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The VOIP Revolution

Vonage In Print News

December 1, 2003

By Cynthia L. Webb

It's showdown time once again at the Federal Communications Commission, and the stakes could be significant for consumers and big businesses, as major telecom providers and upstart technology firms square off over whether Internet phone calls should be regulated in the same way as traditional phone services.

Today the FCC will host a forum on Voice of Internet Protocol service -- Voip for short.

The Wall Street Journal set the stage for the forum in a Friday article, reporting that Voip "could radically transform the $300 billion telecommunications industry and is renewing doubts about whether the Internet should remain regulation-free. Sending phone calls over the Internet ... is one of many technologies moving more quickly than regulators can react. ... In some such calls, traditional phone lines are effectively cut out of the process.

That strikes fear among Bell phone companies such as BellSouth Corp. and SBC Communications Inc., which charge fees when traditional phone companies such as long-distance providers use their lines to complete calls (long-distance companies usually don't own the lines that go into customers' homes or offices).

The Bells must provide service to everyone, and remain heavily regulated in areas from pricing to emergency 911 services."

  • The Wall Street Journal: Internet Phone Service Threatens Industry Giants

    The Washington Post also defined the issue's importance in a Saturday article: "The stakes in the debate are huge.

    Federal and state governments could lose billions of dollars in revenue from regulatory fees if calls moved onto the Internet are no longer subject to the charges. And if the FCC chooses not to regulate Internet calls, it could raise questions about the future of the Universal Service Fund, a $6 billion federal program funded by telephone fees that subsidizes phone service in rural areas and Internet service for schools."

  • The Washington Post: FCC to Look at Phone Firms' Use of Internet to Carry Calls'

    "With companies and government officials staking out defensive positions," the Journal reported, "the [FCC] is aiming to craft clear guidelines in the coming year. In 1998, when Voip was more theory than reality, the FCC deemed it an 'information service' and thus free from existing phone fees and regulations. In recent interviews, senior FCC officials have signaled their continued aversion to saddling the emerging technology with decades-old phone-industry rules that could crush the newcomers."

    FCC Chairman Michael Powell is already on record against treating Voip the same way as traditional phone service.

    Internet call providers "are not telephone companies in the traditional sense and we shouldn't view them as such," Powell told The Wall Street Journal.

    First Step in FCC's Voip Review

    If you're dying to follow today's hearing, you can watch the webcast.

    The FCC Web site said the first set of panelists will speak about "how the FCC might distinguish among the numerous services employing VoIP, and whether it could feasibly distinguish between Voip and other IP-enabled applications facilitating communication (ranging from e-mail to instant messaging to videoconferencing to interactive online gaming)." That first panel includes Time Warner Cable's chief operating officer and a high-level Cisco Systems executive are on the agenda. Cable firms, of course, are adding Voip service to their broadband offerings, and Cisco wants to sell the equipment that makes Internet phone calls possible.

    In a second session, utility commissioners from California and Florida, the chief executive of Voip provider Vonage and others will "address public policy questions raised by VOIP. Panelists will be asked to address what, if any, regulatory obligations currently imposed upon traditional circuit-switched voice service providers should be placed upon Voip providers and whether from either legal or technical perspectives such obligations are feasible."

    "The hearing kicks off a months-long proceeding in which the FCC is expected to decide what, if any, rules and fees should apply to phone calls over the Internet or Internet protocol networks. The debate has huge implications for the rapidly shifting telecommunications industry. Voip calls -- which now can be made with regular phones -- are expected to gradually supplant traditional voice calling over the next 20 years," USA Today reported on Friday. "But state regulators and some local phone companies say these upstarts are getting a free ride by dodging regulatory burdens, such as taxes, universal service fees to subsidize rural phone service, access fees to local phone companies to deliver calls and 911 emergency calling requirements."

  • USA Today: FCC Starts Hearings On Rules, Charges For Internet Calls

    If you're looking for more insight into what FCC chief Michael Powell thinks about VOIP, check out his remarks from an October Technology Advisory Council gathering. The bottom line according to Powell? The technology should be viewed uniquely. "I think there is going to be a very, very important set of decisions to be made as to how we embrace Internet premised, Internet-based IP type communications and whether we will tailor a set of regulatory clothing uniquely for it, or whether we will make it wear Ma bell's hand-me-downs," Powell said at the October meeting. "And I think a public debate about it not being just a telephone or just an incremental change off of the way we have looked at the telephone system for 100 years is a very, very important part of the crossroads. The micro judgments about what regulatory policies apply then seem to me to be easier, or start to fall in place, if you at least create national consensus that this thing is different, it's different from a historical prospective, its different from a technological perspective and it's deserving of a sort of singularly unique policy examination, as opposed to what I see at risk right now, which is regulating it by accident."

    Powell said the FCC is going to start focusing on Voip "more directly. And that is not to say regulating it either, only to put a marker down that it's time to start having these policy questions in forums that matter. ... And I think that we run the risk that if we don't move quickly to at least show that we're focused on it, then if you don't have a state jurisdiction do it, you will have a court do it."

  • Powell's Comments on VOIP:

    Telecom Transformation Already Underway

    In a separate article on Friday, the Wall Street Journal noted that while the Baby Bells are worried about VOIP, they're also jumping in and creating their own discounted Voip services. It's the old adage, if you can't beat them, join them. "Qwest Communications International Inc. is launching an Internet phone service for residential customers in early December. Verizon Communications Inc. says it will follow with a similar service by next year's second quarter. SBC Communications Inc. may also launch a Voip service next year, depending on the regulatory environment and improvements in the technology, which it thinks still has some issues," the newspaper said. The San Antonio Express-News reported on Nov. 20 that SBC Communications "has provided Voip services for several years, but those required businesses to invest in new, potentially costly phone systems. SBC's new offering operates via equipment the phone company maintains on its own network and doesn't require clients to make major system upgrades, officials said."

    The Journal piece mentioned one Voip company that must be particularly daunting for the Bells. "Skyper Ltd., based in Sweden, offers free voice calls among users of the company's service, called Skype.

    Skyper hopes to make money by selling more advanced services to the users it's attracting." (A side note: The company is brought to you by the same brain trust behind file-swapping site Kazaa. Skype works on the same technology -- peer-to-peer connections).

  • The Wall Street Journal: Bells Fear Being Left Behind

  • The San Antonio Express-News: SBC Plans Internet Phone Service For Business Clients

    "[F]iber-optic network operator Level 3 Communications has offered Voip technology since 1999, but it's been a small part of the company's overall business. That could change, and rapidly, which could reshape the foundation of the $300 billion telecommunications industry," The Rocky Mountain News said in an article today. (Level 3's chief executive is also on the speaker's list for today's FCC hearing). "VoIP recently has been growing at a clip of more than 20 percent a quarter and accounted for nearly one-third of all business telephone equipment line shipments in the second quarter, according to Telephony, which tracks the industry," the newspaper noted.

  • The Rocky Mountain News: Taking A Toll

    The technology gets props as well from oft-quoted telecom analyst Jeff Kagan. "Voice over IP is the technology of next century. Yet there are so many unanswered questions," Kagan told the Chicago Sun-Times in an article published today. "We regulate traditional phone services, but we don't regulate data services. Voice over IP blends both." The newspaper said that the Internet phone technology "has about 100,000 users in the United States. That's less than 1 percent of the calling market, according to Kagan. But with millions of Americans getting cable modems or DSLs, the number of Internet callers is expected to multiply. Voice over IP calling can be 25 to 30 percent cheaper than traditional phone service. ... Internet calling is cheaper because companies that provide it avoid taxes and fees levied on traditional calls. But now, with the FCC poised to step in, all that could change."

  • The Chicago Sun-Times: FCC To Look Into Regulating Phone Calls Over The Internet

    A USA Today piece from Friday noted that Voip isn't anything new for the Baby Bells, it's just that the market is shifting from businesses to homes. "Most phone companies have sold Internet calling to big businesses for years," the newspaper said. "That's because big businesses have the fast Internet connections needed to make it work well. Now, the quickening spread of broadband in homes and small businesses makes Internet calls more feasible for others. Plus, Internet callers can pick their area code and keep phone numbers while moving, thanks to the computers at the heart of the system. These features will further propel the market, says Rick Moran, a vice president at network-gear maker Cisco Systems, a big backer of Internet calls."

  • USA Today: Big Telecoms Put Their Muscle Behind Internet Phone Calling

    Google's Anti-Drug Message

    Search-engine goliath Google has nixed ads from unlicensed pharmacies, The Washington Post reported today. The illicit pharmacies "have used the Internet to sell millions of doses of narcotics and prescription drugs without medical supervision, company officials said. Google's move follows decisions last month by Yahoo and by Microsoft's MSN site to stop accepting similar advertising. The decision by Google Inc. ... comes as regulators and members of Congress shift their focus from the illicit pharmacies to the legitimate Web sites, credit card companies, shippers and banks that facilitate the sales. Three congressional committees are looking into the issue," The Post said in its front-page article.

    "Unlicensed pharmacies selling narcotics and other dangerous drugs pay Internet search engines such as Google and Yahoo to link their advertisements to keywords typed in by people who use the search engines. The search engines say the revenue is a small part of their overall advertising business. David Krane, a spokesman for Google, said the search engine will start using a third-party company to weed out rogue pharmacies that advertise on its site. Google also will ban the names of certain controlled drugs as keywords in its search-related advertising." It sounds like some powerful lobbying by legitimate pharmacies has taken its toll on some of the ads. However, don't expect spam to your e-mail inbox offering Viagra or other Px drugs to slow.

    The Washington Post: Google To Limit Some Drug Ads

    The Los Angeles Times today writes about the proliferation of rogue online drug stores, which "have prompted wonderment from consumers, frustration from state and federal authorities and worry from the medical profession. They have also put a virtual street corner's worth of addictive and dangerous prescription drugs within reach of anyone, from an addict in Los Angeles to a sheltered teen in a small town in the Midwest with access to a computer." More from the L.A. Times piece: "Who are these pharmacists? Are they legal? Are they safe and is their product what they say it is? The answers are as fluid and fast-moving as the Internet itself. If you order from them, there is little chance you'll get caught or punished. These online pharmacies are operating either at the edge of or outside the law, and the resulting unregulated market is rife with violations of privacy as well as medications that are counterfeit, improperly handled, addictive and, in some cases, unsafe for the people who buy them."

    The Los Angeles Times: A Web of Drugs

    Google IPO Update

    Google's cold shoulder to online drug ads comes at a time when the company is polishing its image for its planned initial public offering. The company's IPO, expected some time next year, will be a boon for private equity firms, The Financial Times said today. "Sequoia Capital and Kleiner Perkins, two of the hottest private equity shops of the 1990s, will make billions of dollars next year from the planned initial public offering of Google, the internet search company. Bonanzas such as this, common before the dotcom crash, prompted investors to pour billions into private equity firms, which increasingly focused on venture capital for internet companies. The sector is seeing an uptick of interest again after a generally dismal performance in both fundraising and returns over the past three years. Fundraising fell globally last year by more than a third to $71bn, the lowest level since 1996."

  • The Financial Times: Google IPO Offers Hope For Private Equity Funds

    Carrie Bradshaw, Meet Mu Zimei

    A Chinese woman's online sex column was so popular that the author incurred the wrath of Beijing's censors, The New York Times reported in a feature article yesterday. Mu Zimei's blog has gone offline, she has quit her columnist gig and a new book has been banned. "[A]t a time when 'Sex and the City' episodes are among the most popular DVD's in China, the Mu Zimei phenomenon is another example of the government's struggle to keep a grip on social change in China. Her writings have prompted a raging debate about sex and women on the Internet, where more people are writing blogs or arguing anonymously about a host of subjects in chat rooms and discussion pages," the Times reported. The 25-year-old sex columnist's writings took off like wildfire before they went dark: "The country's most popular Internet site,, credits her with attracting 10 million daily visitors. Another site,, says Mu Zimei is the name most often typed into its Internet search engine, surpassing one occasional runner-up, Mao Zedong."

  • The New York Times: Internet Sex Column, Thrills, And Inflames, China

    China's crackdown on Internet writers is hardly new, as we're reminded by reports that the country "released three Internet essayists who were detained a year ago for criticizing the government, including a college student in Beijing whose arrest on subversion charges had attracted international attention, a human rights group based in Hong Kong reported Sunday, The Washington Post reported today. More: "Liu Di, 23, a psychology student at Beijing Normal University known online by the pen name 'Stainless Steel Mouse,' and the two other writers were released Friday afternoon, the group reported. The same day, a court convicted a fourth writer charged in the case, Jiang Lijun, of subversion and sentenced him to four years in prison, his lawyer said."

  • The Washington Post: China Releases 3 Internet Writers, but Convicts 1 Other

    Filter Sounding Board: Wireless Number Portability

    Thanks to all the readers who took the time to chime in about their experiences making the cell phone switch.

    Here are two edited reader e-mails:
    *"I decided to skip the hassle of telling everyone my new phone number and just port my number to another carrier. Things were going well with Verizon coverage, but the phone I had picked was cheap, so I went to a storefront and switched phones. Monday, I called Verizon to switch my number from AT&T. I was on hold for a reasonable amount of time for Monday morning. I transferred around Verizon departments (about 8 transfers), while they figured out who should service this call (it's different if you are already an existing customer vs. a new customer).

    At one point they verified my number ... . Later, the new sales department told me to use specific words ('number change on my existing account') and to be persistent, but that customer service was the department that should handle my request, and they transferred me again. The customer service rep assured me that she had just been through the training an hour before, that she was the right person to handle the request, and things seemed to go more smoothly from this point. I was told the transfer would go through a third part agency, to wait 24 hours, and that I would receive a text message when it was done. ... I give Verizon an 'A' grade when it comes to customer service on a very challenging day. Everyone I spoke to was very courteous, professional, apologetic for the challenges, encouraging me to be patient while the worked on the request, pushing their 'worry free guarantee' marketing slogan, etc." -- Jon Graham, Van Nuys, Calif.

    * "For my family of four, here is the situation. Three of us are on Verizon's family share plan, which we started in August when our daughter went away to college. If I knew then what I know now, I never would have agreed to a two year contract, even though Verizon's service is very good. ... So, I suspect there are many others like us who are stuck in the cellular provider's revenge; contracts that make it very painful to switch due to $175 early cancellation penalties. My son ... could benefit from the new rule because his contract with Sprint is up and he could conceivably get in on Verizon's family share plan with us." -- Peter Beda, Whiting, Indiana.

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