not have the resources to own and operate a cable landing station, the owners of such stations—generally the incumbent operators in newly liberalized markets—may be required to provide access to the station, and therefore to the cable, on reasonable terms to competing service providers. Limited access to landing stations can have a chilling effect on the diffusion and take-up of broadband services. Conversely, limited opportunities or burdensome regulations related to cable landing can discourage interest in that market among cable operators, again creating a connectivity bottleneck. Governments and regulators may need to implement competitive policies with respect to issues such as submarine cable landing stations, open access, and infrastructure sharing to eliminate such bottlenecks (see chapter 3).

In Singapore, for example, the single cable landing station was owned by the incumbent operator at the time of market liberalization. Singapore’s regulator undertook two parallel approaches to improve international connectivity (IDA 2008). The Info-communications Development Authority of Singapore (IDA) required the incumbent operator to offer collocation in its submarine cable landing station to alternative operators, later imposing connection at regulated prices and granting alternative operators access to the capacity of submarine cables on behalf of a third party. In addition, the IDA streamlined the administrative procedures for submarine cable companies to obtain landing permits and authorizations in Singapore. As a result of these and related actions, prices of international leased circuits in Singapore decreased 95 percent, total submarine cable bandwidth capacity increased from 53 Gbit/s in 1999 to 28,000 Gbit/s in 2007, and broadband penetration reached 77 percent of households in 2007.

5.4.2 Internet Links

Whether via fiber optic cable or satellite, securing physical international links is only the first step in procuring international Internet connectivity. ISPs also need to arrange for exchanging and routing their traffic. Such arrangements ensure that Internet traffic can be delivered anywhere in the world, eliminating the need to have physical connections to every country. An ISP will typically arrange to hand off its traffic at the points where its contracted physical connectivity terminates. Such arrangements are usually of two kinds:

• A peering arrangement is where two ISPs freely exchange Internet traffic. The peering requirements of large ISPs often exceed the capability of smaller ISPs. For example, in order for an ISP operating in the Asia-Pacific region to peer with Sweden’s TeliaSonera, it would have to provide traffic equaling at least 500 Mbit/s and the ratio of inbound and outbound traffic exchanged between the ISP and TeliaSonera could not exceed 3:1 (TeliaSonera 2010).
• A transit arrangement is where a small ISP pays a large ISP to provide Internet traffic exchange. The fee is generally a function of the traffic or physical connection. Smaller ISPs generally make transit agreements with global IP carriers that can guarantee that their Internet traffic will get routed anywhere in the world. Global IP carriers with worldwide IP networks are often referred to as “Tier 1” carriers, with the distinguishing characteristic that they do not generally pay any transit fees and have the capability to reach all networks connected to the Internet (Van der Berg 2008).

While large global carriers from developed countries operate most of the Tier 1 networks, carriers from developing countries are starting to emerge as significant players. India’s Tata Communications, for example, operates a global network that makes it the world’s largest, farthest-reaching, wholesale Internet transit provider. It provides Internet connectivity to over 150 countries across six continents, with speeds up to 10 Gbit/s.12 Tata Communications, “IP,” www.tatacommunications.com/providers/ip/.

Tata’s reach and Internet routing can be illustrated by running a trace route from a broadband subscriber in Washington, DC, accessing a website in Gaborone, Botswana. Once the packet reaches the west coast of the United States, it is turned over to Tata for delivery to Botswana over physical connections transiting Singapore, India, and Johannesburg, South Africa (Figure 5.4).

5.4.3 Implementation Issues for International Connectivity

The huge costs of deploying undersea fiber optic and satellite networks present a challenge for many developing countries and ISPs. Capacity on these networks tends to be owned by a few carriers, and wholesale arrangements are not always optimum for smaller players. Likewise, a few global IP carriers dominate wholesale access to the Internet, and smaller ISPs are forced to pay one-way interconnection charges. Landlocked countries face special problems since they lack coastal regions that could support a landing station for undersea cable, while SIDSs face a connectivity challenge since they are distant from undersea cables and lack large markets. In countries with just one physical international link, access and pricing can become an issue, particularly if the operator of the gateway is also a provider in other parts of the supply chain and has an incentive to restrict competition or demand high payments.

Countries are exploring various ways to overcome the challenges of international connectivity, including the following:

• Forming public-private partnerships (PPPs) to establish direct international links. The high cost of connecting to international networks may be insurmountable for smaller service providers. In Kenya the government took the lead in procuring an undersea fiber connection through an agreement to construct a cable from Kenya to the United Arab Emirates by enlisting service providers to take a shareholding in The East Africa Marine System (TEAMS) cable (World Bank 2011).
• Establishing points of presence (POPs) in major Internet hubs. This can be cheaper than paying transit fees. Sri Lanka Telecom established a subsidiary in Hong Kong SAR, China, and acquired domestic and international voice and data services licenses allowing it to offer undersea fiber optic cable capacity services from Hong Kong SAR, China, to Asia, Europe, and North America.13 SLT Hong Kong, “SLT Hong Kong Is Gateway to East Asia and US,” www.slthkg.com/Company.htm.
• Enhancing cross-border cooperation. It is critical for landlocked countries to coordinate and establish partnerships in order to ensure end-to-end connectivity to undersea land stations. In Uganda the ISP Infocom leased fiber capacity from the country’s electrical utility, allowing it to create a fiber backbone to the Kenyan border (Kisambira 2008). From there, Infocom arranged with Kenya Data Networks (KDN) to transport Ugandan Internet traffic to a new undersea fiber optic cable landing in Mombasa using KDN’s national backbone (Muwanga 2009).
• Improving redundancy and competition. Countries should establish varied international connections to enhance redundancy if one link fails and to enhance competition among international gateway operators. When different service providers offer additional connections, wholesale international bandwidth competition also increases and prices generally fall. Even a small country like the Maldives, where it was initially believed that even one connection to an undersea fiber optic cable would be prohibitively expensive, has found that an open telecommunications market with a liberal international gateway license regime can motivate operators to invest in high-quality connectivity. The Maldives now has two links to undersea fiber optic cable systems (Box 5.1).
• Creating Internet exchange points (IXPs) close to data servers and international bandwidth. By establishing its own IXP, a country can reduce expensive international traffic by keeping local traffic local and by attracting leading global content providers. For example, Google has a liberal peering policy and has established POPs in several locations, including recently in South Africa at the Cape Town Internet Exchange.14 Internet Service Providers’ Association, “CINX Users,” www.ispa.org.za/inx/cinx-users/.