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Whom Do We Regulate when the Phone Monopolies Are Gone?

Tom Evslin

Once upon a time in a universe not very long ago phone service in the US was provided by regulated monopolies. AT&T was the big one and there were (and are) hundreds of small ILECs (Independent Local Exchange Carriers) around the country. These monopolies were regulated both at the federal and state level. Then we began on the long road toward competition and deregulation. The result has been a splendid wave of innovation and a decline in communication costs so great that whole new industries have sprung up — the Internet, for example, cellular service, smart phones. Our culture has permanently changed and evolves at breakneck speed; even politicians' peccadillos have moved online.

So far, so good. However, we still have plain old landline telephone service (POTS) and the former monopolies still pretty much have a lock on providing copper-based POTS in their regions of influence. The opportunity — and problem — is that POTS is no longer the only way for people to talk to each other beyond shouting range. Almost all of us use mobile telephony to some extent instead of fixed POTS; many of us have completely abandoned POTS in favor of more convenient cellular service and/or cheaper voice over IP (VoIP). Cable companies provide voice service on their networks which compete with the phone service sold by the old phone monopolies. Companies which don't own networks at all, like Skype and Vonage, provide voice services over the networks of whatever Internet service providers (ISPs) the caller and callee are using — these are called "over the top" phone services.

Voice is no longer a monopoly business. Even though the old monopolies are still regulated at the state and federal level, their competitors are regulated lightly or not at all. Cellular service providers need to get radio spectrum from the FCC; their use of public spectrum provides leverage for the Federal Communications Commission (FCC) to regulate them. Local regulation of cellular operators, however, is explicitly preempted by the feds. There is an ongoing debate over whether states can regulate the "phone" services provided by cable operators. These services are not regulated at the federal level. The FCC has asserted some jurisdiction over services like Vonage which connect to the regulated POTS network. However, services like Skype have successfully stayed immune from regulation — so far — by claiming not to be a substitute phone service. ISPs are not regulated. Period. But ISP networks are used to provide VoIP calls. The quality of these calls depends on the quality of the underlying network.

So, you ask, where's the problem? We used to have monopolies; they had to be regulated because they weren't controlled by markets. Now people have a competitive choice — many choices — for ways to talk to each other at a distance. We don't need the regulations anymore. Let's stop regulating phone service completely and retrain the regulators to do something else. It's not quite that simple, however.

Some regulation has to do with whether phone services provide the proper connections and information to 911. Cellular operators are regulated in this respect. Operators like Vonage have chosen to follow the standards for 911 capabilities so that they can represent themselves as a replacement for primary phones and to avoid liability. Operators like Skype have simply made clear that they are not meant to be used for 911 calls. Proponents of continued regulation worry that, in the absence of all regulation, voice providers might simply decide not to support 911 anymore — after all, it costs money to do so. If all the voice providers in a particular area decided not to support 911, there would be a severe problem in that area.

Marketplace proponents argue that consumers will choose to have at least one service which supports 911 so that there will always be providers who elect to meet that market need. Moreover, since anyone who has an adequate broadband connection can buy "over the top" service from any provider located anywhere, there shouldn't be geographic holes in 911 coverage. Given that we need to assure that there is either broadband or cellular service available everywhere that POTS currently serves before POTS disappears and that cellular providers are required to support 911 in their networks anyway, there isn't a need for any further regulation mandating 911 support.

I trust the marketplace on this one with three caveats: 1) there needs to be enforceable truth-in-labeling on what "911 support" means and doesn't mean (already lawyers have effectively used the threat of extensive damages to discourage shoddy 911 support); 2) to the extent we subsidize a "lifeline" service for the indigent in the future, only services which do support 911 should be eligible for subsidy; 3) people who deliberately don't buy a service that supports 911 should not be protected from the consequences of their stupidity by the rest of us.

But suppose you disagree and think that there should be a law or regulation which says that every voice provider has to provide 911 support, on whom would you enforce this law or regulation now that the old monopolies are on the way out? Does every online video game which provides voice need to also provide 911 support? Does Skype? Does Webex? What authority does government have or should government have to regulate how applications function. What if I buy my over-the-top VoIP service from an Estonian provider? How do we enforce US law on that provider?

When voice was a monopoly service, regulation was necessary. Now that voice is just another application on the Internet and is provided by a number of companies using many different technologies and operating globally, regulation is not only undesirable but also not possible.

So where does that leave the issue of quality? Universal access? Handicapped access? Law enforcement access for wiretapping (CALEA)? What will substitute for regulation? To be continued.

By Tom Evslin. More blog posts from Tom Evslin can also be read here.

Related topics: Policy & Regulation, Telecom, VoIP

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Comments

Maybe on the wired side... Christopher Parente  –  Jun 14, 2011 4:22 PM PDT

Interesting post, I think your argument is weaker for mobile. Pearlstein at the Post just did a good column talking about how AT&T;and Verizon are establishing an oligopoly for mobile, since being huge conveys such market advantage. Link: http://wapo.st/iTqlpV

So when AT&T;buys T-Mobile and Verizon counters by buying Sprint, how much choice do I have? Just a question, not a plea for regulation.

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