May 1999

A Call To Action On Regulation

BY LAURENCE J. FROMM

The threat of untoward regulation persists for the Internet telephony industry, but there is something you can do about it - and should, if you are an Internet telephony service provider or equipment vendor. Internet telephony is the junction of two giant communication industries with vastly different regulatory practices: the Public Switched Telephone Network (PSTN) and the Internet. Some Internet telephony service providers use the Internet to provision services that look and feel like PSTN services.

PSTN services are heavily regulated. The Federal Communication Commission (FCC), state Public Utility Commissions (PUCs), and their counterparts in other countries, are continuously laying down the ground rules (like universal services) and overseeing transfer payments between different constituencies to meet social objectives. The Internet, on the other hand, is unregulated, subject only to the same laws of business as other unregulated industries. Currently, the U.S. government seems intent on keeping it that way because of the economic and social benefits the Internet brings.

It is difficult to think of two adjacent industries with such different regulatory environments. This keeps life on the edge interesting, and indeed, the prospect of disruptive regulation of Internet telephony services has been a topic of speculation since the industry began.

THE STATE OF REGULATION
Internet telephony service providers and equipment vendors breathed a collective sigh of relief last April when the FCC delivered its report to Congress about Internet regulation. In the report, the FCC declared it premature to impose PSTN regulation on the use of the Internet to provide voice services. Yet some in the industry seem blissfully ignorant of the continuing threat of regulation.

Despite the FCC report, regulatory threats to Internet telephony remain constant and real, coming from a number of sources:

• The FCC. In its report of April 10, 1998, the FCC left room to address the issue again in the form of a complaint proceeding, and BellSouth and USWest have indicated that they may bring such a complaint to the FCC. If the FCC classifies some forms of Internet telephony as telecommunication services, those services will be subject to the same filing, access, universal fund, and settlement charge requirements as traditional PSTN services.
  
  
• The states. Several states, notably Nebraska and South Carolina (which held a hearing on March 16), have begun examining the issues of Internet telephony as they relate to access charges. Regulation at the state level would not only impose filing requirements and taxes on service providers in that state, but it would also lead to a patchwork of regulation within the U.S.
  
  
• Other governments. Some governments have declared Internet telephony illegal, while others are studying the issue. For example, the French Telecommunications Regulatory Authority (ART) has begun proceedings on the topic, and released comments on March 13. For more information, visit www.art-telecom.fr. The French government's notice suggests that non-regulation of Internet services, including voice services is part of a U.S. effort to protect domestic companies.
  
  
• The incumbents. Some incumbent Regional Bell Operating Companies (RBOCs) have said that they are entitled to force the issue by retracting local service from Internet telephony service providers.

Against this considerable regulatory pressure, the Internet telephony industry has deployed the relatively meager Voice Over Net Coalition (VONC) (www.von.org). A non-profit industry group, VONC advocates the view that the Internet telephony industry should remain as free from regulation as possible. VONC recently merged with the Spread The Net Coalition, the other industry public policy group, to offer a single organization -- and a united front in combating regulation.

VONC has impact beyond its size, for two key reasons. It is an effective advocate to the FCC, the Clinton administration, and Congress. Many public policymakers are sympathetic to the Internet telephony industry because it is fostering competition and innovation, and is making communication services less expensive for consumers and businesses. Especially noteworthy is the industry's impact on international calls, since overseas carriers and governments lose when their exorbitant settlement charges are bypassed.

It has leverage. Many larger companies in the IP telephony industry have public policy efforts, and VONC is able to leverage these efforts by developing a position and using the public policy arms of various companies to deliver the position to the appropriate policymakers.

THE ARGUMENT AND RESOLUTION
The VON Coalition has developed several arguments against regulation of Internet telephony:

• IP voice services fit the statutory definition of an "information service" rather than that of a "telecommunications service," and hence by FCC rules, are exempt from PSTN-type regulation. The VONC developed this position in a white paper that it submitted to the FCC in March 1998.
  
  
• IP voice services are in their infancy, and their impact at this time is too insignificant to be a prominent agenda item for government regulators, who should at least wait for the services to mature before attempting to devise any appropriate regulations.
  
  
• IP voice services are extending the benefits of the Internet to many citizens not wealthy enough to own a computer.
  
  
• Putting pressure on artificially high international accounting rates and other outdated and inefficient regulations is beneficial and should be encouraged by those interested in regulatory reform.

VONC plays an important role in the early growth of our industry. Inappropriate regulation at this early stage will artificially restrict growth, innovation, and competition, setting the stage for a murky regulatory set of rules as the two great communication industries merge into one. Internet telephony service providers and equipment vendors should join the VON Coalition and support its efforts for the benefit of the industry, and themselves.

Laurence J. Fromm is chairman of the Voice Over Net Coalition. He is also vice president, new business development for Dialogic Corporation. Dialogic is a leading manufacturer of high-performance, standards-based computer telephony components. Dialogic products are used in fax, data, voice recognition, speech synthesis, and call center management CT applications. For more information, visit the Dialogic Web site at www.dialogic.com.