SPECIAL POST of LL's LINK:c. Internet Telephony
fcc.gov
Several companies now offer software that allows for real-time voice conversations over
the Internet (Internet telephony or "voice on the Net" (VON)). These services work by
converting voices into data which can be compressed and split into packets, which are sent
over the Internet like any other packets and reassembled as audio output on the at the
receiving end. Most Internet telephony software today requires both users to use computers
that are connected to the Internet at the time of the call, but some recently announced services
will allow the receiving party, or even both parties, to use an ordinary POTS telephone. DGIV does this!
FIGURE 6 -- INTERNET VS. CONVENTIONAL TELEPHONY
Internet telephony consultant Jeff Pulver estimates that approximately 55,000 - 60,000
people now use Internet telephony products on a weekly basis, although usage has been
increasing rapidly and a much larger number of people have access to Internet telephony
software. Netscape and Microsoft, the manufacturers of the leading Web browser software,
have released versions of their software that incorporate Internet telephony.
The FCC has not attempted to regulate the companies that provide the software and
hardware for Internet telephony, or the access providers that transmit their data, as common
carriers or telecommunications service providers. In March 1996, America's Carriers
Telecommunication Association (ACTA), a trade association primarily comprised of small and
medium-size interexchange carriers, filed a petition with the FCC asking the Commission to
regulate Internet telephony. ACTA argues that providers of software that enables real-time
voice communications over the Internet should be treated as common carriers and subject to
the regulatory requirements of Title II. The Commission has sought comment on ACTA's
request. Other countries are considering similar issues.
The ACTA petition raises the fundamental question of whether a service provided over
the Internet that appears functionally similar to a traditionally-regulated service should be
subject to existing regulatory requirements. The petition argues that VON providers should
be considered as fundamentally analogous to switchless long-distance resellers, and thus
should pay the same rates to LECs for use of local networks to originate and terminate
interstate calls. Under this analysis, shown in Figure 6, the current pricing structure allows
VON providers to charge an effective usage charge of zero, while long-distance carriers must
pass on roughly six cents per minute in access charges for every interstate call.
ACTA's view, however, oversimplifies the comparison between VON and long-distance
voice telephony. There are many differences, beginning with quality of service. Current
Internet telephony products do not provide comparable sound quality to traditional long-
distance service. Most existing systems require both parties to be connected to the Internet
through a personal computer at the time of the call, and the sound quality of Internet
telephony products tends to be appreciably worse than circuit-switched voice telephony. At
this time, Internet telephony is in most cases not a comparable substitute for long-distance
voice service.
However, distinctions in quality and ease of use should not be the sole basis for
regulatory decisions. Cellular telephony typically provides poorer sound quality than wireline
service, but this fact does not affect the classification of cellular as a telecommunications
service. Moreover, service providers are working to improve sound quality and ease of use,
and several providers have begun to deploy "gateways" that allow Internet telephony
conversations to be terminated or even originated on an ordinary telephone. When such
gateways are used, however, the pricing structure changes. Gateway providers must pay for
hardware at points of presence to route voice traffic between the Internet and the voice
network, and must also pay local exchange carriers to terminate or originate calls over voice
lines. Thus, gateway providers plan to charge per-minute rates for their Internet telephony
services, rather than the "free" calling available through current computer-computer Internet
telephony products.
Even these current products, however, do not really provide for "free" calling. Service
providers and users still must pay for their connections to the local phone network, and for
their connections to the Internet. If these services are priced in an inefficient manner, the
issue is not one related to Internet telephony, but is a broader question about the pricing for
Internet access and enhanced services that use local exchange networks. The issue of pricing
for Internet access is discussed in detail in the following section. The fact that some Internet
packets now encode voice rather than data does not alter the fundamental economics and
technical characteristics of network traffic. If anything, a shift toward usage of the Internet
for voice telephony might result in usage patterns that looked more like those of circuit-
switched voice calling. The issue of how exactly Internet telephony affects network usage,
and how pricing affects usage of Internet telephony, is not at all settled. Local calling
throughout virtually all of the United States is priced on a flat-rated basis, yet people do not
tend to stay on the phone all day.
Internet telephony is also technically different from long-distance voice calling. A
circuit-switched voice call uses an entire 56 kbps channel for every call. By contrast, Internet
telephony uses digital compression techniques that can encode voice transmissions in as little
as 4 kbps. Internet telephony is also packet switched, which means that it does not tie up a
call path for the portion of the call carried over the packet-switched Internet. Of course,
when a packet-switched Internet telephony call is originated through a modem over a dial-up
circuit-switched connection to an ISP, the potential efficiency benefits of packet-switched
voice transmission may not be realized. In some cases, the long-distance and international
voice transmission networks, which are in most cases digital today, may actually do a better
job of compression than Internet telephony products. All of these possibilities, however,
reinforce the notion that the cost comparison between Internet and circuit-switched voice
telephony is not obvious, and is highly contingent on network arrangements that are evolving
rapidly.
Finally, as a practical and policy matter, regulation of Internet telephony would be
problematic. It would be virtually impossible, for example, for the FCC to regulate as
carriers those companies that merely sell software to end users, or to require the ISPs
segregate voice and data packets passing through their networks for regulatory purposes.
Rather, VON software could more appropriately be compared to unregulated customer
premises equipment (CPE), like telephone handsets, which facilitate calling but do not
themselves carry calls from one party to another. Moreover, although ACTA claims that
Internet telephony unfairly deprives interexchange carriers of revenues, others argue that these
services provide valuable competition to incumbent carriers. The existing systems of access
charges and international accounting rates, to which long-distance carriers are subject, are
both inefficient artifacts of monopoly regulatory regimes. If circuit-switched long-distance
carriers are paying excessive and inefficient rates as a result, the best answer is to reform
those rates rather than attempting to impose them on other parties.
The FCC should consider whether to exercise its preemption authority in connection
with Internet telephony. ACTA has submitted a petition, similar to its FCC filing, to the
Florida Public Service Commission. In addition, the Nebraska Public Service Commission
staff recently concluded that an Internet telephony gateways service operated by a Nebraska
ISP was required to obtain a license as a telecommunications carrier. If federal rules
governing Internet telephony are problematic, state regulations seem even harder to justify.
As discussed below in section D, there is a good argument that Internet services should be
treated as inherently interstate. The possibility that fifty separate state Commissions could
choose to regulate providers of Internet telephony services within their state (however that
would be defined), already may be exerting a chilling influence on the Internet telephony
market. Netscape, in its comments on the ACTA petition, argued that the Commission
should assert exclusive federal jurisdiction and preempt states from regulating Internet
telephony.
|
