Net telephony industry goes to Washington

Net phone companies were taken by surprise last month by the passage of a bill that opens the door for new fees on Net telephony services--fees companies say could rupture their bottom lines. Now they're mounting the largest collective lobbying campaign in their history.

Newcomers to the political spheres, they're worried that the powerful telephone companies in Washington are set on crushing Internet rivals. Thus, the nascent Net telephony companies are gathering support from their millions of customers and mounting rallies on the Capitol steps to boost their campaign.

"This time the telcos are going directly, fundamentally against something the users can identify directly," said Bruno Tapolsky, chief executive of voice chat firm Firetalk. "This is the telcos saying, 'We've been gouging you, and we want to make sure it goes on.'"

After years of existing on the margins of both the Net and telecommunications industries, the Net voice business is finally taking off. AT&T recently invested in industry leader Net2Phone, and free services like DialPad and PhoneFree.com are attracting millions of customers. New voice chat services such as HearMe and FireTalk are merging traditional conversation capabilities with new multimedia capabilities.

But despite this surge in interest, the bill is an unlikely candidate for the spotlight.

The original U.S. House of Representatives bill was intended to assure the Internet industry that Congress and federal regulators would not impose per-minute fees on Net access. No one actually proposed this, but Fred Upton, R-Mich., author of the bill, cited long-running Internet rumors of pending "modem taxes" as evidence that constituents were nevertheless worried about the possibility.

But just a few days before the House passed this seemingly uncontroversial bill, it was amended in committee with a qualification, at least partly at the behest of the local phone companies. The bill would not apply to "providers of Internet telephone services, irrespective of the type of customer premises equipment used in connection with such services."

That doesn't mean that anybody is proposing specific new fees on Net telephony services. But it opens the door--and that scares the industry.

"To start taxing these kinds of services in their infancy will stifle innovation," said David Greenblatt, Net2Phone's chief operating officer. "It's a terrible precedent to set."

Phone company insiders say the big telecommunications companies aren't mounting a huge lobbying campaign over the issue. But they are paying attention, and that alone is enough to eclipse what has previously been almost no Washington presence for the Net phone firms.

The local phone companies note that the charges at issue aren't actually taxes. They're fees on long-distance service that are already paid by all long-distance companies that go into a "Universal Service Fund," which is in turn used to subsidize telephone service for people in rural or low-income areas. The fund is also being used to pay for Net access in schools and libraries.

Net phone companies--even those that use computers instead of ordinary telephones--shouldn't necessarily be excluded from obligations to pay into this fund simply because they use a new kind of switching technology, the phone companies say.

"This is a communications service," said John Schneidawind, a BellSouth spokesman. "If it's PC to PC--that's a semantic distinction that hides the fact that it is a communications service."

If the big telephone companies decide to make this a priority issue, the small Net phone companies will have their work cut out for them. In 1998 alone, the telephone industry spent $67 million lobbying in Washington, making it one of the top five industry spenders, according to The Center for Responsive Politics, a political watchdog group.

The small companies know that and are getting more concerned by the day. Daniel Beninger, founder of Internet voice company Telecom Computers, said he visited Democratic presidential candidate Al Gore's tech-friendly policy staffers last week and got a mixed reaction at best.

"The sense was their hands were tied," he said. "All legislators and candidates want to be 'dot-com-ed.' But on the other hand there are very powerful forces in the old economy that can bring their power to bear."

In response, Net telephony companies are turning to their customer bases, appealing to the millions of people who use the free Net voice services to speak up and preserve the service. Company executives held a press conference in New York today, and next Sunday they'll hold a rally on the Capitol Hill steps--featuring performances by a group of '70s and '80s hard rockers--to make their point.

Chief among the guests at the rally will be Federal Communications Commission chair William Kennard, who would be the one responsible for implementing any new fees on Net telephony. And he's repeatedly said he's not interested, at least for now.

"The chairman has no interest in imposing old regulatory schemes on new technology," an FCC spokeswoman said in response to questions about the House's passage of the Net telephony provision last month.

But even if regulators are on the side of the small companies now, telephony executives said that they need to make sure they're heard in Washington, lest they be surprised in the future.

"There should be a public debate on this," said Jeff Pulver, founder of the Voice on the Net coalition and one of the industry's leading spokesmen. "This was voted on without the ability for anyone from the industry to contribute to the debate."