FCC urged to show restraint on VoIP

Witnesses convened today by the Federal Communications Commission to discuss regulating voice-over-IP services cautioned that the wrong approach would have a severely negative effect on investment in the still nascent service.

Consequently, they suggested the FCC take a “light touch” by addressing specific public interest issues without imposing a full regulatory regime upon VoIP providers.

“The growth of VoIP is largely due to the FCC’s forbearance thus far,” said Tom Evslin, CEO of ITXC, which provides call termination services to VoIP providers. Evslin called on the FCC to make that forbearance “implicit rather than tacit,” and issue a national policy to avoid a “patchwork of regulation” that would occur if matters are left to state utility commissions.

John Hodulik, managing director of the communications group for UBS, said it is imperative the FCC take the lead role in developing a VoIP strategy, and acts fast. “The current problem is the uncertainty among investors that comes with no regulatory direction,” Hodulik said. But he added–perhaps with an eye towards the FCC’s unbundling policies–that any VoIP-oriented policies conceived by the commission “stand the test of time” and allow market strategies to determine the winners and losers.

However, Michael Gallagher, acting assistant secretary for the U.S. Department of Commerce, cautioned that any VoIP regulation needs to be “minimalist” and tied to specific goals. IP is an “irresistible force” similar to gravity, he said, adding that legacy regulation is like inertia “If you apply that model to 21st century technology, you will stifle innovation and investment and deprive consumers of new innovative services,” he said.

Jeff Citron, CEO of Vonage, went further by saying the application of legacy regulation to VoIP would open Pandora’s box, by potentially spreading to other Internet applications such as e-mail and instant messaging. “If that were to happen, the value of the Internet would decrease and that would retard the build out of new broadband networks.”

Several witnesses suggested that heavy-handed regulation of VoIP providers would eventually force them to set up shop elsewhere, causing bigger problems for the FCC, a point that Chairman Michael Powell acknowledged. “If we create a hostile environment, these services will just move offshore,” Powell said. “And then they will come into the U.S. in a way that we can’t control.”

“We have to make sure that VoIP doesn’t become the red light district of telecom,” Gallagher said.