International voip provider

When FCC Chairman Michael Powell announced at the recent VON conference that he would recommend the Commission claim jurisdiction over the regulation of VoIP services, he justified his position by talking specifically about the evils of state regulation. As he put it, "To hold that packets flying across national and, indeed, international digital networks should be subject to state commission economic regulatory authority is to dumb down the Internet to match the limited vision of government officials."

Of course, that didn't mean he intends to ignore states altogether. Even a federal scheme to regulate a burgeoning technology will have to deal with states' legitimate needs and concerns. But the bigger challenge may be doing the same with international issues.

The state issues are familiar. For one, state regulatory agencies such as public utility commissions derive a lot of funding from telephone-related fees, notes Keith Nissen, an In-Stat/MDR analyst. If they can't tax a service that comes to represent a significant share of the phone business, they'll have to find other ways to raise revenues. In fact, California officials cited just that concern earlier this year when the PUC launched its own study of VoIP and its financial impact on the state.

In addition, states fulfill their obligations to make sure all residents have access to affordable phone service by methods such as charging fees, setting rates and directly or indirectly forcing cross-subsidization of unprofitable customers and services by profitable ones. Both the needs and methods vary, particularly among largely rural and highly urbanized states. So if a big chunk of the telephone business moves out of the states' control, balancing the various requirements will get a lot trickier.

GLOBAL IMPACT

But such problems pale in comparison to the upheaval VoIP could bring to international telephony. When phone service becomes an Internet application, observes Nissen, it doesn't matter where the phone number is located.

It would be possible for a user in Boston, for example, to have a London phone number. Such "non-geographic" numbers could soon be available in the U.K. under so-called publicly available telephone services (PATS) provisions. Calls the user makes to other London numbers, after connecting to the Internet via a broadband connection in Boston, would look like local calls, depriving a U.S. carrier of lucrative international call revenues.

Such arrangements could play havoc with the existing international phone system in several ways. For one, if non-geographic numbers were available in the U.S., lots of people who do business here would want them. That would, to start with, create a major demand for new numbers--possibly outstripping supply under the existing numbering scheme, according to Nissen.

In fact, Vonage may provide a test case for this notion. In late October, the VoIP provider made available virtual telephone numbers with London city codes for a cost of $4.99 monthly. Vonage CEO Jeffrey Citron says such numbers are a less expensive way "to have London telephone numbers to communicate with family, friends and business associates." The virtual number rings to the primary Vonage telephone line.

If such a model takes root, inexpensive local numbers could be points of contact for a user no matter where he or she is located in the world. Lots of countries would lose huge amounts of international call revenues. Many nations, especially in the developing world, depend on such revenue to not only upgrade their phone infrastructures, but also for general revenues. Yet the only way authorities could prevent such loss would be to restrict their citizens' use of high-speed Internet access--an unacceptable tradeoff.

It all means, according to Nissen, that "at some time all of these issues will have to be debated in international forums." The burning question, he says, will be "how do we migrate the PSTN in a manageable way going out to the future, that doesn't totally disrupt the economics of the network infrastructure that the Internet and the PSTN rely on?"

That's another argument for federal rather than state regulation of VoIP, but it puts the FCC in at least a three-way bind. Besides having to meet the concerns of state and international authorities, it also has to, and clearly intends to, satisfy the primary need of any emerging technological approach: to keep regulation as light as possible, so as not to stifle the possibilities the new technology can offer. Keeping everyone happy may turn out to about as tricky as turning a triple play in the World Series.