Executive Overview to VoIP Regulatory Impact
As a business owner or executive responsible for
deployment of VoIP (Voice over Internet Protocol) technology or support of an
existing VoIP system it is appropriate to consider impact of regulatory change.
Initial reaction to any regulation (i.e. taxation)
on VoIP services may be to view it as immediately increasing costs. In truth,
actual impact on a given private enterprise will vary depending on how VoIP was
placed into service. This article reviews impact of regulation under three
different scenarios, giving insight on what factors affect the degree of
independence from regulatory impact.
VoIP as a voice communication technology is
absolutely here to stay – it is one of the great technology “paradigm shifts”
of the 21st century. As significant and impacting as introduction of
the PC (Personal Computer) because it can/will change how we conduct everyday
life, both our business and personal lives. Any topic of this magnitude
eventually warrants government intervention, even if only indirectly.
Additionally the
VoIP holds potential to materially reduce or
displace this existing tax base because of it’s ability to perform “toll
bypass”, which effectively is a process for completing voice calls outside the
control of the tariff system. These tariffs amount to billions of dollars
annually, so any threat to that revenue gets the attention of legislators.
Additionally the funds are used to support things such as “universal service,
homeland security, 911 services, facility for guaranteed wiretapping access by
police and accessibility for people with disabilities”. Many of the above
mentioned issues stem from “statutory obligation” and ultimately impact equity
and effectiveness of rules and regulations that protect the public interest.
Accordingly regulation reviews of VoIP are underway at the federal level via
the FCC and state level via various state and federal district courts. It is a
complex process and will take time to resolve.
The Open Issue
– Voice or Data?
So what is the primary “regulatory issue”
surrounding VoIP? Fundamentally it’s the decision of – are VoIP signals to be
considered “telephone” communications, thus subject to existing telephony
regulation OR are they considered “data” transmissions (of sound) only and not
subject to such rules. Data communication, including all Internet based
transmissions, unlike the telephone industry have evolved in a non-regulated
open market. To date it has been virtually 100% free of direct government price
controls and taxation. However, the very essence of VoIP is convergence, the
bringing together or blending of voice communication’s best features with the
digital capabilities of data communication networks. Ultimately it is the
degree to which your company’s VoIP deployment is dependent on a public versus
private network infrastructure that will establish the degree of government
regulation impact.
Before proceeding
it’s appropriate to remind oneself VoIP is a technology protocol. It operates
on any IP COMPLIANT network without regard to size or ownership of the network.
Also, VoIP while often associated with the Internet, does NOT require the
Internet. All major benefits of the technology can be equally achieved on a
totally private network.
Affected
Parties
Carrier companies
such as AT&T, Sprint, MCI and RBOC’s are first and foremost telephone
companies. While it’s true their networks are privately owned, they were built
to be accessed and used by the public at large. Government’s perspective
consequently, is that they are a “public network” (often referred to as the
PSTN). To date a core cost benefit of VoIP has been “toll bypass”, effectively
a process by which voice transmissions circumvent the telephone tariff pricing
system. If these transmissions are deemed to be subject to the tariff system, that
additional cost will be passed directly to the consumer.
At the opposite end
of regulation classification is the “private network”, example being a LAN
(local area network) that is contained within the boundary of an enterprise.
Privately owned and controlled, the network’s traffic is only what the owner
allows. So private in fact, companies install “firewalls” and multiple other
security measures to prevent access by the general public or any traffic they
wish to exclude. An IP-PBX is the equipment used to create a totally private
VoIP implementation. A common misunderstanding is that an IP-PBX requires use
of the Internet or IP-only trunk lines. While compatible with both, an IP-PBX
can also be configured to use only PSTN (Publicly Switched Telephone Network)
dial tone, thus limiting VoIP technology to inside the company. The company
gains key benefits and value of a converged technology without concern of VoIP
regulation having direct impact.
A much less clear
situation is that of VoIP “service resellers”. New companies are popping up all
over providing renewed “pay as you go” subscription business models, offering
various forms and components of VoIP based communications. Sometimes these
services are unique new offerings and other times they simply compete directly
with classic telephone companies. In the latter situation, today they enjoy
virtual freedom from telephone company regulations. This allows for reduced
cost of operations and higher profit margins. If the regulatory environment
changes so does their profitability, creating the need to pass related charges
directly to the customer.
Impact on your
organization
So, understanding
federal and state government agencies are still determining what telephony
regulation should apply to VoIP, how do you determine the impact on your
private enterprise? As in many other areas of business it’s often best to use
or consult qualified professionals, knowledgeable of the subject but these are
the key items to remember.
Carrier’s ROI (Return
on Investment) from VoIP technology comes via reduced cost of operations. They
then determine how much of the cost savings to pass on to their customer base.
The “savings” you realize from using carrier based VoIP trunking or services
are highly dependent on what they chose to extend via changes in their pricing.
The ROI to you however is limited to the reduction in the carrier’s “cost of
operations”. Your company does not directly gain all the productivity and
internal infrastructure benefits associated with VoIP.
Service Reseller’s
ROI from VoIP technology is two-fold. Reduced internal cost of operations as
well as revenue from re-selling “selected VoIP feature capabilities”. Again
your ROI from using VoIP technology is dependent on what savings they chose to
extend. Certain VoIP technology features that could benefit your company may
not be offered due to lack of profitability or being subject to regulation. In
either of the above cases, change in current regulation could result in
immediate higher cost to you via direct pass-through of taxation or regulatory
adjusted costs.
The premise based
equipment (IP-PBX) option holds potential for the highest ROI on VoIP
technology deployment. This is because your company retains direct control over
available VoIP functions and features, applying those most valuable to you.
Plus, to the extent VoIP technology is only used within a enterprise “private
network”, regulation has no direct impact. Of course if the enterprise also
uses carrier based VoIP trunks, or service reseller offerings in addition, they
are subject to past-thru costs of regulation impacting those vendors.
Regulation is not a
simple matter, subject to political “winds of change” and can occur at the
federal, state and local levels. What is key to remember is that VoIP
represents a technology, one like the PC that has proven to hold large
operation savings, new capabilities and competitive advantage for virtually
every company. Waiting for every potential regulation issue to be resolved
before moving to VoIP would be like waiting for the “totally perfect, bug free”
version of software – possible eternity.
Thomas Smith - founder & Senior Principal of TechEn enterprises LLC,
Littleton, CO.
Tom’s work with network based
software applications started as a developer and later, product manager for
interactive online statistical analysis tools used by leading oil/gas companies
in the 1970’s-80’s. In the 90’s specific recognition was awarded him for
creation of a unique wired/wireless network solution servicing EDI needs
between Detroit’s automotive manufacturers and remote Arizona copper mines. Tom
formally entered the field of voice communications in 1998, an infancy period
for VoIP technology, as reseller for the first commercially available IP-PBX
system. He subsequently brought to market - HomeGATE, an IP enabled and
voice driven internet portal wireless residential phone system .
Today he is founder and senior principal of TechEn enterprises LLC,
applying over 25 years experience in technology management, product development,
technology consulting and marketing to deployment of main-stream VoIP solutions
and implementations. A native New Yorker, plus 30.year
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