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Vonage In Print News

December 5, 2003

By Duane D. Freese

Technology buffs are always in search of "the next big thing," some transformative technology that will change the world in which we live.

Well, at a forum this week at the Federal Communication Commission, there were gurgling sounds that a thing called Voip may be it.

VoIP, for those who have not heard of it before, stands for Voice over Internet Protocol. At the forum, it was given a few other names. Voip was called a "transformational technology" by Commissioner Michael Copps
and "fundamentally different" from the public switched telephone network by Commissioner Kathleen Abernathy. It was a technology with the potential to spur a "new gold rush" in telecommunication, according to Jonathan Adelstein and one that raises "fundamental questions," according to Commissioner Kevin Martin.

Finally, Voip was a technology that was causing "real change" in telecommunications, according to FCC Chairman Michael Powell. But, as Powell said in welcoming the standing room audience for the Voip forum, "real change is never comfortable. Change produces anxiety for incumbents, for regulators, for politicians, and for our citizens, who are confused by the dizzying array of new digital technologies and services."

Gurgle, gurgle.

There's a problem with the modern age. With apologies to Neil Armstrong, too often when we take that "small step for man," we try to make it into "a giant leap for mankind."
The giant leap for mankind, in technological terms, was miniaturizing circuits to make microprocessing possible, which is the basis for elaborate software. That was the transformational technology. What we are talking about with Voip is a small technological step -- digitizing voice messages so they can be instantaneously transmitted over the Internet and received by a personal digital assistant, a cell phone, an Internet gaming device, a computer or, even, a regular phone.

That may prove to be transformative because people like to talk, and Voip makes talking cheaper. Voip calls don't require the costly hard circuit switching that dedicates a line to carry the call. The coded packets can ride routes of least resistance and traffic and then be reassembled, just as e-mail and instant messaging and other data is. The key to quality is the speed of transmission -- high-speed lines handle them best.

Indeed, long distance companies use Voip technology to cram more international calls together without interference, thus helping bring down international calling rates. Big businesses use Voip to cut down on costly, duplicative voice and data services. Now, medium and small businesses with high-speed phone lines are being targeted by phone companies to do the same. And upstart companies are making a push into the residential market as well.

Still, it is a small step, evolutionary, not revolutionary -- and one that was foreseen more than three years ago by opponents to legislation that would have allowed the Regional Bell Operating Companies to enter data long distance without first meeting their obligations under the Telecommunications Act of 1996 to open their local loops to competitors. As I wrote back then, "Since digitization makes packets of speech and data indistinguishable on high-speed phone lines, granting the Bell's the right to long-distance data communication would get them into long distance service. It would remove any real incentive for the Bell's to open up the local loop to competition."
The reason for the FCC's forum on Voip is the flip side of that issue, and it occurs in part because the local phone network has remained relatively closed to competition.

The Regional Bell Operating Companies and small rural exchange carriers would like to regulate Voip as a telephone service, rather than an information service. That would make it subject to all the last century regulation that tended to guard the local monopolies from competition.

Congress wisely exempted Internet data communications from the costly per minute access charges assessed on long distance companies for "accessing" the local phone networks to start and complete calls. And the Internet flourished. Applying those charges to one type of Internet function, Voip calls -- the data of which is indistinguishable from other Internet communications -- would provide a gold mine for the Bells, and a potential death knell for Voip companies.

Similarly, public service commissioners, in California and Minnesota, have become stirred up about the prospect that fees charged to long distance customers for universal service will be lost and that Voip service providers might not provide or pay into Emergency 911 funds and serve the disabled. California Public Utility Commissioner Carl Wood opined at the forum that his state risks losing half its funds for connecting schools and libraries and providing enhanced 911-service if SBC and Qwest migrate their long distance calls to the Internet, as they've indicated they might.

Meanwhile, law enforcement agencies have become panicked that terrorists and criminals might use Voip calls to sidestep surveillance. They want Voip calls made subject to the same Communications Assistance and Law Enforcement Act (CALEA) that regulates phone company equipment and systems to allow wiretaps, even though there is no dedicated phone line to tap or switching station to tap it at.

Some of the concerns may be legitimate. But as Powell noted, mostly they are expressions of anxiety at change. Or exertions of blatant self interest.

In the case of phone taps, Vonage CEO Jeffrey Citron told the forum his company can provide the police not a phone tap but the stream of a data call, which is much the same thing. Nonetheless, he pointed out, the rapid development of applications means that if law enforcement has a real problem it will need a better solution than treating Voip services like the old switched-telephone network. How do you handle other data streams, such as Instant messaging, voice enabled-email, gaming communication?

"The vast majority of voice-enabled Internet communications will forever remain outside the scope of CALEA," Citron said.

Similarly, regarding emergency services, some kinds of Voip services would forever remain outside the net of regulation. As Kevin Werbach, founder of Supernova Group, an independent technology analysis company, told commissioners, you wouldn't want to bring Internet gamers in. After all, what are they going to do? Call emergency services and shout, "Help, I've been stabbed by an Orc!"

Most of the Voip services that would market their wares to supplant phone service have every incentive to make their service as compatible as possible with 911 services. Who wants a phone service that provides less ready access to emergency help? And paying for it can be readily done through charges for connections or phone numbers, rather than per minute or even per call fees.

Indeed, most of the economic concerns raised by states or local phone companies -- about loss of access charges, universal service charges and the like -- don't require the application of old telephone rules to Voip services, but new ways of thinking by legislators, regulators and the old phone monopolies about how money is raised -- and for what purpose.

Per minute access charges generally should be eliminated entirely in favor of reciprocal compensation contracts between companies, like those that are now in force between local phone companies and those between local phone companies and Internet Service Providers. UBS Warburg notes that the access charges provide $16 billion in revenue annually to the Bells. The rates are about 500 to 600 percent more than the reciprocal compensation charges.

Since it doesn't cost any more to complete a call between a long distance company and a local phone network than between two local phone companies or a local phone company and an ISP, the access charges amount to an unwarranted subsidy of local phone monopolies by competitive long distance companies. That is ridiculous.

Meanwhile, a digitized, packet-switched network can lower costs for delivering services from the old circuit-switched network by improving efficiencies. That can make quality voice communications more affordable to people, and can do so more efficiently than subsidizing the old circuit switched network.

Fortunately, most of the FCC commissioners at the forum seemed to realize that applying the old phone regulations and charges to a new Internet communication function -- voice -- made no sense.

As Powell said, "Moving more communications to IP networks is in the public interest. Internet-based services create more choices for consumers, more competitors, lower prices and lots more flexibility to personalize your service."

There is no reason to regulate innovation and competition away. You need regulation where there are monopolists who control things, not where there are new competitors trying to create a business. Besides, who, after all, except an incumbent phone company or a Luddite would want to kill the next big thing?

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