VoIP’s Big Week

Any doubts that Voice over IP will completely revolutionize the telecommunications industry have been erased. If announcements by traditional telephone giants — like SBC, Verizon, Qwest and even AT&T — of plans to roll out their own internet phone services don't make it totally clear, Monday's public Federal Communications Commission hearing o­n the burgeoning industry has: When it comes to telecom, VoIP is THE big thing.

Any lingering doubts that Voice over IP will completely revolutionize the telecommunications industry have been erased over the past few weeks.

If announcements by traditional telephone giants — like SBC, Verizon, Qwest and even AT&T — of plans to roll out their own internet phone services don't make it totally clear, Monday's public Federal Communications Commission hearing o­n whether to impose regulations o­n the burgeoning industry has: When it comes to telecom, VoIP is THE big thing.

The Big Hitters Come to Bat

Two weeks ago, SBC got into the IP telephone game, offering internet telephone service to its business customers at rates significantly lower than the company's landlines. 

"We see a real advantage for business that IP provides," said Dorothy Attwood, SBC's Senior VP for Federal Regulatory Strategy and Implementation.  "We're network focused and see that VoIP will help manage and converge data needs of a network."

This week, Qwest became the first Baby Bell to get into the residential IP phone market when it announced a promotion to give away free VoIP service to 200 broadband customers in Minneapolis and St. Paul, MN.  The Denver-based company has ambitious plans to offer IP telephone service to customers across its 14-state service area. 

SBC and Qwest aren't the o­nly o­nes hoping to cash in o­n the rapidly growing sector.  Verizon has started offering business IP telephone service and AT&T is jumping into the residential game too with its own service beta tests. 

The larger companies' will surely shake up the industry like they did when they entered the cell phone market a few years back. Today, there are an estimated 150,000 residential users of commercial VoIP services — a number that is certain to climb rapidly as the big boys enter the picture.

Besides the Baby Bells, cable companies have shown an interest in throwing their hat in the ring.  Time Warner Inc., and Cablevision have both rolled out VoIP plans. Time Warner plans to offer its 11 million customers the service by the end of next year.

The arrival of the Bells and the cable companies was inevitable, says Ravi Sakaria, CEO of VoicePulse, an independent New Jersey-based VoIP provider. "They see how VoIP is the way to go.  There's no doubt about it."

FCC's Stance

Monday's FCC meeting (a complete audio trascript of the hearing, in Real Audio format, can be heard here; or you can watch CSPAN's 4 hour plus video stream in RealOne format here) made it clear that VoIP is much more than a blip o­n the FCC's radar screen. The internet revolution in the '90s may have caught the Commission off guard, but it's clear that the potential of the VoIP revolt of the 00's has not been lost o­n the FCC.

FCC Chairman Michael Powell, who is the most outspoken business advocate o­n the commission, usually calling o­n a "hands-off" approach to regulation, admitted the need for the FCC to figure out what it should do regarding VoIP. 

"The time has come to confront this issue more directly, rather than having the regulatory framework for the Internet develop in a piecemeal fashion or by dangerous accident," Powell said in his introductory remarks to Monday's meeting. (A complete trasncript of Powell's remarks, in Adobe Acrobat PDF format, can be read here.)

Other commissioners were even more direct.

"What we have here today is a wake-up call…The long-awaited convergence of voice, data and video o­nto Internet-based networks is o­n the verge of turning the pipe dreams of just a few years ago into new commercial reality."  FCC Commissioner Michael Copps, considered to be o­ne of two consumer advocates o­n the commission, added. "We do no favors to anyone if we sit back and practice benign neglect. It's both pro-consumer and pro-business for the Commission to bring clarity to this dialogue." (A complete transcript of Copp's remarks in Adobe Acrobat PDF format can be read here.)

Just how the FCC will end up regulating the industry is uncertain, but its itchiness to get involved should make it clear to anybody following VoIP that the whole industry — and all of telecommunications — is about to change drastically.

Regulatory Influence

Qwest's VoIP rollout plan in the Twin Cities comes o­n the heels of a federal judge's ruling that internet telephony is out of bounds as far as state regulators are concerned.  That freed Qwest from following traditional phone regulations with its new service.

Following Qwest's big splash in Minnesota, Vonage, a VoIP provider with 70,000 customers across the country, rolled out a competitive $15.00-a-month calling plan that offers 500 minutes of local and long distance calls.  Ironically, it was Vonage that filed the lawsuit in Minnesota that allows Qwest to take advantage of a regulation-free market.

Vonage's advocacy and legal pressure in Minnesota means unimpeded competition in the state. Now the company is forced to contend with the results of that competition by going to battle with a much larger company.

The Minnesota case highlights how decisions surrounding the regulation of VoIP clearly make a significant difference.  Such developments are why the FCC's Monday forum in Washington was of such importance.  Although no decisions were made at the hearing, VoIP industry insiders are anxious to see what stance the commission will take as they begin to discuss regulating the field.

John Rego, CFO for Vonage, raised a cautionary flag when discussing the role of the FCC, arguing that excessive VoIP regulation may keep the technology from growing.   "Let VoIP grow as a nascent industry," Rego said. "Let capitalism take over decisions and then regulate it."

While many VoIP backers, like Rego, are concerned that regulation at this stage could be enough to kill the industry, others cautiously welcome it.

Sakaria believes some level of FCC involvement is desirable, especially if it means that the agency takes over from overzealous state regulators.   "It would eliminate the potential of companies like ours having to deal with 50 different entities," Sakaria said. "That would be cost prohibitive." 

But Sakaria contends that excessive regulation would be counter-productive. "More at stake than Packet8, Vonage, VoicePulse and other VoIP providers' future is America's dominance of this new technology," Sakaria said. "Over-regulation would have the potential to cause the development of technology to move abroad."

The Baby Bell Dilemna

Attwood from SBC is pushing for even more regulation than Rego and Sakaria.

"We think that at this point the FCC needs to step up and take ownership of this issue and say it needs to be regulated," Attwood said. "They need to tackle public policy like how to manage 911 questions and universal service questions.  These are recognized needs."

For SBC and other traditional phone companies, navigating the waters of telecommunications innovation unimpeded by the regulatory framework they are accustomed to is tricky. 

Required to collect Universal Service Fund fees and provide emergency 911 services in their traditional business, they have a direct interest in seeing strict guidelines in place o­n VoIP, rules that would constrain independent providers like Vonage and VoicePulse.

And at the same time, by rolling out IP telephone service to compete in the new world of communications, the Baby Bells risk eating into their own bottom line

"They're in a different position than we are," Sakaria says of the Baby Bells.  "They have a huge investment in a legacy of infrastructure.  Any VoIP service they offer can cannibalize their operation."

At Monday's meeting, it became clear that o­ne key issue for the FCC and the VoIP industry is safety — specifically 911 emergency service.

FCC Commissioner Jonathan Adelstein said, "'Hands-off' treatment [of VoIP] could mean we are undercutting the safety of consumers, law enforcement and national security, and the integrity of the underlying network and the universal service funding mechanism."

Sakaria agrees that something has to be done about 911. "A regulatory body mandating that we implement 911 would have a benefit," Sakaria said, though he added that it would be difficult to impose specific timetables.

Most industry observers expect that the agency will impose some level of regulation o­n internet telephone providers. But, regulation or not, VoIP's key role in the future of the telecommunications arena appears to be firmly assured.

"I don't think that any regulation that comes about is going to be prohibitive to doing business," Jeffery Williams, President of Broadvox Direct, a new national VoIP provider launching later this month, said. "I think it's going to strengthen our space. It adds legitimacy to it and also some protection for the customers. While the companies out there today all seem to be pretty responsible, that doesn't mean the o­nes coming down the road are going to be."