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This VoIP Pioneer Likes the FCC's Call

To some observers, the Federal Communications Commission's Feb. 12 ruling about voice over Internet protocol (VoIP) service doesn't seem so momentous. After all, the decision that calls made from one PC to another without traveling over the traditional phone network are akin to e-mail and thus shouldn't be regulated seemingly touched only the few companies that offer this so-called pure VoIP.

However, for Stephen Greenberg, CEO of Net2Phone (NTOP) -- the company that pioneered PC-to-PC voice calling in 1995 -- the decision signals that the FCC will keep its regulation of most forms of VoIP (whether calls going between a phone and a PC, or phone to phone, or from phone to fax) to a minimum. Certainly, that's what he's hoping for: With minimal regulation, Net2Phone will be able to mount a bigger threat to existing phone companies, which offer the same services at a higher cost (see BW Online, 02/13/04, "These Phone Calls Aren't Phone Calls").

Greenberg doesn't expect all the decisions that will shape the policy to come tumbling out soon, however. Why not? The FCC chose to review VoIP services individually, vs. making a broad, blanket decision, Greenberg says. Further rulings could take 12 to 18 more months. So he's preparing Net2Phone for the long wait and for the various outcomes that he thinks are likely. One thing he expects the FCC to do is impose fees on certain types of VoIP services.

On Feb. 13, Greenberg talked with BusinessWeek Online Technology Reporter Olga Kharif about the FCC and VoIP. Edited excerpts of the interview follow:

Q: What do you think is the significance of this initial FCC decision?

A: What it signals is more important than what it says. The decision itself really wasn't a surprise to those of us who follow this. The significance is in what it portends for the other issues the FCC is going to be dealing with going forward, such as how and whether you regulate VoIP calls that use phone lines to complete part of the call. And this decision tells me that the commission, as it's currently structured, is going to be very resistant to VoIP regulation -- which is what Net2Phone wants to hear.

The commission is adopting a kind of a layered approach: They're starting at the very base of the pyramid, and then they'll move up [to more complex cases].

Q: This decision only dealt with a very specific business model, PC-to-PC calls, which your company pioneered, so it must be good news for you.

A: We were the first to offer the PC-to-PC model, in 1995. And while we still offer this service, it accounts for only a tiny amount of our revenue. We now also offer a slew of [other] services: PC to phone, phone to phone, and fax to phone. Soon, we'll be offering voice over Wi-Fi -- wireless fidelity -- which people can access from their laptops or PDAs [personal digital assistants].

Q: How soon do you think the FCC will come out with decisions about the other types of VoIP services?

A: I don't think it's going to be soon. While everybody, including the FCC, has said they're giving a very high priority to this -- which makes sense from every point of view -- they have to collect comments. And they have to make lots of decisions, such as how to provide reliable 911 service over VoIP lines.

I think it's going to take a year to 18 months for the commission to evaluate all this information and make its decisions pertaining to all the various VoIP services.

Q: How do you go about expanding your business with this uncertainty hanging over you?

A: For Net2Phone, we're well-prepared for all possibilities. Our business consists of two parts: global services, which is mostly an international business -- essentially, we offer our international telco partners VoIP services, as we recently did with a telco in the Caribbean; and our cable business, where we empower cable companies to offer voice telephony to their subscribers. The latter could be somewhat affected, but not much.

I have an agreement with IDT [IDT

, a company with which Net2Phone is affiliated] that they would provide me access to their network at cost plus 5% -- a really good rate. And IDT's network allows us to provide all the 911 features local-phone lines have. That's important because 911 capabilities aren't available with all VoIP service, and that's one of the issues facing the commission. Now, what the FCC has to decide is whether we need to pay various taxes and fees for accessing telcos' networks. We already assume that the fees for passing through our calls would be coming.

Q: Is it better for you to see the FCC involved, vs. letting individual states decide how to regulate VoIP?

A: By the FCC asserting jurisdiction as it did, we'll now see some uniformity. The thing we would not like to see is a patchwork of 50 different schemes in 50 different states. Because we're in this business and we're going to stay in this business, I'm happy to see that we'll have one set of rules to abide by.

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