Friday, April 02, 2004

VoIP regulation may heat up next year

Next year may be a big one for regulation of voice over Internet Protocol in the U.S., according to some speakers yesterday at the Voice on the Net conference in Santa Clara, Calif.
Several petitions to the Federal Communications Commission to make decisions on VoIP services are pending, and some of them legally should be resolved within 12 to 15 months, according to Julie Veach, an assistant chief in the FCC's wireline competition bureau, who addressed a one-day policy summit at the conference.

However, major federal policy decisions on VoIP probably won't be made until after the November election, said Blair Levin, a managing director at financial services company Legg Mason Inc. and a former FCC official.

A state telecommunications regulator said that next year might be an opportune time to address various VoIP issues before consumers start to switch en masse from traditional circuit-switched telecommunications. Within three or four years, that movement could be substantial, potentially hurting government programs that depend on funds from carriers unless VoIP service providers are required to contribute, Levin said.

"In a year, there's not going to be a massive migration that's going to undercut all the universal service [funds], said Carl Wood, a commissioner at the California Public Utilities Commission (PUC).

At issue is how governments should treat VoIP, which is a data-packet technology that looks to customers like a voice product -- and is thus a possible replacement for traditional circuit-switched phone service. Phone service is subject to a number of federal and state regulations and taxes that may or may not be appropriate for offerings based on the new technology. Among the issues are access charges paid to carriers for using their infrastructure, fees to support universal access to phone service, emergency 911 service, access for the disabled and support for law enforcement wiretaps.

Just as VoIP adoption has barely scratched the surface of the telephone service market, decisions already made on its regulation are just the beginning of what needs to be worked out, panelists said. What's needed, most of them said, is total reform of the regulations in light of a technology that will transform telecommunications

The FCC has received petitions on VoIP regulation from several service providers, including Vonage Holdings Corp., Level 3 Communications Inc. and SBC Communications Inc. Some are petitions for "forbearance" from regulation, which normally must be resolved within 15 months or the petitioner's request is to be granted, the FCC's Veach said.
Most important is the agency's far-reaching notice of proposed rulemaking on IP services, which has been released for comments by interested parties. With it, the FCC seeks to determine broad policies on how IP services should be regulated, excluding the Communications Assistance for Law Enforcement Act, a wire-tapping requirement, which is involved in another process under the U.S. Department of Justice, the FBI and the U.S. Drug Enforcement Administration, Veach said.

The FCC has already ruled that at least one VoIP service should be free from most federal regulation. The Free World Dialup service offered by Inc. doesn't use conventional phones and doesn't allow calls to nonmembers of the service. That decision and comments by FCC Chairman Michael Powell indicate that the agency wants to apply a light touch.

The ruling may have had more to do with the size of the service provider than with the technology, Legg Mason's Levin said. Because Melville, N.Y.-based is a relatively small player and VoIP currently makes up a small portion of the telecommunications industry, the government didn't see it threatening a "material impairment" to the industry. That would be different if Microsoft Corp. were to build VoIP software into its next operating system and steal 30% of traditional carriers' revenue, he said.

That's entirely possible, given Microsoft's "unique" ability to make a technology ubiquitous, Levin said.

Two state regulators at the forum presented opposing views of VoIP regulation. Charles Davidson, a commissioner at the Florida Public Service Commission, said regulation can create disincentives to invest in new technologies. The best way to serve the public may be by minimizing regulation to stimulate innovation. That might lead, for example, to less expensive phone service for economically disadvantaged citizens in danger of being left out, he said.

The California PUC's Wood disagreed.

"That's faith-based policy-making. ... The reality is that all markets discriminate" and focus investment on the most lucrative markets, he said.