Incumbents: Be Afraid

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Voice-over-Internet protocol should terrify incumbent local-exchange carriers, because Web-based phone providers have unimpeded access to consumers with none of the high network costs, FCC chairman Michael Powell said last week.

“You don’t have to own a $1 billion network to offer a service,” Powell said. “If you are a big incumbent and you’ve sort of enjoyed the competitive advantage of being the owner of that content-storage system, you, in my opinion, ought to be terrified.”

The Federal Communications Commission chief kicked off National Show events here last Tuesday with a sit-down discussion on a range of policy matters with National Cable & Telecommunications Association president Robert Sachs.


VoIP providers such as Vonage Holdings Corp. can access cable-modem and digital subscriber line consumers without the permission of network owners — or even really their knowledge — posing a low-cost threat to local phone markets that have been dominated by the Baby Bells for decades.

Many telecommunications regulators that have struggled to find ways to open Bell networks to competition in a balanced manner that courts could endorse see VoIP as a market-based solution to their problems.

“I think it is going to be the very, very best and biggest breakthrough in our ambitions and dreams about competition ever,” Powell said. “If consumers respond to it, we will have to be vigilant about not allowing the incumbent, in any anti-competitive way, to choke off that possibility.”

Cable has a huge opportunity with VoIP, because the service makes subscribing to high-speed Internet service all the more attractive.

Because of court setbacks, the FCC’s deregulatory approach to broadband regulation is in limbo and could remain that way for several more years, even beyond Powell’s departure.

That, Powell said, is a major problem for the rollout of the broadband networks on which services like VoIP depend.

“We’ve made good progress on broadband, but we shouldn’t rest on that,” he said. “I personally believe — because it’s what I know best — that one of the greatest impediments that remains is that government clarify the legal and regulatory regime.”

Companies facing regulatory threats are likely to scale back investment if the rules are not clear.

“It is an enormous risk factor,” Powell said. “They don’t know whether at any moment, some state or federal regulator or legislator is going to sort of pounce in and declare you something akin to an old telephone company, with all that entails.”

The FCC wants to keep cable deregulated but rulings by the U.S. Court of Appeals for the 9th Circuit could require cable to provide bandwidth to competing Internet Service Providers at regulated rates. The NCTA is planning to ask the U.S. Supreme Court to void the 9th Circuit’s rulings.

In remarks a day earlier, Sachs said cable operators should expect to comply with social regulation in exchange for freedom to price and package their VoIP offers without government interference.

VoIP providers currently face little regulation, but key Capitol Hill lawmakers from rural states want a portion of VoIP revenue dedicated to universal service — the subsidy program that keeps local phone service affordable in high-cost, sparsely populated regions.


In his speech, Sachs said cable VoIP providers can expect to pay into universal service; to ensure reliable access to emergency police, fire and rescue services; and to outfit their networks so that they can be used by the physically challenged.

“I am optimistic that the FCC will allow regulatory freedom to develop these new services. But given this freedom, we must accept our responsibility to support important societal objectives,” he added.

The cable industry should expect that regulators and lawmakers would want to see VoIP providers ensure that long-established telecommunications-policy goals are advanced, not eroded.

“We must always remind ourselves of this reality,” Sachs said.