The Great Telephony Debate:
Znews INTERNET TECHNOLOGY FEATURE:
Internet Phone Services Faces Regulatory Threat
By Cynthia Kurkowski
Rallying for unregulated Internet telephony, Netscape
Communications, Inc. and its development partners, InSoft Inc. and Voxware
Inc., have responded to a petition presented to the FCC
by the America's Carriers Telecommunication Association (ACTA) to regulate
and tax netphone software providers. The FCC ruling on the matter will have
far-reaching effects on worldwide communications via the Internet.
Netscape response
claims that ACTA's petition
is nothing more than an attempt to squelch new business opportunities. In
a formal filing with the FCC, Netscape asks that the FCC (1) Refrain from
regulation in order to allow for the growth of new online ventures; (2)
Preempt state public service commission regulatory authority over the Internet
as Internet communications are interstate and the Telecommunications Act
of 1996 discourages such regulation; and (3) Promote a competitive, deregulated,
international telecommunications environment.
The core issue of the debate is whether Internet telephony companies can
be regulated as telecommunications providers, or whether they fall into
the category of "enhanced" information services, which are excluded
from FCC regulation under the 1996 Telecommunications Act.
Netscape's vested interest in Internet telephony stems from recent development
efforts to launch its Internet telephony services, including online audio
conferencing and white board workgroup collaboration services. At the core
of Netscape's telephony services lies the CoolTalk application developed
by InSoft. Using CoolTalk, Netscape
Navigators 3.0 users can send and receive calls directly from any Web page.
Audio conferencing with full duplex sound lets users talk "live"
to speak and be heard simultaneously. CoolTalk is also the basis for "LiveTalk,"
an RTP-based application based on the Netscape LiveMedia framework. In addition,
Netscape has an agreement with Voxware
to license that company's compression/decompression (codec) technology to
plug into the Netscape LiveMedia framework.According to ACTA, the FCC has an obligation to address the unregulated and unauthorized provisioning of telecommunications services enacted through the recent U.S. Telecommunications Act including the Internet itself. (ACTA also submits that the FCC has the authority to regulate the Internet.) The goal of the Telecommunications Act of 1996 signed by President Clinton in February is to promote new businesses and services in the communications marketplace by inviting everyone to enter any communications business and allowing any communications business to compete in any market against any other.
Stated simply, ACTA wants the netphone software providers to halt all business operations until the companies comply with the common carrier regulations, including special taxation. ACTA submits that the providers of this software are telecommunications carriers and, as such, should be subject to FCC regulation like all telecommunications carriers.
"Many of the [ACTA] comments argued the specific points of regulation," said Kevin Werbach, FCC Internet attorney. "The petition raises some valid concerns about usage rates for Internet service providers."
The ACTA petition states: "ACTA submits that it is not in the public interest to permit long distance service to be given away, depriving those who must maintain the telecommunications infrastructure of the revenue to do so, and nor is it in the public interest for these select telecommunications carriers to operate outside the regulatory requirements applicable to all other carriers."
Public interest? Teleco corporate interest is more accurate. Consumers can only benefit from netphones. It is the carriers who will likely suffer. Competition from alternative communications services such as netphone phones will cause the carriers to drop rates in order to successfully compete. Carriers are on the defensive, fearing diminishing revenues from competitive netphone services.
"Stripped of its 'public interest' rhetoric, the Petition's sole claim is that Internet voice communications divert potential revenues from ACTA's reseller members. Using the regulatory process as ACTA requests -- to raise rivals' costs and prevent competition from offering consumer choices in communications services -- is plainly unjustifiable," states the Netscape response.
While netphone users may not incur the long-distance charges, netphone proponents are quick to remind folks that these users do pay for the service through various equipment investment and software upgrade costs.
Netscape points out that "consumers do incur costs to engage in Internet telephony and IVVS services, including hardware expenses (computers, modems, microphones), software expenses (Internet client software) and online service expenses (ISP and OSP charges). That ACTA believes these implicit 'prices' are too low is once again immaterial. Internet IVVS offers computer users a broad array of real-time voice and video applications, of which Internet telephony is one piece."
Defining Internet Communications
The ACTA petition has caught the attention of Larry Irving, the assistant secretary for communications and information for the National Telecommunications and Information Administration (NTIA), U.S. Department of Commerce. In a May 8th letter to the FCC commissioners, Irving denounces ACTA's charge that netphone providers are common carriers.
"The Respondents [netphone proponents] provide their customers with goods, not services. Although the software that those firms sell does enable individuals to originate voice communications, all of the actions needed to initiate such communications are performed by the software users, rather than the vendors," Irving states. "At no time do the Respondents engage in the "transmission" of information. . . The Respondents are no more providing telecommunications services than are the vendors of the telephone handsets, fax machines, and other customer premises equipment that make communications possible," said Irving.
Netphone providers are hoping they will be excluded from common carrier telecom charges by being named value-added services. "Enhanced" information services are automatically excluded from FCC regulation under the U.S. Telecommunications Act of 1996.
If Internet telephony services are "enhanced" information services, then state public service commissions are precluded from regulating the Internet. On the other hand, if Internet phone services are "telecommunications services" for purposes of the 1996 Act, then the Commission must decide where they fall under the division of regulatory power between interstate services, reserved for the FCC, and intrastate services, reserved for state PUCs (public utility commissions).
The FCC is faced with defining the services -- a difficult task considering the relationship between Internet telephony services and Internet access and data transfer services. As Internet communication grows, the distinction between common carriers and Internet service providers becomes increasingly difficult to determine, such as in the case of Pacific Bell, a prominent carrier in Northern California, which recently introduced its Internet services, or Unitel, a major Canadian carrier that has announced similar plans.
Mission Impossible: Differentiating Voice from Data
The FCC's mission is more complicated than defining just what a netphone software developer is; if the Commission defines netphone software developers as common carriers, then it is faced with the overwhelming task of figuring out how to regulate the service. To date, such a task is impossible based on the nature of Internet communications; no single carrier and connection is used to transmit the data, rather a series of connections and routers is used.
To regulate netphone service, the FCC would have to be able to distinguish voice communications from data communications going over the Internet.
"Even if it were practical to identify Internet voice communications among the hundreds of millions of Internet packets flowing across the network each day, separation of voice "calls" along traditional telephone jurisdictional lines is definitely impossible," Netscape contends. "Unlike telephone numbers, Internet IP addresses are designed to be geographically indifferent -- there is no correlation between a user's physical billing address and the location of its Internet client computer."
Canada's Communications Dilemma
The next issue the FCC and other international regulatory agencies must resolve is the issue of phone-to-phone telecommunications via the Internet. The Canadian Regulatory Trade Commission (CRTC) is already grappling with this revolutionary concept in long distance communications. ShadowTel introduced its Internet-based long distance service at the beginning of this year only to hit the same strong opposition by common carriers as netphone software developers have in the U.S. CRTC is currently reviewing the case and will define the service at ShadowTel's request.
ShadowTel's service uses an Internet server to bypass the long-distance carrier routes and rates. The callers uses a telephone to dial up ShadowTel's Internet server which then places the call via the Internet. The ShadowTel server site initiates the routing path and connects to the remote ShadowTel site in the receiving parties area code and exchange. The receiving ShadowTel site then seizes one of it's local lines and dials the receiving party's number. The call is completed after being transmitted from analog to digital and back to analog.
No special equipment at the home or desktop is required for the ShadowTel service. Each consumer pays an initial activation fee and a minimum flat monthly fee of $20 (CN) per line. This is based on weekly usage of 720 minutes (3 hours), or just under three cents a minute. ShadowTel also offers special software and an upgrade ISA card to convert a desktop or network PC computer into a telephony center.
Promoting Growth on the Internet
Netscape's battle cry of "forbear, preempt and promote" is in line with the U.S. Administration's immediate goal (for the present time) to let the Internet grow and thrive unregulated to allow businesses to compete and to promote new communications ventures.
The U.S. Department of Commerce seems to agree. "The Commission should not risk stifling the growth and use of this vibrant technology in order to prevent some undemonstrated harm to long distance service providers," said Irving. "If Internet-based services eventually develop to an extent that raises concerns about harm to consumers or the public interest, the Commission would have ample time to more fully address the issue. Now is not that time."
The FCC may just take his advice. According to Werbach, the FCC is not obligated to respond to or act upon the ACTA petition. First, the FCC will review the comments submitted in response to the petition and determine if the issues raised by the petition warrant action. Any action will take the form of a formal proceeding to evaluate specific rules to implement regulation.
"In the short term, netphones are not threatening [to the common carriers], but in the long run there will be a clear battle to win influence," Manishin said. "Who wins will depend on the consumer and the technology's cost effectiveness."
To learn more about the netphone/teleco debate, visit the Voice-On-the-Net (VON) Coalition Web. VON is following the controversy and provides links to related sites, including netphone suppliers.