TCS Daily

VoIP's Giant Hurdles

By Duane D. Freese - February 23, 2004 12:00 AM

The Federal Communications Commission on Feb. 12 let Voice over Internet Protocol take one small step forward. But the giant leap for Internet telephony awaits more additional information gathering and rulemaking by the agency. And two big hurdles stand in the way.

In defining Jeff Pulver's computer-to-computer, member to member, Free World DialUp over broadband VoIP service as an information service not subject to all the regulations governing regular telecommunications, the commission essentially recognized that voice data can't be distinguished from e-mail, instant messaging and other computer applications.

Any other decision, though, would have would have signaled the FCC was ready to regulate the Internet, something it has never done.

So, yea! Computer-to-computer, member-to-member over broadband voice service is free of regulation. But, yawn, c-to-c, m-to-m VoIP is not transformative technology. As Robert Atkinson, formerly with the FCC and now policy director of the Institute for Teleinformation at Columbia University put it, "The idea of two people talking to each other on computer doesn't matter much."

What does matter is if voice becomes instantaneous and transferable over all sorts of devices over all kinds of networks -- computers, cell phones, pdas, and regular old telephones. That's what opens the way to a host of new programs and applications and communications advances.

And on that score, the FCC continued to kick the regulatory ball down the road. Two petitions -- one by Vonage, which provides VoIP over broadband, and one by AT&T that produces it over plain old telephone service lines -- remain outstanding as the FCC issued a notice of proposed rulemaking for public comment on how VoIP ought to be regulated.

The good news in this is that the FCC rulemaking should pre-empt state efforts, such as one tried in Minnesota, to regulate VoIP. A hodgepodge of 50 state laws would have quickly-killed this nascent industry, as it would have killed the Internet.

Two Hurdles

But even in the friendliest of federal hands, two big hurdles could block VoIP from truly transforming the face of communications.

One is access charges.

The FCC established the framework for access charges in 1982 as a means of compensating local phone companies both for the costs of originating and terminating interstate phone calls and of subsidizing universal service.

The Telecommunications Act of 1996 called for making universal service costs explicit and removing them from access charges. And the FCC has lowered access charges substantially -- from more than a dime a minute for both ends of a call to an average of about a penny a minute today.

Yet, those charges still add up to a hefty subsidy, with AT&T, MCI, Sprint and other long-distance providers forking over approximately $15 billion a year to the regional Bell operating companies and local rural phone companies.

And on the Internet a penny a minute -- 60 cents an hour -- can climb pretty fast. That's one reason the FCC kept the Bells from charging Internet Service Providers access charges back in the 1990s, when they would have amounted to about $3 an hour. The Internet might never have taken off if AOL had to charge $60 a month for two hours a day of service.

Even penny per minute rates, though, could add as much as $5 to $10 to Vonage customers' VoIP bills. That's enough to make the service uncompetitive, especially as a customer needs to pay $40 for broadband on top of the $30 charge for unlimited long distance.

And if the charge is unfair to Vonage it's equally unfair to current long distance companies, who not only compete with Vonage but with wireless carriers and the very Bell local monopolies that are now authorized to provide long distance service in every state.

Throw It Out

The need is to throw out the current system of access fees altogether.

That was, in fact, the recommendation of two studies for the FCC back in 2000. Patrick DeGraba, the former chief economist of the FCC, and Jay Atkinson and Christopher Barnekov, economists with the FCC's Common Carrier Bureau, concurred that the intercarrier compensation regime, and in particular the access charges, distorted competition.

Considering that the compensation between local carriers exchanging calls is one-seventh as much, the half-cent long distance access charge would be a high hurdle for VoIP.

In addition to the economic hurdle, there also is a technical one.

Michael Copps raised it in his vote against even allowing Pulver's service. Pointing to concerns raised by the FBI and Justice Department to wiretap VoIP calls, Copps said, "This item troubles me, and it troubles me a lot. I think we're looking before we're leaping."

While the two agencies withdrew a request that the FCC delay acting on Pulver's petition until the agency determined whether the service would be subject to the Communications Assistance to Law Enforcement Act, they did so only with the assurance the FCC would hold hearings on CALEA as part of the broader rulemaking.

As Commissioner Joseph Adelstein said last month, "Public safety is not negotiable."

Wiretapping is a primary tool for law enforcement, with more than 2.2 million conversations intercepted and nearly $70 million spent on non-national security wiretaps in 2002, according to the Administrative Office of the United States Courts. A special Foreign Intelligence Surveillance Court granted another 1,228 wiretaps that year, up from the 934 granted for counter-terrorism purposes in 2001.

Just about everyone wants to cooperate with the war against terrorism. And few want to protect drug runners -- the target of 80 percent of wiretaps. But there are technical problems with wiretapping VoIP calls compared with the old public switched telephone networks.

On the PSTN, law enforcement could simply go to a central telephone office and have the phone company isolate a suspect's line and then have it collect the voice stream. Dedicated lines for phone-to-phone calls made it easy. Wireless calls were even easier, as you just tuned into the right frequency.

The switch to digital and packet-based delivery mixes things up. VoIP calls are sliced and diced into millions of packets to travel over the Internet like e-mail. To tap into a VoIP call, surveillance equipment might have to be permanently installed on networks or the calls routed to a center run by the FBI before being delivered to a receiver -- a move that could noticeably degrade service quality.

It could even mean the resurrection of Carnivore, the FBI's secret filtering technology for e-mail traffic. According to privacy advocates, that would give law enforcement access to a lot of information it ought not to receive. And as Sweden's Niklas Zennstrom, founder of Skype, another free Internet phone service, noted, even if an individual call could be pulled from all of the information over the Internet, all the police are likely to hear is gibberish, because the information is coded.

The Patriot Act in authorizing the use of Carnivore to provide surveillance of Internet traffic did so only to collect information on Internet addresses and traffic, not to eavesdrop on actual content. If law enforcement were to insist on getting more from VoIP calls, it could stop the communications revolution dead.

VoIP holds great promise for saving consumers billions of dollars and further giving a boost to national productivity by providing new communication services. But that won't happen if those making VoIP a reality are burdened with either subsidizing the old local telephone monopolies or meeting impossible regulatory demands.


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