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Voice Web tangled in telecom regulations

As companies try to merge the worlds of the Net and the telephone, a few are finding themselves caught in the web of regulations meant to restrain the giant phone companies.

As companies from AOL Time Warner to Tellme Networks try to merge the worlds of the Net and the telephone, a few are finding themselves caught in the web of regulations meant to restrain the giant phone companies.

The companies involved are trying to create a parallel Web that people can browse using voice commands on their telephone. AOL already offers many of its own services this way, while others are trying to convince telephone companies to make these voice services a basic part of the telephone infrastructure.

The problem, these young companies are finding, is that the fees and regulatory mazes designed to restrain historic phone monopolies are beginning to stall the progress of these Net-like services. In Silicon Valley, where companies are used to government bending over backward to stay out of the way, this is coming as an unpleasant surprise.

"It has been a shock to the system," said Jed Stremel, a business development executive at Tellme, adding that his telephone carrier customers are telling him it is hard to turn the services on. "It's not that there is an onerous or undue system of regulations that (affects us directly). But it could take years for this to fully evolve instead of months."

The difficulties spotlight an ongoing problem for the telecommunications giants, particularly the Baby Bells. Stung by declining traditional revenue, they are eager to try new technology-based businesses. But their historic monopolies, and their slow movement toward opening those protected markets, has made regulators leery of allowing them into new businesses.

That means the big phone companies have had their hands tied in creating and acting quickly on partnerships of the kind that Tellme and other companies are trying to strike.

Building the talking Web
The hopes of these new voice Web start-ups, which also include BeVocal, Nuance Communications and others in the voice portal business, rest on consumers' desire to find information, shop, make reservations or find restaurant reviews with a telephone call that connects directly into a voice-activated version of the Web.


Gartner analyst Bernard Elliot says the voice-portal market is just starting to take shape, and it's not yet clear which participants will come off best.

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The idea is just beginning to gain ground with big companies. AOL has begun touting its "AOL by Phone" service in its recent set of commercials. AT&T invested $60 million in Tellme last year, and Sprint PCS' and Qwest Communications International's wireless divisions have each started using BeVocal's technology.

AOL also bought Quack.com, a competitor of Tellme and BeVocal, last August for an undisclosed sum.

Tellme, which runs its services inside AT&T's telephone network, said earlier this week that corporate customers have committed to purchase 1 billion minutes of "talking time" for their own company services running on Tellme's technology.

But despite these early signs of quick growth, the companies may be heading into some roadblocks.

The trouble lies in bringing the voice Web model directly into the telephone company's infrastructure. It's one thing for a caller to use a 1-800 number to reach a voice-activated site that offers information or services in much the same way as a voice mail system.

It's another for the voice Web to be integrated directly into the phone system, so a customer could simply pick up the phone and say "books," "stock quotes" or "e-mail" and be sent directly to that information, much as Web surfers do with their computers. That's the kind of system that Sprint PCS and Qwest are already testing, and which the voice companies hope will ultimately become commonplace.

But that takes action by the telephone companies, which are bound by decades of regulation telling them in detail how they can run their businesses. Those rules range from what kind of "enhanced" services different divisions of companies can offer to where equipment can be located, to complicated state and federally mandated fees that are added on top of many types of phone calls.

Going to D.C.
The issues appear to be affecting the various companies in the business differently, although most agree that the regulatory issues are beginning to mount as the services spread.

"Developers of BeVocal (technology) definitely have to deal with some regulatory issues," said BeVocal Chief Executive Mikael Berner. "But anyone who provides a phone service has to play by the local issues. We haven't seen it severely impacting our business."

Executives at Tellme say the issues are still just beginning to crop up, but they are worried enough about them to bring them to the attention of policy-makers in Washington, D.C.

Tellme Chief Executive Mike McCue made a trip through legislators' offices last week and talked briefly to Federal Communications Commission officials. The company isn't yet proposing any legislation, but it says it wants these issues to be on lawmakers' radar screens.

FCC Chairman Michael Powell has made it clear that rather than merely stimulating more competition among existing technologies, he wants to see new, emerging technologies provide consumers more alternatives.

"I want to see the deployment of new platforms," Powell told a U.S. Telephone Association luncheon Wednesday. "Technologically different competition is becoming more central to the market."

The young companies are entering a lion's den of policy-making, however. Telecommunications regulations have been among the hardest-fought and most expensive battles on Capitol Hill for decades, with bitter exchanges between the long-distance and local phone giants commonplace. The voice portal services add some weight to arguments for deregulation being made by both sides, but are unlikely to add much to overall policy momentum, analysts say.

"It would be awfully hard" to win exemptions from telecommunications law for this type of service, said IDC analyst Mark Winther. "They are using the phone, after all."

News.com's Patrick Ross contributed to this report.