20 February 2004
Much has been written over the past few months about the revolutionary potential of Internet telephony, or voice over Internet protocol (VoIP) service. VoIP would let consumers make phone calls through an Internet connection, largely bypassing traditional circuit-switched wireline telephone networks. In time, some think it might come to completely replace older phone networks.
In just a few short years, VoIP has gone from wishful thinking to
marketplace reality as numerous companies now plan to deploy such services.
This has also led many industry watchers to speak of VoIP as a veritable
deregulatory deus ex machina that potentially offers a sudden and
unexpected way to escape from the past century's regulatory morass.
"Not so fast!" say opponents. That same potential for revolutionary change
that excites some, frightens many others. This is an old story, of course.
New, "disruptive technologies" are often viewed with suspicion, or even
outright hostility, by those who fear they have something to lose by a
change in the status quo. But technological revolutions are the healthiest
part of a capitalist economy. In a world where "only the paranoid survive,"
it's good that organizations are forced to stay on their toes, constantly
concerned about the impact of new technologies on the old ways of doing
business. That's what drives the Schumpeterian "creative destruction" that
makes our economy so innovative and prosperous.
Often, however, when the fears over technological change reach a fever
pitch, certain interests substitute a political response for a market
response. For many, adjusting or abandoning an old business model is just
not an option they are willing to consider. Instead, they lobby legislators
or regulators for protection from the new competitors or technologies.
Steamboat operators feared the rise of railroads; butter makers petitioned
against margarine as a substitute; television broadcasters sought to delay
competition from cable providers; and some small retailers still fight to
keep large chain stores like Wal-Mart out of local communities.
It should come as no surprise, therefore, that this process is playing
itself out today in the debate over Internet phone calls. The issue at hand
involves the regulatory classification or treatment of Internet telephone
service. VoIP is something new; it does not fit neatly into the Byzantine
regulatory taxonomy the FCC has established for older communications
services. Its opponents want to open the door for regulation of this new
service by needlessly subjecting it to the full force of traditional
telecom regulations.
In what would be viewed by most people as a silly squabble over semantics,
volumes of paper are currently being filed at the FCC over the question of
whether VoIP should be classified as a "telecommunications service" or
something else, such as an "information service." Incredibly, in an era in
which we should be mapping out the abolition of the FCC altogether, such
definitions make a world of difference to the development of a new service.
Because of the haphazard manner in which communications law has developed
over the past 70 years, there exist distinct regulatory paradigms for
telecom, cable, broadcasting, and wireless service. Internet-based
applications do not fit into any of these categories, especially since
providers in each of those old sectors can provide online services using
different technological platforms or delivery mechanisms. But if VoIP comes
to be regulated under one of these archaic classification schemes,
especially the "telecom services" paradigm, it could be strangled while
still in the cradle by a bewildering batch of federal and state regulations.
Consequently, in the filings and public statements made by the various
interest groups that have lined up to oppose a regulation-free VoIP
environment, several recurring themes have been cited to justify its
classification as a "telecom service": The potential loss of state and
local telecom taxes; the need to collect universal service fees and
subsidies; access for the disabled; public safety requirements such as
"E911;" and the need for various other "consumer protections." For example,
citing such concerns, a number of state regulators have raised a big stink
about VoIP, but really they're just worried about losing some of their
regulatory turf and power.
Of much greater concern is the recent intervention of the law enforcement
community, led by the Federal Bureau of Investigation, the Department of
Justice, and the Drug Enforcement Administration, which have jointly asked
the FCC to assure that wiretap and monitoring capabilities easily apply to
the new technology. Apparently the law enforcement agencies oppose
telecommunications deregulation because it means they won't be able to spy
on us quite as easily. As Jim Harper, founder of Privacilla.org, put it,
"The law enforcement cart is coming before the civil society horse. The
communications infrastructure is being created with eavesdropping in mind
before there is any evidence of [the need for] it, plus with VoIP it won't
work anyway as the criminals will use offshore VoIP or open source VoIP,
rather than . . . any of the major carriers." A wiretap-ready Internet that
enables the sort of online surveillance that the FBI, DOJ, and DEA desire
will be a costly proposition, requiring expensive equipment upgrades and
ongoing regulation of this dynamic sector. Moreover, the scheme would
likely entail heavy FCC involvement in the regulation of Internet telephony
in the future.
In one sense, what all these diverse parties, from the old hidebound state
regulators to the FBI, are really saying is that unless VoIP providers can
learn to "play the game" exactly the same way old telecom companies did,
they should not, effectively, be allowed to provide service at all. Stated
differently, this new technology must be pigeonholed into old regulatory
classification schemes and regulatory paradigms of the past; it must not be
allowed to breathe the free air of an unregulated communications marketplace.
After all, if VoIP was allowed to develop in a relatively free, unregulated
environment, just think of the horrors that might befall our society! We
might make cheap phone calls or something.
Adam Thierer (athierer@cato.org) is director of telecommunications studies
and Wayne Crews (wcrews@cato.org) is the director of technology studies at
the Cato Institute in Washington, D.C. at the Cato Institute in Washington,
D.C. (www.cato.org/tech). They are the authors of What's Yours Is Mine:
Open Access and the Rise of Infrastructure Socialism. To subscribe, or see
a list of all previous TechKnowledge articles, visit
http://www.cato.org/tech/tk-index.html.
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