It's A Call Someone Needs To Make

November 24, 2003
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GRAND RAPIDS — Can you hear them now?

All the telecomers are trying to become your phone-service provider.

SBC and AT&T are two of the more prominent traditional ones, while Vonage Holding and Free World Dialup are X-generation providers that surely aren’t as well known.

And the latest to throw its broadband hat into the telecom ring is an East Coast cable company. Cablevision Systems began offering phone service in September to customers on Long Island.

These five, and hundreds of others like them, are the same, yet they’re different. The only thing certain is that today’s phone company bears little resemblance to the Phone Company Lily Tomlin parodied as Ernestine, the snorting, one ringy-dingy operator.

In the not-too-distant future, though, Congress may have to determine what constitutes a phone company, because right now the industry is close to having an identity crisis. Government regulates the landline providers, but doesn’t do the same for those who use vVoice-over Internet protocol — VoIP, for short — as their service base.

Minnesota recently tried and failed to add regulations to the latter when a federal judge told the Public Utilities Commission last month that the state could not regulate VoIPs. U.S. District Judge Michael J. Davis ruled that since VoIPs send calls over the Internet, this type of communication should be classified as “information services” rather than phone calls —even though a user dials a number from a phone that comes under landline regulation.

“Congress has expressed a clear intent to leave the Internet free from undue regulation so that (its) growth and exploration may continue. State regulation would effectively decimate Congress’ mandate that the Internet remain unfettered by regulation,” wrote Davis in his opinion.

Free from regulation and, of course, government fees — VoIPs can offer lower prices in most cases than landliners can and consumers like that. So do businesses. Forrest Research, a telecom analyst, told the Washington Post last month that companies were embracing the new Internet technology faster than consumers were.

Forrest reported that 10 percent of the nation’s companies had switched from their landline provider to a VoIP, and the research firm noted that the transition was accelerating.

This has led to more start-ups and to cable companies getting into the phone business, or — as Davis termed it — the information service. Cablevision began selling unlimited local and long-distance calling for $34.95 a month to its Long Island customers two months ago. Time Warner and Comcast are testing similar services in Portland, Maine and Coatesville, Penn., respectively. Cox Communications is doing the same in Roanoke, Va.

Vonage — which calls itself the Broadband Phone Company, regardless of how Davis defines the industry — charges consumers $34.99 a month for unlimited Internet calls across North America and charges small businesses $49.99 for the same service.

Free World Dialup claims to have 73,000 subscribers in 150 countries that make free “phone calls,” as the company puts it, to other subscribers and to customers of Internet providers that have a business relationship with FWD.

These offerings, which are just the tip of the iceberg, are creating brutal price competition for the landline companies. But besides wreaking havoc for the private sector, the unregulated VoIPs could ultimately have a dramatic impact on how the nation communicates and who gets to take part in that communication.

That’s why Dirk Koning, executive director of the Community Media Center, feels that Congress has to get involved.

“It decimates the traditional regulatory regime that has been in place for 50 years, and the technology, as it always has, is moving far faster than legislation can keep up with it,” said Koning.

“There is going to have to be, I think, a re-write of the Telecommunications Act of 1996, and it’s going to have to take into account this ubiquitous bit stream. And, you know, decide what is cable and what is telephone,” he added.

When Congress enacted laws to oversee the phone business in the early 1950s, it passed acts that easily exceed what would be called regulation today. Phone service then was regulated to what lawmakers termed was the “fifth ninth,” meaning that 99.999 percent of households in the United States had to have access to telephone service and, believe it or not, the firms involved complied with that mandate.

But no fifth ninth exists for broadband access. And without a similar legal demand or a large public financial subsidy, Koning doesn’t think private companies will spend the money to make Internet phone service available to remote areas where they can’t turn a profit.

Then there is the safety issue in emergency situations. After the terrorist attacks on the World Trade Center, the only working phones for miles were in landline pay booths.

Koning said the reason why anyone can pick up a telephone and reach any phone in the world is because of a well-orchestrated regulatory environment that is universally followed around the world. In this country, we went the extra step to ensure that everyone had access.

“There are subsidized phone lines everywhere, all over America, and we as a community, similar to the rural electrification system, decided that the cost-benefit analysis of running a line 16 miles down a dirt road to get a farmer is never going to fly in a traditional capital model,” said Koning.

“So we decided we were going to subsidize — not a bad word — connectivity through a minor assessment on everyone else’s usage,” he added.

The bottom line as far as Koning is concerned is that Congress needs to answer a few questions. One is: If many people switch from landlines to VoIPs, how is access going to be made available for everyone? And then, who pays for that access and such current services as 911?

Despite Minnesota going down in court, public utility commissions in California and Wisconsin are trying to require that VoIPs follow the same rules as landliners.

In addition, the Federal Communications Commission may take a stab at deciding which Internet services need to be regulated and which ones don’t.

But in the meantime, BellSouth Corp., a longtime landline phone company, has begun selling Internet phone service to businesses, and it plans to offer that service to residential customers next year.

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