This NMRC report finds that an unsettled regulatory picture could threaten emerging VoIP services with unresolved regulatory questions. The consensus of authors of this report call on the FCC to (1) develop a clear national VoIP framework; (2) subject VoIP applications that function like telecom services to certain telephony rules; (3) regulate all VoIP service providers equally; and (4) ensure that statutory social responsibilities are met.

MEDIA COVERAGE

JANUARY 7, 2004

CABLEFAX Broadband Bulletin

On Deck: Both Sides Prepping for VoIP Regulatory Face-Off
By Anthony Crupi

While FCC chmn Michael Powell appears agreeable to expanding his deregulatory stance to VoIP, some academics are hoping the Commission will take a closer look. Dave McClure, pres, US Internet Industry Assn, recently spoke about the emerging phone service recently with a near-missionary zeal: "We need to understand that VoIP is a major paradigm shift, one that will be every bit as important as the invention of the printing press, the railroad and television."

It's guys like McClure that cable should expect to hear from--and argue against--once the FCC files a notice of proposed rulemaking on VoIP (a move expected early this year). McClure co-authored a New Millennium Research Council VoIP report that calls for "clear regulatory directives," including the establishment of a "clear national VoIP framework." The NMRC also wants regulators to subject VoIP applications that function like telecom services to certain telephony rules and insists that all VoIP service providers be handled equally. The NCTA already is talking to members and assembling its own deregulatory views on the issue.

And non-cable VoIP providers and vendors are also getting their ducks in a row. Vonage CFO John Rego told us that as long as the Internet remains an unregulated entity, by the same token, so should VoIP. "If you regulate VoIP, it would be the 1st Internet service to be subjected to that kind of interference," Regosaid. "Then where do you draw the line?" Instead, Rego believes that the FCC is fully aware of the importance telephony holds for cable and the US economy at large. "The FCC really wants to see the Internet grow, as does the White House.

And VoIP could be the app to get people to take up broadband in even bigger numbers. I don't think they're going to tamper with that."

JANUARY 6, 2004

Business Week Online

For Whom the VoIP Bell Tolls; Failure to quickly respond to Internet telephony's rising popularity -- at home and at work -- could cost incumbent telcos plenty
By Olga Kharif in Portland, Ore.

Bob Johnson is one of the people who are about to turn the phone industry upside down. The director of telecommunications and network services at Dartmouth College, Johnson has contracted with a traditional telco for years to provide the school with phone service. When his current contract expires in March, though, Johnson expects to switch to one of the hot VoIP (voice over Internet protocol) outfits that are lining up to steal customers from traditional carriers.

Making phone calls via the Net will slash Dartmouth's annual phone bill by 25% to 40%, Johnson figures. And though some established carriers offer VoIP service, Johnson expects the startups to be cheaper. Muayyad Al-Chalabi, an analyst with telecom consultancy RHK in San Francisco, thinks the newcomers will charge as much as 30% less.

WAVE OF DEFECTORS. That's a potentially huge problem for the U.S. telecom industry. Based on its recent survey of 270 corporations, tech consultancy Meta Group in Stamford, Conn., estimates that nearly 30% of U.S. businesses may move to VoIP within two years. Consumers won't be far behind: By 2009, the Net will carry 40% of calls made in the U.S., estimates the New Millennium Research Council in a December report. People will be using the technology to make regular as well as some cell-phone calls.

As this shift occurs, VoIP may give phone companies' competitors their first real chance at success in years. Unlike traditional phone service, VoIP isn't regulated -- at least for now. And many of the new providers -- including Time Warner Cable, a subsidiary of Time Warner (TWX), Comcast (CMCSA), and Cox Communications (COX) -- have the marketing muscle and sophisticated networks needed to compete with established phone companies.

To these cable guys, VoIP looks irresistible, since it has the potential to generate as much as $300 per year in extra revenue per subscriber, says Andrei Jezierski, a partner at tech consultancy i2 Partners in New York. By including VoIP into their bundle of other services, cable operators can also reduce customer turnover by more than 50%, estimates Bryan Wiener, president of global services at VoIP service provider Net2Phone (NTOP).

VULNERABLE BELLS. If they play their cards right, cable outfits could grab 5% to 20% of the $200 billion phone-services pie within 10 years, according to various estimates. The winners and losers will start to become apparent as early as 2005, says Chris Finn, a partner at IT consultancy IBM Global Services. He believes that eventually a majority of consumers could end up making their calls via cable. He adds that a few well-positioned traditional carriers -- such as AT&T (T), which has its own Internet protocol network and is already running trials of VoIP services in three states -- might dominate the corporate market.

Likely losers could include phone companies that hold off on offering VoIP. That's because customers soon will expect VoIP to be a basic component of Internet access, says Vinton Cerf, a senior vice-president at MCI and the co-inventor of the Internet protocol, the technology standard for sending and retrieving data over the Web that VoIP uses. Eventually, wireless service providers could be affected by VoIP as well, but that's farther in the future, say experts.

Particularly vulnerable to this new competition could be carriers that primarily serve local markets, including Verizon (VZ), SBC Communications (SBC), and BellSouth (BLS). About 30% of their revenue comes from fees paid by other telcos for the use of their networks to complete calls, estimates RHK's Al-Chalabi. As calling via the Internet spreads, the usefulness of such arrangements will decline. What's more, the established outfits are accustomed to moving slowly -- a problem when dealing with a technology that could start eating into their businesses within six months, says Finn.

"WE'RE VERY SERIOUS". The telcos believe their expertise in phone services won't be easily acquired by rivals and will, in the end, save their business. "Providing voice services of high quality and reliability isn't an easy thing to do," says David Young, director of technology policies at the nation's biggest telecom, Verizon.

Even the incumbents that react nimbly will suffer, however: As competition intensifies, monthly charges could fall as much as 30% over the next two years, estimates Al-Chalabi. Thus, the established carriers' revenue growth could flatten and their profit margins compress as newcomers take more business.

Cable outfits may be the primary threat. Already, two out of three broadband customers in the U.S. get their Internet service from cable providers, for whom VoIP is rapidly becoming a top priority. "We're very serious," says Gerry Campbell, Time Warner's senior vice-president for voice. "Our CEO is clearly focused on this." Time Warner will roll out its VoIP service across most markets in 2004, making it available in a bundle with cable subscriptions at a discount, Campbell says.

CORPORATE INVASION. Pure-play VoIP concerns will also provide competition. Though some analysts question their staying power, these businesses are signing up subscribers quickly. Privately held Vonage in Edison, N.J., has attracted 85,000 customers since its launch three years ago -- and says it's adding 10,000 more per month. Its VoIP plans range from $14.99 to $34.99 a month, with the latter including an unlimited bucket of anywhere minutes -- nearly a 30% discount to fees of traditional players.

Vonage also offers features such as a virtual phone number that works in any of 180 area codes, says Chairman and CEO Jeffrey Citron. For an extra $4.95 a month, a customer in California who constantly calls New York can now dial the East Coast as a local number. So far, the established carriers that offer VoIP mainly offer a few basic features, such as voice mail and caller ID -- and those only in a few states.

The phone companies' grip on corporate accounts could also be threatened -- by both their own customers and by telecom-equipment makers. In the past, large customers have set up PBXs (private branch exchanges) -- internal phone networks managed by a telco. As corporations switch to VoIP, they'll realize that they can manage their own phone system using a voice-over-IP PBX, says Elizabeth Ussher, a Villa Park (Calif.) analyst with Meta Group. VoIP PBXs, supplied by the likes of Cisco Systems (CSCO) and Alcatel (ALA), started to gain significant market share just before the economic downturn.

PBX SHAKEOUT. Many corporate tech departments now have experience in working with advanced technology such as high-speed Wi-Fi (wireless fidelity) networks. Plus, the latest PBXs for Internet protocol are easier to manage than the older gear. Most upgrades can be simply done via reprogamming, without any changes to the physical infrastructure. Dartmouth College's Johnson figures that a VoIP PBX will cost half as much to maintain as the $500,000 needed annually to run a traditional, campus-size PBX.

As sales of VoIP PBXs ramp up, some equipment makers could even compete with phone carriers to provide PBX management services. Some analysts believe that networking king Cisco could enter this business, though it denies any such plans, according to Don Proctor, vice-president and general manager of Cisco's voice-technology group.

In the $14 billion PBX business, makers of the VoIP variety will make life tough for traditional telecom-equipment makers such as Nortel Networks (NT) and Lucent Technologies (LU), say analysts. Cisco's Internet protocol product sales are growing at double the industry rate, say analysts. And startups such as Cedar Point Communications, privately held and based in Derry, N.H., have found customers such as Comcast for their switching equipment, says David Spear, an executive vice-president at Cedar Point.

NOT CUT OUT -- YET. The incumbent equipment makers are responding by increasing their efforts to supply the VoIP market. About a month ago, Lucent announced a special strategy and products for VoIP, including various switches and software. It believes its long-standing relationships with phone carriers will give it an advantage in retaining business, says Roger Heinz, vice-president for convergence solutions at Lucent.

The advent of VoIP isn't the end of the world for the traditional phone carriers. Today, the U.S. has more than 180 million regular phone lines vs. fewer than 30 million broadband lines (a prerequisite for quality VoIP). For the foreseeable future, moreover, cable operators and other VoIP newcomers will need the telcos' help to route calls to their customers who aren't on IP networks.

Even so, U.S. broadband adoption is growing at 40% a year, according to RHK, so the threat to the phone companies could grow rapidly. That means the established carriers will have to hop onto the VoIP bandwagon fast -- or be left behind. If nothing else, VoIP offers them an opportunity to recoup some of the estimated 12% in annual revenues they're losing as customers disconnect their second phone lines when opting for broadband, estimates i2 Partners' Jezierski. (With broadband, consumers can make calls and surf the Web at the same time, over the same line.)

"PLANETS ARE ALIGNING". Some incumbents might acquire companies with VoIP expertise. In December, local phone company Qwest (Q) bid for most assets of bankrupt Allegiance Telecom as the basis for its IP network (see BW Online, 12/18/03, "Qwest Opens the War for Allegiance"). Others might build their own networks, thus raising the ante for VoIP competitors, all of which are still losing money, though some expect to turn a profit in 2004.

Cable outfits, meantime, may be distracted by that other war for customers they have to fight -- against satellite TV systems. It may not help that in surveys consumers tend to associate cable companies with constantly rising rates, says Cathy Martine, senior vice-president in charge of VoIP efforts at AT&T.

Who has the best chance of success in VoIP will also be determined in part by regulations covering call-transfer fees and other issues that the Federal Communications Commission is expected to release within the next year or so. But many experts believe the FCC will take a light-handed approach -- leaving the established phone companies to largely fend for themselves.

Whatever else happens, it's obvious that "the planets are aligning for VoIP in 2004," says Joe Glynn, Qwest's vice-president for product strategy. "This is clearly the way the industry is going." And the players that don't get up to speed fast could lose out.

JANUARY 5, 2004

Multichannel News

States Wrestle With VoIP Approaches; As Cable Ops and Others Jump Into New Phone Frontier, Regulators Eye Turf Defenses
By Linda Haugsted

Telecommunications companies are jumping into voice-over-Internet protocol telephony with both feet -- even though, in terms of regulation, they don't know precisely where those feet will land.

There is great debate among state utility regulators as to what VoIP actually is. Is it a telecommunications service, an information service or a mere application?

Lacking solid oversight from the Federal Communications Commission, which has opened a regulatory docket on VoIP, state utility regulators may feel compelled to craft their own policies in an effort to afford some consumer protection.

"I don't think any regulators want full, intensive regulation of VoIP," said Michigan public service commissioner Bob Nelson, who is chairman the National Association of Regulatory Utility Commissioners (NARUC) telecommunications subcommittee. "But on the other hand, consumer protections are necessary."

CONSUMERS WILL RULE

Access to enhanced 911 services and contributions to the federal universal service fund -- a pool of money designed to keep the price of telephone service to rural areas low -- fit into the consumer-protection category, he explained. Specific customer-service rules do not, he added.

Competition will take care of any vendor who doesn't provide good service, said Nelson.

The FCC will make national policy, but it "makes some sense, in the meantime, to experiment in light-handed regulation," Nelson said.

At a national meeting in February, NARUC passed a resolution urging the FCC to confirm its tentative decision that "certain phone-to-phone calls over IP networks are telecommunications services."

There have already been some stabs at regulation, most notably an attempt by the Minnesota Public Utilities Commission to require Vonage Holdings Corp. to apply for a license to do business in that state.

The Minnesota PUC ruled that Vonage's VoIP offering -- which rides on others' cable-modem or digital subscriber line platform -- is an intrastate telephone service, as defined by state law.

In October a federal judge barred the PUC from acting on that order and Vonage has asked the FCC to declare that VoIP is an information service not subject to state jurisdiction.

But utility regulators question the applicability of the label "information service." Lexis-Nexis, an online searchable database (owned by Multichannel News corporate parent Reed Elsevier), is an information service. Does that mean Lexis-Nexis should be regulated and required to pay into universal service funds, one regulator asked rhetorically?

"Computer-to-computer, phone-to-phone, if it looks like a telephone service, it is," said Nelson.

Part of the problem for state regulators may be confusion over the difference between services like those of Vonage and Free World Dialup -- which use the public Internet and vehemently oppose the application of traditional telecom regulation to VoIP -- and the facilities-based, packet-switched product proffered by cable operators, who've been opting to subject their services to some of those rules.

TAX BASES

Academics who are studying the VoIP rollout and regulatory activity have noted that state regulators feel pressure to design regulatory schemes similar to legacy regulation to preserve the tax base of their states.

Lawmakers in the cash-strapped states would like to maintain consistent telecom tax revenues for future budgets.

State-level regulatory activity has already picked up. In Washington state, regulators have been directed to act on a dispute between traditional telephone companies and a VoIP provider over whether the latter company should pay tariffs for using the telcos' networks. A court remanded the issue to the state Utilities and Transportation Commission.

Small, rural telephone companies are raising concerns with state regulators as well. Such carriers receive inflated fees for terminating long distance calls -- a scheme designed to keep rural phone rates low, and fear losing that revenue. In some states, such as Alabama, they've petitioned regulators to open a proceeding to establish VoIP ground rules.

Telephone companies have stepped up their efforts in Ohio and North Carolina, during discussions of Time Warner Cable's applications for VoIP licenses.

The utilities asked regulators to launch larger proceedings. North Carolina rebuffed that request, but Ohio has opened "generic" proceedings on VoIP.

In Texas, processing of the Time Warner application was slowed by intercession by a group of cities that wanted a discussion of rights-of-way compensation. There, the utility regulators also stuck to just the application, approving it last month.

State officials say some rules are necessary to avoid "regulatory arbitrage."

"Regulatory parity" -- the opposite of arbitrage -- "is what you want," Brad Ramsay, NARUC's general counsel, said. "You don't want regulation choosing which technology should win."

NATIONAL POLICY?

Academic observers of the technology's rollout have called for a national policy on VoIP. That will be the best way to ensure the "great promise" of the technology is realized," according to a recent report issued by the New Millennium Research Council.

VoIP applications that function like telecom services can be subjected to certain telephony rules, the report recommended, but all providers should be regulated equally.

"Whether it is computer-to-computer, computer-to-phone, or phone-to-phone, providers need to be regulated similarly," said Syracuse University associate professor Lee McKnight, one of the study's authors. He advocates an "open communications policy," free of the regulatory "artifacts of the past."

He and the other authors discussed their report in a telephone press conference last week.

Though the authors advocate a federal policy, they acknowledge that VoIP is already being deployed. That will prompt state regulators to act as "laboratories of democracy," crafting attempts at regulation that will help mold the eventual national policy.

The more important question isn't how to regulate, added Glen Woroch, adjunct professor of economics at the University of California at Berkeley. Rather, it's a question of how the new technology can prompt deregulation of current telecommunications policy.

"VoIP exposes the warts in the existing system," he said.

OUTDATED DISTINCTIONS

Federal policy, including the 1996 Cable Act, draws deep distinctions between telecom and information services. But those distinctions were based on now-outdated technology.

If lawmakers continue to rely on those distinctions, we will end up with regulation that looks "silly" in the current world, added McKnight.

Application of current, sometimes oppressive regulation will only force VoIP -- a highly portable technology -- offshore, Woroch added.

The potential growth of VoIP in a positive regulatory environment could be monumental, he indicated. In the past four years, VoIP use has expanded globally to the point that 11% of international phone traffic is now conducted via the technology, Woroch said.

Companies like Oregon's LocalDial Corp.-- a public Internet user whose activities gave rise to the VoIP docket there and Washington state -- have prompted complaints from traditional telephone companies, which argue that traffic has been routed to their networks with no compensation.

While cable argues its VoIP product is not a telecommunications service, operators have been submitting themselves to traditional telephone requirements, such as tariffs, in their applications. So far, the industry has avoided the legal dust-ups prompted by the companies, which contend that the Internet is free.

Cable is aggressively mounting a campaign to educate regulators about the differences between the two VoIP products. At a NARUC conference in November, Comcast Corp. set up its own room to stage hour-long tutorials on cable's product.

"I made sure all my commissioners made it there," said Bill Durand, executive vice president and general counsel of the New England Cable Telecommunications Association. Durand, who also attended the meeting, said some of the commissioners had misconceptions about the nature and quality of cable's product. Some thought it traveled on the public Internet and believed other people could easily listen in on calls.

Durand said he thinks cable will be able to win utility regulators over to a minimally invasive oversight point of view because "our business is willing to do things done by other players," such as enhanced 911.

Meanwhile, companies including AT&T Consumer Services, Free World Dialup and the Voice on the Net Coalition (VON) have gotten together to lobby against traditional telecom regulation on VoIP.

That sector's stance plays like the "bad cop" against cable's "good cop," one cable insider said. Regulators object to VON's anti-regulatory arguments, which make it appear that PUCs want to regulate the Internet.

"No one wants to regulate the Internet," said NARUC's Ramsay. "That's the political third rail."

COMCAST'S SLIDES

Nelson lauded Comcast for the informational session and recommended a reprise -- and perhaps participation by other companies -- at NARUC's March meeting in Washington, D.C.

Meanwhile, lobbyists like Durand are "stealing Comcast's slides" for use in his "missionary work" in state capitals.

"We have to go statehouse to statehouse," he said. The hardest sell may be the professional staff members of utility commissions, he added.

"They hear 'IP telephony' and they think typical Internet," with its computer freezes and dropouts, he explained.

DECEMBER 26, 2003

St. Louis Post-Dispatch

PHONE CALL TO THE FUTURE
By Jerri Stroud Of The Post-Dispatch

* More providers are rolling out voice over IP, with the jittery tones of Internet telephony a thing of the past. By combining voice and data on the same network, clients are cutting costs and gaining flexibility.

Time Warner offers digital phone. Vonage Holdings sells broadband voice.

Other companies call their service voice over packet or IP telecommunications. But all are referring to voice over Internet protocol: telephone service transmitted over data networks.

"Everyone is making up new words because they decided that the best way not to sell something was to call it VoIP," said Judy Reed Smith, chief executive of ACM Group Inc., a technology research firm.

"It's been around for a very long time."

But it's becoming a mainstream service only now.

Companies ranging from supermarkets to service stations, colleges to credit unions, have used IP technology to combine voice and data traffic on the same network. As a result, they've reduced the amount of wiring they need and have gained tremendous flexibility.

Companies like AT&T have been using IP technology to transmit telephone calls since the early 1990s. About that time, equipment makers such as Cisco Systems, Nortel Networks and 3Com introduced IP phone systems to replace traditional key systems or private branch exchanges.

As recently as three years ago, IP telephony was considered bleeding-edge technology. In those days, most voice calls transmitted over the Internet had a clipped or jittery tone that businesses rejected as unacceptable.

But that's changing. In the last month, several major companies have announced plans to offer VoIP service to consumers and small businesses.

* AT&T, which has offered VoIP service to some businesses since 1997, will expand to consumers and small businesses in major U.S. markets early next year.

* Time Warner, Sprint and MCI have announced plans for a joint VoIP offering that will be expanded to most markets nationwide.

* SBC Communications and Verizon, the nation's two largest local-phone companies, have announced IP service for consumers and business customers.

* Savvis Communications added IP phone services to its data-network offerings about six months ago.

* Charter Communications plans to offer IP-based telephone service in St. Louis and other markets next year. The cable company offers it in Madison, Wis.

* Covad Communications, which sells high-speed Internet service to businesses and consumers, is planning to add voice services soon in partnership with Global Crossing.

VoIP is "where the market is moving," said Marianne Gedeon, director of voice-data convergence for SBC. "If we want to be in the market, we need to be providing a voice over IP solution."

Mark Barber, vice president for telephony for Charter, said voice over IP "is a more versatile technology that paves the way for future services."

"The end user should have a more robust service, where they can integrate multiple media, such as video and voice calling."

Several changes have brought these companies into the IP fold.

Costs have come down, quality has improved and features have multiplied, making the technology a popular choice for companies that are expanding or moving to a new location.

In addition, federal courts and regulators have shied away from regulating VoIP.

This month, the Federal Communications Commission said that it would study IP telephony for another year but that the service could not be taxed in the interim. Meanwhile, a judge struck down a Minnesota utility commission's bid to regulate Vonage, a company that sells voice services transmitted from a consumer's high-speed Internet connection.

Others are striking a more cautious note.

New Millennium Research Council issued a report saying consumers could benefit from the technology. But the report said also that some safeguards should be put in place to assure that consumers keep access to phone service and that law enforcement and emergency services can function in the IP environment. The council, a Washington-based nonprofit group, examines policies related to telecommunication and technology…

DECEMBER 22, 2003

RCR Wireless News

New challenges

Ah, the sweet promises of a new technology. A recent report by the New Millennium Research Council, an organization of academics and private business experts formed in 1999 to foster policy research on telecommunications and technology, takes on issues associated with the potential of voice over Internet Protocol technology.

The report basically is a well-thought-out 24 pages of how the Federal Communications Commission should and should not regulate VoIP services. Here are four basic tenants the council agreed on:

1. The FCC should develop a clear national VoIP framework, not a patchwork of state regulations;

2. The commission should subject VoIP applications that are like telecom services to certain telephony rules, keeping in mind that such a young industry should not have to meet all requirements;

3. The FCC should regulate all VoIP service providers equally, and;

4. The commission should ensure that statutory social responsibilities like E911, CALEA and universal service are met.

Twenty years ago, wireless telephony was a new technology. As it grew from being a luxury service enjoyed by a few to a necessity used by the masses, it also has had to come under more stringent regulation, even though wireless service is the most competitive telecom service currently offered. Indeed, the wireless industry has often had to walk a fine line in those four basic areas in its short existence. (Remember that wired telephony is more than 100 years old.)

For example, even as the wireless industry tried to get many of its rules under a national framework, state regulators and congressional leaders, increasingly dissatisfied with industry, have been stepping up efforts to control wireless carriers, either through lawsuits, bills of rights or antenna-siting measures. A carrier offering service in 50 states should not have to comply with 50 different sets of rules, but they could.

Likewise, while wireless carriers have to contribute to the nation's Universal Service Fund, they have not been able to get much in return from it. And finally, it wasn't until Dale Hatfield pointed out that public safety answering points also dropped the ball on E911 that real headway was made on the issue instead of just the continuous finger pointing at industry.

The FCC should embrace the suggestions of the NMRC as a framework to proceed on VoIP development. However, as the lines between telecommunications and information services continue to blur, perhaps new regulations are needed for all industries. The NMRC thinks so. It likely will be the FCC's biggest challenge ever.

DECEMBER 17, 2003

Communications Daily, Washington Internet Daily
(and covered in HostingTech on 12/19/03)

ACADEMICS CALL FOR CLEAR NATIONAL REGULATORY STRUCTURE ON VoIP

A group of academics urged the FCC Tues. to produce a clear national regulatory structure soon to ensure voice- over-Internet protocol (VoIP) growth. Speaking via teleconference, authors of a report by the New Millennium Research Council (NMRC) called for the Commission to: (1) Subject VoIP applications that functioned like telephone services to certain telephony rules. (2) Regulate all VoIP service providers equally. (3) Ensure that statutory social responsibilities were met. All 6 authors said they hadn't been compensated by any involved parties for submitting their papers to the NMRC.

The report estimated VoIP technologies could account for up to 40% of all U.S. phone calls by 2009 "if clear regulatory directives are provided in the near future." While many businesses already use VoIP, Syracuse U. Assoc. Prof. Lee McKnight projected that most residential users would "be aware" of VoIP technology in the next 5-10 years "because all 3rd-generation cellphones will be IP phones." Syracuse U. School of Information Studies Asst. Prof. Martha Garcia-Murillo said some telecom carriers already might be routing calls through Internet while charging for them as for circuit-based: "You may actually be making a packet-switched call without knowing." She said that by 2007, 8% of primary (residential) lines would be IP-based. McKnight said data traffic topped voice traffic around 2000 and more than 50% of the calls were data traffic, including VoIP. On the international backbone, Center for Research on Telecom Policy Exec. Dir. Glenn Woroch said 11% of current traffic was VoIP.

U.S. Internet Industry Assn. (USIIA) Pres. David McClure argued that it was "critical" that regulators not attempt to transfer existing telecom regulations, which he said were "designed for a different technology in a different century," to advanced IP networks. "No regulation should be adopted for VoIP unless it is first proven to be necessary -- and in fact, proven to be the best and only solution to a specific and quantifiable problem," he said. The authors agreed that VoIP occupied a "middle ground" between traditional telephone service and newer data services to which some, but not all, practices and regulations should apply to encourage VoIP growth without undermining the building blocks of the telecom industry.

Most of the authors agreed VoIP providers should be exempted from the full weight of state and federal regulation, saying full compliance with every federal, state and local telecom regulation would be likely to slow VoIP's entry into the consumer market. McKnight and Garcia-Murillo wrote in the report that trying to maintain a distinction between state and national communications would lead to the establishment of "artificial, and, in our opinion, arbitrary mechanisms to determine whether or not a voice or data transmission was intra- or inter-state." They said a national policy should be considered not just for VoIP technology, but "ideally in the long term for the regulation of all ICT-related services." McClure agreed, saying it was impossible to treat the network as "a small and isolated set of circuits over which any single city, county or state holds jurisdiction -- particularly when the network is designed to route packets across whatever portion of the network is most favorable, regardless of its geography." CWA research economist Debbie Goldman urged the FCC and states to work together "to hash out the jurisdictional issues" related to VoIP services.

Woroch said that while it was important to figure out how to regulate VoIP, "the greater opportunity really is in the possibilities for this new technology to deregulate existing policy toward traditional services." He suggested that VoIP could be used to "drive out the inefficiencies that are currently embedded in the regulatory structure." Woroch stressed that in the last 4 years, VoIP had gone to 11% from 0% of the international traffic and was "headed in the upward direction. This technology has assisted in reforming the international settlement process." He said it had a potential of doing the same domestically, "if we reframe the issues [by] not asking how we regulate VoIP but how can we use VoIP to deregulate the current system?" He said one example where the technology was moving faster than regulators was impairment procedures going on in states: "That question looks very different when VoIP is available to competitors."

McClure said he expected the FCC to move "very rapidly" on VoIP. He said while the Commission had indicated it would like to wrap up its inquiry in the coming year, "the problem with this is that we are already there." McKnight said he expected "some report or action out of the FCC," but he would be "surprised if it goes really far toward defining more intervention of rules. I expect them to continue the basic policy." Meantime, he said he expected some states would try to "slow the tide," while others would "recognize the benefits of getting ahead of the curve and trying to adopt a more forward-looking state-centric model to gain a competitive advantage for their state."

On the future of access charges, McClure said that was part of a bigger debate on intercarrier compensation. "There has to be some level of intercarrier compensation if there are costs incurred by any of the parties to transfer" traffic on their networks, but he said he was in "favor of the parties' sitting down and working out for themselves what those compensation levels should be and when they should apply," without subjecting them to regulations. Garcia said the problem with intercarrier compensation was "how do you determine where the call was routed to... how do you know which carrier to compensate?" McKnight said that was one of the points that legislation might be required to address because "access charge revenue is going to go away."

The portability of VoIP technology underscores the need for parity in treatment across services, platforms and networks, Woroch wrote in the report: "'Regulatory parity' has become a common refrain in today's increasingly crowded telecommunications marketplace. It is especially critical in the case of VoIP, however, since its deployment is so elastic and the technology holds so much promise of long-run consumer benefits." -- Susan Polyakova

PC World, Network Fusion, IT World, IDG,InfoWorld, IDG-Singapore, and Light Reading
(on 12/17/03)

FEDS CONSIDER REGULATING VOIP

Report urges against heavy oversight that could kill blossoming industry.
By Grant Gross, IDG News Service

WASHINGTON -- Providers of voice over Internet protocol (VOIP) telephone services need the "regulatory certainty" of a national policy, a new report suggests. Authors of the report advocate a national VOIP policy that is relatively free of regulation but intended to protect the growing industry from dozens of state telecommunications regulations. The report, released Tuesday, is entitled "The Future of Internet Phone Call Technology: Regulatory Imperatives to Protect the Promise of VOIP for Industry and Consumers" and was sponsored by the New Millennium Research Council.

VOIP could transform the telecommunications industry in next five to ten years, the report suggests. But the U.S. telecom regulatory policy, which regulates traditional telephone service fairly heavily but imposes few regulations on Internet-related services, needs to change as VOIP blurs the lines between the two communications media, the report's authors say.

The report calls VOIP a "middle ground" between traditional telecom services and data services. It recommends VOIP be subject to some federal oversight but spared from heavy regulation so the technology can grow.

Huge Potential Effect ` VOIP has the potential to cause a "major paradigm shift" in telecom and could have as big an economic impact as railroads or the printing press, says Dave McClure, president of the U.S. Internet Industry Association and one of the authors of the New Millennium Research Council report. With telecom companies moving their telephone calls from circuit-switched telephone networks to packet-based data, the old regulations and pricing schemes based on circuits don't make sense, McClure says.

He, too, calls for a national VOIP policy. The concept was also recently endorsed by Michael Powell, who chairs the Federal Communications Commission. At a VOIP conference on December 1, Powell said he expects the FCC will work on a VOIP policy in the next year.

However, treating telephone calls that move over circuits differently from telephone calls that move partly or fully over the Internet makes little sense, McClure adds. "We can no longer keep pretending that packets sent over one kind of network are different than [information] sent over another kind of network," McClure says.

Other authors of the study are urging the FCC and Congress to ease regulations on traditional telecom instead of trying to shoehorn telecom regulations into the VOIP industry. "To look at imposing on the new [VOIP] industry the old rules is really working on the wrong direction," say Lee McKnight, a report coauthor and associate professor of information studies at Syracuse University.

McKnight wants Congress to change the ways telecom and information services are defined and regulated. The current rules are "arbitrary" and a "relic of the past," he says. With many telecom companies already moving parts of their voice traffic over the Internet, it's nearly impossible to separate a telecom service from an Internet service, he says.

"This VOIP is increasingly infecting the entire communications network," McKnight adds.

Mixed Recommendations

At the December 1 FCC conference on VOIP, advocates of limited regulation urged the FCC to mandate such services as enhanced 911, support for the disabled, and funding for telecom in rural or poor areas. But most attendees asked the FCC to avoid regulating prices for VOIP service. Competition between VOIP providers should negate the need for price-based regulation, says Martha Garcia-Murillo, another coauthor of the report and assistant professor of information studies at Syracuse University.

Congress and the FCC should resist the temptation to impose traditional telecom regulations on VOIP, because heavy-handed regulation could prompt the whole industry to leave the U.S., adds Glenn Woroch, another report coauthor and executive director of the Center for Research on Telecommunication Policy.

Because of VOIP, the FCC has a better opportunity to deregulate traditional telecom services, Woroch adds. VOIP makes up about 11 percent of telephone traffic outside the U.S., he notes. "We really need to listen to new technologies like voice over IP because they expose the warts in the existing system," Woroch adds.

But ending all telecom regulation makes little sense and is unlikely politically, notes Brad Ramsey, general counsel of the National Association of Regulatory Utility Commissioners. Destroying the current FCC regulatory regime would cost "a ton of taxpayer money," he says.

For example, telecom regulations give customers a recourse for complaints, Ramsey notes. Rolling back telecom regulations "is a politically naive place to come from," he says.

Ramsey also questions why some of the report's authors suggest barring state regulators from VOIP. "The notion that state regulatory oversight is somehow going to cause a problem is baffling to me," Ramsey says. "I don't understand the argument that regulation is going to destroy the Internet."

BoardWatch Magazine

Report: VOIP Good for Users

WASHINGTON -- Consumers stand to benefit significantly from voice-over-Internet Protocol (VoIP) technologies -- which could account for up to 40 percent of all U.S. phone calls by 2009 -- if clear regulatory directives are provided in the near future, according to the authors of a new report from the New Millennium Research Council (NMRC). The report finds that an unsettled regulatory picture could threaten emerging VoIP services with unresolved questions about whether and how to regulate VoIP services, as well as other critical issues surrounding this fast-growing technology. VoIP is widely seen as having the potential to transform the telecom industry and bring tremendous benefits to the entire economy. The new NMRC report released today entitled, "The Future of Internet Phone Call Technology: Regulatory Imperatives to Protect the Promise of VoIP for Industry and Consumers," outlines the views of six leading academic and industry experts about the challenges that face would-be regulators of VoIP services.

The Federal Communications Commission (FCC) recently began to examine, at a public hearing held December 1, 2003, the critical issues surrounding new VoIP services in order to provide clear regulatory direction. Major carriers and cable providers have also announced their intention to provide this new technology. Given that this issue is squarely before the FCC, the authors of the NMRC report call on the FCC to (1) develop a clear national VoIP framework; (2) subject VoIP applications that function like telecom services to certain telephony rules; (3) regulate all VoIP service providers equally; and (4) ensure that statutory social responsibilities are met.

The report notes that "VoIP occupies a 'middle ground' between traditional telephone service and newer data services to which some, but not all, practices and regulations should apply to expand the promise of VoIP without undermining the building blocks of the telecom industry. VoIP is a technology whose great promise should be realized without resorting to cumbersome regulation."

DECEMBER 16, 2003

Telecom Reports

REPORT: VoIP COULD SPEED DEREGULATION
Voice-over-Internet protocol (VoIP) services could provide the catalyst to deregulating other aspects of the telecommunications industry, according to panelists addressing a report released today by the New Millennium Research Council on the future of Internet telephony. "VoIP exposes the warts in the existing regulatory system," said Glenn Woroch, adjunct professor of economics and the University of California-Berkeley and executive director of the Center for Research of Telecommunications Policy. He added that this new technology could be used "to drive out the inefficiencies that are embedded" in the current regulatory regime.

Mr. Woroch added that VoIP could potentially eliminate existing regulatory disputes, such as the impairment proceedings being conducted at state commissions as a result of the FCC's "triennial review" order (TRO) to determine whether the competitive market would be impaired without access to unbundled switching. The switching issue "looks very different" with VoIP in the picture, he asserted. According to an industry source, however, while impairment issues concerning switching would diminish with VoIP, impairment concerns surrounding the local loop would remain as a bottleneck issue.

In addition to Mr. Woroch, several other academics and industry members worked on the NMRC report, including Gregg Vanderheiden, professor of industrial engineering at the University of Wisconsin-Madison; Martha Garcia-Murillo, assistant professor at the School of Information Studies at Syracuse University; Lee McKnight, associate professor at Syracuse University and M.I.T. research affiliate; and Dave McClure, president of the U.S. Internet Industry Association.

The report calls for the development of a clear national VoIP policy and urges regulatory restraint to let the technology develop unhindered. It further urges equal regulatory treatment of the technology and continued effort to address social obligations, such as emergency and law enforcement services, high-cost support, and quality of service issues. The report also calls attention to the need to address the loss of revenues local governments will incur as a result of "the reduction of costs and taxes that IP services foster."

The full report is available at http://www.newmillenniumresearch.org/news/voip_nmrc.pdf. - Margaret Boles, mboles@tr.com

Telecom Web

VoIP Holds Bright Future for Consumers, Industry Needs Regulatory Certainty

Consumers stand to benefit significantly from Voice over Internet Protocol (VoIP) technologies -- which could account for up to 40 percent of all U.S. phone calls by 2009 -- if clear regulatory directives are provided in the near future, according to the authors of a new report from the New Millennium Research Council (NMRC). The report finds that an unsettled regulatory picture could threaten emerging VoIP services with unresolved questions about whether and how to regulate VoIP services, as well as other critical issues surrounding this fast-growing technology.

VoIP is widely seen as having the potential to transform the telecom industry and bring tremendous benefits to the entire economy. The new NMRC report released today entitled, "The Future of Internet Phone Call Technology: Regulatory Imperatives to Protect the Promise of VoIP for Industry and Consumers," outlines the views of six leading academic and industry experts about the challenges that face would-be regulators of VoIP services.

The FCC at a Dec. 1 public hearing began examining critical issues surrounding VoIP services in order to provide clear regulatory direction. Major carriers and cable providers have also announced their intention to provide this new technology. Given that this issue is squarely before the FCC, the authors of the NMRC report call on the FCC to (1) develop a clear national VoIP framework; (2) subject VoIP applications that function like telecom services to certain telephony rules; (3) regulate all VoIP service providers equally; and (4) ensure that statutory social responsibilities are met.

The NMRC report's authors found that to ensure VoIP's continued growth, VoIP service providers, regardless of the technology used, should adhere to certain rules of the telecommunications landscape, especially those that advance important public policy objectives such as universal access, access for law enforcement, and emergency services. At the same time, most of the authors found that VoIP providers should be exempted from the full weight of state and federal regulation. Full compliance with every federal, state, and local telecom regulation would most likely slow VoIP's entry into the consumer market, they said.

The report notes that "VoIP occupies a 'middle ground' between traditional telephone service and newer data services to which some, but not all, practices and regulations should apply to expand the promise of VoIP without undermining the building blocks of the telecom industry. VoIP is a technology whose great promise should be realized without resorting to cumbersome regulation."

National Journal's Technology Daily
The emergence of Internet telephone service means that policymakers must rethink current regulatory structure and provide a good opportunity to deregulate telecommunications services as well, according to a study released by the New Millennium Research Council. While the technology for Internet telephony can lead to a cheaper alternative to traditional telecom services, "the greater opportunity is in the possibility of this new technology to deregulate traditional ... services," said Glenn Woroch, an economics professor at the University of California at Berkeley. David McClure, president of the U.S. Internet Industry Alliance, called for a national policy on Internet telephone service, saying, "I have learned from experience that some of it is going to have to be codified into law." He also called for "regulatory parity" among providers and for assurances that social obligations, such as 911 emergency service and the goal of affordable telecom service for all Americans, be maintained.

Telephony Online

Minimal regulation crucial to VoIP success in the U.S., report says
By Donny Jackson

Voice-over-IP usage and related economic growth in the United States could be hindered unless a national policy is adopted that establishes an environment that leaves the budding technology largely deregulated, according to a report issued today by the New Millennium Research Council.

Aside from fulfilling social responsibilities in areas such as universal access, law-enforcement access and emergency services, VoIP traffic should be allowed to grow free of regulation, authors of the NMRC said in a press conference. Doing so could alter the telecommunications landscape forever, they said.

"Voice over IP represents a major paradigm switch as important as the printing press, the railroad and television," said Dave McClure, president and chief executive officer of the U.S. Internet Industry. In fact, if VoIP becomes as popular as many project-some estimates indicate VoIP will account for 40% of all voice calls by 2009-competitive companies using the technology could provide a reason to deregulate tradition phone companies.

"The question should not be, 'How can we regulate voice over IP?' but 'How can voice over IP be used to deregulate traditional telecommunications?'" said Martha Garcia-Murillo, assistant professor at Syracuse University's School of Information Studies. Deregulation also would provide a huge relief to regulatory agencies, which are struggling to make VoIP applications fit into a regulatory environment based on circuit-switched networks. With VoIP's disparate packets traveling across various routes in the network, there's no easy measurement such the number of minutes a circuit switch is used to base regulations.

Not only will regulations on VoIP be difficult to create and enforce logistically, it could have the unwanted economic effect of causing VoIP providers to operate off-shore, thereby denying the United States potentially valuable jobs and tax revenues.

"We have to resist the temptation of taking traditional circuit-switched legislation and applying it to voice over IP," said Glenn Woroch, adjunct professor of economics at the University of California-Berkeley and executive director of the Center for Research on Telecommunications Policy. "Because voice over IP is very portable, attempts to regulate it will drive it … elsewhere."

Some FCC commissioners philosophically agree with this deregulatory notion. However, current laws limit the commission from legally attempting to act on the matter in a "forward-looking" manner, so Congress needs to address this area, according to Lee McKnight, an associate professor at Syracuse University and an M.I.T. research affiliate. In addition, there are political realities such as well-established federal subsidies and access fees that have long generated revenue for state budgets.

For the most part, VoIP's inherent flexibility, efficiencies and cheaper costs can overcome many of the subsidy issues, Garcia-Murillo said. For instance, Garcia-Murillo noted that subsidies used to fund telecommunications in schools, libraries and urban low-income areas may not be necessary in the future, because competing technologies such as VoIP could make services affordable to all.

Universal access-guaranteed largely through the availability of the universal service fund in the current regulatory environment-could be trickier to resolve. However, the lower costs of IP-based equipment and advances in new technologies may make some areas once deemed as unprofitable viable from a business standpoint-not just in the U.S. but in underdeveloped parts of the world, Garcia-Murillo said.

Determining how-or whether-to calculate access charges used to put revenue in state coffers and in carriers' budgets via intercarrier agreements are other challenges facing the regulators and industry leaders in a VoIP-influenced telecommunications environment, the report authors noted.