Telecom's hottest technology takes center stage today in Washington, as regulators consider boundaries that could shape a rapidly shifting landscape.
The subject is the much-ballyhooed voice-over-Internet protocol, or VoIP, communications standard. What's bringing the telecom referees into the huddle is the potentially huge growth of VoIP, and just how it should be policed.
This new Net calling technology has blurred the distinction between phone calls, which are heavily regulated, and Internet data, which aren't. The ensuing confusion and its potential resolution could monumentally recast the industry. The Federal Communications Commission will begin sorting it all out in a 9:30 a.m. EST meeting.
Simply stated, conventional phone calls are subject to a battery of federal regulations, tariffs and transportation charges as traffic crosses onto rivals' networks. Calling on the Net, by contrast, is largely unregulated and exempt from fees. Today, the problem for the FCC will be determining who gets charged and who rides for free.
Investors are particularly attuned to the debate over access fees or so-called intercarrier compensation, since about $15 billion in annual revenue hangs on the line. Any ruling that preserves VoIP's untouchable status is likely to trigger more investment and expansion in that part of the industry. Conversely, what's good for the upstarts will be seen as a blow to the Bells.
If companies can sell calling service and avoid paying access fees, it will likely speed up the already rapid revenue erosion trends at the old-line shops such as
But since nearly all voice traffic travels along a wide array of phone and Internet routes, it's not likely that any participant in the debate will emerge as a clear winner. And even if the Bells were granted reduced claims to access fees, their formidable army of lobbyists and lawyers will likely help them to hold their ground for years.
For starters, the FCC will likely tackle the simpler issues first.
First up is a petition by VoIP pioneer Jeff Pulver of
. He has petitioned the FCC to rule that his company's Net calling product, "free world dial-up," isn't a telecom service. Observers expect the commission to approve Pulver's plea since the VoIP calls, like those of other Net calling outfits such as closely held
, originate on broadband Internet connections.
"I think they'll be in favor of Pulver, since they probably see it as nonthreatening," says RHK analyst Ken Twist. "That should help open up the floodgates of investments for Vonage-type outfits."
The harder task for the regulators will be addressing claims made by companies like AT&T. The big long-distance telcos assert that no fees are owed to other phone companies if their traffic moves to VoIP. AT&T's network, like that of nearly all big telcos, comprises a mixture of phone and Net gear, and traffic along some routes is converted to Internet protocol, then later converted back to standard voice transmission.
This gives the FCC the tall task of trying to determine when a conventional call is merely masquerading as a VoIP call, at a time when the big players are
shifting quickly away from standard phone equipment to so-called softswitches and Internet routers.
The compensation formulas are already extremely complicated, and what makes it even worse for regulators is that "it involves payments between competitors, who do not want to be making payments to each other," says telecom lawyer Paul Feldman with Fletcher Heald & Hildreth in Arlington, Va.
"All parties recognize the need to address the matter, and most of them believe that something must be done soon before events like VoIP overwhelm the system," says Feldman, whose clients are midsize telcos.
FCC Chairman Michael Powell has said that he hopes to finish the access charge ruling this year. But few industry watchers think the solution will make all the disparate parties happy. Feldman, for example, is looking for some sort of "phasing in, to prevent rate shock."
Others say that with nearly all the players in the industry shifting quickly to Internet technology, by the time the rules are finalized, the game will have changed entirely.
Said one investor, "The longer the FCC drags out the process, the more it will be decided by market forces."