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March 30, 2004
CONTACT: David Fish
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VoIP: The Creative Destroyer of Old Ways
Regulations Must Be Replaced By “New Approaches,” May Writes

WASHINGTON, D.C. - Services and applications using voice over Internet Protocol (VoIP) capabilities are proliferating quickly as cable operators, wireline telephone companies and wireless providers install the technology throughout broadband networks. The result, writes Progress & Freedom Foundation Senior Fellow and Director of Communications Policy Studies Randolph J. May, is a "relentless process of Creative Destruction" - the type described by economist Joseph Schumpeter as a defining characteristic of free markets. And one of the impending side effects is the breakdown of old regulatory ways - something policymakers should plan for now.

"That VoIP noise we hear is simply Schumpeter's trumpet sounding a warning note," May writes for CNET . "Old regulatory paradigms are doomed to destruction, and the challenge to policymakers will be to fashion new regulatory approaches that actually suit the realities of the digital age."

One central reality is that a byte is a byte is a byte: "In a digital world in which a byte is a byte - where the essence of IP technology is the integrated transmission of voice, data and video information - the old regulatory distinctions no longer make sense," he says. What's needed is a "technology-neutral deregulatory regime," not a continuation of the old 'voice' and 'information services' dichotomy.

Also needed is federal primacy over communications regulation. "With VoIP services, it is generally impossible to determine a call's origin and termination points, because the IP facilities that are used to carry the call can be located anywhere in the world." At least one VoIP company issues 'virtual phone numbers,' allowing subscribers to choose their area codes.

Finally, the universal service regime "should be replaced with a more limited, rational system." Instead of directing subsidies to high-cost, residential and low-income customers from other subscribers, policymakers should "use the opportunity to craft a new program that's focused more narrowly on supporting those low-income users truly in need."

Earlier this year, May wrote about the inadequacy of existing regulatory distinctions in The Metaphysics of VoIP .

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.



The Progress & Freedom Foundation