Busy signal

Telecommunications behemoths throw a wrench into the plans of Internet phone providers -- and you'll be the one stuck with the bill.

By Jake Tapper

Jun 14, 2000 | Even though most of us are still in the dark about using our PowerBooks to call grandma, that may soon change. When the House voted May 10 to extend the moratorium on Net access taxes until 2006, it seemed as though the promise of free calling over the Internet might soon be realized.

But a provision inserted into a House telecommunications bill approved several days later exempts Net calls from the moratorium -- an unexpected legislative gambit by the behemoth telecommunications industry that has left proponents of Internet telephony reeling. And according to them, you'll be the one who ends up paying the price, because you'll be the one denied free or low-fee Internet phone service.

Supporters of so-called "Voice over IP," or VoIP, in industry lingo -- which has remained largely unregulated until now -- gathered Sunday at a rally to protest the May 16 legislation, which opens the door for per-minute access charges to be imposed on companies providing Internet phone service. Though oppressive June heat kept many away from the sparsely attended "Internet Freedom Rally" at the Capitol, a better indicator of the issue's magnitude was the presence of Federal Communications Commission chairman William Kennard.

To hear Kennard tell it, the cause behind the rally -- whether or not you will be able to access the Web for free or low-cost long-distance phone service -- will affect billions, both in people and dollar terms. In May, Kennard joined those who provide phone service over the Net by expressing outrage when lobbyists for the major phone companies slipped in a bit of legislation that could make their business impossible.

Kennard took to the stage and said he was "here for one reason, and that's to keep this new economy humming along." Taking great pains to underline that the issue was freedom -- and not one industry's desire to maintain its market advantage -- Kennard explained that the Internet innovation of the United States is the envy of the world because it doesn't overregulate the technology.

"As long as I'm chairman of the FCC, I'm going to do everything I can to keep this Internet free."

A consortium of VoIP executives gathered at the rally said that what happened to them in May is just the beginning of the government's infringement -- and the possible imposition of taxes -- on the Net.

"It becomes a very slippery slope," says Jan Horsfall, president and CEO of Phonefree.com, one of the leading Web-based providers of free or low-cost phone service. "In theory and in practice, this is the first bill to get into the Senate that has anything to do with taxing the Web."

At first, H.R. 1291 seemed innocuous enough. Written in response to a widely circulated rumor that the FCC was about to impose major fees on the Internet, the bill was meant to strip the FCC's authority to impose a per-minute access charge on the Internet. "To prohibit the imposition of access charges on Internet service providers, and for other purposes," the bill was titled.

But before the bill was reported out of the Commerce Committee -- at a point Horsfall calls "the 11th hour" -- Rep. Fred Upton, R-Mich., made an unusual addition to the "other purposes," adding the provision that went unnoticed by VoIP advocates, including Kennard.

"I literally heard about it after the bill was passed," the FCC commissioner said in an interview with Salon. "No one ever expected that the bill would have anything to do with IP telephony."

But suddenly it did. "If this tax got imposed on us, or [competitor] Dialpad, it would crush these companies, it would kill us," says Horsfall. "It would stifle innovation."

Peter Hewitt, vice president of communications for Dialpad, seconds this. "To try to hamper growth at this point in its early stage is madness," he says.

Surely House Republicans wouldn't ever impose a tax on VoIP users, you say? Think again. The Upton amendment embodies the classic conundrum for House Republicans ever since they barnstormed the Capitol in November 1994 and wrenched control of the institution from tax-happy Democrats. Sums up one House source: "They always have this conflict between their ideology and what the largest player in the business thinks."

In this case, the source says, "the big Bell companies are telling them what to do."

Next Page: The Baby Bells and their puppets in Congress

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