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Telecom Turnaround


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Telecom Turnaround

November 10, 2004

By Staff

The Bush Administration got off to a poky start on telecom policy, but Federal Communications Commission Chairman Michael Powell seems to be revving things up. The latest example is an Internet vote he won yesterday that has the potential to reshape the industry from the ground up.

At issue is a new technology known as Voice Over Internet Protocol, or VOIP. Put simply, Voip allows consumers to place telephone calls over the Internet -- and it's growing like gangbusters. One of the leading providers, Vonage, requested that the FCC declare its product an "interstate service," and Mr. Powell won the votes to do exactly that.

Yesterday's ruling is the first time the FCC has exempted an Internet voice service from state regulation.

We're all for federalism, but if there ever was a candidate for national regulation under the Constitution's Commerce clause, this is it. Our telecom network spans the country and is operated by national companies, yet it is still regulated by 50 mini-dictators known as state utility commissions. Charged with protecting the "public interest," these busybodies have a license to micromanage every firm that's ever conjured up a dial tone. The resulting web of regulation has retarded innovation and growth.

State regulators still have the right to set local phone rates, and many exercise the prerogative by keeping prices artificially low. Phone companies are forced to make their business customers subsidize their residential customers, at the same time making enough money to reinvest in their services. Businesses simply pass their own higher costs along to consumers via higher-priced goods and services, while everyone gets stuck with stone-age phone service.

Phone companies can also be required to make annual or quarterly reports to 50 separate bodies on their revenues and assets in each state; can be subject to 50 different quality of service requirements, 50 different rules on how to send bills, and 50 different tariffing regulations. California, which has never seen a rule it didn't like, requires phone workers to wear a special badge.

Today's FCC vote exempts Vonage, and by extension other Voip providers, from this mess. That's a blow to state regulators, who've been so eager to envelop Voip that some states, such as Minnesota, refused to wait for the FCC and went ahead with their own Voip regulations. The FCC ruling should invalidate those efforts, as well as any going forward.

More broadly, yesterday's vote also advances Mr. Powell's deregulatory agenda. The FCC chief has long argued that true competition was never going to come from giving consumers a choice between a Bell and a Bell look-alike, but from giving them a choice among different technologies -- cell phones, traditional land lines, cable telephony, VOIP.

The phony "competition" that came out of the 1996 Telecom Act -- which forced local phone companies to unbundle their networks and lease them to competitors at artificially low rates -- was plagued by fights over rates and infrastructure, and led to an investment coma. Contrast this with VOIP, where cable providers have been only too happy to work with companies like Vonage that want to offer Internet phone services over their lines, and where real competition and investment are already thriving.

The vote will also assist the spread of broadband.

Americans have been looking for a reason to make the switch to high-speed cable or DSL, and the promise of $25-a-month unlimited phone service (as Voip provides) is proving to be a killer incentive. Meanwhile, the emergence of such rivals has spurred the Bells to more quickly upgrade their own equipment for broadband so that they too can offer VOIP.

The real beauty of the FCC's decision is that it sidesteps the usual hand-to-hand combat over deregulation. Many a brave FCC chief has attempted to cut back the jungle underbrush of local regulation, only to get ambushed by powerful state interests. By declaring Voip free of meddlesome state control from the start, and assuming victories in the inevitable state legal challenges, the FCC can now sit back and wait for the technology to grow on its own. That's already happening, with an estimated 800,000 consumers using Voip by the end of the year, and 17 million by 2008. Companies have already proven to be early adopters; Ford, Boeing and Bank of America have all announced they'll be using Voip networks.

More good news is that Democratic Commissioner Jonathan Adelstein -- a former Tom Daschle aide -- will soon be making farewells, assuming the White House doesn't renominate him. Mr. Adelstein has been a persistent obstacle to competition in telecom, and to the kind of lower-cost, better-service telephone future that yesterday's FCC vote heralds.



 
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†AK and HI residents pay $29.95 shipping. ††Limited time offer. Valid for residents of the United States (&DC), 18 years or older, who open new accounts. Offer good while supplies last and only on new account activations. One kit per account/household. Offer cannot be combined with any other discounts, promotions or plans and is not applicable to past purchases. Good while supplies last. Allow up to 2 weeks for shipping. Other restrictions may apply.

1Unlimited calling and other services for all residential plans are based on normal residential, personal, non-commercial use. A combination of factors is used to determine abnormal use, including but not limited to: the number of unique numbers called, calls forwarded, minutes used and other factors. Subject to our Reasonable Use Policy and Terms of Service.

2Shipping and activation fees waived with 1-year agreement. An Early Termination Fee (with periodic pro-rated reductions) applies if service is terminated before the end of the first 12 months. Additional restrictions may apply. See Terms of Service for details.

HIGH SPEED INTERNET REQUIRED. †VALID FOR NEW LINES ONLY. RATES EXCLUDE INTERNET SERVICE, SURCHARGES, FEES AND TAXES. DEVICE MAY BE REFURBISHED. If you subscribe to plans with monthly minutes allotments, all call minutes placed from both from your home and registered ExtensionsTM phones will count toward your monthly minutes allotment. ExtensionsTM calls made from mobiles use airtime and may incur surcharges, depending on your mobile plan. Alarms, TTY and other systems may not be compatible. Vonage 911 service operates differently than traditional 911. See www.vonage.com/911 for details.

** Certain call types excluded.

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