Hearing of the Senate Commerce, Science, and Transportation Committee

SECTION: CAPITOL HILL HEARING

HEADLINE: HEARING OF THE SENATE COMMERCE, SCIENCE, AND TRANSPORTATION COMMITTEE

SUBJECT: VOICE-OVER-INTERNET-PROTOCOL (VOIP)

CHAIRED BY: SENATOR JOHN MCCAIN (R-AZ)

LOCATION: 253 RUSSELL SENATE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: PANEL I:

SENATOR LAMAR ALEXANDER (R-TN);

PANEL II:

MICHAEL K. POWELL, CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION;

PANEL III:

JEFFREY CITRON, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, VONAGE HOLDINGS CORP.;

GLENN A. BRITT, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, TIME WARNER CABLE;

GLEN F. POST, III, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, CENTURYTEL INC.;

STAN WISE, PRESIDENT, NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS;

KEVIN WERBACH, FOUNDER, SUPERNOVA GROUP LLC

BODY:
SEN. MARIA CANTWELL (D-WA): Thank you, Mr. Chairman, and thanks for holding this important hearing on IP telephony. IP telephony is an important innovation in which we can give consumers something they deserve, driving down the cost of actual phone service.

Now, I know many people here today believe that this hearing-I guess we are in Washington, DC-is about regulation. Well, the Washington I come from is about innovation. And this is about innovation of a technology in which we need to preserve its nascent stage so that more competition can happen in the future. As one of my technology friends said: old technology, like dinosaurs, deserves to die in the tar. And I think that's what we're going to see eventually with circuit switch technology. That is not to say that the players that are currently playing, like RBOX and others, can't and won't adopt this new packet delivery technology. They will. They are already delivering some of the phone system right now on a backhaul over the Internet and saving people dollars.

So the real question I think we have before the committee, Mr. Chairman, is whether this committee is going to do its job in protecting consumers with the ability to have the evolution of technology and competition drive down costs so that the public can benefit from new technology. Before the Internet was really an open system and we had BBN, we didn't really have much innovation. Once it became an open standard we saw a huge growth in the innovation of new applications. Well, that's where we are today. Are we going to try to make this a propriety network, or take the old tariffs and barriers to the industry and propose them on a new technology and thereby stifle innovation and jam consumers with continued higher prices and telephone costs?

The issue today is really that this technology, while good, is still developing the compression. My hat is off to those who have developed the compression technology, but it is still not as stable as it will be in future generations. The fact that that technology needs to develop to the level of guaranteed services needs to have the competition of many forces. Secondly, a lot of discussion has been made about 911 and law enforcement, and I think there's plenty of time for that to transpire and those solutions to be here. But I hardly think-in fact, I hope that we might even be able to get the FBI and the attorney general on record. My guess is with Magic Lantern and Carnivore, the FBI has probably already all the tools it needs to sniff packets and is probably doing so at this very moment. So I don't think that we need to use that as a hang up for why we should not move forward on having no regulation of this particular industry.

My hat is off to the chairman of the FCC for his, as we say in technology, getting it. He has tried a very slow approach to this so that innovation can mature and so that consumers can be protected. There are important issues left to be discussed, and I'm sure we will, but this industry does not currently have interoperability and while there is a standard session initiated protocol, just like TCP/IP for the Internet, people build on that and build on it with proprietary systems. So today Vonage can't call Packet 8, and vice versa. So are we going to make sure that we protect the development of this system so that a proprietary network by anybody isn't developed and that a proprietary system that is closed basically curtails the competition that we'd like to see?

Secondly, are we going to have open access? For those in the broadband business who currently have an ability to bundle this service today, are they going to provide open access to the other carriers who might be able to provide lower costs? I think that's something very important the FCC should look at. And how do we get to international success? I'm not advocating that we play a role in developing an interoperability standard, but that we allow the industry to develop and create that standard and move forward.

The bottom line is we are just at the very, very beginning stages of this technology. Some day I'll be sitting at a Starbucks that has a Wi-Fi network, talking to somebody on a handheld device on a video conference, and also downloading my e-mail at the same time off of one device. That hardly looks like the same competition to the current POTS plain old telephone line system that we have today. So let's do our job as members of this committee and keep in mind that innovation and technology drive down cost to consumers and that that's what we are here to protect, and not jump to the bandwagon of regulating this industry. Thank you, Mr. Chairman.

SEN. CANTWELL: Thank you, Mr. Chairman.

And thank you, Chairman Powell, for your go slow approach on this technology. I think people-for all the excitement that's been generated today about Voice Over IP, I think people failed to realize that there are probably only about 200,000 people who are using Voice Over IP as their sole telephone communication system. So, while we're seeing some great enterprise deployment and that's about to become more rapid, this is still very, very nascent technology and the fact that, as I said earlier, you can't connect each other with other systems, I think, makes the growth of that somewhat problematic as we move forward.

I have a question. You commented on the efficiencies of this packet technology versus the circuit switch. Do you have any doubt in your mind that the incumbent telcos are going to switch over to this technology?

MR. POWELL: Oh, no, no. Not only they're going to, they have to. I mean, they have to. The key is the future of all communications is whether you have an infrastructure that will allow to innovate into the digital applications of the future. If you're not, you, in my view, are going to get crushed.

SEN. CANTWELL: So the question then becomes, will the incumbent player telecommunications companies who are going to move to this technology, the new emergent broadband heavyweights cable companies who are going to move to this technology to the hybrid Voice Over IP solutions to the pure Voice Over IP solutions, probably the least developed of the four-really it's a battle about how fast everybody is going to move to adopt this new technology and so isn't the question then, how do we maintain an open environment for competition during this time period so that that competition and deployment can happen and we can see who wins as far as solutions, because ultimately the consumer wins?

MR. POWELL: I do agree with that, yes.

SEN. CANTWELL: The one challenge, I think, that we do end up having is, as this battle takes place, how do you have open access and interoperability standards? But first, I'd like your comments on that. Obviously, if not to pick on any one cable company, but just, for example, say, AT&T became a dominant player in this area and ended up only having limited access, the only VOIP service you could get would be the AT&T bundled service, do you think that's a problem?

MR. POWELL: Oh, I think, if that happened, it would be a problem. You know, I thought a great deal about that and, a few weeks ago, at the University of Colorado, gave a speech about the importance of Net freedom and laid out some basic principles that, I think, would guide my thinking and the commission's thinking and they included principles such as, a consumer should be able to access broadband content of their choosing. They should be able to attach devices of their choosing.

This has often been debated in some forums as the Net neutrality position, although our position has some variance on it and I think that's very important because I think, if we see lots of broadband platforms competing for consumer services and access, we have a lot to be hopeful about there compared to the past. And you have some general principles about, if it's out here on the Internet and I paid for my connection, I'm generally permitted to reach it and use it. But I think you have a really rich engine of competition and innovation.

SEN. CANTWELL: So you would see it somewhere as what the AT&T- AOL deal was in which you had to provide access to a variety of ISPs or something of that nature?

MR. POWELL: Not necessarily. The two things that are bantered around about the policy today about access, one is that no matter what your infrastructure provider is, the consumer can go anywhere they want on the Internet. Then there is the idea that you should allow physical interconnection to other carriers which is what the AOL-Time Warner was about. I've always been slightly more dubious of that second proposition as necessary-not for the concern that it raises but whether the effectiveness of that approach. I have watched the interconnection to the existing telephone system for many years now and the ballooning regulatory structure that grows up around that and the difficulty of stewarding it and the power the incumbent has in terms of interconnection, I think, is a real challenge.

A lot of people describe it as tea tasted back then. It's always just a light touch.

But it's called section 251 in the telephone system and it's been anything but light over the eight years that we have stewarded it. The issue-and I think you see more technology companies like, I know, Microsoft has moved away from that position, moving more toward the free-the open access provision because there is a recognition that, when you have IP and you have Internet based, you can offer these services from different locations virtually. And as long as the pipe provider is not permitted to choke off or refuse to let others pit through, you can still get that some open architecture capability that you crave.

SEN. CANTWELL: Can I also quickly get your comments on this issue of interoperability because, as it exists today, even through everybody uses SIP as a protocol to communicate, I'm sure a lot of people have-I don't know but I'm sure we'll hear from various panelists but I'm sure most people have a proprietary protocol that communicates with SIP and ultimately, we'll need a system in which everybody has interoperability. Do you think that that's best driven by the private sector in getting a standard as opposed to us, like on HDTV or-coming in? So if you could comment on that.

MR. POWELL: I think you answered the question with HDTV. I think that the Internet community and the high tech community, while there are certainly other examples, have done a very powerful job over the existence of the computer and software and the internet of demonstrating the power of the market and their self-interest in creating standardization. And not that I don't think that you could envision a role for government one day but I'm always-I am generally not a fan of the idea at the earlier stages, when nobody even knows what SIP is or while things are-I think standards are something you compete and innovate as well.

And you want the best standard and you want the most innovative and you want the most quality oriented and if the government kind of comes in, particularly really early and says, Oh, no, we're going to decide what it is, I think that the history of that is pretty poor around the world. I have seen it done in other countries and they regret it. It often becomes too cumbersome. It doesn't evolve. In this country, we had balkanized e-mail systems in its early period and there is a market reason why eventually people want that interoperability and the e-mail system developed interoperability protocols without specifically a government agency doing it.

I would hope similar things would happen with respect to voice but I would agree with you that, for any network like that to reach its full value, full interoperability is essential. And I suspect they realize that too. I don't think Vonage or 8by8 (ph) wants to tell its customers you can't ever call your neighbor if they are on the other system. I mean I doubt anyone could secure enough of the nation's 300 million people to make that strategy particularly viable.

SEN. CANTWELL: Yeah. I would just add quickly, Mr. Chairman, that I think that is where, you know, we should tie our future look at this industry as we move towards interoperability but we have hundreds of groups and organizations working on it now. So we're a long way before this becomes a standard by which many people can deploy and communicate. So why start regulating it?

MR. POWELL: I agree.

SEN. CANTWELL: Thank you, Mr. Chairman.

SEN. CANTWELL: Thank you, Mr. Chairman.

Mr. Citron, Mr. Post made a comment about some of the new arrivants (sic) in this area of Internet telephony may not be making network investments. Do you think you're making network investments?

MR. CITRON: Well, absolutely do. First, Vonage is not a traditional facilities-based carrier. We spent 10 -- you know, over $10 million in buying of telcom equipment to place on top of the underlying telecommunications infrastructure that we use today. And, of course, we purchase that infrastructure. One of the great stories for the CLEC industry is Vonage has been purchasing a tremendous amount of capacity from the CLECs in order to interconnect back into the existing PSTN. At the same time we're buying plenty of bandwidth, IP, from next generation networks in order to transport our calls over the Internet. So there are a lot of investments going on both by us and by our partners.

SEN. CANTWELL: So, Mr. Werbach, in your testimony you kind of hit the head-hit the-I apologize for having to attend another hearing on why we should pass standalone legislation on getting reliability standards for our electricity grid, I'm sure something that everybody would appreciate here is something we need to do to make sure we have reliable services. So I apologize for not being present at your testimony, but I have most of your testimony in front of me.

And on this particular point, Mr. Werbach, you're pretty clear in kind of debunking the access charge issue. I mean, I think that's really what people are saying is that somehow these people aren't making investments in this legacy technology and that's right, they're not to certain degrees. But as Mr. Citron just said, he's paying for certain things. So how do we further debunk this issue about access?

MR. WERBACH: Well, Senator, you brought up a good point that there's a lot of mythology around here and we need to understand when we're discussing important issues like universal service that sometimes things get labeled as just "that's universal service," and when you actually peel back the onion it's much more complicated than that. Access charges, you know, I think by universal agreement are a system that needs to be reformed. And they're not the only system for inter-carrier compensation, they're not the only way that companies that use networks or hand off traffic pay for that.

SEN. CANTWELL: Explain what that means to the consumer, because what you just said is a pretty big statement?

MR. WERBACH: What piece means to the consumer?

SEN. CANTWELL: Basically you're saying why should consumers of the future with new technology be tied to the business models of legacy technology. Isn't that correct?

MR. WERBACH: Essentially. I mean, IP is the future of the network. That's going to happen regardless of what the regulatory environment is. However, applying traditional rules, applying charges and regulations that were designed with the network of the 1950s or 1970s or even early 1990s in mind will retard that transition.

So certainly, you know, the idea that there's a technology of IP and Voice Over IP that's more efficient, that provides more choice and that can pay for network connectivity as an application that rides on top of infrastructure, that has tremendous benefits for consumers. And I think Chairman Powell and some of the other witnesses have illustrated some of them. I think the problem is trying to force that technology back into the traditional box and force it to pay into these inflated, non-cost based access charges which, you know, are applied to certain kinds of traffic and not other traffic will only harm consumers by preventing the kind of benefits we want to see from being realized.

SEN. CANTWELL: Thank you.

Mr. Britt, the chairman asked a question about your services moving forward. In general, I would assume that most broadband carriers who are delivering access to homes today and digital choices in the future would love to bundle this service as a complete package to consumers. Do you think that you should offer access to competitors on to your broadband network? Do you see working with Mr. Citron in the future on offering that package?

MR. BRITT: The interesting thing about this technology is that Mr. Citron can offer his service whether we do something together or cooperatively or not. I'm sure that we have people on our cable networks today that subscribe to Vonage. Actually, I don't know that we do but I assume we do because there's no way for me to know whether we do or not. And I think that's what this technology is about: the idea that Mr. Citron can offer this as an application that rides over our broadband network and that can exist whether we do anything or not. That doesn't preclude our working together for marketing or some other business relationship if that makes sense to both of us.

SEN. CANTWELL: So you don't think there is a place in the future for things like most favored nation clauses where you drive down-where you basically give your entire broadband network over to one carrier?

MR. BRITT: I don't foresee that at the moment. I think we're in a very early stage of lots of new ideas, lots of competing business models. In a sense what Mr. Citron is doing is competing with what we're doing, really with a different model. And I think as time goes by the consumer will vote with his or her dollars and we'll see how this all evolves.

SEN. CANTWELL: Mr. Citron, isn't your major concern really not the existing telecommunication companies but the broadband carriers, who are major players, with fat pipes into lots of households who are now going to bundle their service and, as the chairman said, maybe not give us any discount on our current service but having consumers pay more and closing you out of opportunity?

MR. CITRON: Sure. Let me address the points separately. First, you know, Vonage has to maintain backward compatibility with the existing PSTN, so clearly we have concerns in that area in terms of accessing and getting access to facilities. But in regards to competing with Time Warner per se, I will tell you factually that, yes, there are lots of Time Warner customers who use the Vonage service. And every single day people that have Time Warner cable call Vonage up, asking to get Vonage's service.

In doing so, we point them in the direction of Time Warner's Road Runner cable offering, and therefore those customers go and sign up for those services. So in one sense Vonage is really benefiting-you know, Time Warner is really benefiting from Vonage's deployment in signing up customers of broadband. But at the same time, Vonage is going ahead and competing head on with Time Warner for customers at the application layer.

The only concern Vonage would have in the future is sort of around the area of neutrality on (bits ?) themselves. Today, I think that Chairman Powell points out very correctly, we've not seen anyone going ahead and favoring one bit over another bit, but in the future that's a possibility. And so we urge this panel and this Congress to take a look at that issue and to make necessary appropriate changes where appropriate.

SEN. CANTWELL: Is your standard open or proprietary?

MR. CITRON: Our standard is open. Just to clarify, SIP is an open standard as recognized internationally; and Vonage today is already developing an open platform to allow other networks to connect with us. To this regard we're currently in the interoperability testing phase with, for example, "Free World Dialup," a service run by Pulver, to allow them to interconnect with us. But as part of that interoperability testing, Vonage will be making public a server to anyone who has access to SIP can send calls to our customers, so our customers who choose to receive those calls from them, in order to protect our customers' privacy.

SEN. CANTWELL: I know my time is up, but do you think that that's what everybody in the business is going to do?

MR. CITRON: I think over time they will. The nice thing, though, is that because we issue our customers phone numbers that are E.164 numbers, there's always a mechanism to go find that customer. I think there's economic incentives for us to peer with other networks directly so we can bypass legacy infrastructure and thus reduce the cost of our-both our services. So I think the marketplace will really deal with that for the most part.

SEN. CANTWELL: Thank you.