Internet Rules Change Carries Potential To Impact VoIP

By Greg Scoblete On Jun 19 2006 - 6:00am

The House of Representatives defeat of an amendment to the omnibus Communications Opportunity, Promotion and Enhancement Act could have a profound impact on the development of voice over IP telephony, said independent service providers.

The House vote defeated an amendment that would have enshrined so-called “net neutrality” into law. At issue is whether network operators (cable and telephone companies) can charge Web sites and online service providers higher prices for faster bandwidth to consumer's homes, upending the current model, where all Internet services currently enjoy equal speed to consumer's home, and creating what critics dub a “tiered” system that would favor deep-pocketed firms over cash-strapped startups.

Critics such as Google, Microsoft and Skype assert that the tiered system would be used as a cudgel against online services — such as VoIP and video services — that compete with similar services offered by network operators. In such an environment, phone service from independent providers that frequently leverage retail, such as Vonage and 8x8, would be competitively disadvantaged against the network operators own service, they say.

The creation of tiers would also make the “best-effort” Internet of today the de-facto slow lane on the information superhighway and hence make services and sites that run on that lane less attractive to consumers, critics say.

“We pay for the bandwidth we consume already,” said Brian Woods, president, 8x8. “What we're worried about is 'double-dipping,' where a network operator charges me more to access a customer at higher speeds.” Woods stressed that cable and telephone companies were unlikely to actively block third-party voice traffic from companies like 8x8 and Vonage. “I've only seen it happen twice — once with a company in Mexico and with [wireless broadband provider] ClearWire in the U.S.,” Woods said.

Current competition laws prevent network operators from applying charges to third-party voice services that they don't apply to their own, but enforcing such regulations would entail an enormous regulatory and oversight effort by the government, Woods added. “Why would they want to take on that burden?”

Network operators, which opposed the amendment, argued the opposite, saying that net neutrality is a “solution in search of a problem.” They note that the Internet flourished without net neutrality legislation, that the consumer's Internet experience would not change, and that cable and telcos need the financial incentive from potential price tiers to encourage the development of faster broadband networks. They argue that online businesses that rely on bandwidth intensive content should be the ones to pay for it, sparing lower-bandwidth services the burden of subsidizing others usage.

“We have repeatedly and consistently made clear that consumers will be able to reach all the content and applications they want. And applications and software providers will be free tomorrow as they are free today to deliver services to customers who purchase Internet access,” said a spokesman for AT&T.

“If content providers and others don't want or need services that enhance the customer experience, they will not be required or compelled to have them. Offering these types of enhanced services does not compromise the openness or functionality of the Internet. It does, however, address a looming problem, and gives interested parties the right to create and market new business services,” he added.

Chris Libertelli, Skype government regulatory affairs head and a former legal advisor to FCC chairman Michael Powell, said that the company is sympathetic to network operators' need to underwrite investment in their networks, but that they were already drawing revenue from two sources. “We pay for access to the Web, consumers pay for access to the Web. How many times do the network operators need to be paid?”

Basic VoIP service consumes little bandwidth so even if tiered pricing went into effect, Skype customers wouldn't be impacted, Libertelli conceded, but he added that if network operators could create fast and slow lanes to customers' homes based on pay scale, services that couldn't pay the premium would be frozen out of innovation.

“Voice doesn't consume a lot of bandwidth, but future services, like video, would. Innovators are naturally looking for services that run on the best Internet they can get. How can we innovate in an environment where we don't know what the rules are? This will atrophy the Internet.”

8x8's Woods said the entire success of the Internet would be endangered if network operators took an active role in determining how content moved across the network. “Why is the Internet successful? It's a dumb network — it doesn't care what's in the packets it's moving. The circuit switched network was an intelligent network, but you didn't see anyone innovating on your phone lines,” Woods said.

AT&T's spokesman said such fears were unfounded. “Our thought is that small companies will still innovate. That's what they do. In fact, the next Google is probably being created somewhere right now. Nothing we're doing and nothing we're proposing affects in the slightest their ability to keep innovating.” Indeed, teleco and cable groups have argued that it would be the increased regulation necessitated by enforcing net neutrality, and not tiered pricing, that would stifle Internet innovation.

While the debate has taken a life of its own and will be picked up by the Senate this summer, network operators have not announced firm plans regarding pricing structures but merely expressed a desire for the option. Nor have third-party service companies like Skype said categorically that they wouldn't pay for better bandwidth.

“This wouldn't have been on the public's radar if [SBC CEO] Ed Whitacre hadn't been quoted in BusinessWeek,” Woods observed. Whitacre said that it was “nuts” to think companies such as his should invest in building out a high-speed network only to have companies like Vonage profit.