Technology, Policy Face-Off in 2005

If you thought 2004 was eventful - with an explosion of VoIP offerings and high-stakes regulatory proceedings at the FCC - just wait. Expect 2005 to be an even more turbulent year when advances in technology and critical policy decisions intersect to usher in a new era in communications.

The ever-widening acceptance of VoIP and the potential for more IP-enabled applications - including exciting new voice, video and data services - has started a revolution that will change how each of us communicates. IP applications and their reliance on broadband, too, will forever change how communications networks are built, altering many of the policy and social welfare assumptions on which our nation’s public telephone network was constructed. The members of our associations - including VoIP providers, facilities-based carriers and the industry’s top equipment suppliers - are at the forefront of this revolution. These entrepreneurial companies are leading the charge to build next-generation networks and develop innovative new voice, data and video services that will reduce costs, increase efficiency and promote our nation’s global competitiveness.

For example, Cbeyond Communications was the first to deploy an IP-enabled, integrated T1 voice and data service for small businesses. And, Lightyear Network Solutions LLC was the first to deploy a commercially available VoIP solution that enabled agents and representatives to generate new sources of income from the emerging technology.

The technologies our members deploy and services they offer will be the hallmark of this new era. Although the ultimate technological success of this revolution lies in the hands of the entrepreneurs and engineers, the nation’s policymakers play a vital role in ensuring that consumers and businesses have access to a robustly competitive IP-enabled marketplace. Network monopolists will argue that the advent of new IP technologies eliminates the need to regulate traditional bottlenecks and to open historic monopolies to competition. These suggestions are based on the false premise that competition does not benefit consumers, and that monopolies, left to their own devices, will provide innovative, low-cost services. Policymakers must resist the siren song of monopolies seeking to protect their own bottom lines at the expense of the nation’s consumers.

The reach of this new IP era will be defined by the elected representatives in Congress, U.S. and international regulators, and the courts that will examine many fundamental policy questions. First, Congress is expected to undertake the complicated task of rewriting the nine-year-old Telecommunications Act.

As they approach a possible rewrite, lawmakers must recognize that any new legislation should continue to encourage innovation, increase broadband deployment and promote facilitiesbased competition. By achieving these goals, lawmakers will preserve the economic growth and job creation that competitive broadband deployment and IP innovation contribute to the nation’s economy.

On the surface, the much-anticipated rewrite seems to focus on the proper regulatory treatment of VoIP. To address regulatory issues related to VoIP, however, lawmakers will be forced to take on a wide range of regulatory issues, including intercarrier compensation, universal service funding and access to monopoly bottleneck facilities. More specifically, Congress must consider the means by which carriers compensate one another for VoIP traffic that travels across the networks of multiple providers. In addition, Congress must consider whether VoIP providers should be required to pay directly into the universal service fund and what type of long-term reforms are necessary. Most importantly, Congress must ensure that competitive carriers continue to receive costbased access to bottleneck facilities controlled by incumbents.

Because VoIP and related IP services are applications that travel across broadband networks, we believe that such retail services should be subject to a light regulatory touch. At the same time, VoIP applications should not be mistaken as replacements for the underlying bottleneck facilities they ride across. New IP-enabled services, like the retail voice services they replace, still need access to bottleneck telecommunications facilities to get to their destination, the American consumer. Thus, Congress must ensure VoIP providers have access to the monopoly broadband network chokepoints at costbased rates. Without such access, consumers and businesses will be beholden to large incumbent companies, which will wield their control over broadband networks to stop competition, leading to higher prices and fewer choices for consumers and small businesses.

Congress is not the only entity focused on the critical issues of intercarrier compensation, universal service funding and regulation of bottleneck facilities. Federal and state regulators also are engaged in a number of proceedings to address these issues.

The FCC is expected soon to release a further notice of proposed rulemaking (FNPRM) on intercarrier compensation, which will examine proposed reforms that ensure all carriers are properly compensated for communications traffic that transits across their networks. Also pending at the FCC is a rulemaking proceeding that examines the appropriate regulatory framework for broadband access to the Internet over wireline facilities. This proceeding, and related regulatory dockets now pending at the FCC, will determine whether competing ISPs and VoIP providers will continue to have access to underlying broadband networks.

Of additional concern at the FCC, the Bell companies have filed a number of petitions seeking to circumvent current rulemaking proceedings and prematurely deregulate nearly all retail and wholesale services and facilities provided by the incumbent monopolies. The Supreme Court also could play a significant role in defining the future of the industry, as it considers an appeal of the Brand X case. In Brand X, the Supreme Court will determine whether the FCC properly classified cable broadband services as unregulated “information services.” If the Supreme Court rules that cable modem offerings are “information services” and are not subject to regulation, the FCC will have to consider that decision as it determines whether, and how, incumbent telcos’ broadband offerings should be regulated.

Regulatory issues related to communications technologies go well beyond our state and national borders. A recent examination of trade agreements governing communications services shows that even though many countries are beginning to open their markets to competition, our members are still hampered by anticompetitive activities of monopoly incumbents. At the same time, many countries in the European Union, Australia and Asia-Pacific region are exploring the appropriate regulatory treatment for VoIP, and must ensure that incumbent carriers are not empowered to stifle VoIP providers from competing fairly in the marketplace.

The members of our associations know well the risks and rewards of competing in the telecommunications industry. For the last 25 years, our members have been the catalyst for change, as the monopoly bonds were broken first in long-distance in the 1980s, and then in the local market in the 1990s. Competitive carriers are the innovators that will bring consumers and businesses new, affordable technologies that enhance productivity and enrich lives. As the competitive community unites to face the challenges of the future, we look forward to working with members of Congress and federal, state and foreign regulators to address these important public policy issues. Our goal is clear: to ensure that, as we enter this new era of communications, competition thrives and consumers and small businesses continue to benefit most from the products and services our members offer.

J. Sherman Henderson III is the chairman of CompTel/ASCENT and president and CEO of Lightyear Network Solutions LLC. James F. Geiger is chairman of the Association for Local Telecommunications Services (ALTS) and president and CEO of Cbeyond Communications. CompTel/ASCENT and ALTS announced in December 2004 that the associations would be merging, with a close of the merger anticipated in early 2005.