July 02, 2004

Does SkypeOut Undermine FCC Regulations?

Recently, Skype announced their new service called SkypeOut, which is a PC-to-phone service. This announcement has created a huge buzz; the latest addition is (via Jeff Pulver) a column by Kevin Werbach, entitled “Tune In, Turn On, Skype Out”, which argues that SkypeOut “creates new fissures in the FCC’s shaky VoIP regulatory edifice.” Following the previous postings (1,2) regarding Skype, this posting points out that SkypeOut is not that novel or radical and that SkypeOut does not introduce any new regulatory issues.

A quick review of SkypeOut tariff suggests that it is very similar to many pre-paid calling card tariffs, including 3-month life for the credit. Based on some of the postings in the Skype Forum, it looks like Skype has reached interconnect agreements with a few PSTN interconnect service providers and deliver voice traffic to them for completing the calls to the phones. If this understanding is correct then there has not been any “innovation”. Other VoIP service providers have similar arrangements: periodically, FWD offers interconnection to PSTN; SIPPhone has partnered with Singapore Telecom. Werbach is a bit generous when he says that, “SkypeOut also shows how quickly a company can innovate when it leverages the open Internet data platform.”

Next, he claims that, “(SkypeOut) blew a hole in the Federal Communications Commission's halting efforts to micro-manage the transition to a VOIP world.” I do not agree. FCC has made two rulings – Pulver ruling and AT&T ruling. He mischaracterizes the Pulver ruling to be “software-based VOIP service should be treated as an unregulated information service” and he goes on to say that when Skype’s partners embed Skype software in handsets, Skype “no longer fits neatly into the FCC's framework.” Pulver ruling is not contingent on a PC application. For example, FWD and SIPPhone and many others sell adaptors and devices in phone form factor that you can use their services without a PC. AT&T ruling says that access charge regulation is applicable if only the middle uses VoIP technology while the two end-points use POTS. FCC has said that it will rule at a later time on the scenario where one of the end-points happens to be a “native” VoIP end-point. It is for this reason I claim that SkypeOut has not created any new hole in FCC regulatory regime.

Any apparent contradiction is solely based on the fact that even in PSTN there seems to be two regulatory regimes based on whether the service provider is an IXC or a dial-around service provider.

Posted by aswath at July 2, 2004 05:39 PM
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