TCS Daily

The VOIP Train Has Left the Station

By Kevin Werbach - August 2, 2004 12:00 AM

There was a joke in Russia during the Gorbachev years, as the country pondered whether the Soviet Union could be reformed or was doomed to collapse.

Lenin, Stalin, and Brezhnev are sitting in a train, when it grinds to a halt. "I'll take care of it," says Lenin. He charges to the front of the train and exhorts the workers to do their revolutionary duty, but the train does not budge. "Let me handle this," grunts Stalin. He walks to the engine room and shoots the conductor and the engineer. "That will fix things," he says, but the train goes nowhere.

Finally, Brezhnev stands and announces, "Comrades, I have the solution." He reaches over, closes the window curtains so that no one can see outside, and returns to his seat. "Now, the train is moving!" he declares firmly.

OK, maybe life in the Soviet Union wasn't a barrel of laughs. Yet there is a lesson here for voice over IP. In times of disruptive change, the worst thing to do is pretend no such change is occurring. Reality won't go away. And things are bound to get worse if you deny it.

VOIP represents a fundamentally new model for communications, with tremendous consequences for industry structure and public policy. In particular, the legacy process of regulating the telecom industry to preserve a web of cross-subsidies and incumbent service providers is doomed. Perhaps the regulatory structure can be reformed, but it will look very different.

Give FCC Chairman Michael Powell credit. He understands that the old game is up. I've criticized the FCC for the timing and strategy of its VOIP efforts, but the agency is trying to go in the right direction. Powell knows the Humpty Dumpty of 20th century telecom will never come back together again.

Congress is a different story. Instead of celebrating the potential of a competitive, innovative, job-creating technology, or at least bowing to the inevitability of change, powerful forces in Congress seem hell-bent on forcing the VOIP genie back into the bottle.

In late July, the Senate Commerce Committee passed amendments that essentially gutted the VOIP legislation introduced by Senator Sununu. Sununu's bill would have prohibited states from imposing fees and taxes on VOIP offerings. The amended legislation reported out of the committee makes VOIP providers subject to state access charge and universal service contribution rules, the very things Sununu was trying to forestall. Apparently there is still too much fear that innovation and market forces will undermine yesterday's political and regulatory compromises.

Trying to chase down software applications like Skype to force them into a subsidy scheme designed for the monopoly telephone industry of the 20th century is ultimately futile. The longer policy-makers persist in the belief that anything which allows people to talk to one another should be regulated heavily and taxed repeatedly, the longer consumers and businesses will have to wait to enjoy the full benefits of VOIP.

Not long after the Senate vote, AT&T announced that it is shifting away from marketing traditional consumer voice services. AT&T's action was widely reported as a capitulation. It's not. Putting aside the wisdom of AT&T's decision, or the company's business prospects, the AT&T announcement signifies a turning point in the industry. And VOIP is at the heart of it. Yet, as with the Senate vote, some insist on seeing the future in terms of the past.

The residential competition model at the heart of the 1996 Act is dying, hastened by the Bells' insistent foot-dragging and legal challenges. Yet VOIP lives. AT&T isn't stopping its CallVantage voice over broadband offering. In fact, it's accelerating the rollout. Cable operators are launching significant VOIP packages, and even Verizon is finally delivering an out-of-region competitive service using VOIP.

The Bells take both the competitive die-off and the new competition as arguments for their long-time goal: total deregulation. Though the new VOIP services are cause for hope, they aren't cause to declare victory and kill off the remaining possibilities for competitive entry and innovation. VOIP means competition for voice offerings at the application layer, but doesn't eliminate the dominance that incumbent phone and cable companies enjoy over the critical physical infrastructure those applications run on. And if pricing regulations are to go away, the artificial and irrational economics of access charges and universal service payments must change as well.

The VOIP train has left the station. It will arrive whenever policy-makers are willing to acknowledge that the world has truly changed. Have some more vodka, comrades.


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