FCC LIKELY TO SET BAD VoIP RULES, HUNDT SAYS

SANTA CLARA -- FCC Chmn. Powell signaled the FCC had determined that it would regulate Internet telephony, and perhaps how, even before a Dec. 1 forum set on short notice, said former FCC Chmn. Reed Hundt. The move would be bad policy and would violate FCC tradition barring major decisions shortly before a presidential election, he told a Wireless Internet Summit here late Tues. “What is the purpose of the forum?” Hundt asked. “You should wonder if the rule already exists in draft form.”

The issue has immense implications, Hundt said. Leaving hands off Internet telephony could spur a fundamental restructuring of the telecom industry and pricing regulation, he said. The question also is a key test of U.S. policy on innovation, entrepreneurship and the economic growth they would bring to offset the telecom crash and mass exportation of jobs, he said.

Powell’s letter to Sen. Wyden (D.-Ore.) (CD Nov 7 p9) said the FCC would issue a rulemaking notice shortly after the Dec. 1 forum, and indicated a regulation would be in place within 12 months, Hundt said. That translates as action before the Nov. 2004 election, representing a departure from his and previous commissions’ policy of deferring important decisions until after presidential voting, he said. Hundt, a McKinsey information industries senior adviser, emphasized he spoke for himself.

“They're talking about taxing voice-over-Internet [VoIP] to subsidize existing voice services,” Hundt said. He compared that with a levy on e-mail for the U.S. Postal Service’s benefit, on jets for railroads’ or on PCs for mainframes’. He decried any predetermination on governing Internet telephony: “What if there shouldn’t be any regulation passed?… Why is that [intervening] a goal?”

Hundt’s answer: The ostensibly deregulatory Powell FCC’s activism in behalf of threatened incumbents. With the digital TV tuner mandate, “it’s the Federal TV Manufacturers Commission, and the broadcast flag is the Federal Computer Commission.” The FCC showed its colors on what the public would do in the media ownership fracas, he said: “'We want to do this. If you want to stop us, get a law passed, if you can.'” He said there remained a glimmer of hope: “It’s still a democracy, and we have something called the Internet” for mass organizing and protest.

The social concerns Powell’s letter cited -- health, safety and welfare issues such as E911, universal service and homeland security -- make ludicrous rationales viewed against the Commission’s record, Hundt suggested. The FCC let E911 mandates for cellular languish for years, Hundt said: “If it wasn’t important for cellphones, why is it at the top of the list for VoIP"? Worries about universal VoIP service are rich coming from an Administration that brushed off ubiquitous broadband as comparable to giving everyone a Mercedes, Hundt suggested. While homeland security clearly is gravely affected by cellphones, its connection to Internet telephony is obscure, he said.

Internet telephony poses no unavoidable technical problem, but politically it “goes to the very heart of the incumbent status quo,” namely the cash cow of voice, Hundt said. The stark choice is letting technology smash cost structures or allowing old industries to enlist govt. aid blocking innovation, he said. Unhindered, VoIP promises to “collapse all the business plans and markets” of large telcos by shrinking costs on an order of magnitude or 2, Hundt said. It could end state price-setting, “an artifact of history,” he said.

Incumbents would endure great pain unprotected from new competition but find new opportunities, Hundt said. “There is plenty of business there for telco and cable both.” Powell’s letter should have pointed toward deregulating incumbents, Hundt said. Unleashing competitors while leaving Bells regulated would be “putting their feet right in the bear trap,” he said.

The FCC should change course and follow his own Commission’s procompetitive cellular and dial-up Internet policies, Hundt said, crediting them as spurring explosive growth. He said that would mean user-financed federal subsidies for broadband universal service -- a relatively cheap investment with huge potential, not least jobs that wouldn’t be exported. If voice were free, that would make available $20 monthly per household for govt. to subsidize and spread broadband, Hundt said. “That’s not a bad outcome. It’s a difficult transition. Government can help everyone make that transition.”

Then again, wireless technologies might intervene to collapse pricing of broadband, Hundt said. That could quickly bring it to all the 70% of households with PCs, obviating subsidies, he acknowledged.