FCC hears views on VoIP regulation

By Grant Gross, Network World
December 08, 2003 12:05 AM ET

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WASHINGTON, D.C. - The FCC should take a mostly hands-off approach to regulating voice over IP so the technology can continue to mature and provide consumers with a choice of telephone services, vendors told regulators last week.

Too much regulation would "retard innovation," said Jeffrey Citron, CEO 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 and a member of the California Public Utilities Commission doubted that 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 not mandated to do so. Universal service funds help pay for telecom service to low-income areas, rural healthcare providers, schools and libraries.

Law enforcement groups also have questioned whether VoIP providers would comply with phone-tapping requests unless required by FCC regulations.

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Regulation is appropriate when a monopoly controls a market, but it is not needed in the VoIP market because there are potentially dozens of competitors, said Tom Evslin, CEO of VoIP vendor ITXC. A minimalist regulatory approach encourages telecom carriers to invest in VoIP, and VoIP currently is one of the largest areas of investment in the sector, he argued.

"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 forum was scheduled as the commission heads into a debate on how to regulate VoIP, which has endured 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 telecom services move to Internet-based platforms.

SBC and Verizon have announced VoIP products within the past month. MCI has announced plans to shift nearly all its voice traffic to IP-based networks by 2005, and already has started to move voice traffic to IP networks, said Michael Gallagher, acting assistant secretary in the U.S. Department of Commerce. Last month, SBC's senior vice president and CFO called VoIP a "threat" to his company's residential phone service offerings, and at last week'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.

"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.