When Worlds Collide: Voice over Internet

For years, philosophers and physicists debated the outcome were an "irresistible force to meet an immovable object." In Washington, that occurs when two cherished goals become inconsistent. Something like that is happening this week in telecom policy. Two trains are set on a collision course and will crash Thursday morning at 9:30 am at the FCC. The issue? Voice over Internet.

First some background. Voice over the Internet (called VoIP--Voice over Internet Protocol--or Internet Telephony) is a recent competitor to local and long distance for businesses and residential service. Although VoIP quality may be imperfect, its principal advantage is price: it's very cheap (less than a penny/minute) and relatively distance insensitive. Lots of folks are dropping traditional phone services (mostly long-distance) and switching to VoIP.

Part of the distinction between VoIP and traditional telephony is technology--historical networks use "circuit switching," while the Internet routes traffic via "packet switching." Now that most voice transmissions are converted to digital before handed to a long distance carrier, "packet switching" may be a cheaper, more efficient way to send a telephone call.

However, much of the difference between VoIP and current phone systems stems from disparate regulatory treatment. Under the Clinton Administration, continued by the Bush Administration, policymakers at the FCC and in Congress favored a "hands off the Internet" policy. This left the essentially unregulated Internet tremendous commercial freedom to evolve with changing customer needs. From games to Google, Americans unquestionably have benefited from this decision.

As a service run through and over the Internet, VoIP has so far been exempted from regulation--even if the Commission had to mangle or ignore existing law. But, as VoIP providers gained marketshare, the backlash began.

And, VoIP opponents made some good points. First, because VoIP is essentially indistinguishable from traditional telephone, fairness and "technology neutrality" suggest that the two services be regulated similarly. Second, exempting VoIP from FCC regulation also exempts VoIP from wiretapping laws--and the law enforcement community is understandably reluctant to ignore a seemingly identical offering available to terrorists yet immune from electronic surveillance. Third, VoIP providers bypass the "access charges" that traditional long-distance carriers (e.g., AT&T) pay local exchange carriers (e.g., SBC, Verizon), diminishing the revenues of the latter companies--yet VoIP providers use the local networks essentially the same as do long-distance carriers. Finally, so long as VoIP is not regulated by the FCC, VoIP providers do not contribute to programs for rural customers telephone services.

The fourth objection proved decisive: the most powerful group in Washington has long been Senators and Congressman from rural states. That group is mocked as "the farm team" or "representing the square states," but it can't be ignored. (When determining what is a rural state, Alaska is considered square but Pennsylvania isn't.) And rural state Senators and Representative love the so-called "Universal Service" subsidy system that ensures that phone service costs about the same in the badlands as it does in the boroughs.

Here's where the policies collide. Ted Stevens (R-Ak.) and Conrad Burns (R-Mt.) are, respectively, Chairman of the Appropriations Committee and Chairman of the Subcommittee on Communications. They're normally reliable supporters of deregulation, including deregulation of the Internet. But they're also from square states--really big square states. When faced with a choice between "hands off the Internet" and "no more subsidies," well, you can guess the result. . .

So, in response to pressure from Congress, from the FBI and from competing carriers, on Thursday Morning, the FCC will begin a "Notice of Proposed Rulemaking" addressing VoIP regulation. Such a process takes about a year, and normally results in final regulations settling the question. The FCC still favors little or no regulation of the Internet--but the agency must also consider the parity, law enforcement and rural subsidy policies. Can the FCC make everyone happy? Can it square the circle?

Probably not. Proposed compromises will be filed and debated continuously for the next 12 months. Inside-the-Beltway lawyers will reap big bucks, ultimately benefiting Porsche dealers and gin distillers worldwide. Then, by next Spring, three of the FCC's staff and three Hill staffers (none being more than 29 years old) will meet--unannounced--and cut a deal. It's the American way.

And even though the staff will meet in private, you'll hear it. A train wreck is loud.