Second Quarter 1998

BY GREG GALITZINE

On April 10th, 1998, the Federal Communications Commission (FCC), in its report to Congress, determined that it is not ready to conclude that the long-distance calls carried over the Internet or other data networks should be regulated as a telecommunications service. Future regulation, however, seems likely. It should be noted that the outpouring of support for a "hands-off" approach — from the White House on down to industry vendors, analysts, and media — played no small role in the FCC’s ultimate decision to forego making any definitive statements regarding Internet telephony.

Several days before the FCC was scheduled to meet, the following letter was sent by a group of Internet telephony pioneers in the interest of seeking Vice President Gore’s help in creating a Presidential Commission to investigate and recommend appropriate regulatory treatment of Internet telephony. Representatives from the following four companies signed the letter:

• pulver.com
• ITXC Corporation
• VocalTec Communications
• IDT Corporation

--Greg Galitzine

The Honorable Albert Gore,Jr.
The Vice President of the United States
Office of the Vice President of the United States
Old Executive Office Building
Washington,D.C. 20501

Dear Vice President Gore:

We write to request your assistance in, and support for, the formation of a commission whose purpose would be to recommend strategies for closing the divide between historical telecommunications policies and the progress of technology.

Technology has expanded the reach of the Internet and data networking into areas historically regulated as "natural monopolies"(e.g.,voice service). This event has generated calls to place these emerging services into a traditional regulatory framework. However, such an action threatens to extinguish the private investment that makes these services possible.

We collectively believe Internet Telephony is a necessary and inevitable consequence of an innovative Internet industry and a boon for end users where voice represents only the first application arising from the integration of telephones and the Internet. We strongly support the goals of universal service, but the idea these emerging services should subsidize universal service via existing mechanisms amounts to suggesting the emerging personal computer industry should have helped make computing more affordable by subsidizing the distribution of mainframes.

You have already provided global leadership in advocating universal access to the Internet. We need to consider the issues carefully as we risk the great irony of using the policy designed to make communications affordable and ubiquitous as the reason for discouraging the first Internet application for people who don’t computers.

We have common ground in the recent trend toward deregulation of telecommunications designed to age market forces as a means to improve the telecommunications value delivered to end users, but now observe a contradictory reflex to introduce new regulation where it did not already exist. It appears no interest group favors heavy regulation, but the incumbent players offer the threat to universal service in an attempt make sure everyone gets similarly handicapped. The hypothesized threat to universal service claims a risk to users, but it seems reasonable to check the validity of this notion. It should not suffice to note effects on the additional funding mechanisms as the emerging services will provide cost performance improvements far beyond those possible by shifting dollars from one group to another.

We seek your assistance to help focus the debate on finding an approach that serves the best interest of end users rather than the best interest of an anachronistic funding mechanism.

Regulation of Internet Telephony will hurt end users by discouraging private investment. No company operating without regulations will expand into regulated areas given the perceived risk that regulations will find their way into core businesses. The absence of investment will cost end users:

1. Lower prices and new services.
2. Infrastructure investments.
3. Jobs and prosperity.

The telecommunications and computer industries have grown ten-fold for each unit of cost performance improvement. Success in the computer industry depends on constant innovation resulting in a thousand-fold cost performance increase over the last twenty years and sustained 30% growth rates. Success in the telecommunications industry depends more on the action of lawyers than innovation. We observe only modest cost performance improvements and 7% annual growth rates. There exist no technical obstacles to computer-like cost performance improvements in telecommunications and computer-like growth of the telecommunications industry. The difference between 30% and 7% growth amounts to more than $2,000,000,000,000 worth of jobs, tax receipts, and wealth creation over five years.

Progress calls for new strategies:

• as the existing policy of regulating certain services runs counter to the underlying innovation of the Internet in decoupling physical, data networking, transport, and application layers.
• as the policy of long-distance subsidizing local service creates an artificial distinction where end users need both kinds of service.
• as the expense of telecommunications leaves many communications needs unfulfilled.
• as without adjustment current policies will cost the United States global leadership in telecommunications.
• as policies defining communication as voice only will postpone the unifying power of other diverse communications mechanisms.

The commission can provide global leadership for:

• the creation of quantitative measures and benchmarks for policy goals like universal service.
• accelerating the deregulation of telecommunications.
• creating an environment that fosters innovation in telecommunications as a national imperative analogous to a "race to the moon."
• development of programs encouraging private investment in the National Information Infrastructure.

We look forward to your response on this critical matter, and we offer any assistance you may need in further developing a strong and committed response to this national problem.

Signed:

Jeff Pulver, president, pulver.com, Inc.
Tom Evslin, CEO, ITXC, Inc.
Elon Ganor, CEO, Vocal TecCommunications, Inc.
Jim Courter, president, IDT Corp.