How The FCC Killed VoIP

Many people in the U.S. use Voice over Internet Protocol (VoIP) phone service today. But I contend that the FCC has killed the technology. How can I make this assertion? After all, there are over 20 million VoIP subscribers in the U.S.

However, the VoIP services that exist today are a shadow of what the technology makes possible. VoIP has been choked so that it no longer disrupts telephone service. VoIP has been fenced in by the FCC so that it offers no more than telephone, a move that was intended to protect cellular and wireline phone companies.

I remember that in 2004, we held ISPCON Spring in Washington, D.C. The vendors brought their office phones with them to their booths. They were thrilled to be able to answer their office phones while on the road. While this was a boon to the CEOs of small companies, it was a miracle for road warrior salespeople. All of these businesspeople were using a feature of VoIP that wireline service cannot provide — and that directly competes with cellular too.

In 2005, the FCC ruled that VoIP service must support 911 emergency service (the E911 order). This was the beginning of the end. For nomad businessmen such as those who had been so happy at ISPCON in 2004, there was no need for 911 on their VoIP service. Residential users who had taken their home phones with them on vacations could no longer do so. A key advantage of VoIP technology over traditional wireline phone and cellular services was eliminated by FCC fiat.

At the time, VoIP expert Jeff Pulver said, “It is my hope that the FCC’s E911 rules for Interconnected VoIP providers do not extend to services that no user would expect to offer localized emergency response capabilities, such as a circumstance where a computer has both SkypeIn and SkypeOut downloaded … [the order] might relegate America to a VoIP ghetto, where anyone wishing to use both an inbound and outbound voice application on her computer had better not step foot in America. Should Skype consider turning off either its inbound or outbound service in America?”

In 2006, the FCC attacked VoIP’s inherent price advantage by forcing VoIP providers to pay universal service fees. This rule hit the smallest companies the hardest.

VoIP providers were also required to enable wiretaps (CALEA), a ruling that was reasonable, but which was made unreasonable by the federal government’s unwillingness to certify systems as being compliant. VoIP companies were expected to pay $100,000 or more for a system that might or might not do what it was supposed to do. This hit the smallest companies the hardest.

In 2007, VoIP providers were required to register for a CPNI, another bureaucratic procedure that hit small innovators but provided little encumbrance to the monopolies.

VoIP, caged

The result of these rules is that today, the largest VoIP companies are massive companies, and the largest single VoIP provider in the U.S. is Comcast. As of September 30, 2010, Comcast had 8.4 million VoIP customers, almost half of the VoIP market all by itself (before counting the other cable companies).

The “digital phone” service offered by cable companies today is the result of FCC policies: it is a service that runs over the internet but whose features are restricted to mimic as closely as possible the phone service of the previous century. It competes with wireline voice services on price but, more importantly, it no longer allows its users to roam and therefore no longer competes with cellular service. The phone companies are now selling off their wireline voice services, have stopped investing in internet service, and are spending all of their money on cellular. They do not mind if VoIP competes with wireline phone services; they must be thrilled that it no longer competes with cellular service because “digital phone” cannot move.

Some providers are doing wonderful things with VoIP — the innovators are the smallest companies on whom the burden of regulation falls the hardest. M5 Networks, a business-only VoIP provider in New York City, provided hundreds of virtual phone numbers to real estate firm Coldwell Banker. Every advertisement that the realtor placed that week had a different phone number, so the realtor was able to track, in minute detail, the response rate of every ad. Of course, the FCC has left the rules for business VoIP services more liberal than those for residential. As a result, many of the most innovative local players offer business VoIP services only.

Digium, the business end of the Asterisk project, offers a wide open technology that can be used to do many things. I spoke to one developer several years ago, Professor Brian Capaouch, who set up an anti-raccoon device in his chimney using Asterisk. When a video camera sees a raccoon, it turns on a kitchen mixer that is broken — it’s missing a ball bearing and squeals like murder. The video camera also takes a still photo and e-mails it to the professor. The professor can “call in” to the camera and view the live image on his cell phone.

Capaouch told me that VoIP enabled a completely different kind of collaborative development. Because the calls were free, developers would open a party line and talk to each other for hours while working on code together.

Simple disruptions of the telco business model were also important. You could obtain a phone number in another city or another country and avoid international and long distance phone charges. In the same article cited above, I interviewed Greg Boehnlein who told me, “our operations manager is from London and he was spending $400 per month calling his parents. Now, with VoIP, he pays zero.”

Today, while experts can still do truly amazing things with VoIP, the services that residential consumers see are limited. They compete on price, not features, and deliver something very similar to traditional phone service. Most use phones instead of computer microphones for audio.

Business services are somewhat more sophisticated, but for the truly nifty things that VoIP can do, even a knowledgable business IT department usually needs to hire a consultant like M5 Networks to get elaborate things done. Many IT departments also pay consultants whose job is simply to get them the telephone services they need and make sure they’re not paying for anything they don’t need.

VoIP technology is widely deployed, even within the phone company, but it has been prevented from fundamentally changing the phone business, largely through the intervention of the FCC.

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