VoIP: The 400-Foot Genie that Won’t Fit in a Box

Published July 1, 2004

This March, the Federal Communications Commission (FCC) came close to declaring itself irrelevant. In a dispute over the charges that large phone companies pay each other for the completion of phone calls, the FCC basically told them to go figure it out for themselves–in other words, behave as if the agency doesn’t exist.

Not surprisingly, the dispute concerned voice over Internet Protocol (VoIP), the 400-foot genie the FCC and a growing number of state regulators are desperately trying to stuff into one of their pre-approved regulatory boxes before the whole regulatory regime comes crashing down.

AT&T wanted to use the Internet and VoIP technology to bypass the $9 billion in access charges the local Bells levy on AT&T’s long-distance calls. But unlike true Internet phone start-ups, AT&T still uses the old circuit-switched network to start and end its calls. For that reason, the FCC ruled AT&T cannot entirely escape paying the local guys something. But in a twist, the FCC admitted it had no idea what that something should be.

This is a staggering admission for an entity that can quite confidently price things down to tenths of pennies.

A glance at any phone bill will confirm the FCC is not shy about making up prices for things. That is why phone companies charge $8 for two cents’ worth of call waiting every month. The FCC has decided that is a fair way to subsidize basic dial-tone service. The old phone network is clogged with pots of money the FCC builds up in order to subsidize other things, and it is those pots of money VoIP threatens.

The FCC seems to want all the big phone players to migrate their voice traffic to IP in such a way that the old system can be kept on life support. So while AT&T cannot be allowed to stop paying billions in access fees immediately, a slow pullback might work. The trouble with this approach is that it signals that true VoIP players do not have a place in the FCC’s world–or if they do, it will only be at a price.

Regulators in Washington can deny it, but their present hands-off approach to VoIP could very easily be reversed with some sort of “universal bit fee” levied on every high-speed Internet connection. Congress is certainly already thinking along those lines, carving out a VoIP exception to Internet tax bans. To make that stick, legislation under discussion defines VoIP as a piece of software, creating the possibility of the first federal software tax. All of this to try to keep 70 years of status quo phone regulation in place.

It is a fool’s game, however. The homogenous dial-tone service is gone forever, and along with it the days of services easy to meter, tax, and subsidize. Broadband is impossibly heterogenous; no two people use the exact same service in exactly the same way. The idea that one group of users should subsidize another group of users is absurd.

But here’s a deal: Chuck the entire state and federal regulatory telephony structure and replace it with a $5 connectivity tax on the 1040 Form and we’ll call it even.

Jeff Taylor ([email protected]) writes the weekly “Reason Express” column for Reason Online, where this article originally appeared.