INDUSTRY ANALYSIS

Government Oversight and Protecting VoIP

The Senate Commerce Committee will soon vote on a bill to bar states from meddling with Voice over Internet Protocol (VoIP), which allows the Internet to be used like a telephone.

The bill by Sen. John Sununu (R-New Hampshire) is one of many reactions to a growing movement from states and other pro-regulatory types to control VoIP.

VoIP works by taking sound and converting it into packets of computerdata that are sent across the Internet and reassembled into sound at thespecified destination. And although the technology uses the Internet toprovide the service, adaptors exist that allow it to be used with aregular phone, so consumers of VoIP don’t have to be computer savvy.

By using the Internet’s infrastructure, VoIP makes calls much cheaperthan traditional phone companies can provide. This is great news forconsumers and bad news for those who cling to outdated ways of thinking.These include state regulators, who view communications services as acash cow.

Milking the Service

Public Utility Commissions in a number of states, including California,New York and Minnesota, are working to milk the new service for as muchas they can get, but in the process there is a serious risk they willstrangle VoIP before it can create the telecommunications revolutioneveryone is expecting.

Sununu’s bill, called the VoIP Regulatory Freedom Act, would putan end to this state meddling, although it would still force VoIP firmsthat connect to the public phone network to “contribute, directly orindirectly,” to universal service. Of course, state regulators aren’t theonly ones targeting VoIP.

This month, the IRS announced that it is considering whether VoIP shouldbe subject to excise taxes, and the FBI has been pushing for assurance ofwiretapping abilities. The mammoth regulatory system that held backinnovation in the traditional telephone space is now coming down hard onVoIP.

Consumer’s Interest

That pioneers of this revolutionary technology are forced to defendthemselves against public servants who are supposed to have theconsumer’s interest in mind is disturbing. It’s also one more reasonwhy the entire convoluted telecommunications regulatory machine shouldbe dismantled — for real this time.

In 1996, Congress passed a Telecommunications Act that was supposedto create a “pro-competitive, deregulatory national policy framework,”but instead the last eight years have been filled with regulatorywrangling and burdensome lawsuits.

Through regulations stemming from the 1996 Act, government forced phonecompanies like the Bells to share their infrastructure with rivals atprices set by regulators. This scheme created a false “competition”that hampered and distorted investment. Now that disruptivetechnologies are making old services obsolete, the recognition that oldregulations are obsolete should follow. Frustratingly, not everyonesees it that way.

Free Market Best

At a July hearing on VoIP, U.S. Rep. John Dingell, D-Michigan, said that hewas “troubled” by Federal Communications Commission Chairman MichaelPowell’s assertion that “VoIP may be deemed an unregulated informationservice.” Dingell also wants to allow states to meddle with thenew tech.

“It is also critical that neither the Congress nor the FCC take anyaction which would disrupt the ability of states to perform the coreconsumer protection functions which protect consumers from the rascalacts of certain less scrupulous companies,” he said.

This statement implies that Dingell doesn’t believe that the marketplace is ableto provide consumers the best service and that government is necessaryto make the telecommunications system work. Nothing could be furtherfrom the truth.

Government Can Stifle Competition

History shows that government “oversight” of the telecommunicationssector resulted in less competition, innovation and investment. Incontrast, the Internet was largely left free of taxes and regulation,creating all sorts of innovative new possibilities that benefitconsumers — including VoIP. Regulators should be barred from trying tohold this progress back. It is unfair to consumers and futuregenerations to attempt to slow down new technologies that bring costsavings and new efficiencies.

And while regulators are forcing VoIP firms to spend resources fightingbattles of the past, newer technologies, such as one produced by thecreators of the infamous file swapping software KaZaA, threaten thebusiness models of VoIP firms. Just as KaZaA allows music and moviefiles to be swapped for free, Skype allows free Internet phone calls.

Currently, Skype’s service can only be used on the Internet, not with astandard phone, so companies like Vonage and others may have time tofigure out how to compete. But the point is that the telecommunicationsmarket has moved breathtakingly far away from the old, monopolisticphone companies that current regulations were meant to address.

Telecom has morphed into a hi-tech industry that plays by differentrules, including extreme competition and innovation. Consumers shoulddemand that legislators mandate a hands-off policy.


Sonia Arrison, a TechNewsWorld columnist, is director of Technology Studies at the California-based Pacific Research Institute.


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