Web access could be electrical; online phone service cheaper

Friday, February 13, 2004

Homes could start being connected to the Internet through electrical outlets, and consumers and businesses may find it easier to make cheaper telephone calls online under new rules the Federal Communications Commission began preparing on Thursday.

The new rules could profoundly affect the architecture of the Internet and the services it provides. They also have enormous implications for consumers, the telephone and energy industries, and equipment manufacturers.

Michael K. Powell, the FCC chairman, and his two Republican colleagues on the five-member commission said the twin moves -- and a separate vote to allow a small company providing computer-to- computer phone connections to operate under different rules than ordinary phone companies -- would ultimately transform the telecommunications industry and the Internet.

"This represents a commitment of the commission of bringing tomorrow's technology today," Powell said. He added that the rules governing the new phone services would seek to make them as widely available as e-mail, and possibly much less expensive than traditional phones because they would have lower regulatory costs.

At the same time, once the rules allowing delivery of the Internet through power lines are finalized, companies could provide consumers with the ability to plug their modems directly into wall sockets.

Electric utilities could offer an alternative to the cable and phone companies and provide an enormous possible benefit to rural communities which are served by the power grid, but not by broadband providers. A number of utility companies have been running trials offering high-speed Internet service through their transmission lines.

While the technology has been developed, it is not clear whether such a service would be profitable or able to compete in markets dominated by cable and telephone companies. But FCC officials noted that the vast majority of the nation's households did not yet have high-speed Internet service, leaving the market wide open to rivals.

In the phone proceedings on Thursday, a majority of the commissioners suggested that new Internet phone services should have significantly fewer regulatory burdens than traditional telephone carriers. The commissioners also voted 4-1 to approve the application of a small Internet company, Pulver.com, ruling that its service of providing computer-to-computer phone service, called Free World Dialup, should not be subject to the same regulations and access charges as traditional providers.

Industry experts say that neither the phone service nor the broadband delivery systems offered by electric utilities would make sizable inroads for at least the next two years. But in moving forward with the new regulations, they said the FCC was reducing regulatory uncertainty and encouraging major companies and investors to put money into the new technologies to enable them to move to market more quickly.

A number of companies, including Time Warner and AT&T, have recently announced plans to get into the business of delivering "voice-over-Internet" telephone services through cable television and phone connections.

The decision to begin writing rules for Internet-based phone services was hailed by major manufacturers of Internet and telephone equipment and by some of the largest phone carriers, which are preparing to offer Internet-based phone services of their own.

"Verizon strongly agrees that the FCC should move forward quickly to apply a light touch in regulating true voice-over-the-Internet services and should not burden this new technology with the same economic regulations that apply to the traditional phone network," the company, which is based in New York, said in a statement on Thursday.

Another big regional Bell company, SBC Communications of San Antonio, said it was "excited about the opportunities."

Still, thorny regulatory issues remain. Foremost among them is the web of fees that the new service providers will have to pay to traditional phone carriers for making the connection between their customers and the Internet telephone customers. Interconnection and access charges in the telephone industry have long been the source of fierce adversarial lobbying by the local and long-distance carriers; the new technology raises complex and arcane issues that will ultimately have a vast role in the profitability of the services.