Think Tank Criticizes VoIP ‘Discussion Draft’ Language

A white paper published this week by the Heartland Institute, a free-market think tank in Chicago, is critical of a “discussion draft” of legislation released by the House Committee on Energy and Commerce concerning a new regulatory regime for Internet telephony.

The document, entitled “The Metaphysics of Communications Reform,” raises concerns that legislators may be trying to shape the market by manipulating the terminology that describes emerging Internet telephony, or Voice over Internet Protocol (VoIP), technology.

The paper was written by Randolph J. May, a senior fellow at the Progress & Freedom Foundation in response to the Commerce Committee’s recent release of the discussion draft.

Editing Language

“There are ways to improve on the draft language so as to diminish the likelihood of unnecessary and unwise regulation,” the white paper states. “The Commerce Committee’s draft takes a clean version of an IP-migration model and reimposes some of the old legacy regulation on top of it.”

According to the white paper, such an approach lends itself to legislators and regulators “fiddling with the techno-functional constructs” so as to shape the market to their own policy ends. “And it leads those who might benefit by manipulating the interpretation of such techno-functional definitions to attempt to do so,” the paper states.

For an example of the first case, the paper suggests that policymakers look at the broadband video provisions of the discussion draft, which require the provision of certain types of integrated Internet functionalities in order to qualify for streamlined franchising treatment. “Do the legislators or regulators or courts really know what consumers will demand in the marketplace, and do they really know what technological capabilities might evolve in the future, absent regulatory constraints, to meet such demand?” the paper asks.

Or, for an example of the second case, the paper points to market participants who will seek to qualify for treatment as a provider to gain the accompanying regulatory benefits, or who will seek to disqualify their competitors. “Will the dispute over whether a new protocol is a ‘successor protocol’ of the TCP/IP protocol really be anything other than a metaphysical food fight — and one that will almost certainly create ongoing uncertainty and long-running litigation that will impede marketplace development and discourage investment?” said the paper.

Anticipating a Fight

The paper said that the FCC has gone through a decade-long struggle to define protocol processing for the purposes of drawing the lines between “enhanced” and “basic” services, and that this draft discussion may evoke a similar response.

“I have great admiration for those who have put in many long hours to produce the discussion draft,” said May. “It is not easy making sausage on hilltops, especially with a lot of chefs. By virtue of the nature of the process, I believe the discussion draft can be a constructive step in helping to focus the coming legislative debate. Elements of the draft have a commendable deregulatory thrust, putting aside for the moment ambiguities in the language that call into question whether that thrust would, in fact, be realized.”

May wrote that, if the discussion draft model is the only basis for moving forward with communications legislation, there are ways to improve on the draft language to diminish the likelihood of unnecessary and unwise regulation.

“See, for example, the Section 104 network neutrality provision governing mandatory ‘access to bits’ or the mandatory entry registration requirements throughout,” May wrote. “Compared to the techno-functional approach taken in the discussion draft, the market-oriented model that the DACA [Digital Age Communications Act] Regulatory Framework Proposal released in June presents an attractive, non-techno-functional alternative that deserves renewed attention. It is likely the reform debate will continue well into next year.”

A Changing Market

Researchers say that the telecom market — due to tumultuous technological changes — is already changing quickly, making any regulation of its future a challenge for regulators. According to the latest research from Strategy Analytics, based in Boston, global wholesale sales of handset ASPs declined 25 percent during the third quarter of this year, as pricing and product pressures from overseas competitors mounted.

In stark contrast to the 25 percent upward growth in shipment volumes, global wholesale handset ASPs declined 11 percent year-over-year, to reach US$146 during the third quarter of 2005, said Chris Ambrosio, director of wireless device strategies for Strategy Analytics. “These intense pricing and profit pressures within the mobile phone industry are going to cause consolidation-pressure to reach critical mass among smaller vendors,” he said, pointing to examples such as Ningbo Bird and Panasonic, who will “struggle to maintain increasingly expensive development efforts in either low-cost phones or feature-rich 3G handsets through the next several years.”

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