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FCC weighs role in Internet calls

By Christopher Stern
The Washington Post

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In the month since a federal court in Minnesota ruled calls delivered over the Internet are not subject to state regulation, Qwest Communications International, Verizon Communications and SBC Communications have announced intentions to beef up their ability to deliver phone calls over their data networks.

The Federal Communications Commission (FCC) traditionally has had a hands-off policy when it comes to regulating the Internet. But it will hold its first hearing tomorrow in an effort to decide whether it needs to step into an issue that has the potential to transform the industry.

In Washington state, regulators next year are expected to rule for the first time whether the technology falls under their authority. A federal judge found that the Washington State Utilities and Transportation Commission was better-suited to make such a decision.

The stakes in the debate are huge. Federal and state governments could lose billions of dollars in revenue from regulatory fees if calls moved onto the Internet no longer are subject to the charges. And if the FCC chooses not to regulate Internet calls, it could raise questions about the future of the Universal Service Fund, a $6 billion federal program funded by telephone fees that subsidizes phone service in rural areas and Internet service for schools.

In moving more voice calls over the Internet, telephone companies are taking advantage of a new technology that translates the sound of a voice into small packets of data and sends them over the Internet like a batch of tiny e-mail messages. Because e-mail isn't regulated, phone companies say neither should Internet calls.

Local and long-distance companies are migrating quickly to the new technology to avoid the cost of maintaining separate voice and data networks. Nortel Networks, the Canadian telecommunications equipment maker, estimates local telephone companies could cut costs of running a network by 30 percent by shifting to an Internet-based network. "The market is absolutely moving in the direction of the convergence of these networks," Nortel executive Martha Bejar said.

Long-distance companies also hope to reap huge savings by using the Internet to bypass local telephone networks. Long-distance companies pay local companies $25 billion a year in "access charges." The fees cover the cost of connecting long-distance customers to the local network. The long-distance companies say they should not have to pay access charges for Internet calls.

FCC Chairman Michael Powell had been reluctant to jump into the debate. As recently as October, he said the agency would launch a notice of inquiry, an agency proceeding designed to invite public comment on an issue without reaching a decision. But Powell this month suggested in a letter to Sen. Ron Wyden, D-Ore., that the agency could issue a final rule within 12 months.

Although Powell has said he has an open mind, he has indicated publicly he is reluctant to impose traditional telephone regulations on Internet calls. "I think the worst thing we could do is, again, regulate it like a telephone, regulate it by an accident for no other reason than that's what we know and that's what we understand," Powell said last month.

In addition to getting answers about regulation of Internet calls, companies are eager to set guidelines that define when a call is moved over the Internet and when it moves over traditional voice circuits. For instance, local telephone companies worry that long-distance companies will seek to avoid paying fees for connecting local customers to the long-distance network if any part of the call touches the Internet. Long-distance companies fear local companies won't open their networks to rivals if a call touches even a piece of Internet-related equipment.

Information from Seattle Times staff is included in this report.

Copyright © 2003 The Seattle Times Company