A Call for Change

Telephone services set to experience shift in focus.

Telephone services are on the verge of an upheaval like none seen before, and whether they ultimately become increasingly innovative and economic or stifled and above-cost will hinge on decisions reached by policy-makers in Washington over the next year or two.

With POTS (plain old telephone service) now viewed as a commodity, long-distance carriers are dropping the unprofitable consumer market, and they, as well as the RBOCs (Regional Bell Operating Companies), are looking to the business market as the profit center of the future. Businesses are migrating to lower-cost, higher-feature IP voice services, ranging from dedicated, managed enterprise offerings, such as Sprint Corp.s IP-Enablement system, to Internet-based offerings for small offices, such as Vonage Holdings Corp.s service.

The relative affordability of new IP-based services depends, in some cases, on providers ability to get through the last mile of the network, which is controlled by the RBOCs and other Incumbent Local Exchange Carriers. It also depends on not having to pay into the Byzantine funding pools that support the traditional phone system. These variables will be at the center of the debate in the next two years over how to reform the regulatory regime.

/zimages/5/28571.gifClick here to read about the exemption of VOIP state laws.

By all accounts, the incumbent local telephone companies, which are the stewards of the legacy PSTN (public switched telephone network), will face the challenges of 21st century telecommunications one way or another, but they prefer to not be rushed into anything by pressure from upstart rivals. The rapid pace of innovation and price reduction in recent years shows that competitive pressures unleashed by the promise of the 1996 Telecommunications Act have spurred the incumbents to move faster than they otherwise would.

The RBOCs have been chipping away for years at the regulations that govern their rates and obligations and have succeeded in eliminating many. The Federal Communications Commission voted last month to further reduce their duty to offer rivals access to last-mile facilities. FCC Chairman Michael Powell said that the regulatory relief would promote the incumbents investment in broadband equipment and eventually pit the telephone companies against the cable companies for voice, data and video.

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