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Powell To Regulators: Hands Off VoIP

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FCC Chief Urges States To Tread Lightly In This Area Unless There's Compelling Justification

December 8, 2003

By Ted Hearn

Washington— If someone in the nation's capital is going to strangle Internet-protocol telephony, don't expect to find the Federal Communications Commission's fingerprints on the neck of the victim.

That was FCC chairman Michael Powell's core message last Monday at an agency forum on voice-over-Internet protocol services, a four-hour event that brought together federal and state regulators, researchers and academics, pure-play Voip companies, and Time Warner Cable vice chairman and COO John Billock.

In his time as chairman, Powell has repeatedly articulated the view that government should refrain from regulating nascent technologies, including broadband Internet access and the services that ride those networks — Voip being the most recent breakthrough product that is high on cable's rollout list.

Tread Lightly

"No regulator, federal or state, should tread in the area without compelling justification for doing so," Powell said. "I dare say, our future depends on it."

Some states, including Minnesota and California, have moved to regulate VoIP, claiming Web phone calls are no different from plain old telephone service (POTS) and should face comparable regulation. Phone companies are heavily regulated at the state and federal levels, under rules and policies designed to prevent monopoly abuse.

But Powell is worried that regulation could harm the growth and development of Voip before it has a chance to mature as a mass-market product. Many cable companies are keen on Voip as a cost-efficient weapon to gain share from the Baby Bells, but the regulatory scheme that evolves could serve to dampen cable's enthusiasm. That's something Powell wants to avoid, especially if it means Voip innovators move off shore to avoid costly regulation.

"As we begin to consider what regulation, if any, is warranted for these new services, we should borrow the credo of the medical profession and first, do no harm," Powell said. "Let's make sure the patient is sick before we offer a cure."

FCC member Kathleen Abernathy — whose telecommunications policy outlook is often in step with Powell's — agreed that burying Voip under mounds of red tape would be a mistake.

"I think that we need to move with a light touch. It's the right approach. It's time to engage at the federal level, and the devil is in the details," Abernathy said.

Digital Phone Delivery

Time Warner Cable's Billock said that based on a successful commercial trial in Portland, Me., the No. 2 cable company plans to make its Digital Phone product available to all 18 million homes passed by the end of 2004.

"We know we can do it at lower cost, with reliability and quality-of-service that our customers require," Billock said. "We are quite committed to this technology and the platform."

At least one state — Minnesota — has tried to regulate VoIP. But the state's public service commission was stopped dead in its tracks when it banned Vonage Holdings Corp. from signing up new Voip customers until the company obtained state certification as a telephone company. On Oct. 16, U.S. Judge Michael Davis issued an injunction against the state, arguing that in the Telecommunications Act of 1996, Congress intended to shield the Internet from traditional forms of telecommunications regulation.

Florida Public Service Commission member Charles Davidson disagreed with the approach taken by his fellow state regulators in Minnesota. In his testimony, he urged the FCC to classify Voip as an interstate information service and pre-empt state regulation.

"You've never been shy about taking risks before. This one doesn't seem to be a big one, so let's go for it," Davidson said, looking at Powell across the table.

"Thank you for playing with my life that lightly," Powell quipped.

Classification Concerns

The FCC, however, can't plunge ahead just yet in the manner recommended by Davidson. In early October, a panel of the 9th U.S. Circuit Court of Appeals vacated the FCC's March 2002 ruling that cable-modem service is an interstate information service.

The three-judge panel said it was bound by a 2000 holding that cable-modem service is both an information service and a telecommunications service. Powell has promised to appeal the modem case.

Vonage CEO Jeffrey Citron, a participant at the FCC forum, complained that his and other companies in the same business, together serving no more than 100,000 customers, should not have to invest resources in fighting off regulation.

"Why at this time do we need to regulate voice-over-IP to allow people to communicate over the Internet?" Citron said.

The forum was just the beginning of the FCC's effort to coil its arms around the Voip issue. Powell also announced the formation of an agency task force that will coordinate the agency's Voip agenda, which is likely to conclude with a notice of proposed rulemaking in which Powell and the four other commissioners will decide whether Voip is an unregulated information service or a regulated telecommunications service.

Despite his strong deregulatory tone, Powell indicated that Voip providers would likely need to ensure service is affordable in all regions of the country, that promotes public safety (e.g., 911 services) and that assists law enforcement in tracking the communications of criminal suspects.

"Internet communications should remain as free from economic regulation as possible, but we must protect other critical national objectives in the new environment," Powell said.

Security Issues

The Department of Justice and the FBI have repeatedly told the FCC that if Voip were eventually classified as an information service, they would lack the authority under a key wiretap law — the Communications Assistance for Law Enforcement Act of 1994 — to track Web phone calls made by terrorists and other criminals.

Time Warner's Billock said his company would support Justice and the FBI.

"We view it as a critical aspect of Digital Phone at this time of heightened security and law-enforcement concerns," he said.

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