# Presentation: 091683

## Internet Telephony and Policy  

- Michael Spencer
- Technology Solutions Company
- Washington, DC
- September 4, 197

## Internet telephony is part of a radically redesigned communications architecture

**Telco Infrastructure (Copper Wire and Fiber)**

**Voice Switches**

**Phones (fax machines)**

**Traditional Telephone**
**Network**

**Future**

**Computers belong on the internet**

**Data is a exception**

**Provision of services independent of the network**

**Computers inter-operate with Telephones**

## Internet Telephony is Real Now (and economic in some instances)

- Technology moving faster than most expected
- Now possible to handle phone-to-phone calls with good quality over sub-nets and with sometimes good quality over public internet
- Underlying cost advantage vs. PSTN is not great currently, though may improve
- Practical applications include low-cost international services as well as value-added applications, e.g. for call centers, but economic for US domestic
- Major players are taking positions, and new entrants starting to offer services
- Not independent of the PSTN: many useful cross-over applications
- Not simply arbitrage, would exist in a competitive market

## Internet likely to continue to drive innovation and competition

**Technology**
**Characteristics**

**Standard Componentry**

**Many more new entrants, e.g.**
**5000 ISPs**

**More innovation**
**e.g. Internet Telephony**

**Decentralized**

**Service independence**

**User centric**

**Implications for**
**Industry Structure**

**“****Moores Law” Improvements**

**Supports any media**

**Low barriers to entry**

**Customized services**

**Benefits**

**Low life-cycle cost services**

**High flexibility**

**Implications for**
**Customers**

## For the future: Richer Services, Lots of Hurdles; Intranets Lead Deployment 

- Primary benefit is not low cost voice, but richer services
- Not necessarily lower quality: could be user selectable
- Increasing blurring between PSTN and Internet
- Alternative transport vehicles can select  alternatives in real time
- High value in controlling the PSTN via Net, e.g.: Teleconferencing
- Still no clear path ahead for quality of service on the public network: real-time collaboration will favor sub-networks
- Corporate LANs provide better bandwidth controllability and security, as well as having spending dollars, so will lead application deployment

## Internet Telephony Appears to Advance the US regulatory agenda

- Arbitrage has value: places pressure on uneconomic prices (as does call-back and bi-lateral agreement)
- Promises to achieve the goal of competitive entry and increased service innovation
- Demonstrates that market co-opetition can replace regulation in many instances e.g.,
- Capacity deployment
- Solutions to shortcomings

## But leaves many open regulatory issues

- When and how should regulatory parity be achieved?
- What is a real substitute (measured by volume or quality)?
- Under which schema will parity be established
- Does the growth of the internet threaten the integrity of the PSTN by overloading it with traffic?
- How to deal with less pro-competitive (overseas) agencies?
- Jurisdictional overlap/conflict
- And, perhaps, eventually how to ensure universal internet access

## The existing regulatory environment (even under TRA) doesn’t fit

- Application/service specific price/quality regulation won’t work (and probably not necessary)
- Voice Becoming integrated with other services (e.g. Video)
- All applications dependent on a common infrastructure
- Universal service cost recovered as a player tax probably won’t work: too many dissimilar players
- “Per minute” transfer pricing makes sense only for session-based communications, not the other services that share the infrastructure

## Instead, regulation should reflect (and promote) the new architecture

- Services will be created in software, in a highly fragmented market, service provision will be too: Standard software business regulation rules should apply, plus beefed up user-protection (e.g., privacy)
- IP Networking becomes DataTone: the future of dialtone.  However, likely to be multiple service providers in almost every market: could.  Light touch business practices regulation
- Long Distance Infrastructure will be traded in futures markets (already beginning to happen): Standard commodity trading rules could apply
- High density-buildings will have 2 or more high-speed infrastructure alternative: market controls price and quality
- But low density (Residential) local access likely to remain monopolistic for a long time (ever).  Regulation should reflect utility norms plus potential bidding for universal service funds