Busy signal

So much so, in fact, that when Rep. Ed Markey, D-Mass., offered an amendment that would have kept the exemption in place -- but as a flat fee, not on a per-minute basis -- the amendment was defeated.

An Upton spokesman says that the VoIPs are making a big deal out of nothing. "From day one it was clear that this bill was dealing with 'data transfers,' not 'voice transfers,'" says Mike Waldron.

But Michelle Tober, a spokesperson for the U.S. Telecom Association, a trade industry group that represents the Bell companies, is a bit more forthcoming. "We were concerned that the bill would have some impact on Internet telephony, so we worked on the committee level." From USTA's point of view, she says, "Voice calls should be treated the same, regardless of the medium they travel on."

Translation: You shouldn't get free or low-cost long-distance phone service on the Net, because VoIPs get to play by different rules.

Kennard says that's the whole point. "We're desperately trying to get away from per-minute access charges" for phone companies and everyone else, he says. First of all, the access charges far exceed the costs the phone companies pay. But more importantly, the Internet has been able to thrive because the free market largely dictates what happens. "The Internet went from a dead stop in '95 to almost 100 million users today," he says. "Without trying to demonize them [the phone companies] -- because they're struggling to compete in this new world," they're part of the "old regulatory paradigm ... which was developed in a regulatory environment and is no longer relevant. So which path do you choose [for VoIPs]? The old legacy of infrastructure and regulation, or do what I've advocated and try to promote as much competition as you can?"

But what chances do Kennard and other VoIP supporters have in achieving their goal, given the well-founded jitteriness and deep pockets of AT&T, the Bell companies and the like?

"It's sort of an age-old story in this city and in America," Kennard says. "The folks that have been working Congress and the FCC -- the regulated industries -- they really know how to do that well. And so you have this industry that's been regulated for 100 years, and suddenly it comes into conflict with an unregulated environment of innovators and entrepreneurs and people who are out there developing their technology and not spending their money on Washington lawyers and lobbyists. And they [the big telecoms] are at a disadvantage, frankly."

Kennard is a huge booster of the potential of the Net -- including that of VoIPs. "All those people with Internet access are going to find that they can use those Internet connections to make phone calls at a fraction of the cost, and they're going to want to do that," he says. "And for the most part, that's great for Americans, because that's going to drop the cost of phone service in our country dramatically. And the last thing we want to do is to constrain that business in its infancy, and to tell these young entrepreneurs who are out there developing and improving this technology that you can't do this because we're going to tax you to death."

Not surprisingly, the big telecoms have a better argument as to why VoIPs -- which one estimate says provided 1.7 billion minutes of consumers' calls in 1999 compared to the big boys' 7 trillion minutes, a figure that could grow to between 6 billion and 7 billion minutes in the next five years -- need to be taxed. And, believe it or not, it all comes down to the needs of poor people.

"We want to preserve the affordability of telephone service for all Americans," USTA's Tober says. A percentage of the access charges consumers pay for regular phone service helps subsidize phone costs for low-income and rural Americans, she says. With fewer Americans using their services -- instead opting for VoIPs -- that subsidy will just disappear into the ether, she argues.

Horsfall calls this "perverse logic." Internet phone service is either vastly cheaper than that provided by the Bells or free. Rural and low-income phone users will thus benefit even more.

Tober, however, points out that "you have to have a computer, though, to make those calls, and a computer's a lot more expensive than a telephone. Not everyone in this country can afford a computer, but 94 percent of households have telephones."

"I don't agree with that argument," Kennard says. "We're seeing the Internet migrate out of the PC and into lots of wireless devices that are very cheap, like PalmPilots and wireless phones ... And that will be great for consumers."

That is, of course, only if consumers are able to fight back against the telecom giants. The Bells and AT&T are a major player in Washington. And they frequently do more than just throw a few tens of thousands of dollars at congressmen like Upton. AT&T is the No. 1 giver of soft money in the country, having contributed $1,932,719 to the two major parties this election cycle -- $825,350 to the Democrats and $1,107,369 to the Republicans as of May 1. That's more than the National Rifle Association, more than big tobacco, more than the trial lawyers or any union and even more than Dreamworks SKG.

"AT&T is among the most powerful companies in Washington because they're giving so much money," says Holly Bailey, a researcher at the Center for Responsive Politics. "Everywhere you go in terms of the committees there's legislation that would affect AT&T, therefore they're the No. 1 giver of soft money, and they're giving a lot of PAC money" -- $280,450, to be precise.

The Baby Bells aren't doing so shabby, either. Bell Atlantic's given $723,036 in soft money, BellSouth Corp.'s given $618,317 and MCI WorldCom's given $396,060.

The story of Upton's amendment doesn't surprise Bailey. "Increasingly it seems that a lot of the legislation that's happening is happening not in big bills but in smaller amendments that no one's paying attention to."

But how good a job are the VoIPs doing in getting out the word? Key House and Senate staffers knew little, if anything, about the bill. And, of course, the rally was a bust. "I hear there were only 100 people," USTA's Tober sneers.

"The big telecoms are doing more and more underhanded things to keep the revenue inertia because they're losing it to new technology," Horsfall says. "They're trying to create an uneven playing field in back rooms of Congress. They're trying to play the new game using old rules."

With additional reporting by Alicia Montgomery.

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