Phone Service Over Internet Revives Talk of Regulation

[Dave Farber <dave () farber net>]

Delivered-To: dfarber+ () ux13 sp cs cmu edu
Date: Sun, 14 Dec 2003 23:31:44 -0800
From: Dewayne Hendricks <dewayne () warpspeed com>


Phone Service Over Internet Revives Talk of Regulation
By MATT RICHTEL
<<http://www.nytimes.com/2003/12/15/technology/15phone.html>http://www.nytimes.com/2003/12/15/technology/15phone.html>

Politicians have worked hard to keep access to Internet connections and
many forms of Internet communication free from regulation and taxation.
But the debate over how government treats the Internet is likely to reach
a new level of intensity now that Internet technology is colliding with
one of the nation's most lucrative businesses, telephone service.

Last week AT&T and Time Warner Cable announced that they intended to make
Internet-based phone service available to millions of consumers next year,
allowing those consumers to bypass traditional phone companies. Those
moves signaled the start of a technological shift that could change one of
the biggest and most important industries in the American economy. Central
to that shift is whether and how Internet phone service should be
regulated, a question that the Federal Communications Commission started
to explore in hearings two weeks ago.

In an interview on Thursday, Michael K. Powell, the chairman of the
F.C.C., said he had not made up his mind on that question. But he was not
at all shy about stating his preliminary view - that Internet-based calls
are fundamentally different from traditional phone calls and ought to be
regulated cautiously, if at all.

"There is no functional or technical difference between an Internet phone
call and other data - be it bits, or e-mail or Web pages," Mr. Powell
said, during a visit to San Francisco. Up to now, Internet traffic has
been essentially unregulated and untaxed because many politicians and
regulators have argued that the technology and online commerce would grow
more quickly if the Internet were left alone.

Mr. Powell noted that while Internet-based calls might serve the same
function as calls over conventional phone lines, the underlying technology
was different enough that it would not make sense to subject them to "100
years of judgments" and regulations. "Let's get this thing right and
define it as truer to its real nature," he said, referring to the new
technology.

His views are far from universally supported, given the many complex
political and financial interests at stake.

What is clear is that the existing telephone infrastructure is heavily
regulated, on both the state and federal levels, with intricate rules
intended to keep phone access universally accessible and affordable.

Gene Kimmelman, the senior director for public policy at Consumers Union,
said those regulations existed to satisfy important public policy
concerns. He contended that goals like universal access would be gravely
threatened if the world went to Internet-based services that were
unregulated.

Mr. Kimmelman said that Mr. Powell's views, which seem to argue for far
less regulation, would undo "social policy that has made phone service
affordable and accessible." He added that one possible result was that
basic connections which, under the regulatory structure were essentially
subsidized by consumers and the industry, could cost significantly more
than they did now.

Besides, he argued, function, rather than technology, should guide the
regulatory decision. "It looks, smells, feels like plain old telephone
service," he said of Internet service, and therefore it should be treated
similarly.

This debate - the latest front in a 20-year-old regulatory battle that
started with the breakup of the Bell system - will define the grounds on
which various players in telecommunications compete. The question of how
to regulate Internet-based calling will be "the communications regulatory
issue over the next few years," said Eric Rabe, a spokesman for Verizon,
with audible emphasis on the word "the."

For starters, regulators will have to address some central technical
questions. Telephone calls are traditionally carried to and from homes on
copper lines, with routing of the traffic using circuit switch technology.
Internet phone service digitizes voice signals and sends them as Internet
data.

Mr. Kimmelman argues that even with Internet-based service, the voice
signals are still sent over existing communications networks, whether
copper wires, coaxial cable or fiber optic lines. And he maintains that
there is nothing sacrosanct about the mere fact that the signals are sent
as Internet traffic.

"It's just a different way of assembling ones and zeroes so they can be
more efficiently transmitted," Mr. Kimmelman said, noting that Internet
calls would still have to travel through traditional phone wires through
part of their journey.

Mr. Powell, however, maintains that what is important is not the wires but
the technology involved. And, he pointed out, consumers who want to use
Internet phones would still have to pay phone and cable companies to get
Internet access through those networks, and in doing so, would still be
supporting the basic telecommunications infrastructure.

"You pay Verizon $39.95" for high-speed access to the Internet, Mr. Powell
said. He argued that once consumers have paid for that access, the
providers should not necessarily be paid more for the use of that access
to send particular communications, whether in the form of e-mail messages
or phone calls.

Telephone and cable companies are staking out different positions, and
other members of the F.C.C. may not share Mr. Powell's views.

The phone companies naturally are not eager to compete against
Internet-based competitors who can avoid the huge costs of regulation. But
some, like Verizon, also say that the solution is not to regulate Internet
calling, but to deregulate the phone industry.

SBC, another major telephone provider, said it thinks it could compete
against unregulated Internet-based services. The reason, said Dorothy
Attwood, senior vice president for federal regulatory strategy at SBC, is
that phone companies have a head start on features important to consumers
like 911 service and the ability to make calls even when the power fails.

The cable companies have their own perspective on regulation.
Atlanta-based Cox Communications, for instance, contends that regulation
should be based, not on the technology used, but on the market share of a
company, with larger companies subject to more regulations.

Cox, which already offers phone service based on circuit switch technology
to nearly one million customers, will start Internet-based phone service
in Roanoke, Va., today. But it does not expect the regulatory questions to
be answered soon.

"It will be four to five years,'' said Carrington Phillip, vice president
for regulatory affairs at Cox Communications, "before we have a good sense
of how regulation is going to evolve."

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