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FCC mulls Net telephony

The FCC is considering whether companies delivering voice calls over the Net should be regulated as long distance companies.

    The Federal Communications Commission is considering whether companies delivering voice-to-voice calls over the Net should be regulated as long distance companies--a determination that could affect the cost of such services.

    In a report that will be submitted to Congress on April 10, the FCC will clarify its definitions of "telecommunication" and "enhanced services," such as Net access.

    The definitions determine what types of companies have to pay into the nation's universal service fund, which helps subsidize phone service for rural and low-income U.S. consumers and--as of last year--Net access for schools and libraries.

    For the past two decades, the FCC has resisted regulating enhanced services. Enhanced services now do not pay directly into the fund under the rationale that ISPs are customers of local telephone companies and get hit up for the fees in their phone bills.


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    The agency is not expected to reclassify Net access providers as phone companies, according to staff members. But there is growing speculation about how the agency will address the emergence of companies that offer consumers long distance voice service using Internet protocol (IP).

    If the FCC were to lump Net telephony--or voice over the Net--in with long distance services, companies offering that service could have to pay into the universal service fund through access charges collected by local phone companies. The report to Congress wouldn't institute the change; that would only take place after a lengthy public rule-making process.

    "There is concern by some in Congress that all the calls are going to go off the public voice network and onto the Internet, and therefore aren't going to contribute to universal service," said an FCC staff member.

    "The commissioners haven't had a chance to meet and agree on what they want to say," the staffer added. "I just wish we had a week more to think--we don't want to screw anything up."

    The FCC released a statement today saying that it has not made a final decision on the Net telephony issue.

    If domestic Net telephony providers have to contribute, their costs would increase. Those costs no doubt would be passed down to consumers. This scenario could eliminate part of the allure of such services. Some in the industry say the FCC still should keep its hands off all aspects of the Net.

    "It opens up a Pandora's box if you start regulating the Internet," said one Net telephony executive, who asked not to be identified. "There shouldn't be any disincentives to innovation. If we were subject to the same regulations as telecommunication companies, our technology would have never been developed."

    Long distance companies such as AT&T, which already pay into the fund through access charges, are rolling out new investments to deliver voice calls over their IP networks.

    In filed comments to the FCC, AT&T argued that companies offering cheap Net phone calls should have to pay into the fund. "We said that if a company is providing a telecommunications service like Net telephony, they should have to pay into universal service like any telecommunications company or it skews the market," Jim McGann, an AT&T spokesman, said today.

    Net telephony can take different forms, however, and on the whole is not regulated. For example, if an America Online customer uses the service and special software to talk to a friend in Italy, she is essentially making a long distance call without having to chip into the universal fund. Still, AOL pays hefty business charges to its phone company for hooking its multiple modems up to the Net--so the online service is contributing to the fund.

    But if the person had called Italy using a traditional phone, her phone bill would likely have been higher than AOL's costs to its local phone company--meaning more money would have gone into the universal service fund.

    The waters get even murkier when the FCC has to take into account companies that aren't a part of the old long distance guard, such as Qwest Communications. The company is building its own long distance fiber-optic network to deliver high-bandwidth Net and voice service. Qwest's Q.talk long distance telephone service runs over its IP network and costs 7 1/2 cents per minute no matter where a user is calling.

    Therein lies the heart of the matter being considered by the FCC. The agency could tell Congress that any long distance calls made over the Net should be tapped for universal service funds, which also could lead to regulation of the industry.

    "We already pay access charges on domestic long distance into the United States," said Tom Evslin, founder of ITXC Corporation (Internet Telephony eXchange Carrier), an international Net telephony company.

    "But I think it would be a terrible idea, because then we'll be bureaucratically regulated like the industry in other ways," he added. "This goes against the [Clinton administration's] support for a hands-off approach for the industry."

    Some say either way, the FCC's decision will not stifle Net telephony.

    "If it is regulated, it won't mean that Net telephony will not take off," said Ido Ganor, vice president of marketing for VocalTec Communications, a telephony software maker.

    If the industry had to contribute to universal service, "It will bring up the cost, but not to the level that people are paying today for long distance," he added. "IP telephony can help to lower worldwide phone prices. And there are additional services aside from voice calls, such as multimedia teleconferencing."

    The FCC seems to be weighing all the issues. The agency is being pressured by rural lawmakers, such as Sen. Ted Stevens (R-Alaska), to explain why ISPs don't have to pay into universal service now that it funds Net access discounts for schools and libraries. Stevens spearheaded the effort that led to the FCC report. He and other lawmakers say universal service should not support Net access at the cost of rural areas that still need regular phone subsidies.

    "The FCC has been very consistent in recognizing that ISPs are telephone customers rather than telephone companies," said Dave McClure, executive director of the Association of Online Professionals.

    "Where it gets sticky is when you have a company like Qwest that is not running an ISP per se, but a telephone service over the Net," he added. "That opens them to classification as telephone companies without jeopardizing the exceptions given to ISPs."