Is the Internet Fragmenting, Part 3 The Business Lens

This event is Part 3 in a four-part series of dialogues organized in response to recent Internet-related developments that have prompted alarming questions about whether it is fragmenting. The dialogues on “Is the Internet Fragmenting” examines Internet fragmentation from technical, economic, and policy lenses – developments and decisions that have been taken in response to the continued growth and globalization of the Internet and its evolving role as critical infrastructure for the digital economy. The series was kicked off on May 10th; Part 2 on the “The Technical Lens” was held on June 15th.

“The Business Lens” examines how technology choices and policy decisions that potentially fragment the Internet affect global commerce and economic growth. Microsoft and ISOC-DC are bringing together policy stakeholders, including government, the technical community, civil society, industry, and other organizations, to consider these issues more fully, including:

  • What are the implications of Internet fragmentation on the digital economy, globally and nationally? How does Internet fragmentation impact human and economic rights?
  • Should business offerings that are designed to be competitive be considered as part of the fragmentation dialogue?
  • What are the implications of policies such as data localization on business and the digital economy, globally and nationally? 


Ted Dean
Deputy Assistant Secretary for Services, U.S. Department of Commerce, International Trade Administration

Robert Pepper
Global Connectivity and Technology Policy, Facebook

Carolina Rossini
Vice President, International Policy, Public Knowledge

Jonathan Zuck
President, ACT|The App Association

M-H. Carolyn NguyenModerator
Technology Policy Strategist, Microsoft 


The panelists generally agreed that Internet fragmentation will have serious economic and human rights related consequences for countless people across the globe. Ted Dean started the discussion by stating that all companies in all industries are dependent on cross-border data flow, and that dependence will continue to grow with the increasing pervasiveness of cloud computing and the internet of things. Misconceptions in Europe that data flows only affect large US technology companies could hurt businesses both small and large on both sides of the Atlantic. The failure of Safe Harbor led to closer examinations of what happens if data is not able to flow, and revealed an unappealing view. Fortunately, successful negotiation of the US-EU Privacy Shield provided an alternative with Europe, but there are countries all over the world where these issues have not been addressed.  Companies can’t function if they can’t move data. Mr. Dean also described how focus on privacy concerns has left many other equally important concerns unresolved. In the future, it is important to really parse the issues and make sure that policies do not have negative impacts on business development and economic growth at a macro level.

Jonathan Zuck pointed out that the Internet allows small businesses to behave like big ones. The same thing is happening in the app space. This is one of the key factors of small business success on the Internet. App developers often encounter data protection problems moving the data and suddenly their applications cannot scale. Systems with more localization will hurt entrepreneurs and small businesses the most. Small businesses are the biggest economic growth and stability drivers after a recession, and they are most impacted by data restrictions. Small businesses also promote distributed economic resources. For instance, ACT has members in every congressional district. There is distribution of resources around the country – this is a function of being able to leverage the Internet to scale. This is also a function of phase 1 of the app ecosystem – local apps, loaded on to the phone that worked off of local data. Phase 2 of the app ecosystem involves client server interaction for information. Anything that causes fragmentation of the Internet will hurt future app development and is bad for innovation, small businesses, and the economy. According to Mr. Zuck, the two main causes of Internet fragmentation are censorship and protectionism. Legitimate concerns such as privacy are utilized as a justification for policy makers with other goals. Issues such as privacy can and should be addressed without fragmentation.

Robert Pepper discussed how connectivity brings about tremendous economic development. For example, 2 million small businesses in India have Facebook accounts and promote their businesses on Facebook. Connecting the unconnected is thus a huge problem to be solved, but there is an income inequality paradox in connectivity. When a country reaches a threshold where 24-25% of its population is connected, as more people connect, there is an income multiplier, the country grows its GDP and income inequality between countries shrinks. However, as connectivity continues to rise, the income inequality gap will also increase within that country because while incomes rise for the connected, the unconnected are increasingly left behind. This disparity will only grow larger as an economy continues to develop. Thus, the only solution is to connect everyone. Research shows that many people who are not connecting are not connecting because they don’t see the value, not because of affordability. So the first step is to increase awareness of the benefits. A main challenge is introducing people to the Internet in ways that are pro-consumer and not anti-competitive. There are ways this can be done, many related to zero rating.  An example of a zero rating service is Amazon kindle; Amazon has a contract with AT&T to provide the connection for Kindle content which consumers are not billed for. This is an example of zero rating. There are many other examples. At the application layer, there are different business models that have different impacts. For example, Netflix has different arrangements with different studios who have varying release windows, so not everyone everywhere can get the same content on Netflix. These are business decisions and not fragmentation. Given the complexity of Internet fragmentation, there are many well-intentioned but ill-informed policy stakeholders. One focus going forward should be to work with the ill-informed to really determine the best policy choices, lest the future of the internet be at the mercy of the well-informed and ill-intentioned.

Carolina Rossini explained that when thinking about fragmentation, one needs to look deeper into freedom of expression and economic rights, which are also a part of human rights. It is important to first clearly define fragmentation and to distinguish what type of fragmentation is at issue.  Are we talking about technical fragmentation which is the most dangerous kind, like when countries try to implement an alternative DNS systems – or are we talking about fragmentation to users of content and applications being delivered to them? It is important to have common standards. This goes beyond freedom of expression towards freedom of economic opportunity. From the civil society perspective, this is not a distraction from the surveillance and encryption issues, but a good positive agenda to pursue. There are many people coming out of the WSIS process who are paying attention to the importance of connectivity. Civil society wants to have a voice, play a role in “what type of connectivity” shapes policy and business discussions and is developing a series of standards so that when international banks fund these connectivity initiatives, they take privacy and freedom of expression into consideration. Using alternative (and thus fragmented) DNS systems would prevent people from accessing cultural and educational resources and would likely further exacerbate inequality.

The Moderator Carolyn Nguyen asked what are the pressures that are causing fragmentation?

Ted Dean responded that Safe Harbor addressed multiple drivers of fragmentation at once. They needed to be disentangled and dealt with. How do countries deal with legitimate goals like protecting their citizens’ privacy while protecting data flows at the same time? How can this be done in a way that enables trade and growth? We haven’t cracked this problem broadly and the Privacy Shield agreement covers only a piece of it. Part of the problem is protectionism. We need to get this right on a macro policy level because businesses depend on it.

Carolina Rossini stated that we need to consider historical cycles and the impact of the Snowden revelations.  There has been an increase in challenges to governments that involve civil rights issues. Governments must allow due process to resolve these issues. For example, with the Microsoft case, the US government was trying to force Microsoft to turn over data that resided outside the US. There are geopolitical implications of going outside existing treaties. The lack of understanding of the geopolitical environment can lead to fragmentation.

Robert Pepper pointed out that very often we have government actions leading to fragmentation. A way to frame this is to use a matrix to evaluate how well informed a government is on the issues that it is developing policies for, and what are its intention. For example, government policies and actions related to connectivity can be classified as well-informed and well-intentioned, or ill-informed and well-intentioned. The latter is unfortunately frequently the case. Recently, a large Asian country discussed why they need local data centers. The actual reason stated was to create jobs and tax revenues. They did not understand what the impact on business and direct foreign investment in their country would be; or that once a data center is built, there are not many jobs in it.  Local data requirements for manufacturing increase the costs of production, thus hurting economic growth. In the same matrix are policy decisions that can result from well-informed, but ill-intentioned, and the ill-informed and ill-intentioned—these can result in real chaos.

Jonathan Zuck said that there are two reasons for fragmentation and a lot of excuses. Those reasons are protectionism and censorship. Everything else is an excuse; the excuses provide the justifications for policies that fragment the Internet. For example, the Snowden revelations weren’t revelations to the people who used them as excuses to pass regulations that fragment the Internet. Another were the late hour attempts to block the IANA transition. These are well-informed, bad actors, who would like to see the open internet be less open under multilateral institutions. What better way to bring that about than to show them that the U.S. can’t be trusted with stewardship over ICANN by not honoring our commitment to let the IANA contract expire.

The Moderator then asked if the bulk of this discussion should be aimed at those well-intentioned but ill-informed countries. How can we get information out there and what are the short term and long term calls to action to move the discussion forward?

Ted Dean said that on privacy, there are legitimate policy aims but we haven’t given people confidence that those aims can be met without restricting data flows. A lot of this is just proving that the solutions work, e.g. making sure Privacy Shield works. The ITA is working on cross-border privacy rules in the APEC context to get ahead on this. Privacy Shield is a limited solution between Europe and the US. With APEC, twenty-one Asian economies came to consensus. They crafted a program where companies get certified that they adhere to these rules. We need to make sure these solutions deliver in practice.

Jonathan Zuck said that the key to innovation is experimentation. Success of small businesses happens when we preserve that environment of experimentation.

Robert Pepper pointed out the need to take away the excuses and focus on the well-intentioned, ill-informed countries. There are opportunities to work with them. Most government officials aren’t techies, i.e., they don’t understand routing. Always ask the first order question, what is the problem you’re trying to solve and find real solutions that won’t cause fragmentation. It’s about building trust and long-term relationships and helping to inform the process. There is a lot of work and it needs to be done. This is not the traditional advocacy. We don’t want to move from a multi-stakeholder framework to a multilateral one. The multi-stakeholder model works but it makes a lot of governments nervous. We need to work with these small governments.

Carolina Rossini said that it’s not just about the policy makers. It’s about the consumers and general public as well. They also need to be informed. We need a bottom-up and a top-down approach.

Key Takeaways

  • Companies of all sizes in all sectors can’t function if they can’t move data. The US-EU Privacy Shield agreement only addresses a small piece of the problem.
  • Small businesses are the engines of economic growth; and the Internet allows for small companies to scale like big companies. The centralization of data is key to this. Restrictions on data flow hurt small businesses and the economy.
  • It’s important to focus on preventing fragmentation on the technical layer, such as countries trying to create alternative DNS systems. This has human and economic rights implications because users in those countries are not able to access the same information as people in other countries.
  • There are legitimate privacy concerns, and they need to be balanced against the need for cross-border data flow to enable economic growth.
  • Solutions need to address the actual problems that need to be solved in ways that don’t fragment the Internet.
  • We need to focus on providing information and solutions that work, especially to those well-intentioned, yet ill-informed policy makers.
  • Stakeholders need to collaborate to help policy stakeholders and policy makers to become well-informed on the Internet, to avoid ill-informed policy decisions that can fragment the Internet and adversely impact economic growth and human rights.
  • Overall, the panelists agreed that stakeholders should focus on developing trust in the digital economy and a truly global internet. By engaging government, civil society, and businesses across the world, the well-intentioned and well-informed actors can build that necessary trust and preserve an internet that has the potential to benefit everyone.