The year of the monkey will not see an introduction of Internet access tax, VoIP tax, UNE-P overhaul, or any other legislation that would impact ISPs or CLECs, say industry insiders—but brace for more regulatory changes and taxes in 2005.

by Max Smetannikov [February 2, 2004]

This year is going to be dead as far as new legislature and taxes are concerned because of the presidential elections. While the debate in Washington is intensifying with the RBOCs running anti-UNE-P ads and state legislators asking for more taxes in order to compensate for a thinning call volume, there is a bigger special interest this year calling on inside the Beltway resources—President Bush's re-election campaign.

Advertising in an election year
"The FCC is the executive office of the president who is now in his re-election year," says Farooq Hussain, a principal at Network Conceptions, a telecom consultancy. "As long as there are 2 million subscribers buying services from competitive carriers—2 million voters—no one would be allowed to touch them."

However, Washington is gearing up for a massive debate. The RBOCs, defeated in their push to dismantle the UNE-P architecture right away, are stepping up the rhetoric to make sure UNE-P system will phase out around 2005, something UNE-P advocates believe is not likely to happen. The other group pushing for more regulation consists of state legislatures, concerned that they are collecting less in tax revenue because calls are migrating to VoIP.

"If you watch political commentary shows you should start noticing ads sponsored by USTA talking about carriers that are killed by regulation and prevented from selling all these new advanced services—you'd never guess these ads are talking about the RBOCs but nonetheless this is them and this is how this debate starts," Hussain said.

Combined, these two groups are putting the FCC in an awkward situation since a UNE-P phase out would more or less wipe out competitive carriers in the U.S., according to observers like Hussain. Yielding to states' arguments means coming up with some form of a VoIP tax or Internet access tax which is very likely going to be some form of a Universal Service Fund overhaul.

Ignoring for a minute technical implications of enforcing such a law, the Universal Service connection is in itself a Pandora's box as it invites questions about how much different parties are contributing to this fund and how are those proceeds spent, exactly the kind of review that raises hackles in D.C. as it will surely cause even more debate coming from telecom carriers of all stripes and politicians catering to their interests.

But rest assured this debate is coming, in part triggered by the rising popularity of VoIP and in part by issues like E911 compliance for softswitch vendors and VoIP-only providers.

One of the issues that would have to gain transparency during this process is how the FCC is going to go about distinguishing between VoIP calls and IP traffic, the dreaded technical problem obstructing the taxation of VoIP. This question is about as old as the VoIP industry itself, yet there remains no solution that would not give the FCC permission to monitor every packet of all Internet traffic. Industry participants are fairly sure government meddling in TCP/IP is going to be a bad thing.

The bottom line
"Every time Washington comes up with a new law you have to ask yourself—what is the motivation behind it?" said John Brown, a principal at Chagres Technologies, an international VoIP systems integrator.

Being on the receiving end of such new regulation one time too many is the reason for Brown's skepticism. He operated an ISP in New Mexico before quitting that business during the recession, and witnessed U.S. West and then Qwest convincing local and federal legislators to adopt regulation that increased costs so much that all but three independent carriers in the state have failed. Then Qwest came back this year, suggesting that the state is overregulated and asking that it simplify laws.

With that in mind Brown does expect new laws.

"If Washington is not generating new legislation what does it really do," he says.

The first issue he expects to be addressed is E911 enforcement, since too many carriers are deploying VoIP not just at the core but as a last mile call generating option. Brown would know because he is in the business of helping carriers install such systems, and recently expanded to Europe by opening Chagres B.V. in Amsterdam to resell and help install VoIP systems. Most of his customers are ISPs and CLECs.

Some of the services driving this push both overseas and on his home turf of New Mexico include second line replacement—ISPs offering a VoIP dialtone for customers that use fax machines.

"Disconnect that second line that Qwest is charging you for, that's the idea and that's what's driving sales," he said.

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