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VOIP: All eyes on Powell
Why the FCC's VOIP ruling tomorrow is vitally important to Internet companies.
February 11, 2004: 3:14 PM EST
By Eric Hellweg, CNN/Money contributing columnist

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SAN FRANCISCO (CNN/Money) - If you're a tech investor with holdings in telecommunications companies, Internet portal sites, or some infrastructure firms (or if you're just a tech dork like me), you'll want to pay attention to what the Federal Communications Commission has to say tomorrow. It promises -- believe it or not -- to be riveting.

On Thursday, Feb. 12, the FCC is expected to lay down the beginning framework for its strategy on voice-over-Internet-protocol (VOIP) technology.

While the immediate effect will be felt most by a handful of small private VOIP startups and large established telecommunications companies, before long you could see major ripples running through sites such as Google, Microsoft's (MSFT: Research, Estimates) MSN, and Yahoo! (YHOO: Research, Estimates).

When is VOIP like a telecom?

Here's what's up: The FCC will issue its "proposed set of rulemaking," essentially an outline of how it intends to proceed on VOIP.

At issue is whether peer-to-peer VOIP services such as Free World Dialup (whose owner, Jeff Pulver of Pulver.com, filed the original petition for clarification a year ago) should have to pay the access fees usually charged to telecommunications services. Pulver doesn't believe that Free World Dialup should be subject to the same access fees and regulations as AT&T (T: Research, Estimates), for example, because his service never really touches the public network. If the FCC rules in his favor, "it will be a watershed event for communications in the U.S. and the world," he says.

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All the industry observers I spoke with predicted that the FCC will take a hands-off approach with peer-to-peer VOIP services, but there was less unanimity on the future of companies such as Vonage, which use public lines to connect and terminate their calls.

"Anything that does touch the [public phone] network, there [will be] access fees involved," says Will Stofega, an analyst with IDC.

"I'm looking for a light touch," says Jeff Kagan, an independent telecommunications analyst. "You don't want to throw ice water on it."

FCC commissioner Michael Powell has hinted that he wants to treat the new technology with a light hand to keep from stifling it. If that happens, or even if he establishes that some services must be treated as telecommunications services and pay those fees, I think you'll see a number of Internet companies such as Google, MSN, Yahoo! -- heck, even Amazon (AMZN: Research, Estimates), eBay (EBAY: Research, Estimates), and others -- implement voice calling services.

"If the FCC takes a hands-off approach, it'll be like flipping a switch, and the lights will all come on for every Internet executive," Kagan says. "Any company that has a huge Internet customer base, it's a natural."

Get ready to rumble!

Think about it: You already use services like MSN, Yahoo!, and Apple's (AAPL: Research, Estimates) iLife to e-mail, chat, or communicate via videophone. Phone service isn't much of a stretch. And once those companies know what -- if any -- fees and regulations they'll face, their phone-service plans will come into sharper focus.

For investors in these companies, such a move would be great: a chance to further diversify away from reliance on advertising revenue and expand the companies' relevance with consumers.

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Of course, the existing telecoms and cable companies wouldn't simply concede the market to Net firms, and many -- including AT&T, Cox Communications (COX: Research, Estimates), and Qwest Communications (Q: Research, Estimates) -- are looking into or launching VOIP services. Other telecoms, such as Sprint (PCS: Research, Estimates), are hoping the FCC weighs in with regulations for the VOIP carriers.

Any way you look at it, Thursday's announcement will be an excruciating -- and important -- decision for the FCC.

"I don't envy the FCC's job here," says Ned Zachar, director of telecommunications research for Thomas Weisel Partners. "This is an incredibly tricky decision." For Internet firms, however, the decision could also prove incredibly lucrative.

Note: Regarding my last column, "No Joy In Realville," representatives from both Real and MLB.com have called to say there was no bad blood between the companies.


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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.