When is voice really voice?

A bill in Congress that would allow the FCC to impose access charges on Internet telephony providers has little chance of becoming law, but that hasn't stopped some voice-over-IP companies from lobbying against it.

The small but vocal Internet telephony industry has been up in arms since the House passed the Internet Access Charge Prohibition Act, or H.R. 1291, in May. If passed by the Senate, the bill would open the floodgates to taxation of the Internet, the group warned at a June 11 rally in Washington.

"When H.R. 1291 was passed in the U.S. House of Representatives... it opened the door to totally unnecessary regulation of one of the most innovative and important uses of the Net - for voice communications," wrote Jeff Pulver, president of pulver.com, on his Web site.

The bill is now on the Senate legislative calendar and does not need to be approved by a Senate committee.

"It could move on the Senate floor at any time," said an aide to Sen. Conrad Burns, R-Mont., who is chairman of the Senate telecommunications subcommittee.

H.R. 1291 jumps on the popular "protect the Net" bandwagon. Sponsored by Rep. Fred Upton, R-Mich., it would prohibit the FCC from imposing per-minute access charges on ISPs. An amendment added by the House Commerce Committee specifically exempts Internet telephony providers, which offer free calling using IP technology.

Access charges are the fees that long-distance carriers pay local telcos to originate and terminate calls on local networks and to subsidize affordable phone service for rural and low-income consumers.

Under FCC rules, ISPs are "enhanced service providers," exempt from paying the fees because they are deemed a carrier's customer, not a carrier themselves.

Although the FCC has strongly indicated that it has no intention of regulating Internet-related providers, backers of H.R. 1291 say their pre-emptive strike would make sure that such regulation never happens.

"It's best to stop it before it starts," said a spokeswoman for Rep. Bob Goodlatte, R-Va., a co-sponsor of the bill.

However, the bill wouldn't give ISPs blanket protection. Nothing in the legislation prevents the FCC from imposing flat rate, rather than per-minute, access charges. Currently, access charges are flat rates based on a carrier's interstate revenues.

Despite the FCC's assurances, some Internet telephony providers are worried that ISPs could retain their protected status while they do not.

Analysts say that the Internet industry has nothing to fear because the bill unlikely will become law. Even if it passes the Senate, President Clinton would most likely veto it, said analyst Scott Cleland of The Precursor Group. "It's shadow boxing," he added. "It's attacking a problem that doesn't exist."

The Commercial Internet Exchange Association, a trade association of ISPs, is neutral on the bill, said Barbara Dooley, the association's executive director. "It's premature to create hysteria about the Internet telephony piece of it because it won't change the prerogatives of the FCC."

Incumbent local exchange carriers (ILECs) argue that it's unfair for them to pay access fees while IP telephony companies, which also provide voice services, do not. Regardless of how the traffic travels - over circuit-switched or packet-switched networks - it's all voice communications in the end, so all providers should share the burden of supporting universal service, said Edward Young III, Bell Atlantic's senior vice president of federal government relations.

ILECs are merely defending their costly networks against the encroachment of free voice over IP, Dooley said. "ILECs can't stand the thought of losing that revenue stream. It's part of their continuing attempt to use the regulatory process to slow down competition," she said.

Politics aside, H.R. 1291 poses a practical problem, analysts said. Technically, there's no good way to distinguish IP-based data calls from IP-based voice calls, so regulators will have trouble deciding how to impose access charges on just the voice calls.

"IP architecture by definition converts everything into data packets. It's not clear [that] any external source could distinguish between a Web-site data packet and a phone-call data packet," said Ty Cottrill, an analyst at The Strategis Group.

"The bottom line is convergence," added Rich Christner, an analyst at Merger Management Consulting. "Going forward, it's going to be increasingly blurred as to whether [an Internet call] is a phone call or an Internet browsing session."

The bill's supporters and critics agree that the FCC and Congress must rethink their approach to new technologies such as the Internet. Instead of using old models - universal service support through access charges, for example - they must define a new model that recognizes the ways that common carriers, mass media, cable and other providers are coming together.

In the absence of a new framework, the FCC falls back on a market analysis, said analyst Tom Jenkins of TeleChoice. Something sold as a voice service is regarded as a voice service, regardless of the technology or equipment used, he said.

So far, Internet telephony providers haven't been regulated or taxed.

In a 1998 report to Congress, the FCC said that ISPs would remain exempt from access charges and other universal service contributions but that providers of "phone-to-phone" Internet telephony would be judged on a case-by-case basis after more information was gathered.

But the FCC hasn't judged any cases or issued any new rules or orders on the subject, a spokesman said. At this point, the agency seems inclined to maintain a hands-off approach.

Complicating the issue is the fact that voice-over-IP technology is changing. The service isn't just phone-to-phone or computer-to-computer anymore. Free services such as that offered by Dialpad.com offer computer-to-phone calling.

Practically speaking, Internet telephony providers present little threat to traditional telcos, said Meredith Rosenberg director of consumer analysis for The Yankee Group. The nascent industry's revenues, drawn mostly from price-sensitive international calling, are less than 2% of the total calling market. And U.S. long-distance prices have fallen so much that the advantage of IP-based calling over traditional calling has diminished.