TCS Daily

A New Day for Voice

By Kevin Werbach - April 26, 2004 12:00 AM

Quick. What technology has two billion paying customers worldwide, generates over $300 billion in annual service revenues in the US, and is so important to daily life and business that we'd have a hard time functioning without it? No, not the Internet, the personal computer, or even the television. It's the humble telephone. So it's no small news that the telephone is facing its biggest revolution since Alexander Graham Bell called out for Mr. Watson. The four letters spelling out that revolution are: V-O-I-P.

Voice over Internet Protocol means carrying phone calls and other forms of voice communication over data networks. It will have profound impacts on the economy, and on the way we work, socialize, get information, and entertain ourselves. It will power a transformation of the telecom industry, and of the entire information sector that depends upon it. It will generate enormous benefits for innovation, business efficiency, and individual freedom. That is, if politicians and government regulators don't smother it.

And that, in a nutshell, is the rationale for this new section of Tech Central Station, focused on the important policy questions surrounding VOIP. Our goal is to make it the central meeting place for intellectuals, businesspeople, commentators, and other thought leaders concerned with this issue.

Telecommunications is among the most heavily regulated segments of the economy. VOIP points towards the day when competitive free markets can replace that regulation, but we face a challenging transition to reach that point. Today's VOIP is like the early mammals scurrying around the feet of the dinosaurs: it will inherit the Earth... as long as it isn't stamped out in its infancy.

More than twenty years ago, the Federal Communications Commission (FCC) wisely decided not to impose legacy regulation on nascent data networking technologies, paving the way for what became the Internet. In the mid-1990s, when I served there as Counsel for New Technology Policy, the FCC similarly declined invitations to regulate the first manifestations of VOIP. These decisions allowed innovation and investment to flow towards a technology that is inherently more efficient and flexible than the legacy circuit-switched telephone infrastructure.

Today, 200,000 Americans subscribe to voice over broadband services from startups like Vonage and Packet8. Analysts predict that will exceed 20 million within a decade, driven by compelling cost savings and new functionality. From Qwest to Comcast, AT&T to Microsoft, every major player in the rapidly converging communications and computing sector is making a significant bet on VOIP.

All this activity is happening in large part because VOIP seems free from the century of accumulated telecom regulatory sediment, and from the monopoly hammerlock on bottleneck facilities. VOIP turns voice services into applications riding open data networks, just like, eBay, or Google. Price regulation that was necessary to constrain those physical monopolies makes little sense in this environment. And with startup and operating costs vastly reduced, competition can serve markets that previously required subsidies.

As exciting as this scenario sounds, it's not a foregone conclusion. Those committed to the status quo will fight to shackle VOIP, both through legacy regulation and blunt application of monopoly market power.

Here are four principles I believe should guide future VOIP policy decisions:

• Legacy price regulation, administrative obligations, taxes, and fees should not be applied to VOIP.

• There should be a national policy for VOIP. Conflicting requirements at the state and local level are especially inappropriate for fundamentally non-geographic Internet traffic.

• VOIP should develop in an open free market, which means that infrastructure owners should not use their government-protected monopolies to thwart competition.

• Social goals such as universal service, 911 emergency service, access for those with disabilities, and access for law enforcement, should be achieved in the least intrusive manner, taking into account the unique potential of VOIP and voluntary industry action.

The VOIP debate is just now kicking into high gear. So far, the FCC has taken some positive steps, but raised red flags in other areas. It launched a comprehensive VOIP proceeding last month. State regulators, courts, foreign governments, and international organizations are also mulling VOIP issues.

Expect to see significantly more attention as large established companies roll out their VOIP offerings in the coming months. It is becoming increasingly apparent that VOIP-based services are the killer apps for broadband deployment, with multi-player online gaming chat, competitive phone service, and low-cost videoconferencing all driving adoption. Businesses large and small are discovering that replacing their parallel voice and data networks with integrated VOIP solutions not only saves costs but makes them more productive. What was recently a tool for geeks and for marginal providers in the shady international calling market is now poised to transform a trillion-dollar global industry.

Let's not allow old rules -- or old thinking -- get in the way of VOIP's extraordinary potential.

Kevin Werbach is the host of VoIP Central, a new section on TCS.


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