Friday, March 30, 2007

Is the future of Internet Telephony clouded by politics and regulations?

Going back to some of my favorite topics, as some of you know, there was a recent ruling against Vonage for patent infringement that dictates that Vonage will have to pull the plug from the PSTN by April this year. Naturally, that hit Vonage's stock hard (yet again!) and people started speculating that this decision will impact the whole Internet telephony industry forever...

Well, first of all, this is nothing different than another legal battle that will lead to appeal after appeal. Second, we know for certain, that the FCC will get into it, defending Vonage as a non-telecommunications carrier, but rather a data company (some of you may know that the telecommunications act of 1996 clearly separates a Telecommunications Service provider like Verizon from a Data Service Provider like Vonage or any regular Internet ISP). Furthermore, the consumer will get into the fight... after all, Vonage has about 2 million users.

I foresee that the whole debate will trigger new discussions over not only the famous Net Neutrality, but also the Computer Inquiries, new Intercarrier Compensation schemes, and specially the new proposal of Horizontal Regulation.

As it affirmed in the 1996 Communications Act, in section 230(b)(2), the US will "preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services". This was targeted to VoIP services like Vonage, and hoping to keep them unregulated... Verizon and the Communication Services folks don't want that, naturally. If you notice, the whole language is very broad, left to interpretations. Therefore the FCC asked for comments on what is called Horizontal Regulation.

Horizontal Regulation adopts the layered model of the OSI model for networking. It is what is called a layer-oriented regulation model. Instead of separating voice (communication services) from data (data services), the model suggests building layers for each model. So there would be upper layers for "services" and "applications" like for example voice-mail offerings, or video streaming. All that running on top of other more fundamental layers as in the physical medium used to transport the service. Then regulators at the FCC would determine which layers are subject to regulation.

Of course, this brings multiple concerns because it is a completely new approach to the original act, and implies full rewrite.

This will be an interesting battle. Let's see if the industry wants to start getting aggressive again, or if the Internet Telephony folks loose to the incumbent triple-play players...

[As a reference, if you are interested in how to model the layered-model of regulation, I found this great paper by prof. H.E. Hanrahan ]

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