Business Week - A Whole New Era in Telecom? (Ntop)
“More controversial are calls that originate on the Internet and then move through public phone networks. That's the service now being offered by Vonage, Net2Phone, AT&T (T), and numerous cable companies. It's a real threat to the Bells' services, since it allows customers to connect to anyone who has a phone.”
FEBRUARY 13, 2004
NEWS ANALYSIS
By Alex Salkever
A recent FCC ruling on VoIP could rewrite the rules. That would be good news for consumers, but a potentially ruinous blow to the Bells
businessweek.com
If a phone call is sent digitally over the Internet, is it still a phone call? Or is it a voice e-mail? That question has loomed over the telecom sector for more than a year, as the industry awaited a ruling from the Federal Communications Commission. At issue: new technologies that allow cheap, easy phone calls over existing broadband Internet connections. On Feb. 12, the FCC replied with an initial answer that should make the Baby Bells very nervous -- a voice call delivered digitally over the public Internet is the same as an e-mail, as far as the regulators are concerned.
The decision came at the behest of Keff Pulver, the founder of FreeWorldDialup, who had petitioned the FCC for a ruling that would allow him to run his free-of-charge VoIP network without facing standard regulations that cover old school telecoms. Pulver's was a special case: His network only allows users who dial directly from one Internet connection to another, bypassing completely the public phone networks.
More controversial are calls that originate on the Internet and then move through public phone networks. That's the service now being offered by Vonage, Net2Phone, AT&T (T), and numerous cable companies. It's a real threat to the Bells' services, since it allows customers to connect to anyone who has a phone.
WIRED TO GO. More decisions defining VoIP will be coming later this year. But "the VoIP discussion is now officially under way," says Andrei Jezierski of telecom consultancy i2 Partners in New York. And the initial FCC ruling suggests that regulators may be inclined to leave VoIP alone. FCC Chairman Michael Powell repeatedly has expressed support for unregulated VoIP. Now, the FCC seems to concur.
If the hands-off policy continues, Vonage and its ilk would be free to sell Internet phone service that ties into public networks. These sales have been accelerating and eroding the Bells' local-service customer base -- the regulated local-phone monopolies that have long been their revenue mainstay. For consumers, such changes could spark fierce competition to deliver local and long-distance services under one-price-fits-all plans costing less than $20 a month.
While Internet telephony has been around for years, broadband penetration now seems to have reached the critical mass necessary for the technology to become a popular service. More than one-fifth of U.S. households are wired for broadband. On the business side, the cost of VoIP gear has plummeted, making what was once a risky phone-service gamble with dubious cost savings an attractive alternative to standard telecom options. Performance improvements in VoIP also have fueled a series of alliances between cable and long-distance companies to offer local phone service and steal customers from the Bells.
EMERGENCY CALLS. These linkups have made the Bells especially uneasy. Along with state regulators, they have argued that if something acts like a phone network, then it should be regulated like one. The Bells collect tariffs at the local level to pay for guaranteed universal access to phone networks, and they underwrite 911 emergency service. In providing such public services, they have reaped steady profits with the blessing of state regulators. For their part, states have long regarded local phone service as their bailiwick, and the FCC has generally stuck with regulating long-distance service and equal-access issues involving broadband.
Yet, as ways for VoIP providers to delivery emergency services to subscribers have become better defined, concerns over universal 911 access have subsided. FCC Chairman Powell argues that universal service could be beside the point if VoIP delivers on its promise of cheap and ubiquitous phone access, almost as an add-on service to an Internet connection.
Already, other big players are eyeing this business. America Online (a unit of Time Warner, TWX ) has talked about piggybacking phone capability onto its popular Instant Messenger program and linking up with cable companies, which are already offering local phone service. Wireless providers such as T-Mobile could use new broadband-data technologies to create phone connections that offer higher quality and more reliability than cell phones.
TOUGH TRANSITION? The Bells have also been offering basic versions of VoIP -- at more costly rates. But as competition mounts, they may have to speed their transition to state-of-the-art technologies in order to stem defections from circuit-switched local-phone facilities that could soon begin to look outdated.
This could be a difficult economic transition. The Bells have more than 100,000 workers, and they pack an enormous lobbying clout. Some analysts think the battle inside the FCC isn't over yet. "The FCC has said nothing about the gray areas, such as when a call originates on an IP network and then goes onto a regular phone network. We'll see a decision on that in a few months," says independent telecom analyst Jeffrey Kagan, who adds: "In all likelihood, telcos will get fees proportionate to how much their network is used in making calls."
The court of last resort may be the U.S. Congress, which recently overrode the FCC on the issue of media consolidation. However, asking Congress to buttress a system that would likely preserve higher phone-service prices would be a tough sell. And AOL, Yahoo! (YHOO ), and Microsoft (MSFT ) have already built advanced voice-communications capabilities into their IM clients, blurring the line between data and voice even further. A new era of phone service over the Internet may soon be at hand -- if it isn't here already. |
