IP convergence: Regulatory, 08/10/98

Regulatory issues may reach out and bite IP

By David Rohde
Network World, 08/10/98

If you believe IP networks are poised to take over the world because the telecom industry is all balled up in regulations, remember: Turnabout is fair play. The actions of regulators - who have finally discovered that unregulated Internet services are competing with mainstream voice and data offerings - could just as easily squelch IP dominance.

Except for its ill-fated attempt to regulate indecent content, the government has tried to keep its hands off IP and the Internet. In 1996, Congress wrote language into the Telecommunications Act calling for a "free and unfettered" Internet market. Last year, the White House issued a white paper calling for Internet noninterference. And last spring, the Federal Communications Commission for the third time refused to make ISPs pay telephony-style per-minute access charges to local exchange carriers.

Nonetheless, numerous FCC actions unwittingly affect the prospects for IP voice and data convergence simply by changing the calculus between circuit-switched and packet-switched transport choices. Case in point: Dial-up international voice, fax and file transfer connections. If the FCC succeeds in its current policy of jawboning down foreign carriers' rates, the need for international IP telephony will suddenly abate. Similarly, flat-rate dial-up Internet pricing plans may fall victim to FCC action.

Aching for broadband

The hottest telecom issue at the FCC right now is right down IP Alley. And depending on whom you ask, the FCC's decision will either bolster IP convergence or put it in the toilet.

Four of the five regional Bell operating companies - all but BellSouth - have filed petitions asking the FCC to deregulate their broadband data operations. Their hook: an obscure provision of the Telecommunications Act of 1996, known as Section 706. It calls on the FCC to refrain from applying certain regulations to broadband networks. This month, the FCC faces a deadline by which it must say which regulations it will drop, or at least issue a proposal.

The RBOCs have seized on this previously ignored piece of the statute to demand the FCC allow them to carry interexchange data traffic across their regions, even before they receive general long-distance authority. They add that when it comes to data services, the FCC should drop long-standing requirements that force RBOCs to resell their offerings to other carriers or make their facilities available to competitors.

Without such rule changes, the RBOCs say, they have little economic incentive to invest in broadband networks optimized for IP, including digital subscriber line local loops. But with the rule changes, the carriers say they could compete with tier-one Internet providers and in the process add desperately needed capacity to the Internet.

FCC Chairman William Kennard is receptive to the RBOCs' Section 706 petitions. "[The RBOCs] have rightly asked, 'Why should we make this new investment if we simply have to turn around and sell this new service or the

capabilities of these advanced electronics to our competitors?' " Kennard said in a recent speech.

Long-distance carriers, ISPs and competitive local exchange carriers are frantic to make sure RBOC data nets don't get deregulated this way. Mark Rosenblum, AT&T's vice president of law and public policy, says the RBOC petitions are a ruse. "They're just going to shift their voice traffic onto the new [deregulated] network," Davis says, noting that this would defeat the rule requiring RBOCs to meet a 14-point checklist in order to enter the general long-distance business.

Kennard has tied the issue to the need for bringing more bandwidth to schools, libraries and residences, almost all of which count on the RBOCs for "last mile" services. And that's been the main cue for the staff of the FCC's Common Carrier Bureau, which has drawn up a draft proposal supporting the Section 706 applications. Should the RBOCs prevail, the next question is whether they will follow through and rapidly build out multimedia broadband IP networks. That may be the ultimate test of any change in FCC policy.

Saving international circuit switching

Another key FCC policy affects IP convergence in a different way. Every IP telephony gateway vendor cites the high cost of international connections as creating a prime hunting ground for IP convergence. But last year, the FCC passed a rule demanding that major foreign carriers reduce their settlement rates - fees they charge to complete traditional calls that originate in the U.S. - to 15 cents or less by Jan. 1, 1999.

The international reaction: shock and horror. More than a dozen foreign carriers sued the FCC, claiming it had no business regulating international rates. Even Cable & Wireless plc, whose U.S. subsidiary is a significant domestic corporate voice and data carrier, sued the FCC in federal district court in Washington, D.C., seeking to protect its right to set rates for foreign subsidiaries such as Hong Kong Telecom.

Others are turning the IP bypass issue around and claiming the FCC is actually seeking special favors for U.S. Internet users. Telstra, Australia's dominant carrier, claims in its lawsuit that the FCC is being hypocritical in complaining about high international settlement rates. U.S. carriers are overcharging foreign carriers for international capacity needed to support Internet traffic, Telstra says, especially now that U.S. users are increasingly accessing foreign Web servers.

Yet the FCC's policy seems to be working. Settlement rates and international rates are coming down dramatically in many cases. Commercial offers of calls to Great Britain at 10 to 15 cents per minute and to continental Europe for no more than 25 cents per minute now abound, even for residential customers.

"I tell my customers that if they're moving toward Internet telephony just for the cost savings, that difference is eventually going to go away," says Al Bender, general manager of voice-over-IP solutions at Nortel. Len Elfenbein, president of international consultancy Lynx Technologies in Fairfield, N.J., suggests users monitor settlement rates to negotiate lower circuit-switched prices while employing IP alternatives for recalcitrant countries that keep their ordinary charges inflated.

The per-minute tax

One controversial issue that seems to have faded into the background is the failed RBOC drive to make ISPs pay them per-minute access fees just as long-distance carriers do.

In May, the FCC agreed to study the idea of assessing access fees on phone-to-phone IP telephony. Most ISPs expressed relief, saying they had once again staved off the possibility of the bulk of Internet traffic being "taxed" at a per-minute rate.

But political experts caution against complacency. The main reason the FCC has repeatedly declined to impose RBOC access fees on ISPs is that those fees are inflated, not because the FCC inherently favors Internet traffic. Now running 2 to 2.5 cents per minute, RBOC access fees are slated to come down gradually; by 2002, they will be little more than 1 cent per minute.

Sometime between now and then, if IP traffic actually begins cutting into the aggregate traffic carried by the public switched telephone network, the FCC may be forced to treat ordinary long-distance and Internet traffic alike. If the FCC does move in that direction, what remains of flat-rate, all-you-can-eat, dial-up Internet pricing plans will be history.

Numerous other issues could change the outlook for converging networks around IP. For example, few LAN-based telephony manufacturers - what some in the industry dub "unPBXs" - have yet complied with federal regulations that require phone systems to address public safety issues.

And the ongoing issue of charging sales tax on the Internet could retard electronic commerce, though Congress seems poised to pass a three-year tax moratorium while policy makers examine the issue more fully.

One thing's for sure: Internet issues are no longer flying below the radar screen in Washington. With antitrust regulators taking on Microsoft, egged on by newly pointing-and-clicking congressmen, the effect of nearly every communications decision regarding the world of IP is likely to be closely examined.

Rohde is a Network World senior editor of carrier services, telecommunications equipment and computer-telephone integration. He can be reached at david_rohde@nww.com.