Should voice over IP be regulated?

Should voice over IP (VoIP) be regulated? So far, there have been two answers: no, because it’s already been declared an information service; and yes, because it should be seen as a telecom service. Maybe, as the old breath mint ad proclaimed, it’s “two mints in one!”

In the enterprise world, VoIP is basically a cheaper way to communicate within a private network, and there are no tariffs or regulations associated with Internet protocol traffic in a private network, other than the costs of equipment and connectivity. And it makes use of something that most companies have already: their IP networks, indispensable for corporate IT.

But in the public network world, many broadband subscribers already use VoIP--as a full-blown substitute for local telephone service and to avoid long-distance charges--in place of the circuit-switched voice service from the local telco and traditional long-distance services from the RBOCs (where permitted) and the IXCs.

Given this changing situation, it makes sense to ask a question: Because the technology is packet-data based, just like the Internet, and the Internet is not (yet) regulated or taxed, why should VoIP? But wait a minute. It’s still phone service, and phone service is regulated--shouldn’t that be enough? Some will agree.

Perhaps a parallel situation will be instructive. Industry observers and not-so-old-timers may remember when Rochester Telephone and other major carriers made their initial push to introduce video services in the early and mid-1990s. In the middle of some of these efforts was a technology supplier called USA Video Interactive, which holds a patent for “store-and-forward video,” a foundation element of the video-on-demand services envisioned by telcos at that time.

Fast-forward to 2003: USA Video Interactive is still around, and it is attempting to assert its rights under its patent. Some say that because USA Video Interactive’s technology leveraged a switched network, it doesn’t apply in today’s packet environment. However, patent law has a doctrine of equivalency, which (as stated by the Supreme Court) says: "If two devices do the same work in substantially the same way, and accomplish substantially the same result, they are the same, even though they differ in name, form, or shape." So the company argues that its patent still applies in the IP world, and it can prevail as a result. Can this kind of reasoning be used in arguing for regulation of VoIP services in a manner equivalent to circuit-switched?

Here’s another perspective: Jeff Pulver, CEO of Pulver.com, industry pundit and organizer of the VoIP industry’s well-known VON conference, filed a petition with the FCC earlier in February 2003, saying in effect that VoIP is not equivalent to switched telephony; that his company’s Free World Dialup should not be regulated as a telephone service.

Quoting Pulver from a press release on his company’s Web site, "Regulatory uncertainty creates as much of a burden for launching new communication services as the technical and business obstacles. The FCC can meet its founding objectives of supporting low-cost ubiquitous communications and deployment of advanced services by making it clear voice applications of the Internet remain unburdened by the regulations. Deployment of voice over the Internet has the potential to restore the entire information technology sector to health."

Which line of reasoning will prevail? Hard to say. Some powerful forces will weigh in before the argument is settled.

Most of us recall the March 2002 FCC declaration that cable modem service is an interstate information service, subject to FCC jurisdiction, but not a cable service and not a telecommunications service. This means that cable modem service providers avoid common carrier regulation, which includes such obligations as contribution to the universal access fund and the availability of advanced telecommunications services for the disabled, now paid for by telcos but not cable MSOs.

In fact, within two weeks of the decision, Charter Communications stopped paying franchise fees for the cable modem services (and even declared to withhold other fees in order to recover modem fees already paid). They also stopped passing the fees on to subscribers, but of course they didn’t lower their cable TV prices. So, did the FCC make this decision because, as Michael Powell at the time said it would accelerate the deployment of broadband, or did he do it because the FCC was somehow influenced by the cable industry?

If, unlike cable modem service, VoIP from the cable company is deemed ‘equivalent,’ to telephone service, then certainly they should have to pay, shouldn’t they? I can imagine that cable companies will be equally protective of their revenue streams when the day comes for the FCC to decide whether or not VoIP services should fall within the telecom umbrella or remain classified as an information service, and the cable industry is sure to lobby heavily for the FCC not to change the rules to take VoIP into account.

Bottom line: Because cable TV is really just part of the vertically integrated media conglomerate elephant, poking its friendly nose into peoples’ homes, don’t underestimate its power in influencing this issue. Recent history shows us how truly powerful the media industry has been these days.

A few data-points: There’s the shutdown of so many of the peer-to-peer music-sharing services (Napster was only the best-known; now many are either charging fees or gone altogether). The movie industry sued SonicBlue last year when the company announced a model of ReplayTV that allows the sharing of digitally recorded TV and movie content over the Internet. The RIAA goes after pretty much everyone. Fair Use (of media content, by individual consumers) is threatened, some say, by rigorous enforcement of the Digital Millennium Copyright Act. The 35% ownership rule, designed to ensure diversity of news and entertainment in media markets, may fall this year unless we comment to the FCC right now (see http://www.fcc.gov/ownership/). These are just a few examples of the power of the media industry. And they will exert their power over this issue, in the name of protecting their cable subsidiaries.

Then there’s the tug-of-war between AT&T, the FCC and NECA (the National Exchange Carriers Association). AT&T wants to be exempt from interstate access charges between telephones using VoIP, but NECA says that this would hurt traditional voice service providers. Their position is that by exempting VoIP, the FCC provides a policy incentive for telcos to convert to IP, which rural telcos can ill afford. At the same time, circuit-switched telephone usage and access revenues would decrease. Seems that NECA sides with the equivalency camp, while AT&T does not.

Here’s an even bigger question: What happens when telcos do ultimately convert over to IP networks. This may not happen in our immediate future, but many acknowledge that it will someday happen. When telcos offer their standard voice packages over renovated access infrastructures that bring IP to the home, as the primary interface to the subscriber, will current regulation apply to them anymore?

Will the concept of equivalency be the guiding principle, or will VoIP’s current non-classification (or classification as an information service) win? When some of the strongest business and policy-making interests, around the world, take on VoIP in earnest, we’re sure to see the packets fly! Tell me where you stand: equivalency or not?

Steve Hawley is principal consulting analyst of Advanced Media Strategies. He may be reached via his Web site,http://www.tvstategies.com.