Telcos running scared of Net phones

Telephone companies are afraid of people like Rod Grimes.

Since retiring from his job at General Motors on disability, the 50-year-old Southern California resident has discovered the Internet telephone, an invention that Grimes says has changed his life--and, many long distance carriers claim, threatens to undermine their very existence.

"About six months ago, I was using the Internet, and my kids had moved to Texas. We started out just using email, but something better came along, from VocalTec," said Grimes, who stayed behind in Simi Valley, unable to sell their house because of the real estate slump. Now, he says, he is able to speak every day with his 15-year-old twins, who moved to Wichita Falls when GM relocated their mother's job.

He may not know it, but Grimes and other users of Internet telephones are in the middle of a classic battle of American free enterprise. On one side is an army of established telephone companies that view long distance communication as their sovereign territory. On the other are a bunch of Silicon Valley upstarts who have figured out a way to let people talk to each other from great distances through their computers--virtually for free.

The fight could lead to vast changes in the telecommunications industry, especially for about 400 smaller long distance carriers with limited ability to expand their business to Internet telephony. And because part of the issue hinges on the definition of what kind of communications the government can control, the debate could affect every one of the Internet's estimated 30 million users.

"The broad picture goes beyond telephony to audio, radio, video, multimedia," said Sandy Combs, director of the Voice on the Net Coalition, which announced its formation Monday in response to recent challenges to Internet telephony. "It's a matter of whether the FCC can regulate content over the Internet."

The debate came into full public view this month when a trade organization of long distance companies, called America's Carriers Telecommunication Association (ACTA), filed a "special relief" petition with the Federal Communications Commission (FCC) to stop the sale of software used to make calls over the Internet.

ACTA says that recently developed technology lets PC users "bypass" the phone companies by making long distance calls over the Internet while allowing telephony software developers to do business without being subject to tariffs and other regulations imposed on telcos.