The Challenge of Video Conferencing
as the new
Telephone for the Millennium

Donald Alexander Moskaluk

Submitted to department of Fachbereich Staats – und Wirtschaftswissenschaften

In Partial Fulfillment of the Requirements for the Master Degree in Economics Science

January 2002

Abstract

The growth of Video Conferencing as a potential challenge to regular telephony or the Plain-Old Telephone System (POTS) is an area of academic inquiry needing further examination. This paper critically examines the opposition to Video Conferencing with particular emphasis on limitation of technology on the Internet, the 1996 America's Carriers Telecommunication Association (ACTA) petition to the U.S. Federal Communications Commission (FCC), in addition to the European Commission's attitudes towards the matter. Moreover, the difficulties attached to an understanding of defining what exactly Video Conferencing means and what “Internet Telephony” means are also addressed.

Abstract 2

Contents. 3

Introduction. 5

Video Conferencing related to Internet telephony. 7

What is Internet Telephony?. 8

Soft Market for Telephony. 9

Today’s Solution. 9

Technology Problems. 10

Reliability. 11

Poor Sound Quality. 12

Ease of use. 12

Infrastructure. 12

Standards. 13

Back-office Applications. 13

Technology Summary. 13

The Opposition to Internet Telephony. 14

ACTA Complaint 14

The ACTA Petition. 15

The Petition. 17

History Repeats. 19

Internet Telephony as the Service. 20

Telephony & the European Commission. 24

Conclusion. 28

The Demand for Internet Telephony. 28

Summary and Final Analysis. 29

Appendix 1 - Resources. 34

General References. 34

Newsgroups. 34

Internet Telephony Software. 34

Windows Clients. 34

Mac Clients. 35

Unix Clients. 35

Phone Gateway Software Providers. 35

Fax Gateway Software Providers. 36

Computer Telephony Software. 36

Video Conferencing Clients (with voice conferencing) 36

Integrated Messaging. 37

Phone Gateway Service Providers. 37

Developers, Researchers and Research Groups. 37

Research Groups. 37

Individual Researchers. 37

Publications/Presentations/Information. 38

Internet Access Providers/POPs. 39

Public Switched Telephone Network. 39

ATM... 39

Standards. 39

Standards Groups and Trade Organizations. 39

IETF Working Groups. 39

RTP (Real Time Protocol) 39

RSVP (Reservation Protocol) 39

Directory Services. 41

Standards Groups. 41

LDAP (Lightweight Directory Access Protocol) 41

Microsoft's User Locator Service (ULS) 41

Directory Services for Interoperability with the PSTN.. 41

Dynamic DNS. 41

X.500. 41

Whois++ and Indexing. 42

ODSI (Open Directory Services Interface) 42

Introduction

I recently heard a local disc jockey say “well it’s 2001 and I don’t see any flying cars or video telephones as promised to us in the 1960s.” Prototypes of flying cars are on the drawing boards but video telephones have been around for over ten years; however, there does not seem to be business acceptance towards it. Video Conferencing initial market niche over the Internet was as a consumer-related talk and see product, possessing an appeal similar to that of amateur HAM radio, with broader accessibility. Video Conferencing software is available to anyone who wishes to purchase and use it. However, the deployment of gateways has been relatively limited to date. The immediate potential for gateways lies in the expansion of commerce by providing direct and immediate access from the Internet to existing businesses that operate in a traditional POTS environment.

The near term value of video conferencing resides in private intranets and in the provision of value-added services for circuit-switched networks. Regulation limiting the use of gateways in applications where the non-real-time characteristics of video conferencing are adequate would severely limit the availability of working development platforms. Furthermore, premature regulations could significantly hamper the process of introducing IP-based enhancements to public network-based systems. Regulation will also slow the development of new networks to support a full range of multimedia communications on a single network.

Video Conferencing using Internet telephony is at a point where it can be compared favorably to traditional voice telephony for serving potential customers on the Web. Both the technology and the market for Internet telephony are still immature and require further development to reach their potential. Regulation of Internet telephony by the entire European Union could significantly hinder the innovation that is currently taking place. “Regulation by individual Member States of America would only cause internal domestic telecommunications industry to suffer as the industry in other States embraces and develops Internet telephony. Additionally, even if Internet telephony were to be regulated by either the Americans or a few Member States, voice over the Internet may still be in use by some alternative technological method. Regulation of Internet telephony, many within the ITC believe, would at this time be an ineffective and inappropriate response to this developing technology and market.”[1]

Further development of Video Conferencing using Internet telephony also has the potential to affect another industry--the telecommunications industry. Internet telephony is an emerging technology with great potential to be a positive influence on traditional telephony. Internet telephony could be a competitive alternative to the traditional voice telephony market. In such a competitive state, both industries would have to innovate and improve to remain competitive. This is as an opportunity to accelerate the move toward cost-based tariffs, especially in countries where tariff rebalancing is still underway. If the desire were to have a competitive telecommunications industry, introduction of an alternative method of voice transport would be wise to allow to occur. In addition, with the trend of deregulation and the opening of telecommunication markets to competition, it would seem inappropriate to advocate increased regulation. By allowing the continued innovation and development of Internet telephony, a true alternative to traditional voice telephony and a more competitive market are a little bit closer to realization. Constraints placed on the development of Internet telephony at this time will only stifle innovation in Internet telephony technology and applications, as well as potentially stifle innovation in traditional telephony as well.

Video Conferencing related to Internet telephony

IP telephony is a growing technological field that allows voice, data and video collaboration through existing IP telephony-based LANs, WANs and the Internet. By utilizing open IETF and ITU standards to move multimedia traffic over any network, IP gives users more choices in media (for example, coaxial cable, ISDN, POTS lines, ADSL, broadband, leased lines, satellite and twisted pair) and location. Consequently, the same networks supporting email and Web data traffic could increase their global connectivity to companies, individuals and educational institutions. “Internet telephony refers to communications services—voice, facsimile, and/or voice-messaging applications—that are transported via the Internet, rather than the public switched telephone network (PSTN). The basic steps involved in originating an Internet telephone call are conversion of the analog voice signal to digital format and compression/translation of the signal into Internet Protocol (IP) packets for transmission over the Internet; the process is reversed at the receiving end.”[2] Video Conferencing uses Internet telephony as its network. The IEEE standard is H.323 that gives the ability for telephone, video and data to share the same network. To clarify Video Conferencing is part of Internet Telephony.

What is Internet Telephony?

As the name suggests, Internet Telephony involves the usage of the Internet to transmit 'real-time' audio and video from one personal computer (PC) to another (or in some instances to another telephone itself). That is the simple, definition. Internet Telephony (or Voice over IP (VoIP)) technology digitizes speech and transmits it as compressed data, which is split and sent in packets over the Internet, to later be re-assembled at the receiving end. It also differs from traditional telephony since communication and transmission is done across “Internet Protocol (IP) networks.”[3] As such, it represents a departure from the majority of communications today, which is performed over conventional “switched networks.”[4] “Traditional telephone over a circuit switched network usually devotes a fixed bandwidth (or a circuit, in other words) between the two ends of the phone call; with unused bandwidth (silence or intermittent speech) being unrecoverable or un-reroutable to other calls. On the other hand, Internet telephony, which occurs over an IP-based network, requires all elements of information, be it text, graphics, video or audio, to be compressed and broken into discrete elements for transmission and reception over the network. Hence, bandwidth can be recovered and made available for other users during moments of silence.”[5]

Soft Market for Telephony

During recent conversations with a number of networking companies, the question was asked, why corporations have not adopted Telephony technology. Not one of the representatives could pinpoint a single reason for the slow growth of corporate Telephony implementations. To be fair, these networking experts cited a number of economic, businesses, and technological concerns in which they feel can be addressed. In addition, the consensus among networking companies is that Telephony will take off; Telephony 's cost advantages are too significant. However, the corporate world has a number of technology problems to overcome before they can implement Telephony technology.

Today’s Solution

Telephony is being used to support some business applications today, such as call center solutions; however, in many of these implementations, the underlying protocol such as IP is blended with other protocols, such as Asynchronous Transfer Mode (ATM), to deliver quality of service, speed, and security that mission-critical voice applications require. “The current version of IP is weak on these points, so vendors are bringing hybrid IP and ATM solutions to market to boost support for VoIP and other advanced applications, such as video.”[6]

Hybrid IP and ATM solutions do go a long way toward addressing the slow growth of Telephony; however, there are major reasons VoIP has not pushed traditional telephony aside. For an example, there is no popular business application that demands the use of Telephony. “It is still much easier to use traditional telephony or integrate voice and data using proprietary application programming interfaces supplied by telephone switch providers.”[7] There are a number of applications, such as customer service functions, that use Telephony; however, the majority of Telephony based applications today do not provide enough payback to be worthwhile for businesses. What is needed are business applications-CRM, online training, and Web services--that combine VoIP with video and data. It would appear the applications related to telephony are actually what are holding up VoIP acceptance. The current Telephony market is similar to the conditions of caller-ID (Automatic Number Identification (ANI)). Businesses thought it was useful that they could see the name and number of an incoming caller. Nevertheless, there was not a compelling business need for the technology. It was not until telephony providers began integrating the ANI with corporate databases and applications that caller-ID really took off. For example, “in the 1980s, American Express wrote custom applications using proprietary telephony programming interfaces that matched incoming ANI with customer records. Incoming calls would then be forwarded to the customer service rep, along with a business application screen containing the incoming caller's account information.” [8]

Technology Problems

Another reason Telephony has not been widely accepted is that there are still too many technical hurdles plaguing the technology. Traditional POTS can rest easy until these issues are resolved such as;

· Reliability,

· Sound quality,

· Ease of use,

· Infrastructure,

· Standards, and

· Back office applications.

Reliability

The reliability of Telephony is a problem and it is due to the type of Internet Protocol that is used. “Large segments of the Internet population are using IP versions such as IPv4, which does not have good support for guaranteed routing”[9]; as an example, if one would pick up a telephone receiver, and not here a dial tone, then one could not place a call. This is the affect you get now quite frequently when trying to use Telephony with IPv4. Until the next-generation of the IP protocol, IPv6 is implemented widely, “VoIP will not be a critical corporate technology contender without the use of hybrid solutions that combine IP with other more reliable protocols, such as ATM. Although IPv6 is already supported in a number of networking solutions and some operating systems such as Linux, not many companies have begun to migrate from IPv4 to IPv6. This is expected to change during the next three years, with IPv4 and IPv6 running concurrently across the Web for some time as businesses upgrade.”[10]

Poor Sound Quality

Now, there is no guaranteed level of service, and today's Telephony sound quality can often be far worse than a cell phone passing through an area with sparse coverage. Networking delays, compression problems, and low-fidelity output plague Telephony 's sound quality. However, broader implementations of IPv6 are expected during the next three years, combined with forthcoming standards from industry groups like the Telecommunications Industry Association.

Ease of use

Telephony needs to support many of the common services, such as call waiting and caller-ID, which customers expect and can find in traditional telephone systems. Today's Telephony implementations often require the caller to enter upwards of 25 digits before placing a call (that is, access number, pin, destination phone number). Until Telephony can match the easy-to-use access and useful services provided by the traditional voice systems we already have, Telephony will be a tough sell.

Infrastructure

The number and location of IP gateway devices, which provide Telephony routing services, also limit Telephony 's success. Service providers must support a sufficient number of gateways located in high-traffic areas to achieve any type of cost savings. Most notably, international customers are affected here, because a low number of gateways means that network providers have to purchase and re-sell routing services via third party providers (particularly long distance routing), which adds to the cost of the VoIP solution.

Standards

The leading telephony standard that affects Telephony, H.323, is capable of blending voice, video, and data. However, Telephony providers often view H.323 as difficult to implement. Quite often, they may implement a proprietary solution in the interest of rapid deployment. However, this could cause interoperability issues for customers.

Back-office Applications

Back-office systems that support accounting, billing, and network management for Telephony must be implemented at levels that are at least parallel to their traditional telephony providers. However, for now, the traditional telephony vendors have a substantial lead in scalable back-office systems that manage administrative services.

Technology Summary

Unless companies plan to implement hybrid protocol-based Telephony solutions, the companies will likely want to wait until Telephony has matured a bit more; nevertheless, the focus of future cost savings is Telephony. Current projections show that Telephony “will likely lower the cost of voice communications by an estimated 80 percent.”[11]

The Opposition to Internet Telephony

On the surface, Internet Telephony would seem a rather harmless technology - harming no one, while allowing the average person to make long-distance calls for no charge or for comparatively less than they would through traditional telephone; however, the America's Carriers Telecommunication Association (ACTA), would suggest otherwise. On March 4, 1996, ACTA petitioned the U.S. Federal Communications Commission (FCC) to prevent companies from selling Internet Telephony software and to "institute rulemaking proceedings defining permissible communications over the Internet."[12] Because of this petition the telephony, marketplace is developing but not at a “Moore Law”[13] rate.

ACTA Complaint

To understand the nature of ACTA’s complaint, it is necessary to understand who is in ACTA membership. ACTA's membership in the USA consists primarily of small to medium-sized resellers of long-distance services; “larger companies like AT&T, MCI and Sprint are not concerned with ACTA or their petition since they are 'wholesalers of capacity'. Internet telephony is not a form of competition in their market.”[14] ACTA's main corporate purpose is to represent these small resellers of long-distance services in legal and political spheres.

The ACTA Petition

In order to successfully argue their case, ACTA's first task was to demonstrate that the FCC has in fact regulatory control over the Internet. Arguing that under 47 U.S.C. Section 151, the Commission was created "for the purpose of regulating interstate and foreign commerce in communication by wire and radio..."[15]; with the Internet being a novel and unique form of wire communication. ACTA, recognizing that Internet Telephony was still in its infancy, drew upon the 1968 U.S. Supreme Court Case, United States v. Southwestern Cable Co. “The Court was asked to rule whether it was within the FCC's ambit to regulate the nascent cable-TV industry and, if so, whether it also had the authority to preserve the status quo pending further investigation and proceedings. With the Supreme Court ruling affirmative on both counts, ACTA argued that the Commission should take the same action in 1996 with regard to the new technology of long distance calling via Internet as it did thirty years ago: grant special relief to maintain the status quo so that it might carefully consider what rules are required to best protect the public interest and to carry out its statutory duties.”[16]

ACTA further submitted that goals such as Universal Service and fair competition in the telecommunications market were being thwarted by Internet Telephony as such companies evade levies and tariffs imposed on other telecommunications carriers. "ACTA submits that it is not in the public interest to permit long distance service to be given away, depriving those who must maintain the telecommunications infrastructure of the revenue to do so, and nor is it in the public interest for these select telecommunications carriers to operate outside the regulatory requirements applicable to all other carriers."[17] The issue of access charges is undoubtedly the core of the petition. “In U.S. telephony, service is split between Local Exchange Carriers (LECs) and InterExchange Carriers (IXCs). The generally monopolistic LECs provide local telephone service, whereas the IXCs provide long-distance service between LECs, making up a highly competitive, albeit regulated, industry.

Most long-distance phone calls in the U.S. involve an LEC connection on both ends (with the long-distance carrier as the bridge).”[18] Each time an IXC terminates or originates a call through an LEC, the IXC pays the LEC an access charge of roughly 3 cents per minute on each end. “This access charge is greatly inflated but it covers Universal Service obligations. However, in the early 1980's the FCC ruled that providers of 'enhanced services', like Internet Service Providers (ISPs), need not pay these access charges. ISPs are treated as "end users" who can purchase lines that have no per minute charge for receiving calls from their customers.”[19]

The Petition

While the petition names “VocalTec, Webphone and others as respondents, it is also equally clear that the FCC's jurisdiction does not extend to software. Netscape, Voxware and Insoft, in a joint opposition”[20] to the petition have argued quite convincingly that in traditional telephony there are many companies who supply software for operating telecommunications networks - such as software for switching and signaling in the public switched telephone network - none of which have ever been deemed subject to FFC regulation. “It would then seem arbitrary to treat Internet Telephony software producers as telecommunications carriers and other companies who manufacture software for long distance services as not. Netscape, Voxware and Insoft further suggest that Internet telephone software is, if anything, customer premise equipment”[21] CPE since it enables a user's computer and peripheral devices to communicate over the Internet. Worse still for ACTA (and others), CPE providers are unregulated and detariffed; state regulation of them has been pre-empted by the Commission itself. As stated in Computer II,

"Beginning with our Carterfone decision this Commission has embarked on a conscious policy of promoting competition in the terminal equipment market. As a result of this policy the terminal equipment market is subject to an increasing amount of competition as new and innovative types of CPE are constantly introduced into the marketplace by equipment vendors. We have repeatedly found that competition in the equipment market has stimulated innovation on the part of both independent suppliers and telephone companies, thereby affording the public a wider range of terminal choices at lower costs ... Moreover, this policy has afforded consumers more options to obtaining equipment that best suits their communication or information processing needs"[22] “ACTA submits that Internet Telephony services should be considered interstate telecommunications carriers under definitions provided in the Telecommunications Act of 1996.”[23]

"The term 'telecommunications carrier' means any provider of telecommunications services the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used... A telecommunications carrier shall be treated as a common carrier under this Act only to the extent that it is engaged in providing telecommunications services."[24]

The Computer Professionals for Social Responsibility (CPSR) and the Benton Foundation in their joint opposition to the petition argued “that Internet Telephony software is more analogous to the telephone itself - surely no one will seriously consider the telephone a common carrier if at all?”[25] Netscape and the CPSR (et al.) identified a key issue regarding the petition. ACTA seems to consider Internet Telephony software as the means to deliver the services, whereas Netscape and others see the software as merely the mechanism for the input and output of audio, something which is not itself a part of the larger network needed for the transmission. In any event, it is neither practically nor functionally possible to distinguish real-time audio packets across an IP network from other packets such as, stored audio (and other files) and e-mail.

Should the FCC intervene to regulate e-mail and real-time text-based chats which, it could be argued at some level, are depriving long-distance resellers of revenue? What next? Would the U.S. Postal Service file a complaint against Eudora, Pegasus (et. al.) for selling e-mail software? However the Canadian Postal service has opted to provide a secure and quality service for e-mail delivery. Rather than the U.S. Postal Service complains about software providers, they should take example of the Canada Post.

The U.S. Telecommunications Act of 1996 makes it clear that it is the policy of the United States Government "to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation..."[26] In May 1997, while not explicitly ruling on the ACTA petition, the FCC ruled against requiring ISPs to pay per-minute access charges - instead an increase in fixed charges on each phone line for business users was implemented, this included ISPs.

History Repeats

About seventy years ago, telephone, telegraph and radio broadcasters were competing for each other's markets; "it seemed, in 1926, that very powerful companies, like Western Union and AT&T were going to grab all of the communications business... . So (the USA) federal government sat down ... divided up the turf"[27] Telephone companies were given responsibility for communications through telephone lines (voice telephony); Western Union, domestic telegraph through cable; and a number of other companies shared radiotelegraph, becoming international carriers. The present situation is not unlike that of 1926. "Now, the same telephone line that carries e-mail messages from a computer here to one in Botswana can also transmit graphics, photographs, video clips and voice communication. Thousands of computer users have been snapping up the software - or downloaded it for free - that lets them make the low-cost long-distance calls or conduct international video conferences."[28]

Internet Telephony as the Service

Clearly then, the ACTA petition was fundamentally flawed since it did not identify Internet Telephony as the actual service (i.e. companies which provide IP Telephony services). It merely identified producers of software for the output and input of audio, some of who may have coincidentally been offering IP Telephony services. Such identification on the part of ACTA was incidental. The initial definition of Telephony at the start of this paper (as merely the use of the Internet to transmit real-time audio either from PC to PC or from PC to phone) neglects a third, next generation type of Internet Telephony - phone to phone.

The first two types of Internet Telephony are inherently tied to the PC (including necessary software) and Internet Service Providers. The third type, however, is not. “In phone-to-phone Internet Telephony, the customer, using an ordinary telephone, dials an access code and then the telephone number; the access code then routes the call to a special computer gateway on the IP network. The trouble is that local computer gateways for companies offering this type of service must be placed in strategic geographic areas. ”[29] For instance, if a customer using phone-to-phone Internet Telephony plans to call Munich (Germany) from Toronto (Canada), then local gateways must be located in both Munich and Toronto. The gateways convert audio into data for transmission across the IP network and then convert incoming data back into analog signals.

The FCC's definition of “phone-to-phone IP Telephony requires that such services:

1. Hold themselves out as providing voice telephony or facsimile transmission service;

2. Do not require the customer to use CPE different from that CPE necessary to place an ordinary touch-tone call (or facsimile transmission) over the public switched telephone network;

3. Allow the customer to call telephone numbers assigned in accordance with the North American Numbering Plan (and associated international agreements); and

4. Transmit customer information without net change in form or content.”[30]

BellSouth, a regional telephone service provider for all of the Southeastern United States, announced, “as of September 1 it would begin applying access charges on phone-to-phone long-distance calls placed using IP technology.”[31] According to the FCC, "certain IP telephony services lack the characteristics that would render them 'information services' and instead bear the characteristics of telecommunications services."[32] BellSouth argued that phone-to-phone IP telephony is an example of such a telecommunications service.

In the FCC's report to Congress it states that "when an IP telephone provider deploys a gateway within the network to enable phone-to-phone service, it creates a virtual transmission path between points on the public switched telephone network. From a functional standpoint, users of these services obtain only voice transmission, rather than information services such as access to stored files. Routing and protocol conversion within the network does not change this conclusion, because from the user's standpoint there is no net change in form or content."[33] Given this, together with the Telecommunications Act's (1996) definitions of a telecommunications carrier, telecommunications service (as cited earlier) and 'telecommunications' - as the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received. It seems readily apparent that phone-to-phone IP Telephony companies should be required to pay access charges for connecting to and the usage of the local phone companies' systems. In the absence of a more detailed case-by-case investigation, however, the FCC withheld any definitive conclusion regarding whether phone-to-phone IP Telephony should be properly considered a telecommunications rather than an information service.

With regards to specifically PC-to-PC Telephony, the FCC held that "Internet service providers over whose networks the information passes may not even be aware that particular customers are using IP telephony software, because IP packets carrying voice communications are indistinguishable from other types of packets in which case the Internet service provider does not appear to be providing telecommunications to its subscribers."[34] While it would only be fair to presuppose this will also apply to PC-to-phone IP Telephony, big business cannot make that assumption. Sarah Hofsetter, speaking on behalf of IDT Corporation (the producers of Net2Phone, the first commercial telephone service to bridge live calls between PCs and regular telephones via the Internet while charging by the minute), expressed such a concern in a statement to the Tech Law Journal.”[35]

On September 11, U.S. West became the second regional Bell operating company (RBOC) to announce that it would collect access charges on IP Telephony. "The fact that such toll calls are transmitted by the toll carrier via packet switched, rather than circuit switched, technology does not relieve toll carriers of the requirement to order the correct facilities and to pay the appropriate access rates for service."[36] Whereas BellSouth's justification for the collection of access charges on IP Telephony drew primary influence from the FCC's April 10 report to Congress, U.S. West cited FCC Rule 69.5(b) as its authority, which states:

"Sec. 69.5 Persons to be assessed (b) Carrier's carrier charges shall be computed and assessed upon all interexchange carriers that use local exchange switching facilities for the provision of interstate or foreign telecommunications services."[37] However, as an analysis by David Carney of the Tech Law Journal correctly submits, that “the FCC rule was simply about IXCs paying access charges, before the days when IP Telephony was even an issue.”[38] In other words, it would be like building a car when you don’t have the fuel to run it.

Telephony & the European Commission

The European Commission, in supplementing their 1995 Communication on the status and implementation of the Commission Liberalization Directives, issued a notice on “January 15, 1998 defining its policy on voice telephony in respect of telephony via the Internet. Under article 1 of Directive 90/388/EEC defines "'voice telephony' means the commercial provision for the public of the direct transport and switching of speech in real-time between public switched network termination points, enabling any user to use equipment connected to such a network termination point in order to communicate with another termination point."[39] One can question if Internet Telephony falls under this definition of voice telephony?

Consider the word "commercial." The Commission argues that Internet Telephony - understood as either PC-to-PC or PC-to-Phone - is not the principal aim of Internet access providers. Indeed the purpose of Internet access is for the facilitation of browsing, the exchange of electronic mail, and the exchange of data files. They do, however, properly identify phone-to-phone IP Telephony as involving a commercial offer. Similar considerations come into play when examining whether Internet Telephony is correctly "for the public", since computers and access to the Internet are not currently available to all citizens nor are there any policies in place, as Universal Service, to help achieve it. The Commission argues that PC-to-PC Internet Telephony is not available for the public, while PC-to-phone and phone-to-phone IP Telephony are. Even the phrase "direct transport and switching of speech in real time" proves problematic for the Commission. The Commission argues that "the time period required in Internet Telephony for processing and transmission from one termination point to the other is generally still such that it cannot be considered as of the same quality as a standard real-time service."[40] How the Commission is able to equate quality of service with time period is beyond comprehension. They further their logical leaps in the subsequent paragraph, arguing that since "part of the transmission is over the Internet which currently has only one class of services, it is subject to unpredictable congestion risk, making it difficult or impossible to guarantee the same level of reliability and speech quality as produced by the PSTNs." Granted that this statement may be true now, issues of reliability and speech quality are peripheral in addressing whether the phrase directs transport and switching of speech in real time applies to Internet Telephony. As illustrated from the Technology Summary Internet Telephony is not ready for prime time use. An example is with cellular telephones. Cellular communications usually provide much poorer speech quality than regular telephony, yet cellular is still considered voice telephony.

On an IP network, packets are switched; in regular telephony the circuits are. Internet Telephony thus fulfils voice telephony's stipulation that switching be involved. Internet Telephony of all flavours is real-time; it simply depends on how rigorously you define real-time. Surely, a delay of no more than two seconds would disbar the entire technology from being labeled real-time. Even shouting to someone across the street produces greater delays! The analogy of cellular communications is also applicable in this instance.

In perhaps a bid to lengthen an already flawed discussion of the applicability of the phrase 'direct transport and switching of speech in real time' to Internet Telephony, the Commission states "in cases where organisations offering phone-to-phone Internet voice are guaranteeing quality of speech by bandwidth reservation and claim themselves that the quality of the service is the same as circuit-switched PSTN voice, this element of the voice telephony definition will obviously already be met."[41]

The Commission concluded that Internet Telephony cannot be properly considered voice telephony and therefore already fall within the liberalized area, before the deadlines set for the implementation of full competition. "With growing sophistication, certain Internet telephony providers will qualify as providers of voice telephony, and therefore be subject to the regulatory regime applicable to voice telephony in the future."[42] The Commission has announced that it will review this policy in light of the evolution of IP Telephony early in 2000. The Commission is misguided in not considering phone-to-phone IP telephony as practically identical to regular telephony. It will be interesting to see if long-distance providers switch to IP networks to avoid Universal Service contributions.

Conclusion

The Demand for Internet Telephony

In understanding how policy, including legal policy, should deal with Internet Telephony, it is perhaps worth examining the present and future demands for this type of service and technology. A mix of data from various sources should help in determining a mode value for its demand.

InfoWorld reported, “Internet telephony is expected to have a compound annual growth rate of 137.9% through 2001.”[43] Probe Research, a telecommunications and data networking market research system, predicts that “the Internet Telephony market will be worth $6.3 billion by the year 2002; at which point, Internet telephony and fax will account for nearly 10% of total long distance traffic.”[44] International Data Corp. (IDC) predicts, “The worldwide market for voice over IP networks will grow to $24 billion in 2002, still only representing 11% of the total switched-circuit traffic.”[45]

The market research firm of Frost & Sullivan forecasts, “users and carriers spending nearly $2 billion on IP telephony equipment by the year 2001, a significant increase from the 1996 figure of $19.8 million.”[46] Another research firm, Forrester Research Inc., predicts, “By the year 2004, phone companies will lose more than $3 billion, or 4 percent of their revenue base, to IP telephony. As a result, consumers will enjoy annual savings of $1 billion over what they would have spent sending their traffic over traditional networks.”[47] Even though the quality and reliability of Telephony is poor compared to POTS the cost saving to individuals and to businesses will drive the industry towards Telephony.

Summary and Final Analysis

This paper has presented a brief overview of IP Telephony technology and the potential policy, legal and regulatory issues that arise from it. The regulatory picture becomes even more cloudy when Internet Telephony and encryption meet. “Clarent Corporation, a provider of phone-to-phone IP telephony, and Fortress Technologies, a developer of solutions for secure Internet communications, announced they are working together to combine high-quality Internet telephony over fully encrypted Virtual Private Networks (VPN).”[48]

While Internet Telephony does have the potential to significantly affect long-distance revenues, especially considering the low cost entry point for IP Telephony competitors, PC-to-PC and PC-to-Phone Telephony technology is still very much in its infancy. If history is any guide, the computer and now the Internet industries are best left unregulated. An example of this is the long-standing legal battle between Microsoft and the U.S. Department of Justice as it is perhaps the most prominent example of when and where the Government's place should be in ensuring fair competition in an unregulated industry. Further, given the multi-tasking, multi-function, convergent nature of the Internet it would be foolish and absurd to consider regulating an isolated application. As the Computer Professionals for Social Responsibility argue, “such thinking could kill the goose that lays the golden eggs,”[49] especially considering the promise that Internet Telephony holds for e-commerce. Visitors to a Web site who have questions or who are hesitant to make a purchase over the Web can click on a "call agent" button, which transmits a voice call over the user's PC or sends a message for the agent to call back on a separate line.”[50]

However, an argument could be made that, functionally, Phone-to-Phone IP Telephony resembles traditional long-distance telephony too closely for it to be exempt from access charges and universal service contributions without being arbitrary. While seemingly a valid point, the only FCC Commissioner who is not a lawyer - Harold Furchtgott-Roth an economist - submits otherwise.

Furchtgott-Roth argues that the imposition of fees and tariffs to IP Telephony would "almost immediately eliminate it as a competitor to foreign telecommunications monopolies that hold international settlement rates so high in so many countries. Like international callback, IP telephony could have driven down costs much faster than inter-government negotiations and would have been perhaps the best lever to bring rates down to benchmark levels. The United States sends billions of dollars abroad because of unfavorable international settlement rates. IP telephony could save American rate-payers billions of dollars, possibly a significant portion of the size of a federal universal service fund."[51] There is also the issue of technological discrimination. It would seem that by supporting access charges and universal service contributions for phone-to-phone IP Telephony services an implicit technological caste system is condoned, whereby the rich who can afford computers and Internet access, are able to make free to low-cost long-distance calls. Currently, those without access to computers still have the option of phone-to-phone IP Telephony services over regular inflated long-distance charges but by imposing access charges on providers of such services, those cheaper rates may no longer be so.

As the following analysis suggests IP Telephony may influence traditional long-distance telephony positively, at least from the consumer's standpoint.

Trends in Long Distance Rates and Exchange Access Charges

Figure 1: Trends in Long Distance Rates and Exchange Access Charges [52]

Figure one illustrates that despite long-distance companies complaints that revenues lost through access charges are passed on to consumers in the end through higher long-distance rates, quite the opposite is occurring. Even when local telephone companies reduced access charges by $9 billion, long-distance companies merely kept the earnings without passing any savings to consumers. Moreover, to add insult to injury, long-distance rates continue to increase six times in five years.

In March of this year AT&T and a handful of RBOCs formed a coalition to require Internet Phone services to pay some regulatory costs.”[53] AT&T, perhaps suffering from corporate schizophrenia, soon began offering their own IP-based services - fax and phone-to-phone, recognizing in part the enormous potential IP-based services have to offer; however, they have abandoned this model.

On April 2, ACTA re-voiced their concerns, asking “the FCC to begin regulating Internet Telephony- stating that it may shelter $24 billion dollars a year from Universal Service "taxes" by the year 2002.”[54] Notice how equivocal ACTA's terms are; what does "Internet Telephony" mean? Merely software providers they identified in their original complaint. Alternatively, providers of Phone-to-Phone IP services as well. Are they expecting Internet Telephony software providers to capture 13% of the long-distance market? On the other hand, do they mean that providers of Phone-to-Phone IP services will take 13% of the market? It seems as though ACTA has realized its error and - rather than file a new complaint - decided to take a new approach using press statements as their weapons.

At present, perhaps the best approach to dealing with IP Telephony services would be to "wait-and-see". Undoubtedly, IP Telephony will affect Universal Service revenues. However, it would be unfair to tax a service at this point in time that still needs to grow.