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Net phone hang-ups looming?

Local telecommunications giants want to make it harder for Internet telephony providers to get access to the dwindling supply of unassigned phone numbers.

Read more about VoIP

A group of telecommunications giants is quietly pushing a proposal that could create hang-ups for up-and-coming Internet-telephone rivals.

At stake are rules used to divvy up the 5.2 billion unassigned phone numbers set aside for use in North America, one of the biggest potential markets for Internet, or voice over IP (VoIP), telephone services.

VoIP technology allows people to make phones calls that travel over the Internet rather than solely across wires owned by long-distance phone companies. Such calls can be made from telephone systems that tap into the Internet, and from PCs.

The cost of making such calls is significantly less than that of basic long-distance service because the calls bypass the phone companies' lines. As a result, many large corporations and tech-savvy consumers are using VoIP to make long-distance calls.

Net telephony providers such as Vonage and Net2Phone enjoy an unfettered stream of new numbers passed down from other carriers, which they can hand out to customers as they wish. Now, Verizon Communications, BellSouth and Qwest Communications International want federal regulators to tell the newcomers to heel.

Verizon and the others raised their concerns most recently at a meeting Wednesday of the North American Numbering Council (NANC). The industry group is chartered by the Federal Communications Commission and is charged with developing policies on how to distribute telephone numbers.

If successful, some observers warn, the lobbying push could dampen the market for Internet-telephone service in the United States.

"The results could choke off the industry before it really gets going," according to a source familiar with the ongoing debate.

The looming fight over phone number allocations comes amid a supply crunch, just as VoIP services are shaping up as a significant new challenge to both local and long-distance carriers.

Once denigrated for spotty reception more similar to that of a CB radio than that of a phone, Internet calling has improved in quality to the point where analysts expect the industry to soar over the next few years. TeleGeography, a phone industry analysis firm, estimates that there were 18 billion minutes of VoIP phone calls in 2002, or about 10 percent of all the calls made.

As VoIP makes up a bigger proportion of the overall phone market, it is poised to join a growing field of competitors that are vying for an increasingly limited phone-number pool.

Your number's up
U.S. government reports estimate that the United States, Canada, Guam, Bermuda and Trinidad will run out of 10-digit numbers by the year 2025, driven by demand for cell phones, faxes and other devices. The coming crunch has led at least one industry organization to draw up a plan for a 12-digit future that could add some 640 billion new numbers to the pool.

In the meantime, the FCC composed two conservation measures, both opposed by the phone carriers. One, "number portability," would let people keep their phone numbers even if they switch carriers. The second would force carriers to be assigned a smaller amount of telephone numbers at a time.

Against this backdrop, some carriers said they are concerned about what they see as unorthodox number allocation practices among VoIP providers.

At the Jan. 22 NANC meeting, proponents of VoIP phone number regulation said they want agencies including the FCC to examine the Internet-phone industry's use of "designer numbers," among other things. Because of the nature of the Web, computer phone providers can offer customers a choice of different area codes, regardless of where they live.

"The idea is not to choke this thing off, but to explore the issues and reach some agreements so we can go forward," said Randy Sanders, BellSouth's director of regulatory and external affairs.

NANC members were interested enough in the problems to order a subcommittee to come up with some of the possible technical problems involved with telephone numbers and VoIP.

Others, however, have dismissed the concerns as overblown for an industry that is barely getting its legs in North America.

In a white paper called "Much Ado About Nothing," AT&T recently argued that Internet phone providers aren't attracting enough customers now to even pose a possible problem to be addressed.

"The sky is not falling," AT&T wrote to the NANC in a follow-up to the white paper.

Worldwide, there were around 2.93 million cable telephony subscribers in 2001, more than the 2.5 million most analysts were predicting, according to a study last year by Allied Business Intelligence, an Oyster Bay, N.Y.-based research firm. That number was expected to almost double by the end of 2002, reaching 5.2 million subscribers, the study predicted.

By contrast, only a handful of companies sell computer telephone service in the United States, with fewer than 100,000 people now using broadband connections to make phone calls. The leading computer phone provider is Vonage, which has about 10,000 customers.

NANC and the North America Numbering Plan Administrator (NANPA) distribute phone numbers in blocks to so-called incumbent local exchange carriers (ILECs), which then transfer some of those numbers to competitive local exchange carriers, or CLECs, that ride on their lines.

Vonage representative Brooke Shultz said the company gets its telephone numbers from CLECs, although she declined to name the suppliers or the terms of the transfer deals.

Shultz dismissed the lobbying effort as a competitive tactic.

"This is really the first sort of tactic to get us regulated," said Shultz. "We're not misusing numbers."

Industrywide makeover Regardless of where the industry stands now, there is no doubt of the momentum behind a new way of delivering voice communications at a fraction of the cost of traditional phone networks.

VoIP providers generally require two things--a broadband connection and either an adapter for a landline phone or a microphone and speaker device for computers.

The calls travel mostly over the Web, avoiding the toll roads that are traditional phone lines. As a result, computer phone services can offer plans with unlimited dialing and no long-distance charges. The average monthly price is $40.


IP telephony still hasn't cracked the
code for selling to big businesses.

VoIP's efficiencies come through its use of packet-switching technology, which breaks up communications into small bits that are dispersed to find the fastest path across the network and recombined at the end point. Traditional telephony, by contrast, is "circuit-switched," creating a dedicated channel for the duration of the call.

Analysts have cautioned that traditional phone companies could get squeezed out of VoIP technology. Responding to the threat, big carriers, including Verizon and Qwest, have been inking billion-dollar deals with equipment makers such as Nortel Networks, to add packet-switching capabilities. Sprint began adding packet switching to its network in 2002, after a $1.1 billion deal with Nortel. Qwest has also announced that it will adopt packet-switching technology.

Norm Bogen, a communications infrastructure and services analyst with Cahners In-Stat, expects the sale of media gateways, the equipment needed to install VoIP systems, to increase from $883 million in 2003 to $2.74 billion in 2006.

Even as the big carriers race to get into this area, however, Bogen tipped the advantage to the upstart VoIP providers.

"They are replacing the local phone company," Bogen said.