The Bells have mostly succeeded in closing their networks to ISPs. The next step in the monopoly war is being fought right now, as the Bells seek the right to close their networks to all non-Bell applications.

by Alex Goldman ISP-Planet Managing Editor [September 17, 2004]

Most DSL in the U.S. is, at some point, owned by a Bell company. The subscriber may pay money to EarthLink each month, which in turn gets its access from Covad, but Covad will, in turn, usually be paying money to an RBOC such as Verizon.

Now the phone companies are launching a lobbying effort to get control over all applications on their network. The first battleground in this war will be VoIP service, and the battle has already been joined.

Earlier this year, in the article Simplifying Telecom Law, CLEC lawyer W. Scott McCollough argued that innovation requires that applications not be network-specific. "We don't want a company with market power on the physical layer to get power over the network or service layer," he said.

McCollough is General Counsel at WorldCall Inc, a company that will be providing as a replacement for UNE-Ps by using ISDN PRIs and fiber interconnecting ILEC COs. The regulatory origins and business model will be explained in detail in the next issue of The COOK Report on Internet Protocol. McCollough also directed Gordon Cook and ISP-Planet to an FCC filing by SBC and Bell South where they argue that VoIP must pay taxes. On pages 5 to 6 of JOINT COMMENTS OF SBC COMMUNICATIONS INC. AND BELLSOUTH CORPORATION [.pdf], the RBOCs insist that the FCC must start taxing VoIP:

The Commission's interim revenue-based methodology does not nothing to reverse the rapid erosion of the universal service contribution base that is being caused by the proliferation of IP telephony services and broadband services that are not included in the current contribution base.

The RBOCs are fully aware that VoIP companies are arguing that VoIP must never be taxed:

A host of IP telephony providers, including Net2Phone and Vonage, recently filed comments with the Commission asserting the position that all IP telephony services are categorically excluded from regulation as telecommunications services. A number of these IP telephony providers expressly stated that they currently do not contribute to universal service.

The RBOCs say the FCC must act now:

During the past year, the rapid growth of IP telephony services and the imminent arrival of cable IP telephony services on a large-scale basis has been well documented. The Commission must act now before IP telephony services jeopardize the sufficiency and stability of universal service support.

John Rego, Vonage CFO, does not mince words when he talks to us about this. "That's a classic red herring. Customers pay the USF, not the RBOC. We're questioning whether there's even a need for the USF on the eve of universal VoIP service availability. We're supportive of a USF that actually deploys broadband to rural areas."

Furthermore, Rego adds, Vonage does pay into the USF because it uses fifteen CLECs nationwide for IP to PSTN connections. "When we get our rather robust phone bills, we're charged for USF, 911, and all those other fees."

Rego notes that some pundits are wondering what Vonage will do if cable companies block certain ports, trying to force users to subscribe to the cable company's phone service instead of a competing phone service. "We don't think it's going to happen," he says. "Our customers aren't getting anything for free. They're already paying good money for access."

An information service or a telecommunications service
The argument that Rego is concerned about is whether or not VoIP will be regulated. It is astonishing that this question is still worrying innovators, given that in December of 2003, FCC Chairman Michael Powell told the FCC Forum on Voice over Internet Protocol (VoIP):

No regulator, either federal or state, should tread into this area without an absolutely compelling justification for doing so. Innovation and capital investment depend on this premise. The entrepreneurs seated before us depend upon this premise. In my view, we should come to this forum with a sense of regulatory humility—mindful that it is entrepreneurs, not governments, who came up with the idea of making high-quality, inexpensive phone calls over the Internet.

Go to page two: Out with the old, in with the new >