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Bad Call on Internet Phones

August 07, 2004

The 1982 breakup of Ma Bell seemed like chaos at the time. Then came cellular, upending the whole idea of what telephone service means. Now, a potentially bigger telecommunications tsunami is on the way: voice communication over the Internet. Most consumers have no clue what it will mean. Congress and state legislatures face pressure to regulate what they don't understand, and their proposals are a muddle.

The Internet can carry phone conversations at a fraction of the cost of traditional systems. The technologically adept already are using computers to place free calls to owners of similarly equipped machines. For a modest monthly fee, computers can also be rigged for unlimited local and long-distance calls -- even to those who still answer on antique Princess phones. The technology has existed for years, but the spread of high-speed computing led to improvements in voice quality comparable to land lines.

No matter how the technology develops, everyone who might use it has a stake in how the new world is policed. It is only because of regulation that we have 911 emergency services, the TTY machines that allow deaf and hard-of-hearing people to use the telephone, and low-cost lifeline service that guarantees access in rural areas and to low-income households. All of these are paid for by required fees and taxes. Internet telephony threatens to turn that century-old telecom tax structure on end.

The Internet also threatens to upset the established order. Baby Bells, for example, have a vested interest in maintaining the status quo when it comes to the fees companies charge to route calls over each others' networks. They face challenges from such companies as AT&T, which wants to have 1 million Internet customers by the end of 2005, and Internet start-up Vonage. The two already have petitioned the Federal Communications Commission to abolish access charges for their Internet-based services.

Regulators are adding to the confusion. The FCC in February ruled that one Internet-based telephone service provider, Free World Dialup, should remain free from "burdensome economic regulation at both the federal and state level." In May, New York regulators ruled that Vonage was, in their eyes, a traditional telephone company. The Senate Commerce Committee echoed that confusion in July when it passed what proponents lauded as a "clear and unambiguous structure" for regulating Internet telephony. But one section of the bill would prohibit states from regulating the new technology, and another clearly gives states distinct regulatory powers.

Some issues are clear cut -- telecom services will have to be taxed if such necessary programs as 911, TTY and lifeline service are to be preserved. Regulation is just as necessary to keep broadband providers, including cable companies and the Baby Bells, from shutting out promising young companies that could provide badly needed competition. And any legislative scheme must be flexible enough to deal with inevitable technological advances. S 2281, the bill before the Senate, falls far short. Congress should hang up and start over.

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