IP Telephony Companies React to FCC Report to Congress

(April 15, 1998)   Companies involved in providing IP telephony had mixed reactions to the FCC Report to Congress released last Friday concerning telecommunications "universal service" and Internet services.  Some were pleased that it is merely a tentative report, and pleased that it continues to treat most forms of Internet access as "information services" rather than "telecommunication services."   However, company representatives expressed varying degrees of disappointment over the FCC suggestion that "phone-to-phone" IP telephony should be regulated.

Related Story: FCC Asserts Authority to Tax Internet Telephony, 4/13/98.


VocalTec™ Communications, Ltd.
Provider of software that combines the power of telephones and computers by delivering Internet/intranet dial tone for multimedia communications worldwide.  Its main product, Internet Phone, allows two users connected to the Internet to conduct real-time, two-way voice conversations using PCs, without long-distance charges. VocalTec also makes Internet Conference, which enables users to edit and create documents or images on their computer in real time over the Internet.
Ticker: VOCLF.
HQ: Northvale, NJ, and Herzlia, Israel.
Market Cap.: $172.3 Million.
Employees: 79.

VocalTec is not upset by the Federal Communications Commission Report.  According to Scott Wharton, VocalTec Marketing Manager for IP telephony service providers (ITSP), a lot of people have been asking of IP telephony, "Is this for real?"  He says that "The fact that the FCC is taking notice answers the question, 'Is this for real?'"  He explained that "our phones have been ringing off the hook today" with calls from people wanting to learn more about VocalTec software.   "On the whole, this is going to be good for IP telephony."

Wharton states that "IP telephony has a potential to grow notwithstanding what happens on the regulatory front,"  There are three reasons why IP telephony will compete successfully against tradition voice communications, according to Wharton: (1) "cost advantages" of IP telephony; (2) "multimedia services," including audio, video, graphics, and data; and (3) "manageability of a network".


Qwest Communications Int., Inc.
Multimedia communications company building high-capacity, fiber optic network, to deliver data, video and voice connectivity to businesses, consumers, and communications providers.  Its Q.talksm service provides phone-to-phone IP telephony service at 7.5 cents per minute.
Ticker: QWST
HQ: Denver, CO.
Market Cap.: $7,464.9 Million.
Employees: 950.

Joe Garrity, Senior Director of Legal, Regulatory and Legislative Affairs of Qwest Communications, had this to say about the just released Report to Congress. "The FCC Report is extensive.  Qwest has obviously not had the opportunity to consider it in full.  But of what we have read regarding extending the historic telecommunications scheme of subsidies to information services, it seems that the Commission has done the prudent and judicious thing.  The FCC has correctly recognized the complexity and importance of the current "information services" distinction as raised by the industry and its innovators - such as Qwest - and most recently the administration.  The Commission should be congratulated for that."  


IDT Corp.
Provider of diversified telecommunications services to more than 180 countries.  IDT also routes and/or resells international long-distance services and directly provisions telephone companies at the carrier level overseas. IDT also provides Internet services and prepaid calling cards and is a leader in Internet telephony. IDT's Net2Phone is the first commercial telephone service to bridge live calls between PCs and telephones via the Internet while charging by the minute. Over 300,000 customers use Net2Phone. IDT also offers Net2Fax, which routes real-time faxes over the Internet without a computer.
Ticker: IDTC.
HQ: Hackensack, NJ.
Market Cap: $754.3 Million.
Employees: 361.

"Internet telephony should not be regulated," said IDT's Sarah Hofstetter after the release of the Report.  However, "We're not concerned.  They have not ruled yet."

"They have to go through Congress."  Hofstetter does not believe there is enough support in Congress for regulating IP telephony.  Also, IDT President Jim Courter will travel to Washington to press the case for unregulated IP telephony.  Courter is a former Congressman, and vociferous advocate. 

Hofstetter is not sure what to make of the FCC Report's distinction that "phone-to-phone", but not "computer-to-computer", IP telephony should be regulated.   First, she does not know where IDT's "computer-to-phone" service would fit in.  Second, "It is very interesting, the concept of computer-to-computer." Hofstetter sees an irony in the FCC approach.  "If you are rich enough to own a computer, you can make free phone calls. ... The poor have to spend more."

She estimates that if the FCC were to regulate IP telephony as its Report suggests, IDT's "prices would go up (to) 8 or 9 cents a minute, depending on how they regulate it, from 5 cents a minute".

However, the impact on IDT would not be great.  4% of IDT revenue comes from IP telephony.  And of that 4% only 10% of comes from calls inside the US.  The rest are international calls.  "The biggest market is international."  The FCC will not affect this.  Moreover, says Hofstetter, "the EU has already ruled that they are not even going to look at Internet telephony until the year 2000"

The only thing that has changed for IDT since the FCC Report was released is that "our stock price has dropped 5 points."  Yet, they are still "signing up about 400 customers per day."

Meanwhile, IDT President Jim Courter, and a group of other IP telephony CEOs sent an Open Letter to Vice President Al Gore just prior to the release of the Report to Congress, arguing against any regulation of Internet telephony.

"We collectively believe Internet Telephony is a necessary and inevitable consequence of an innovative Internet industry and a boon for end users where voice represents only the first application arising from the integration of telephones and the Internet. We strongly support the goals of universal service, but the idea these emerging services should subsidize universal service via existing mechanisms amounts to suggesting the emerging personal computer industry should have helped make computing more affordable by subsidizing the distribution of mainframes."

The letter was signed by Jeff Pulver, President of pulver.com, Inc., Tom Evslin, CEO of ITXC, Inc, Elon Ganor, CEO of VocalTec Communications, Inc., and Jim Courter.


Excerpts of Email Interview of
iPass President and CEO Chris Moore

Q:  Are you pleased with the FCC Report to Congress?

A:  We have not studied the report in detail, but are pleased with the fact that (they) are not currently recommending any regulation of Internet Telephony.

Q:  Do you expect that FCC treatment of "phone-to-phone" IP telephony as a "telecommunication service" would adversely affect your company, or the development of IP telephony?

A:  We believe that such treatment will reduce or eliminate the opportunity for non-facilities based providers to sell domestic long distance services using the Internet. International Internet Telephony will remain a vibrant market regardless of the FCC's actions.

Q:  Has news of the FCC Report to Congress affected the level of inquiries which iPass has received about the company and its services?

A:  No. However, iPass offers several services in high demand beyond those with our Internet Telephony partner, ITXC.  We continue to receive an extraordinarily high level of interest in our services.

Q:  Is the attention which IP telephony has received from the FCC a signal to investors, ISPs, businesses, and others, that IP telephony is a technology with a bright future?

A:  It is a two sided sword; the attention helps educate the market place -- a valuable function. However, it also adds a great deal of uncertainty, and that is not helpful; in any new market, we should be trying to reduce risks, the FCC activity serves only to increase uncertainty and thus risk.