VoIP providers: Lay off the regulation

WASHINGTON - The U.S. Federal Communications Commission (FCC) should take a mostly hands-off approach to regulating the VoIP (voice over Internet Protocol) industry, so that VoIP can continue to grow and provide consumers with a choice as to which type of telephone service they use, a chorus of vendors told the FCC Monday.

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Too much regulation would "retard innovation," argued Jeffrey Citron, chief executive officer of VoIP provider Vonage Holdings. Others called for the FCC to stay out of regulating prices for VoIP.

But not everyone agreed how the FCC should apply its "light touch." FCC Commissioner Jonathan Adelstein, along with a member of the California Public Utilities Commission, questioned whether all VoIP phone service carriers would include enhanced 911 service or pay into federal and state universal service funds, as other telephone service providers do, if they are not forced to. Universal service funds help pay for telecommunications service to low-income areas, rural health care providers, schools and libraries.

Law enforcement groups, including the U.S. Federal Bureau of Investigation, have also questioned whether VoIP providers would comply with phone-tapping requests unless required to do so in FCC regulations.

Regulation is appropriate when a monopoly controls a market, such as AT&T's nationwide telephone network before the U.S. government broke it up in the early 1980s, but it is not needed in the VoIP market because there are potentially dozens of competitors, said Tom Evslin, chief executive officer of VoIP vendor ITXC. A minimalist regulatory approach encourages telecommunications carriers to invest in VoIP and, currently, VoIP is one of the largest areas of investment in the sector, he argued at the FCC's day-long VoIP forum Monday.

"If we were to have unnecessary federal regulation -- and even worse, if we were to have all kinds of conflicting state regulations -- then that investment would obviously be restricted," Evslin added. "It's not two people talking on headsets that call out for regulation; it's a monopoly that calls out for regulation."

The FCC's VoIP forum was scheduled as the commission heads into a debate on how to regulate VoIP, which has so far enjoyed little regulatory oversight, unlike traditional phone service providers. The FCC is planning a VoIP rule-making proceeding, and during the forum FCC Chairman Michael Powell announced an FCC Internet Policy Working Group to assist commissioners in identifying, evaluating and addressing policy issues as telecommunications services move to Internet-based platforms.

VoIP is no longer the sole domain of specialists such as Vonage and ITXC; major telecommunications carriers such as Verizon Communications and SBC Communications have announced VoIP products within the past month. MCI has announced plans to shift nearly all of its voice traffic to IP-based networks by 2005, and has already started to move voice traffic to IP networks, noted Michael Gallagher, acting assistant secretary in the U.S. Department of Commerce.

In November, SBC's senior vice president and chief financial officer called VoIP a "threat" to his company's residential phone service offerings, and at Monday's forum, John Hodulik, wireline telecommunications analyst at UBS Securities, predicted VoIP would "significantly" cut into the regional Bells' profit margins in the next five years. No direct representative of a regional Bell spoke at the forum, but Hodulik predicted the Bells would shift traffic to IP networks without an FCC decision on VoIP.

"I cannot stress enough the importance of creating a regulatory framework that will stand the test of time, allowing investors to anticipate the winners and losers based on strategy and execution, rather than unforeseeable changes in Washington," Hodulik added.

Among the FCC's challenges in deciding what to regulate is that VoIP can include several services available now, said Kevin Werbach, founder of Supernova Group, a technology consulting firm. Some instant messaging products include voice chat options, game consoles include an online service where gamers can talk to each other, and webcam software includes voice options.

While "applying a broad brush" to all those services does not make sense, Werbach urged the FCC to move toward a decision on what it will regulate, so that the VoIP industry knows the ground rules. "Today the greatest threat to voice over IP is not FCC action, but FCC inaction," he said.

Most participants agreed that some regulation, including requiring enhanced 911 (E911) services and services for the disabled, is necessary, but most called on the FCC to stay away from deciding what prices VoIP providers should charge. Evslin and other VoIP providers said much of their industry is providing services such as E911, and complying with law enforcement phone-tapping requests, through a 1994 law called the Communications Assistance for Law Enforcement Act (CALEA).

But others at the forum questioned whether VoIP vendors would include services for the disabled, for example, or pay access fees for connecting to the traditional phone network if not required by the FCC. Access fees now charged throughout the telecommunications industry help keep some small telephone service providers in business, said Carl Wood, a commissioner with the California Public Utilities Commission. But other participants questioned if VoIP providers should have to pay access fees if they route an entire telephone call by IP, instead of using part of the public switched telephone network.

Without some regulation, VoIP providers would have no incentive to offer services to disabled people, because of the cost of providing those services, added Gregg Vanderheiden, principal investigator for the Rehabilitation Engineering Research Center of Information Technology Access and an industrial engineering professor at the University of Wisconsin. In a VoIP industry driven by market factors instead of regulation, VoIP providers would have an incentive to drop services to the disabled as a way to cut costs, he argued.

Telecommunication providers begin to provide services for the disabled "where there are regulations or where there is enforcement or threat of enforcement," Vanderheiden said. "Regulations are sometimes needed. Regulations are a way of putting the societal factors into the profit equation."

The FCC should not take an "all-or-nothing view" of regulation, argued James Crowe, chief executive officer of Level 3 Communications, which provides telecommunications service through a fiber-optic network. Crowe agreed that a small level of regulation is needed to ensure E911 and phone-tapping requirements are met, but he questioned the FCC's current access fee rules, saying they are an "irrational patchwork."

It may be nearly impossible for FCC regulations to keep up with new technologies as they appear, Crowe added. "(This forum) is about technological change that is rapid, that's unruly and at times disruptive, but promises economic gains beyond even the startling gains we've seen to date," he said. "It's about technical change that outpaces regulatory constraints."

The FCC's Powell said he hopes the commission will stay away from most VoIP regulation. "As one who believes unflinchingly in maintaining an Internet free from government regulation, I believe that IP-based services such as VoIP should evolve in a regulation-free zone," he said. "No regulator, either federal or state, should tread into this area without an absolutely compelling justification for doing so. Innovation and capital investment depend on this premise."