New York Times
F.C.C. Begins Rewriting Rules on Delivery of the Internet
February 13, 2004 By STEPHEN LABATON
WASHINGTON, Feb. 12 - Homes could start being connected to the Internet through electrical outlets, and consumers and business may find it easier to make cheaper telephone calls online under new rules that the Federal Communications Commission began preparing on Thursday.
Taken together, the new rules could profoundly affect the architecture of the Internet and the services it provides. They also have enormous implications for consumers, the telephone and energy industries, and equipment manufacturers.
Michael K. Powell, the F.C.C. chairman, and his two Republican colleagues on the five-member commission said the twin moves, and a separate 4-to-1 vote Thursday to allow a small company providing computer-to-computer phone connections to operate under different rules from ordinary phone companies, would ultimately transform the telecommunications industry and the Internet.
"This is a reflection of the commission's commitment to bring tomorrow's technology to consumers today," Mr. Powell said. He added that the rules governing the new phone services sought to make them as widely available as e-mail, and possibly much less expensive than traditional phones, given their lower regulatory costs.
At the same time, once the rules allowing delivery of the Internet through power lines are completed, companies could provide consumers with the ability to plug their modems directly into wall sockets just as they do with a toaster, desk lamp or refrigerator.
Under the new rules, expected to be completed in coming months, electric utilities could offer an alternative to the cable and phone companies and provide an enormous possible benefit to rural communities which are served by the power grid but not by broadband providers. A number of utility companies have been running trials offering high-speed Internet service through their transmission lines.
While the technology has been developed, it is not clear if such a service would be profitable or able to compete in markets dominated by cable and telephone companies. But F.C.C. officials noted that the vast majority of the nation's households did not yet have high-speed Internet service, leaving the market wide open to rivals.
In the phone proceedings on Thursday, a majority of the commissioners suggested that new Internet phone services should have significantly fewer regulatory burdens than traditional telephone carriers.
The commissioners also voted 4 to 1 to approve the application of a small Internet company, Pulver.com, ruling that its service of providing computer-to-computer phone service, called Free World Dialup, should not make it subject to the same regulations and access charges as the phone carriers.
Industry experts say that neither the phone service nor the broadband delivery systems offered by electric utilities would make sizable inroads for at least the next two years. But in moving forward with the new regulations, they said the F.C.C. was reducing regulatory uncertainty and encouraging major companies and investors to put lots of money into the new technologies to enable them to move to market more quickly.
A number of companies, including giants like Time Warner and AT&T, have recently announced plans to get into the business of delivering "voice over Internet" telephone services through cable television and phone connections.
Kathleen Q. Abernathy, a Republican commissioner, said the nation "stands at the threshold of a profound transformation of the telecommunications marketplace" as more companies move from traditional circuit-switching phone technology to Internet-based delivery systems.
But a Democratic appointee, Michael J. Copps, raised objections to the Pulver petition and questioned the underlying themes of deregulation in the two rule-making proceedings. He said they had set the agency on a course that could effectively rewrite the Telecommunications Act of 1996 and make it easier for the leading phone companies to escape needed regulation.
Mr. Copps also criticized the majority of the commission for rejecting a request by law enforcement agencies that the F.C.C. first work out the legal and technical problems in monitoring phone calls over the Internet before moving ahead.
"I believe it is reckless to proceed and I cannot support this decision at this time," he said of the Pulver application. "The majority apparently prefers to act now and fix law enforcement issues later - along with universal service, public safety, disability access and a host of other policies we are only beginning to address.''
Mr. Powell replied pointedly to Mr. Copps's criticism, arguing that it was time for the commission to offer a new deregulatory climate that the old phone companies may seek to take advantage of along with their competitors. "The Telecommunications Act is nine years old,'' he said, "and it is being rewritten by technology."
The decision to begin writing rules for Internet-based phone services was hailed by major manufacturers of Internet and telephone equipment and by some of the largest phone carriers, which are preparing to offer Internet-based phone services of their own.
" Verizon strongly agrees that the F.C.C. should move forward quickly to apply a light touch in regulating true voice-over-the-Internet services and should not burden this new technology with the same economic regulations that apply to the traditional phone network," the company, which is based in New York, said in a statement on Thursday afternoon.
Another big regional Bell company, SBC Communications of San Antonio, said it was "excited about the opportunities this will give us to deliver new services to customers in this dynamic, swift-moving industry."
Still, thorny regulatory issues remain. Foremost among them is the web of fees that the new service providers will have to pay to traditional phone carriers for making the connection between their customers and the Internet telephone customers. Interconnection and access charges in the telephone industry have long been the source of fierce adversarial lobbying by the local and long-distance carriers; the new technology raises complex and arcane issues that will ultimately have a vast role in the profitability of the new services.
In recent months, lawyers representing both the large and small phone companies have been holding unpublicized meetings and negotiations in an effort to come up with a new fee system. The effort, if successful, could relieve the commission of the burden of developing a new way of paying to support the essential features of the telephone system.
The F.C.C. has heard complaints from officials at law enforcement agencies who say they have encountered technical and legal difficulties monitoring terrorist and criminal suspects who make use of the new services.
Commission officials said they planned to begin considering rules soon that would preserve the ability of the law enforcement agencies both to carry out surveillance orders and to have the companies pay the often expensive costs of making their systems available to monitoring.