December 1, 2003 4:30 PM PST

FCC to form working group on VoIP regulation

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The Federal Communications Commission on Monday took the first step toward deciding whether to regulate Internet telephony, a move that could increase the amount of money customers pay each month for such services and radically transform the fast-growing industry.

FCC Chairman Michael Powell said he would create a working group to investigate what, if any, regulations on VoIP (voice over Internet Protocol) technology would be necessary. Powell and other commissioners said they had reached no final conclusions yet and intended a public briefing on Monday with speakers from companies


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including Cisco Systems, Time Warner Cable and Level3 to educate them about VoIP technology and business models.

"Moving more communications to IP networks is in the public interest," Powell said. "Internet-based services create more choices for consumers, more competitors, lower prices and lots more flexibility to personalize your service." Federal regulators should borrow the credo of the medical profession, Powell suggested, and "first, do no harm."

As more conversations begin to flow through unregulated VoIP links instead of the heavily taxed public switched telephone network, federal and state governments stand to lose billions of dollars. Because VoIP currently is not regulated, companies offering the service aren't subject to the vast thicket of taxes and regulations governing e911 and guaranteeing wiretapping access for police. Also at issue is the future of a special $2.25 billion-a-year tax--typically reflected in higher monthly phone bills--that provides schools and libraries with discounts on everything from Internet access to phone lines for fax machines and domain name registrations.

If their public comments Monday are any indication, the five FCC commissioners appear split on how to approach VoIP, with the two Democrats favoring a more aggressive approach than their Republican colleagues.

FCC Commissioner Michael Copps, a former Democratic Senate aide, said that the federal government should not ignore its "important statutory obligations" to provide "universal service, homeland security, 911 service, accessibility (for) people with disabilities." Imposing such obligations on VoIP providers may be necessary to "bring equity and effectiveness to rules and regulations that protect the public interest," Copps said.

VoIP providers all expect to be regulated. They have been battling for a federal set of rules rather than a patchwork of differing state edicts. Time Warner Cable, for example, has already begun voluntarily paying federal universal service fees, just as traditional phone companies are required to do. While nearly every other VoIP provider has fought against state regulatory efforts, Time Warner Cable recently hinted it intends to follow any state generated telephone rules or regulations.

Monday's hearing was a way for the FCC "to start asking questions," said Commissioner Kathleen Abernathy. She said that because many of the labyrinthine rules governing phone service were based on the absence of competition, "legacy rules that apply to common carrier services should not apply in their existing form to VoIP."

There are different types of VoIP businesses, but all have one thing in common: At least part of the voice conversations they carry travel over the Internet. Because of VoIP's low costs, former Bell companies like Verizon Communications are shifting to it even for traditional voice calls that have an analog headset at each end.

A second type of VoIP technology is employed by companies like Vonage, which lets consumers bypass the traditional phone network by making voice calls over a broadband connection. Calls can either go to another Vonage customer and traverse just the Internet, or connect to a traditional phone number through Vonage's interconnection agreements with phone companies. Finally, Internet-to-Internet methods like Skype, Free World Dialup, and instant messaging clients ignore the phone network altogether.

An overview of U.S. law prepared by FCC aides and released Monday suggested that VoIP services that link to the public telephone network can be regulated, but regulating computer-to-computer connections may require additional action by Congress.

Charles Davidson, from Florida's Public Service Commission, told the FCC that current taxes and regulations should apply "to that portion of a VoIP call that relies upon the switched network."

In October, a federal judge in Minnesota ruled that VoIP provider Vonage is an "information service" rather than a "telecommunications service" and therefore exempt from state regulation. The opinion was issued a week after the judge ordered an injunction permanently barring Minnesota's Public Utilities Commission from forcing Vonage to get a telephone operator's license to do business in the state.

VoIP regulations could have some unintended effects, some panelists warned the FCC. VoIP relies on the same standard, known as Session Initiation Protocol (SIP), that instant messaging software does. Microsoft also uses SIP in its Xbox game consoles, allowing players to taunt each other using VoIP.

Warning that terrorists could frustrate legitimate wiretaps by placing phone calls through VoIP, the FBI has lobbied the FCC to require broadband companies to provide more efficient, standardized surveillance facilities for eavesdropping.

The FCC has not begun a formal process to draft regulations, though Powell told CNET News.com earlier this year that he expected to initiate one soon. "I really want to be cautious to say that it's not because we're sure (VoIP) should be regulated--only that we're sure that it needs to start to be understood," Powell said at the time. In addition, a number of petitions regarding the issue are pending before the FCC, which has not ruled on them.

CNET News.com's Ben Charny contributed to this report.

 

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