From the April 2004 issue of Entrepreneur

As Internet telephony diverts an ever greater share of the nation's phone calls from the Public Switched Telephone Network (PSTN), state and national regulatory bodies are wondering how to ensure adequate security and law enforcement protections for voice over IP (VoIP). They also fear the loss of millions in tax dollars that underwrite services for schools, libraries, people with disabilities and rural areas.

The courts have turned aside early attempts by states to extend PSTN-style regulation to VoIP, giving the FCC time to formulate a national policy. But the sudden interest in IP calling has regulators anxious, while VoIP proponents fear that precipitous rule-making could scuttle the industry before it really gets airborne.

Citing the cost efficiencies and lower prices VoIP has already brought to international calling, some suggest a better strategy would be to lessen regulations for traditional telecommunications.

"Besides promising to deliver new and current services at a lower cost, we can use these technologies to drive out the inefficiencies currently embedded in the regulatory structure," explains Glenn Woroch, executive director of the Center for Research on Telecommunications Policy, a multi-university research and outreach program. Woroch also adds that IP technology is such that heavy-handed regulation could simply drive providers offshore.

In any case, traditional telecoms will be routing ever more PSTN phone calls over the Internet, notes Martha Garcia-Murillo, assistant professor at Syracuse University's School of Information Studies. Freeing everyone to compete and innovate could drive prices so low that the myriad subsidies that no one understands on their regular phone bills would no longer be needed, except for certain security and law enforcement items such as 911 and wiretapping by the FBI. Even the cable and wireless industries could really benefit from a hands-off approach, Garcia-Murillo adds.

But no one expects these issues to be resolved anytime soon. "I doubt they'll regulate VoIP the way they do traditional telephony," says Bryan Wiener, VoIP entrepreneur and president of Net2Phone Global Services LLC. "There may be some kind of regulation in three to five years, but they're being careful not to stifle innovation."

Wiener's view is supported by statements at the FCC's first public forum on VoIP. "IP-based services such as VoIP should evolve in a regulation-free zone," said FCC chair Michael Powell. "We should come to this forum with a sense of regulatory humility-mindful that it is entrepreneurs, not governments, who came up with the idea of making high-quality, inexpensive phone calls over the Internet."

To keep abreast of regulatory developments in this area, log on to www.pulver.com.