VoIP: Will it be Regulated Like Telephony?

VoIP (Voice over Internet Protocol), often touted as the future of telephony, is a method by which phone calls are transmitted over the Internet. Instead of establishing a direct, continuous link between parties to a phone call, as in conventional telephony, VoIP involves a computer of one party digitizing the person's voice information, breaking it into small packets, and then sending the packets via the Internet to the other party's computer. The other party's computer puts the packets back together in the correct order, and converts the digital information back into audio, which the second party can understand. A key cost advantage over conventional telephony results from the ability to have multiple phone calls proceed down a single path simultaneously. The main disadvantage is a reduction in quality, as compared to a conventional phone line. VoIP is now becoming a reality in Canada, although its future is still uncertain. Cable providers Rogers and Shaw have both announced that they are planning to sell VoIP service in Canada next year. This will be Rogers' second foray into the telephony business in competition with Bell Canada, the first attempt being unsuccessful 10 years ago. However, the low cost and relative ease of implementation of VoIP for cable companies makes it much more likely to be successful this time around. Bell Canada is also making the transition of its network to VoIP a top priority. The introduction of these services will coincide with the planned release of the CRTC policy for VoIP next year. The CRTC has already published a preliminary policy view (Telecom Public Notice CRTC 2004-2 – see the link from "CRTC Preliminary View" below) which discusses the applicability of taxes to VoIP calls, and the provision of 9-1-1 services for users of the service. In the US, VoIP has made its way further along what is hoped will be a yellow brick road. The industry appeared before Congress this past week to advocate that only one set of federal regulations govern VoIP. Currently, it is not clear whether VoIP falls under the regulations that govern traditional analogue carriers. This has led to inconsistency: some US VoIP providers apply the rules for analogue carriers, and others ignore them. Moreover, it will be costly for VoIP providers to ensure compliance in 51 different jurisdictions. The situation has created so much uncertainty in the sector that it has become difficult to attract venture capital, despite the fact that latent consumer demand appears to be strong. In February, the FCC ruled that VoIP calls between computers were not subject to the existing regulations. However, the decision was unclear whether the same applies to calls that interfaced between VoIP and traditional networks. The ambiguity prompted the US Internal Revenue Service (IRS) to ask for comments from the public on whether the department should apply the telecommunications excise tax, which applies in the case of all traditional telephone services, to VoIP phone calls. This has prompted some VoIP companies to start collecting the tax, but the IRS has clarified that it is not currently enforcing collection, and only seeks to discover whether it is applicable. For the CRTC Preliminary View, see: http://www.crtc.gc.ca/eng/NEWS/RELEASES/2004/r040407.htm. Also, see CNET's article on the FCC ruling in the US: http://zdnet.com.com/2100-1104_2-5158105.html, and related VoIP articles: http://makeashorterlink.com/?K5EA418D8. Summary by: James Kosa