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FCC Has More On Its Agenda Than Janet Jackson - It’s VoIP Regulation

Vonage In Print News

February 12, 2004

By Rick Smith

LocalTechWire Research Triangle Park - As hard as it may believe, the Federal Communications Commission has more issues to debate these days than the Super Bowl halftime show.

The FCC is scheduled this afternoon to discuss the growing controversy surrounding Voice over Internet Protocol phone calls.

While Janet Jackson and her partner in the Super Bowl expose - Justin Timberlake - get the headlines and the FCC threatens to fine TV station operators, FCC commissioners must decide if Voip constitutes data services, and therefore is deserving of non-regulation like the Internet, or Voip is voice.

The FCC and the Federal Government have been very supportive of Internet services to help the still-young technology evolve. (The Senate is debating once more a moratorium preventing states from taxing the Internet.) But traditional telephone providers and the Voip players are applying more pressure on the FCC to act.

Take a look at your phone bill - wireline or wireless - and you will see how heavily regulated traditional voice services are.

“If we don’t get some clarity from the federal government pretty soon, where will we be,” asked Jeffrey Citron, chief executive officer of Vonage, in recent press reports. FCC Chairman Michael Powell is already on the record as being in favor of limited regulation.

Voip is not a new technology. People have been using software and the Internet to covert voice into IP packets just like data and transmit their calls free of charge for a decade.

Now that Voip is showing traction in the marketplace with firms such as Vonage (100,000 subscribers) adding new customers daily, the FCC as well as federal regulators are being pressured to take a stand. AT&T has taken the side of “no regulation” alongside Vonage. AT&T, SBC and Qwest have all announced plans to offer Voip services.

Research firm IDC estimates that the Voip market was $3.3 billion in 2003 and will rise to $15.1 billion by 2007. That’s a fraction of the total telecommunications market, but margins are anorexic in telecom. A penny is a penny, and those pennies add up to a penny in earnings which can propel a stock higher or sink it if Wall Street analysts expectations are not met.

Local Tech Wire contacted several telephone companies to get their views on the issues. We also talked with Joe Freddoso of Cisco since Cisco has invested heavily in Voip telephony.

“State Public Utility Commissions, FCC and the courts are all over the place on this,” Freddoso, director of site operations in Research Triangle Park, says in relaying Cisco’s position, “so it is unclear how to properly label this service.”

A federal judge in Minnesota recently ruled that Voip is a data service and therefore can’t be regulated.

Carriers speak out

Todd Smith, corporate communications manager for BellSouth, says his company wants all players to be governed by the same set of rules.

“As Voip and other next generation technologies emerge, the lines will continue to become blurred between traditional telecom, data and information services,” he says, “and we hope that the FCC takes a position of limited regulation ion all areas and helps ensure that all competitors are subject to the same rules and requirements.

“A consistent, clear regulatory environment is essential to continued investment in infrastructure.”

Infrastructure - there’s a key point. BellSouth is spending substantial sums to upgrade its own infrastructure to support more Internet and IP -based services. But the telephony companies - regional Bells such as BellSouth, SBC and Verizon and so-called CLECs (competitive local exchange carriers) - are closely regulated when it comes to carrying voice traffic across each other’s intertwined networks.

Fees are charged - ½ a cent a minute to originate a call and ½ a cent to end the call. Voip calls get around those fees, one reason why Voip services are so cheap. Should Voip providers pay the same fees? That’s a huge question. If Voip calls can’t be delivered at lower costs than traditional calls, will consumers switched from their very reliable POTs (plain old telephone service) for VoIP, a still-evolving technology?

Sprint is adamant that Voip needs to be regulated and is urging the FCC to “act quickly” and “begin to provide some clarification.”

“To remain competitive, Sprint is currently using Voip on a limited basis but will explore expanding the use of Voip if the current rules stay in place,” the company wrote to LTW.

“AT&T and Vonage have each brought Voip issues before the FCC suggesting that regulation of voice calls should be driven by technology used to deliver the service, and all telecom services delivered via IP should be exempt from access charges. Sprint disagrees with that position,” Sprint says in a statement provided to LTW by Tom Matthews in Sprint’s Wake Forest office. “Sprint believes that real-time voice services, which are offered to the public for a fee and use standard telephone numbers, should be considered telecommunications services, and that the appropriate degree of regulation should not depend on the particular technology used to deliver the service.

“As such,” Sprint continued, “these services should be subject to Universal Service Fund contributions, access charges (if the calls originate or terminate on the public switched network) and 911 and CALEA obligations.”

CALEA stands for Communications Assistance for Law Enforcement Act In fact, FBI demands that Voip calls be subject to wiretaps has triggered a debate between the agency, the Justice Department and the FCC. Just last week, the FCC and the FBI came to an agreement on the degree of regulation needed from the FBI’s point of view. The decision came at the request of Free World Dialup, a Voip company that filed a petition with the FCC insisting that Voip not be regulated at all.

Wanda Montano of Charlotte-based USLEC says compensation is at the heart of the matter.

“The Voip debate can be boiled down to the issue of intercarrier compensation,” she says. “USLEC believes the FCC would better serve the industry by proposing and adopting technology specific rules, and by focusing on the intercarrier compensation structure.

“We need intercarrier compensation rules that are independent of the technology used to deliver the services. Once those rules are developed and become effective, then new applications and new technology can flourish without regard to decades old compensation structures.”

Intercarrier compensation, which includes money per call, is a complex issue. It’s likely to be one of the thorniest topics debated should the FCC appoint a panel to further explore VoIP.

Universal Service requirements

“As broader policy matters, Sprint believes that intercarrier compensation … needs to be rationalized sop that a uniform system applies to all types of traffic, and the current method of funding federal Universal Service needs to be overhauled as well,” Sprint stressed.

The Universal Service fee adds a good bit to your monthly phone bill from your local telephone service provider. The FCC also tacks on a fee if you have a second phone line in your home. These fees are designed to encourage the provisioning of telephone services across all parts of the country. The second phone line fee helps pay for other kinds of services, such as high-speed Internet for schools.

“One of the FCC’s biggest hurdles in developing those new rules will be how to manage the Universal Service requirements,” says Montano of USLEC. “They must, at the same time, update the intercarrier compensation structure to reflect the need for a technology and applications independent architecture.”

Vendors such as Cisco have a huge stake in this battle as well. With telecom companies finally making substantial investments in network upgrades following the Internet and communications crash of three years ago, how the FCC could help - or slam - the Voip equipment market.

“The main issue” Is Voip a telecom service or an information service,” Freddoso says. “Telecom services are regulated at state and federal levels. With information services (generally data communications, broadband, etc.), FCC has not regulated here. Cisco’s position, he says, is that “VoIP is a nascent service and should not be regulated.”

The FCC’s so-called Triennial Review Order set of regulations says that IP services “are not yet a replacement for traditional plain old telephone service (POTS). This is true about Voip generally.” But Cisco concedes that the “appropriate classification and regulatory treatment of Voip in all of its forms is not obvious.”

Blue water or red water?

With cable TV companies such as TimeWarner Cable and Cox getting into the telephony service markets, the regulatory field gets even murkier. And the phone companies are being forced to fight on another front.

“It is essential for policy makers to distinguish between true IP telephony - where there is a computer, not a telephone, on both ends of the call and what we like to call ‘IP in the middle’ where only a piece of the transmission is carried over some IP telephony,” BellSouth’s Smith says. “If a call is carried on any portion of the Public Switched Telephone Network, then it should be subject to the same regulation, terms and conditions associated with any other plain old telephone call.

“You cannot run blue water through a red pipe,” Smith adds, “and call the water red.”

The Voip debate promises to be a bitter one. It may not generate the heat and public debate that Jackson and Timberlake did with their stunt. But Voip is an extremely important issue for both the companies providing communications services and those hundreds of millions of people that use their networks.

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