**WRITTEN STATEMENT**

**of**

**MICHAEL K. POWELL**

**Chairman**

**Federal Communications Commission**

**on**

**Voice over Internet Protocol (VoIP)**

**Before the**

**Committee on Commerce, Science, and Transportation**

**United States Senate**

**253 Russell Senate Office Building**

**Tuesday, February 24, 2004**

**9:30 a.m.**

**SUMMARY OF WRITTEN STATEMENT OF**

**FCC CHAIRMAN MICHAEL K. POWELL**

**February 24, 2004**

Good morning, Mr. Chairman and distinguished members of the Committee.
It is my pleasure to come before you today to discuss Internet voice
services.

For the last three and a half years, I have engaged you and the nation
in a dialogue about the digital migration taking place across the
communications landscape. The digital migration is about empowering
consumers by replacing yesterday's slow, limited and generally
monopolistic communications networks with multiple high-speed, dynamic
and competitive full-service digital networks. Increasingly, these
digital broadband networks, whether wired or wireless, are using the
flexibility of Internet protocols to offer Americans a full suite of
communications services -- from voice to video to data.

We continue to work hard to bring these broadband Internet networks to
each and every American at affordable prices. We have championed the
deployment of multiple broadband networks in order to rid ourselves of
the intractable "last mile" problem. We have pushed for greater
deployment of DSL, cable modem, 3G wireless, WIFI, Ultra Wide Band,
satellites and broadband over power lines, just to name a few new
services already in commercial use. More broadband platforms mean more
competition, more innovation and more tools to advance important goals
such as universal service.

The Commission is mindful, however, that networks are valuable only if
consumers use them to communicate, to entertain themselves, to work, and
to learn. These uses are often referred to as Internet "applications."
Successful Internet applications are vital to our national broadband
policy because they create demand and thus grow the network. Just as
email and e-commerce were drivers of the narrowband Internet, higher
bandwidth applications like streaming video and music entertainment,
home networking and Internet voice will be the "killer apps" for
broadband. As you know, the FCC has not generally moved to regulate
these Internet applications. In part, this has been a result of our
charge in section 230 of the Communications Act that it is the policy of
the United States to promote the continued development of the Internet
and other interactive computer services and to preserve the vibrant and
competitive free market for these services "unfettered by Federal or
State regulation."

Against this backdrop, in recent months, one application has grabbed
headlines: Internet voice services. These applications have garnered a
great deal of attention because they allow voice communication among
users, much like traditional wired or wireless voice networks. Internet
voice application comes in many flavors, in some cases -- like
pulver.com -- the communication is computer to computer, in other cases
the Internet user calls a traditional phone. When packetized, voice
applications are virtually identical to any other Internet application,
such as email or instant messaging. Consequently, would-be entrepreneurs
are just a website and a server away from offering services that mirror
those of a "phone" company. And suddenly every consumer with broadband
access can chose among potentially hundreds of voice over Internet
service providers. This remarkable development in the growth of
competition is made possible by tapping into the global and ubiquitous
Internet to deliver tremendous innovation and opportunity for the
American people.

Voice applications are not alone. Everywhere Internet applications are
bringing new competition to old markets and, in turn, ushering in an era
of innovation, competition, lower prices and high quality services.
Whether we are talking about Internet voice services, or Internet video
and audio services, Internet news services, or Internet commerce, the
broadband revolution is bringing tomorrow's communication and commerce
tools to more and more Americans everyday. These new opportunities for
consumers are also providing new opportunities for our nation's economy.
The need to "rip and replace" the nation's infrastructure is stimulating
previously moribund capital spending, it is opening new paths to growth,
increasing our Nation's productivity and holds out the promise for new
jobs as business and consumers increasingly unleash the power of
broadband.

Restraining from regulating the economics of Internet applications has
served us well. The creativity and innovation of the marketplace has
been breathtaking and dynamic, bursting at the seams with
entrepreneurial spirit. Consumers are enjoying more choices, better
value, and more personalized products. There is little compelling
evidence that heavy economic regulation of these vibrant services is
warranted.

I do, however, believe we must preserve and advance venerable social and
security policies. Paramount among them are universal service, 911, law
enforcement and disability rights. I recognize that IP services ride
atop a physical layer that, in many parts of our country, is still
expensive to build and maintain. I am committed to ensuring that the
entire nation has access to affordable communications services, as more
and more communications move to IP networks.

We have begun laying the foundation for a comprehensive, yet minimal,
regulatory environment for Internet voice application services. At our
February meeting, the Commission adopted a Notice of Proposed Rulemaking
to look at the issues surrounding these applications. We are working
with our colleagues elsewhere in the federal government and at the state
and local level to develop a sound policy framework. We are focused on
addressing and advancing our social objectives of public safety and 911,
universal service, homeland security and access for people with
disabilities. In addressing these issues, I have called for a series of
Solution Summits. The first Summit is slated for March 18 and will
address E911 capability. In addition, the Commission is working hard to
reform our country's inter-carrier compensation regime. Finally, we are
keeping a watchful eye for anti-competitive conduct by owners of
broadband networks to ensure our citizens can tap the full potential of
the Internet in a broadband world.

I would like to thank you, Mr. Chairman, for calling this hearing, and I
look forward to working with you and other members of the Committee, my
state colleagues, industry and my fellow commissioners on these
challenging and critical issues.

Good morning, Mr. Chairman and distinguished members of the Committee.
It is my pleasure to come before you today to discuss Internet voice
services and the role of the Federal Communications Commission (the
"FCC" or the "Commission").

**I. Introduction**

For the last three and a half years, I have engaged you and the nation
in a dialogue about the digital migration taking place across the
communications landscape. The digital migration is about empowering
consumers by replacing yesterday's slow, limited and generally
monopolistic communications networks with multiple high-speed, dynamic
and competitive full-service digital networks. Increasingly, these
digital broadband networks, whether wired or wireless, are using the
flexibility of Internet protocols to offer Americans a full suite of
communications services -- from voice to video to data.

We have worked hard at bringing these broadband Internet networks to
each and every American at affordable prices. We have championed the
deployment of multiple broadband networks in order to rid ourselves of
the intractable "last mile" problem. We have pushed for greater
deployment of DSL, cable modem, 3G wireless, WIFI, Ultra Wide Band,
satellites and broadband over power lines, just to name a few new
platforms already in commercial use. More broadband platforms mean more
competition, more innovation and more tools to advance important goals
such as universal service.

The Commission is mindful, however, that networks are valuable only if
consumers use them to communicate, to entertain themselves, to work, and
to learn. Although much of our focus has been on bringing these
broadband Internet networks to each and every American, the Commission
is now turning its attention to promoting investment, innovation and
competition at the applications layer of the Internet. Internet voice
services, coming in many flavors, are some of the first of many
broadband Internet applications being adopted by consumers today. These
exciting new services tap into the global and ubiquitous Internet to
change the make-up of the communications and other industries daily --
all to the benefit of the American people. Successful Internet
applications are vital to our national broadband policy because they
create demand and thus grow the network.

Today, Internet applications are bringing new competition to old markets
and, in turn, ushering in an era of innovation, lower prices and high
quality services. Just as email and e-commerce were drivers of the
narrowband Internet, higher bandwidth applications like streaming video
and music entertainment, home networking and Internet voice will be the
"killer apps" for broadband. Whether we are talking about Internet voice
services, or Internet video and audio services, Internet news services,
or Internet commerce, the broadband revolution is bringing tomorrow's
communication and commerce tools to more and more Americans today. These
new opportunities for consumers are also providing new opportunities for
our nation's economy. New opportunities for job creation can be found in
building broadband networks and applications. Productivity gains for our
economy continue as business and consumers increasingly unleash the
power of broadband networks. At the same time, we are creating
opportunities for small businesses and entrepreneurs to enter previously
prohibited communications markets at the applications layer of the
network.

Although the prospects for the digital migration have been promising, to
date, the realization of its potential and benefits for our country are
far from certain. This country must continue to promote and adopt
regulatory policies that promote investment and allow these new and
emerging broadband Internet services to flourish. A failure to do so
will lead to more outsourcing of high tech jobs and investment to
foreign lands, leaving the most powerful nation in the world a second
class citizen in tomorrow's growing digital economy.

At the same time, we must leverage these new technologies to ensure that
many of our core, traditional and vital social objectives continue to be
met. Regardless of the pace of technological change, we must remain
committed to universal service, law enforcement access, E911
capabilities, and access for people with disabilities. And, we must
effectively manage the transition from the analog to an all digital
world to ensure that Americans relying on yesterday's communications
tools are not left behind.

The Commission is hard at work on these issues. We continue to work to
bring alternative broadband Internet distribution networks to the
American people. We have begun laying the foundation for a "light touch"
regulatory environment for Internet voice services. We are focused on
addressing and advancing our social objectives of public safety,
universal service, homeland security and access for people with
disabilities. The Commission is also working hard to reform our
country's inter-carrier compensation regime. We are working with our
colleagues elsewhere in the federal government and at the state and
local level to develop a sound policy framework. Finally, we are keeping
a watchful eye for anti-competitive conduct by owners of broadband
networks to ensure our citizens can tap the full potential of the
Internet in a broadband world. The public interest is our guide in our
tireless pursuit to bring the vast benefits -- both personal and
economic -- of the digital migration and broadband Internet service to
every American.

**II. Emerging Internet Voice Services---What are They?**

With 50 million people (and rapidly growing) taking advantage of
broadband Internet access, Internet-based services and applications have
a promising year ahead. One class of applications, allowing for the
transmission of voice communications, will continue to grow in many
shapes and sizes. This application comes in many flavors, but has
garnered a great deal of attention because it allows voice
communications among users, much like traditional wired or wireless
voice networks. Some of these Internet voice services will be delivered
over the public Internet; others will use Internet protocols over
private networks to reach end-users. Some of these services will be
Internet-only applications; others will allow Internet callers to reach
out to users on the public switched telecommunications network. Some
will be pay services; others will be free or simple add-ons to other
types of applications. All, however, will enhance our ability to
communicate with each other.

Indeed, Internet voice services are evolving in a number of different
ways. Some providers, like Vonage, are offering Internet voice services
using the public Internet and a consumer's broadband connection to allow
consumers to make calls to other broadband Internet users or to people
using traditional plain old telephone service. Many cable operators, on
the other hand, are offering IP-based voice services using their private
digital networks to interconnect with the PSTN and not using the public
Internet at all to transmit voice services. These types of voice
services typically charge a monthly fee for a variety of different
calling plans and features.

We are also seeing the development of computer to computer voice
services. Free World Dial-up, for instance, employs peer-to-peer
technologies to allow those using the service to transmit calls to one
another. This particular computer-to-computer service is free to users.
Internet voice capability is also built in to other services. For
example, instant messenger software applications generally provide for
voice add on features. Microsoft's Xbox Live gives those playing
broadband video games the ability to talk to each other during play.

As you can see, we are entering a dynamic space in the evolution of
Internet voice services and applications. As more people begin to take
advantage of these new and exciting competitive voice offerings, we are
starting to see substantial consumer and economic benefits of the
digital migration emerge.

**III. Benefits**

As the digital migration continues in earnest, increasing numbers of
Americans are taking advantage of the increased choices, lower prices,
innovation and personalization that broadband Internet services and
applications offer. It is noteworthy that these benefits are emerging
almost completely in the free market environment.

IP-enabled communications are unleashing a torrent of innovative
services and applications from many more sources than users of
traditional communications services are accustomed to. In the voice
space, for example, hungry, free radical entrepreneurs and software
developers are taking advantage of extremely low entry barriers to pour
investments into service offerings to take on established telephone
industry giants. These industry giants are not, however, sitting still.
Cable operators and traditional local and long-distance telephony
providers are moving to IP-based voice products as a cheaper, more
efficient way to deliver local and long-distance voice services to the
public. The result is a degree of choice for consumers never before seen
in the residential voice market. More Americans have more providers to
choose from, more services to choose from and more devices to
communicate with than in any time in American history.

With increased choice and competition come the additional benefits of
lower prices and greater innovation. The same forces at play that are
attracting entrepreneurs to enter the Internet voice business are
allowing these and more established providers to offer consumers cheaper
voice services. Lower entry and transaction costs are allowing Internet
voice services to be offered at low prices, in some instances, for free.

The benefits do not end with competition and innovation for American
consumers. Our economy is also seeing great gains from the digital
migration broadly and Internet voice services specifically. As firms,
new and old, continue to invest in broadband Internet networks and
services and applications, we are seeing the creation of more technology
focused jobs in our economy. Small businesses are using new
technologies, such as Wi-Fi and WiMax to provide competitive last mile
broadband Internet access. Not only are small businesses and
entrepreneurs entering communications markets, small businesses are
using broadband technologies and services to lower the costs of business
(i.e., using Internet voice services to lower yearly phone bills), to
enter new markets and more efficiently and effectively conduct commerce
with suppliers and consumers around the globe.

As these businesses spur economic and job growth through investment in
broadband Internet services and applications, we are seeing durable
productivity gains spreading throughout our economy. A recent Lehman
Brothers report suggested that by 2007 investment in information
technology will allow for productivity gains that will bring \$140
billion in savings to six major economic sectors.

These consumer and economic benefits are not, however, guaranteed. While
Internet voice services offer great potential, they are also extremely
easy to establish abroad. If we do not create the proper regulatory
climate in the United States, it is quite possible our local calls will
be routed through Canada and Mexico at cheaper rates, rather than
through Kansas and Montana. We must adopt the right policies to foster
investment, innovation and competition.

**IV. Proper Policies**

*[Economic Regulation]{.underline}*

The development and success of the Internet has been a result, in part,
of our nation's desire to maintain its minimally regulated status.
Congress was mindful of the danger of regulating Internet services.
Indeed, in section 230 of the Communications Act Congress enunciated a
national policy to promote the continued development of the Internet and
other Interactive computer services and to preserve the vibrant and
competitive free market for these services "unfettered by Federal or
State regulation."

We will remain vigilant. As I recently described in a speech at the
University of Colorado at Boulder, I believe that government and
broadband providers should strive to achieve four key Net Freedoms: (1)
*Freedom to Access Content:* Consumers should have access to their
choice of legal content; (2) *Freedom to Use Applications:* Consumers
should be able to run applications of their choice; (3) *Freedom to
Attach Personal Devices:* Consumers should be permitted to attach any
devices they choose to the connection in their homes; and (4) *Freedom
to Obtain Service Plan Information:* Consumers should receive meaningful
information regarding their service plans. These freedoms will preserve
consumer choice, foster competition, and promote investment in
infrastructure and Internet applications. If adhered to, they will also
eliminate the need for much of the anachronistic common carrier
regulatory regime.

*[Social/Public Safety Policies.]{.underline}*

There are at least four key areas where government should and must be
engaged for the good of consumers: universal service, CALEA, E911, and
access to people with disabilities. At our February meeting, the
Commission adopted a Notice of Proposed Rulemaking to look at the issues
surrounding these applications. We are working with our colleagues
elsewhere in the federal government and at the state and local level to
develop a sound policy framework. We are focused on addressing and
advancing our social objectives of universal service, public safety and
911, homeland security and access for people with disabilities. In
addition, the Commission is working hard to reform our country's
inter-carrier compensation regime.

Before addressing each of these issues in more depth, I want to echo the
Commission's recent announcement that we will be hosting a series of
Solutions Summits in the coming months as we move forward with the
IP-enabled communications proceeding to quickly address important social
and public safety policies. The first of these summits will be held at
the FCC on March 18, 2004 and will address 911 and E911 issues. I look
forward to using these working sessions to develop real answers to these
challenges thereby allowing these new technologies to improve our
ability to achieve our policy goals.

[Universal Service]{.underline}

IP communications represent a real opportunity to advance our universal
service objectives, including ubiquity and affordability. New technology
can reduce the costs of providing supported services, particularly in
the higher-cost areas of our country. The introduction of
technologically advanced, lower-cost networks also can have a positive
effect on the high-cost fund over time, thereby limiting the burden our
policies place on consumers.

Nonetheless, as we progress further in our digital journey, we and our
colleagues at the state level will have to confront some significant
challenges in the short and long term. Fully recognizing this challenge,
the FCC is currently reexamining nearly every aspect of the universal
service program, as I indicated in October, to ensure that the program
is administered as efficiently and effectively as possible and that the
overall program remains sustainable.

I assure you again today that I remain committed to the enduring goals
of universal service. This digital migration cannot be complete or
successful if there are portions of our population left behind. Voice
service availability to all Americans will continue to be vital to the
success of our nation. I recognize that IP services ride atop a physical
layer that, in many parts of our country, is still expensive to build
and maintain. True to our Congressional mandate of comparable prices and
comparable services, the Commission must continue to be sensitive
throughout the digital migration to the rural areas of our country where
the cost of service remains high and the march of technology can
sometimes lag one step behind.

Some difficult times can be expected as competitive policy continues to
erode implicit subsidies that skew competition while replacing them with
explicit support mechanisms that are sustainable in a competitive
environment. Nonetheless our universal service goals and our commitment
to obtaining them remain unwavering. Our goal is to foster a system of
universal service that is fair to all competitors in an increasingly
competitive marketplace. Through our various proceedings and in
cooperation with Congress and the states we will adopt the universal
service fund to meet the progress of technology.

[CALEA]{.underline}

Just as the near exponential rate of technological evolution has
challenged the Commission, it has challenged law enforcement. New
services like voicemail, call forwarding, and mobile phones have
required industry, the Department of Justice and the Federal Bureau of
Investigations to work in concert with the Commission to ensure that the
needs of law enforcement are met in a way that is not overly burdensome
or too costly for consumers. So again it is with Internet voice
services. It is our understanding that law enforcement will soon be
filing a petition requesting that the Commission commence a proceeding
to help set standards by which the success of CALEA with respect to
earlier services can be extended to Internet voice services. The
Commission will devote the necessary resources to expeditiously and
responsibly complete this task. In the interim, it must be emphasized
that carriers, the law enforcement community and the Commission are
working in partnership to ensure that law enforcement retains access to
the information they have now and to ensure that they have the tools
they need in this ever changing environment.

[911]{.underline}

Internet-based services provide a tremendous opportunity for improving
our E911 systems. The existing 911 system is vital in our country, but
limited functionally. In most systems, it primarily identifies the
location from which the call was made. But an Internet voice system can
do more. It can make it easier to pinpoint the specific location of the
caller in a large building. It might also hail your doctor, and send a
text or Instant Message alert to your spouse.

Our 911 potential is limited only by the infrastructure available and
the creativity we employ in developing 911 applications. Already at
least 10 Internet voice providers have entered into an agreement with
the 911 association NENA to extend 911 capabilities to Internet voice
services. The public safety community has been an excellent partner in
this endeavor already and I look forward to additional progress at the
Summit on March 18, 2004.

[Access to people with Disabilities]{.underline}

Technology has consistently permitted Americans with disabilities to
become more integrated and productive in their daily lives. We will not
allow Internet-based services to fall short of this precedent. Given the
Commission's strong record of action in this area and Congress's great
leadership in passing the ADA, I am confident that industry will respond
appropriately to ensure access by individuals with disabilities. I am
pleased to announce that our Solution Summit on access issues will be
held on May 7, 2004.

**V. Recent FCC Actions and Next Steps**

Against this backdrop, the Commission released a comprehensive NPRM to
examine how best to address VoIP and granted the Petition filed by
pulver.com at our Open Meeting on February 12, 2004.

In pulver.com, the Commission continues to encourage investment and
innovation in the case where the voice application rides entirely over
the Internet in digital form. Pulver's FWD allows users of broadband
Internet access services to make VoIP or other types of peer-to-peer
communications directly to other FWD members, *without* charge. In this
petition the FCC looked closely at the FWD offering and concluded that
it clearly fit the information service definition and could not be
categorized as a telecommunications service. The record was nearly
unanimous on this outcome.

The NPRM takes up each of the important policy areas addressed above.
The NPRM also examines some of the important definitional debates
surrounding Internet voice services, with a view to existing definitions
and how those definitions might apply to today's changing communications
environment. Once the NPRM is released, the Commission will build a
record to determine where best to draw the line between the various
flavors of Internet voice services, and to begin to determine how the
social and public safety objectives can best be achieved when using
IP-enabled communications. A full and robust record will pave the way
for the Commission to adopt policies that facilitate economic growth, a
more secure homeland, and preserve and advance universal service and
access to people with disabilities.

I am pleased that we have made the progress that we have thus far and
taken the first, bold step of granting the pulver.com petition and
issuing the NPRM and I thank my fellow Commissioners for their hard work
in getting this far. But our work is not done. Still other petitions
remain before the Commission that involve different flavors of IP-voice
services, with different levels of digitization and interaction with the
public switched telephone network. Some cannot operate without use of
the PSTN and offer little in the way of innovation for end consumers.
Others involve the ability to bridge the old and the new. Each will have
to be dealt with under its own merits, faithfully applying applicable
statues.

Among the open proceedings is a petition for declaratory ruling filed by
AT&T regarding the applicability of access charges to particular types
of VoIP services. I wish to emphasize that nothing in the NPRM discussed
above will preclude the Commission from addressing pending petitions
before the culmination of the rulemaking. As my colleagues work to reach
their own decisions in the still pending proceedings I want to assure
you that I am deeply concerned that telephone rates in rural areas
remain affordable. I fully recognize the gravity of any decision that
might cause a precipitous decline in access charge revenues and a
concomitant impact on universal service.

All of these decisions illustrate the importance of reforming our
intercarrier compensation regime. We understand that the industry is
hard at work to develop such a plan. I implore them to develop a
proposal promptly. We have an open docket and I hope that the Commission
will adopt a combined order and further notice of proposed rulemaking
later this year. This item would take significant steps in the direction
of a unified regime by providing immediate guidance on carriers'
transport and interconnection responsibilities, and by soliciting
comment on the legal and economic issues that must be addressed as part
of a transition to a more rational and sustainable intercarrier
compensation regime.

While many industry players have divergent views on the exact solution,
nearly everyone agrees that the current system is broken. The
Commission's intercarrier compensation docket provides an excellent
opportunity to work together with all industry segments to replace a
system built in a monopoly environment with one that is designed for a
competitive market yet still sustains universal service. That policy
decision will be essential if our nation is to tap the full potential of
IP-enabled services.

**VI. CONCLUSION**

In examining voice over IP, we should begin with the non-regulation of
the Internet as the first article of faith because limiting government
intrusions -- both at the federal and state level -- maximizes the
potential for innovation and increases opportunity for the nation as a
whole. There are clear exceptions to this rule -- four of which are
discussed above -- where the security or well being of the nation and
the consumer will require our intervention. But we must be sure that
such exceptions do not swallow the rule. Without a doubt, VoIP will
revolutionize the way consumers work and play. The choice for us as
policy makers is to create the kind of environment where these changes
can flourish.

I would like to thank you, Mr. Chairman, for calling this hearing, and I
look forward to working with you and other members of the Committee, my
state colleagues, industry and my fellow commissioners on these
challenging and critical issues.