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Internet Phone Service Threatens Industry's Giants
From: Dave Farber <dave () farber net>
Date: Sat, 29 Nov 2003 09:08:21 -0500
Delivered-To: dfarber+ () ux13 sp cs cmu edu Date: Fri, 28 Nov 2003 20:03:46 -0800 From: Dewayne Hendricks <dewayne () warpspeed com> Internet Phone Service Threatens Industry's Giants FCC to Consider Thorny Issue Of Whether Calls Made Online Deserve Freedom From Regulation By ANNE MARIE SQUEO <http://online.wsj.com/article/0,,SB106997759940872800,00.html?mod=technology_main_whats_news> When is a phone call not a phone call? Federal regulators plan to tackle this thorny question Monday, when they will hear arguments about whether and how to regulate voice calls that are sent over the Internet. The fast-growing service 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, a system called Voice-over-Internet-Protocol, or VOIP, is one of many technologies moving more quickly than regulators can react. The technology converts a conversation into digital "packets" that fly over the Internet and are reconstructed at their destination as normal speech. 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 Internet, on the other hand, has been left largely unregulated, to spark innovation and broad acceptance. As a result, Internet telephone start-ups aren't subject to the same rules, fees and taxes levied on traditional phone companies. This gives them a powerful advantage, allowing them to charge far lower rates even as they offer similar services such as unlimited calling and voice mail. For example, AT&T Corp. charges 86 cents a minute for calls from the U.S. to Botswana, according to the company's Web site; Internet phone service Vonage Holdings Corp. charges just 14 cents. And if that call were placed between two Vonage customers, it would be free. "It throws the entire regulatory system into a tailspin," says Gene Kimmelman, director of public policy for Consumers Union, the nonprofit group that publishes Consumer Reports. It's not just the phone giants that are worried. Federal legislators, especially those from rural states, say that calls placed over the Internet shouldn't be exempt from paying into a national fund that helps subsidize phone service in less populated parts of the country. And state regulators fear the loss of billions of dollars in tax revenue if Internet telephony isn't subject to the fees paid by traditional phone-service providers. With companies and government officials staking out defensive positions, the Federal Communications Commission 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. VOIP providers "are not telephone companies in the traditional sense and we shouldn't view them as such," FCC Chairman Michael Powell said in an interview Wednesday. "That's not to say it shouldn't necessitate some regulation, but it's a horrible, historical mistake to embrace emerging innovations as if they're the same thing that we dealt with in 1919." The big phone companies say that letting the newcomers go free while keeping regulations for them and others is anticompetitive. "Where people are using different technologies to deliver the same services the same rules ought to apply," says Eric Schwartz, assistant vice president of strategic market planning at BellSouth in Atlanta. Much is at stake as the new technology spreads. AT&T and others already are offering a form of Internet phone service to large business customers. Cable-TV giant Time Warner Inc. is testing Internet phone service in Portland, Maine, and Rochester, N.Y. And a number of smaller Internet phone-service providers are making inroads. One of the fastest-growing consumer services, Vonage, gives its customers an adapter to turn a high-speed Internet line, either via a cable-TV modem or a digital subscriber line from the phone company, into an Internet phone. The privately held Edison, N.J., company has signed up 70,000 customers in the past year and says it adds more than 10,000 each month. And about three million people have downloaded free software from Skyper Ltd. that lets them use personal computers to make unlimited calls world-wide at no charge to other users of the company's Skype software (www.skype.com1) over the Internet. Even with the growing interest, Internet phone providers say they still represent a tiny slice of the phone business and argue that onerous rules and requirements would stifle their development and undermine benefits to consumers. "The regulatory alarmists are jumping the gun a little bit," says Jeffrey Citron, chief executive and founder of Vonage. He estimated that VOIP residential services represent about 100,000 out of 300 million traditional phone lines at this point. He proposes a five-year moratorium on regulation and fees to see if the situation doesn't sort itself out. But at this point, maintaining the current lack of controls on Internet calls could prove difficult. In the absence of clear rules from the FCC, a number of states have tried to start regulating the new business. Minnesota took the lead, ordering Vonage to register as a phone company. A federal court in that state overturned that rule last month. In a separate but potentially related ruling, the U.S. Court of Appeals for the Ninth Circuit, in San Francisco, recently ruled that cable-modem Internet service is partially a telecommunications service, rejecting the FCC's argument that it is an unregulated information service. While that decision likely will be appealed, it could affect the current debate since many consumers are getting their Internet phone service through their cable box. Write to Anne Marie Squeo at annemarie.squeo () wsj com Archives at: <http://Wireless.Com/Dewayne-Net> Weblog at: <http://weblog.warpspeed.com> ------------------------------------- You are subscribed as interesting-people () lists elistx com To manage your subscription, go to http://v2.listbox.com/member/?listname=ip Archives at: http://www.interesting-people.org/archives/interesting-people/
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- Internet Phone Service Threatens Industry's Giants Dave Farber (Nov 29)