Debate rages over Internet phone fees

SANTA CLARA, Calif.--A rewrite of federal telephone regulations that are used to collect $25 billion annually has the "highest priority" at the Federal Communications Commission, its chief of policy development said Sunday.

The debate is over access fees--the per-minute charges that nationwide long-distance providers pay to local providers to use their networks. Some, like AT&T, assert that telephone services using the Internet rather than traditional phone networks have made it impossible to distinguish between local and long distance calls.

"Everything has to be reformed," the FCC's Robert Pepper said here Sunday on the sidelines of the Spring 2004 Voice on the Net Conference & Expo. "The existing structure and system based upon a monopoly is no longer sustainable."

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While the ongoing regulatory battles are shaping up as a theme for the show, a slew of new products and talk of a consolidating industry will also be a highlight, conference attendees say.

New products are expected from Nortel Networks, but a representative refused to comment on them. Microsoft is also expected to announce new partnerships involving its Internet telephone voice products, according to a source.

This week's conference focuses on voice over Internet Protocol (VoIP), a technology for making phones calls that uses the most popular method of sending data from one computer to another. For now, Internet telephony services typically promise consumers a smaller phone bill, largely because VoIP providers operate free of any regulations.

VoIP is already being embraced by carriers as a way to cut traffic costs on international and long-distance calls, and it is expected eventually to replace the public switched telephone network as big phone companies convert to IP-based fiber-optic networks.

Meanwhile, the scheduled appearances of Time Warner Cable VoIP engineer manager Christopher Williams and Comcast Vice President Tom White at the conference are causing a stir.

The two cable executives are expected to take part in a rather innocuous-sounding panel Tuesday exploring broadband telephony technology choices. But event organizer Jeff Pulver said the panel represents a milestone for the broadband phone industry. Time Warner Cable has never before attended the event, he said.

Altough representatives for the two executives and their companies dismiss the appearances as routine, heads are turning. Sarah Hofstetter, senior vice president at cable telephone service provider Net2Phone, was one of several executives who said the two cable companies' attendance signifies that the major interests needed to further the VoIP industry are getting more serious about doing so.

"I look forward to hearing about their VoIP deployments, as general availability of replacement phone service using VoIP is clearly what's going to drive the future of VoIP," she said.

Most major broadband providers, regardless of what kind of network technology they use, are jumping on the VoIP bandwagon. Japanese communications giant NTT, Verizon Communications, Qwest Communications International, America Online and New York area cable provider Cablevision are the largest of about 10 cable providers attending the show.

The buzz over their attendance threatens to overshadow AT&T's expected disclosure of the initial markets for its $40 a month unlimited local and long distance home phone service. The company has finished market testing of a service in Portland, Maine, and has begun offering it in Florida and New Jersey. Additional cities are expected to be revealed soon, according to a source.

This week's conference celebrates an extraordinary last few months of growth and legislative triumphs, but ongoing consolidation is threatening to spoil the party.

Among those attending Spring 2004 VON conference is Brooktrout Technology, a telephone network equipment maker that last week announced a $10 million deal to buy SnowShore Networks, which makes VoIP equipment.

It could be the beginning of an interesting year for SnowShore and other makers of what are known as soft switches, essential items for building a VoIP network.

Pulver and other industry watchers say there are too many companies trying to cash in on the billions of dollars being spent now on such equipment. Not only are there start-ups, but established players like Cisco Systems, Nortel, Alcatel and Seimens are putting their considerable resources behind soft switch products.

Analysts expect that major corporations will join in the buyout fray as competition gets fiercer in the next few months.