Editorial : VoIP: The Next Six Months

Every telecommunications industry player knows that the voice over IP (VoIP) honeymoon is over with the regulators. And VoIP service providers must now assess thereal world of marriage. Here are 10 VoIP considerations before filing for divorce.

1.The FCC: Punting After the Elections

The FCC has been trying to figure out what to do about VoIP ever since VocalTec showed the world how a voice call can be made over the Internet for “free.” The FCC wouldn’t be doing a thing about VoIP now if it weren’t for the actions of the state public utility commissions (PUCs), courts, Department of Justice (DOJ), FBI, Drug Enforcement Agency (DEA) and others. Worse yet, the elections are six months away, and the last thing the Bush Administration needs is another hostile voter block (Internet users).

So, the FCC just chose to punt with its Notice of Proposed Rule Making (NPRM) in March. Why? The over 60-page NPRM is basically a white paper on the history of VoIP; however, there are some potential gotchas sprinkled in. If the FCC was really poised to do something immediate with VoIP regulation, it would have said, “This is what we plan do to and, by the way, you know that we have at least three commissioner votes to pass it so you as an industry have 60 to 90 days to speak your peace or forever hold your breath.” However, the FCC chose not to do this in the March NPRM.

So, what is going to happen? Things are not going to change until 2005. After the election, regardless of who wins, there will be at least three new commissioners and probably a new chairman. In short, this commission will not be the one deciding on VoIP regulation.

2.Geek-to-Geek Phone Calling: A Victory?

In February, the FCC ruled that a phone call made from a PC—transmitted through the Internet and terminating on another PC without touching the PSTN—is information and not telecommunications. As such, it’s not subjected to E-911, access charges, etc. I suspect anyone supporting this service with a routing directory server has already gotten a call from the FBI or the CIA requesting cooperation—if needed. The real point here is that the FCC can point to the free Internet service zealots who say they don’t want regulation and say, “See we are not regulating you.” As for the VoIP service providers interconnecting with the PSTN, the FCC can now throw them to the wolves! Why? Because they are the ones causing trouble at the state level regarding access charges and so on.

3.E-911: A Ticking Time Bomb

There is no better case for a telecom lawsuit than a failed E-911 call. A number of national VoIP over broadband service providers are saying that they can handle E-911 calls. In some cases, to handle E-911, a subscriber has to get the general directory number of their Public Safety Answering Point (PSAP), and the VoIP provider programs this number into speed dial when a subscriber dials 911. The problem is that the call goes over the same lines that the PSAP operators use to order pizzas or receive personal calls. The 911 calls don’t arrive over the same dedicated lines as the local E-911 calls do. It’s like saying that you have a direct “hot line” to President Bush. You can look up the president’s number in the Federal Phone Book, but it’s really the White House switch board—the same number that receives thousands of calls a day. When a VoIP customer calls 911, they assume that the PSAP dispatch operator is trained and ready to help, however he or she is not likely to be a professional E-911 operator. Yes, the call could be transferred successfully to a trained E-911 dispatch operator, but who knows for sure.

The bottom line is there is no cheap solution for true E-911. You have to have a direct trunk connection to the correct PSAP (there are 6,500 in the U.S.) and access to the ILEC’s Master Street Address Guide (MSAG), where addresses are entered correctly and are 100 percent accurate. So if you’re a national VoIP over broadband provider, E-911 is either a ticking time bomb from a legal perspective or a regulatory show stopper in 2005.

4.CALEA: The Real Show Stopper

The DOJ/FBI/DEA filed a separate Petition for Expedited Rule Making with the FCC in early March, and reply comments will likely come in May. The difference between this filing and the general VoIP NPRM (item 1 above) is that it’s telling the VoIP industry, specifically VoIP over broadband providers, what they will need to do to be surveillance compliant. In short, the argument that VoIP is an information service or that there are no VoIP intercept standards will fall on deaf ears.

The real show stopper is that the VoIP over broadband providers will have to front the cost to be CALEA compliant, or they can pass the cost on to their customers. I can imagine the line item on the bill—X dollars for the ability to tap your line for FBI surveillance of your call! The 1994 CALEA Act produced a $500 million budget for ILECs to implement CALEA, and $400 million of this went to Lucent and Nortel to write the CALEA software for Class 5 circuit switches. In short, the VoIP over broadband providers are going to have to pony up $2 billion to $10 billion to be softswitch/SIP/gateway/CALEA- compliant or route all calls through an ILEC or CLEC local circuit switch that is CALEA-compliant.

5.AT&T Petition: A Good Try

One loop hole that the FCC will close shortly is the access charge avoidance clause in the AT&T petition. In essence, the petition asks that if a call originates and terminates on the PSTN but happens to be carried in between by an IP backbone network, then the call is an information service and not subject to termination access charges. The chance that the FCC is going to agree with the petition is near zero. It could even get worse for AT&T and other carriers; they may be liable for back access charge payments to the ILECs, which could exceed $500 million. The VoIP honeymoon is definitely going to be over on this one.

6.Qwest: True Colors Shining Through

Last month, Qwest’s CEO, Richard Notebaert, said, “If you don’t do VoIP, you won’t be in the game.” Also, Qwest is the only RBOC to offer DSL without the customer having to subscribe to the circuit-switched voice offering. The good news for IXCs and CLECs is that Qwest is starting to act like a true long distance competitor and likely to start asking for and fighting for out-of-region support services from its sister RBOCs. Look for VoIP to be the catalyst for other RBOCs to jump outside their regions in the next six months.

7.Low Barrier to Entry: The Next Telecom Bubble?

Because of today’s VoIP over broadband equipment and vendor readiness, you can launch nationwide and international long distance service for less than $100,000. The way you create new customers is through lower price offerings, but unfortunately, the way you lose customers to your competitors is by them offering even lower prices. VoIP over broadband providers aren’t making money today in a market with few competitors. In six months, there will be hundreds of new entrants. When it’s clear that the VoIP honeymoon is coming to an end, this new telecom bubble will burst.

8.Enter the WISPs: Only in an Election Year

How do you get favorable attention from 20 percent of the electorate? Give rural ISPs lots of new, unlicensed (free) spectrum for broadband Internet access. Almost monthly, the FCC is freeing up new spectrum for Wireless ISPs (WISPs). Recently, 255 MHz in the 5 GHz range and a new 3650-3700 MHz spectrum band creation were made available. But there is still six more months until the election, so what other goodies can be expected? How about the so-called “white VHF TV channels?” These are the vacant TV channels 3, 6, 8, 10 and 12 in the large markets. VoIP over WISPs may have some workable loop holes that others may not see given rural-based politics. Although it’s not clear how this could impact VoIP, it is premium spectrum.

9.WiMAX: The Five-Year, Next-Generation Microwave Cycle

Almost every 5 years the next generation of microwave is introduced as a wireline replacement, and excitement, sometimes known as hype, begins to boil. Today it’s WiMAX, a true last-mile alternative to DSL, cable modems and T-1s. Note, WiMAX shouldn’t be confused with Wi-Fi, the wireless LAN technology.

In the early 1980s, it was XTEN at 10 GHz (but too little spectrum was allocated per player to be a viable opportunity), in the late 1980s it was VSATs (a modest winner), in the early 1990s it was wireless local loop (non-economic RF), and in the late 1990s it was LMDS (too high a frequency for building penetration). Now it’s WiMAX, next-generation very high performance, QoS-enabled microwave with opportunities in the 2 to 11 GHz range. There are several big players pushing WiMAX, including Intel. With Wi-MAX, there are a lot of VoIP opportunities for access and back haul. In the next six months WiMAX-approved products will hit the market, so watch out!

10.The States: Where the VoIP Rubber Hits the Road

Today 20 to 30 percent of your telephone bill goes to support state and local mandates such as E-911, the Universal Service Fund and taxes. In the end, (6 to 8 months from now) every VoIP service provider will be contributing at these percentage levels. Expect to see the states saying that VoIP providers must have a presence in every state LATA, direct (or ILEC/service bureau) access to the appropriate PSAP and lawful intercept access for local and state police. This will be the cost of doing VoIP business.

So, what is the take away for VoIP in the next six months? VoIP providers must think local service first, because the long distance part will be simple. Think about collecting billing records regardless of your price plan, premium class provisioning for E-911 (just like the ILECs do today) and CALEA at the local level to support both call data and content collection.

If you need more information on the latest VoIP BSS/OSS/ISSs, check out the exhibits at Billing & OSS World and ISS World on May 5-7, 2004, at the Washington D.C. Convention Center, or check out our Web site at www.telestrategies.com.