Net ownership - Connection racket
Just how much of an unknown quantity is the internet? Who runs it, regulates it and taxes it? And how much control do we - and our government - have over it?
Businesses are being encouraged to spend millions to establish at, regulates it and taxes it? And how much control do we - and our government - have over it? presence on the internet and are promised billions in return.
If this were any other kind of transaction, they would want some pretty detailed information on the provenance, accountability and re-liability of the organisation in which they were sinking so much of their shareholders' cash. Yet remarkably few businesses seem to care who runs the Net, in whose interests, or how well they do it.
'People can be quite surprised that a message may not go straight from A to B, but from A to Z to Y to B, and may be split up into many bits to get there,' says Paul Baker, UK head of e-commerce consultancy at KPMG.
'But they don't seem to question the infrastructure. It's just like a telephone system - it's there and it works.'
Conceptually, the biggest problem is that the internet is not 'there' at all, since it does not really exist. It is simply a series of arrangements between internet service providers (ISPs) and other organisations, who agree to share traffic with each other based on certain technical standards.
The Web and the internet email system are a series of servers identified by internet protocol (IP numbers), while Usenet is a protocol definition used by a series of conference moderators. The best way to visualise the Net is as an international telephone, postal or banking system, where various autonomous organisations have set up agreed interfaces for exchanging calls, letters or money.
As it matures, the internet is gaining a stature and importance which is equivalent to these other infrastructure services. 'It's run by the largest professional organisations which also run telephone and private data networks,' says Andy Bush, market development group manager at Sun Microsystems. 'They supply an incredibly resilient service and the Net is as reliable as any other business infrastructure.'
The nearest the internet gets to existing is in the hierarchy of numeric IP addresses which uniquely identify every computer on the Net and the domain names (for example, pcdealer.co.uk) which act as easy-to-remember pseudonyms for them. These form the internet's telephone directory and whoever controls this directory comes closest to controlling the Net itself.
The popular perception is that the US government controls the Net, but this is wrong. Although it invented the original concept by developing TCP/IP and funding the internet's precursor, Arpanet, the academic and commercial flourishing of the modern Net has taken it well beyond any direct influence from Washington.
But US organisations, licensed by the US government, control the internet's all-important phone directory (see box, right). Although the current set-up is changing as Washington seeks to reduce its direct influence, the bodies which take over the running of IP numbers and top-level domains will probably be based in the US and retain a strong US bias.
Theoretically, this should not matter, since IP numbers are essentially invisible to commercial users of the Net and all but the top-level domain names are administered at national level.
But things are not quite so clear cut, as Prince plc, a small west London IT services company, discovered when it registered the domain name prince.com in 1995.
Domain names ending in .com are supposed to denote international companies and are valuable to their owners because Net users often guess that a company's Web address will be www.companyname.com
'We wanted to be positioned globally, so although we also registered prince.co.uk, the prince.com domain name was more important,' says Sally Tate, managing director of Prince plc.
But .com domains are administered by the US company NSI and many US organisations believe they have legal right to their 'own' .com name.
Thus, in 1997, a US tennis racquet manufacturer, Prince Sports Group, accused Prince plc of infringing its trademarks and demanded that it stopped using the prince.com domain name. Prince plc had to fight two court cases, one in Britain and one in New Jersey, to hold on to the name, spending nearly #90,000 in the process.
'We were first come and first served and I thought we owned the domain name. But in practice it's really owned by NSI and it licenses us to use it,' Tate says. 'I could not believe that we're not all equal on the Net. I never thought I could have the rug pulled from under me and I had no idea of the costs.
'Domain names are the first issue of internet governance to emerge. Once we've constituted a body to control them, it will automatically go on to control all the other issues - data protection, security, encryption and so on. The Internet must be run by an accountable body that's representative on an international scale and fair.'
Tate's experience raises other questions about who has jurisdiction over the Net. Prince Sports took Prince plc to court in New Jersey, arguing that just because the British company was on the Net, it was therefore trading in the US - which it wasn't.
'Because we're on the internet, technically we could be within the jurisdiction of any country where someone wanted to take legal action against us,' says Tate.
In theory, existing laws, such as those forbidding obscenity or defamation, apply equally on the Net. However, in practice these can prove difficult to enforce, unless both plaintiff and defendant, or prosecutor and accused, are from the same country. There is, as yet, no international police force for the internet. Nor, for that matter, do many Net users want one.
Governments and other international legislators are slowly clawing their way towards internet-specific laws. A recent example is an
EU law on data privacy, which came into effect on 1 October. This restricts the amount of information that can be collected electronically about EU citizens.
But it may be several years before parliaments get their acts together on Net issues. Meanwhile, private initiative is setting the pace.
'Businesses are already dealing with the problems that governments are still talking about,' says Martin Bartle, PR manager at the Direct Marketing Association (DMA). The DMA is a joint founder of the Alliance for Electronic Business, along with the Confederation of British Industry, the Electronic Commerce Association, the Computing Services and Software Association and the Federation of the Electronics Industries. This user-led body is trying to set up a 'trust services infrastructure' - effectively an international trading standards register so businesses can be confident that a potential trading partner is reputable.
Internet regulation is also being undertaken by industry bodies. At its annual conference in October, the International DMA announced its support for an international 'email preference service', with backing from 29 countries, to counteract the problem of spam, or junk, email.
But the members are not in complete agreement on how to combat spam.
The Canadian DMA has forbidden its members to send unsolicited emails, whereas its UK counterpart only advises against it.
Perhaps more critical than the debate about who regulates and legislates on the Net is the question of who taxes it. At the Organisation for Economic Co-operation and Development's (OECD) summit on e-commerce in Ottawa in October, two of the most pressing concerns were how to tax internet trade fairly and how to avoid stifling e-commerce through over-zealous government action.
'The commitment so far in the US and at EU level has been hands-off,' says Emily Green, European managing director of Forrester Research. 'The Internet is a nascent opportunity for international growth and seizing the opportunity to tax it at the moment wouldn't be appropriate.'
However, within a couple of years, things could be different, she believes.
'I think the governments mean what they say now and feel very virtuous about having reached this philanthropic conclusion. But this will not be sustained. The development of the Net as a medium for e-commerce will mean that governments won't be able to afford not to tax it.'
Graeme Ross, a tax partner at KPMG, adds: 'The general feeling at the OECD conference was that existing tax systems are capable of evolving to meet the needs of e-commerce, but how is still a mystery. Governments are faced with the horrible problem of having to collect tax from a progressively more remote base of taxpayers. That's going to require co-operation by governments on a scale that's never been seen before and the creation of a completely level playing field.'
The problem is all the more pressing for European governments, since they are much more reliant on indirect tax revenue than Washington. VAT on international sales is usually levied at the point of consumption.
So if international trade increases as expected, thanks to the internet, a significant proportion of a government's VAT revenue could come from goods bought from abroad by companies within its own borders.
Delegates at Ottawa were concerned that smaller businesses might not comply - that is, evade VAT altogether on e-commerce. Imports by consumers and non-VAT-rated businesses are already VAT-free, as are purchases under the customs threshold, which is currently #18.
So while faceless organisations in the US can dictate domain name registration, governments, as yet, remain powerless to control the trade between them.
DOMAIN NAME REGISTRATIONS
The nearest the Net has to a central administration is the Internet Assigned Numbers Authority (IANA), based in US universities and funded by the US government, which oversees the allocation of internet protocol (IP) addresses. Top-level domain names, ending in .org, .net and .com, are allocated by another US organisation, the private company Network Solutions (NSI).
The US government is in the process of privatising control of the Net, which will mean the end of IANA and NSI in their present forms. But they have tendered a joint proposal for the internet's new management structure, and are favourites to win the contract.
Below NSI sit national bodies which allocate domain names for their own countries. All .uk domain names are allocated by Nominet, a non-profit-making organisation funded mostly by internet service providers (ISPs), Website hosting companies and advertising agencies, which pay about #100 for membership. Registering a domain name for two years costs #20 to members, #60 to non-members.
Nominet assigns domain names more or less on a first come, first served basis, with certain provisos, including:
- The registrant must acknowledge that it is not infringing another company's trademark.
- The name must not be likely to cause confusion to Net users (for example, a company registering a name similar to one of its competitors).
- Names ending in .ltd.uk and .plc.uk can only be assigned to companies with that exact name.
- Nominet can suspend (or, occasionally, cancel) a registration if legal action is pending - for example, in a trademark dispute.
WHO ELSE RUNS THE NET?
As well as the domain name registration organisations, other key bodies with fingers in the internet pie include:
- The Internet Society (ISOC) is a professional, top-level co-ordination body. Membership is largely individual, although many of the individual members may be representing their employers' interests. ISOC is based in the US, although membership is international.
- The Internet Engineering Task Force (IETF) is a subset of ISOC, which ratifies technical standards such as HTTP, SMTP and the various TCP/IP protocols. There is a 'common law' of about 2,500 internet standards (known as requests for comment, or RFCs), although in fact they have ceased to be discussion documents and become adopted standards.
- The World Wide Web Consortium (W3C), based in Switzerland and headed by Englishman Tim Berners-Lee, defines Web standards such as HTML. Membership mostly consists of IT companies and governments.
Most internet organisations are based in the US, but this reflects the Net's origins and the preponderance of hi-tech companies across the pond, rather than any deliberate pro-US bias. Membership is open to anyone with the necessary technical qualifications and most of the work is conducted by email.
It may sound cumbersome and fragmented, but in practice this agglomeration of committees works pretty well in finding standards and getting them ratified and published. The origin of a standard - whether commercial or not - is usually considered less important than how effectively it works.
Other elements of the internet are regulated or overseen by more or less official bodies at lower levels. For example, the national education and research networks in 42 countries, including Britain's SuperJanet, are run by Terena (the Trans-European Research and Education Network Association), funded by the EU and European governments.
In the UK, the government-backed Internet Watch Foundation (IWF) tries to deal with content issues such as child pornography and rating and filtering of potentially undesirable or illegal material.
The DTI is conducting a review of the IWF, with a view to possibly extending its powers to tackle other forms of 'illegal' material.