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FCC to Look at Phone Firms' Use of Internet to Carry Calls

Posted on: Saturday, 13 December 2003, 06:00 CST

The telecommunications industry, eager to find a route around a 100-year-old regulatory regime, has turned to a new path: the Internet.

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

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

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 are no longer 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, the 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, the telephone companies argue that neither should calls completed via the Internet.

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 that local telephone companies could cut their costs of running a network by 30 percent by shifting to a Internet-based network. Nortel also contends that carriers can cut their capital investment costs by 50 percent. "The market is absolutely moving in the direction of the convergence of these networks," said Martha Bejar, president of carrier solutions at Nortel.

Long-distance companies also hope to reap huge savings by using the Internet to bypass local telephone networks. Long-distance companies now 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 argue they should not have to pay access charges for calls that travel over the Internet.

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

Powell lost a battle at the FCC earlier this year to preempt state regulation of local telephone companies. Now the Minnesota federal court decision could give him an opportunity to reverse that ruling -- at least for calls that are delivered over the Internet. Although Powell has said he has an open mind on the issue, he has indicated publicly that 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 in a speech 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.

Reported By TechNews.com, http://www.TechNews.com

(20031129/WIRES /)

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