Tuesday, 6 January 2004

VoIP's real value

An article in yesterday's New York Times ("A Debate on Web Phone Service") puts the big issues in VoIP regulation in sharp relief.

Pure VoIP players like Vonage tout their low prices, relative to ordinary telephone service (local plus long-distance). When the big telecom players — AT&T, Verizon, and SBC — announced their plans to launch consumer VoIP services, they all cited the cost savings that VoIP provides. Unfortunately, that cost savings may be illusory at worst or artificial at best:

[S]ome critics say a big reason Vonage and other Internet-based phone providers can cut costs is because they do not have to adhere to the same rules and regulations as the conventional telephone companies on whose local and national networks the Internet providers depend. Even an Internet telephony fan like Jeff Pulver, who was formerly on the Vonage board, acknowledged that a substantial amount of cost savings comes from avoiding the taxes, surcharges and access fees used to support the traditional phone network.

"Vonage benefits by not having to comply with those rules," he said. Mr. Pulver acknowledges that the Internet upstarts are practicing regulatory "arbitrage." But in his view the public policy response should be to deregulate all phone companies.

This is one major sticking point. Everyone agrees that this is VoIP's major source of cost savings, relative to ordinary telephone service, but nobody agrees on how to handle it. The NYT article points out another artificial cost savings:
The fact that Vonage is not regulated and did not pay to build the national network may obscure the real cost of providing Internet-based phone service. Likewise, the cost to customers is not as low as it may seem. While consumers may pay less each month for Internet telephone service than for regular phone service, they cannot obtain the service unless they first have high-speed Internet access — on which they are likely to spend $40 to $70 a month. So the ability to use Internet phone service may actually require a total monthly outlay of $100 or more.

Add to this VoIP's dependence on the old guard's "last mile" network. Lather, rinse, repeat.

Posted at 9:40:34 AM | Permalink
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