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News Release
April 21, 2004
CONTACT: David Fish
(202) 289-8928

VoIP: Challenging Regulations
and Rates in States

Gifford Assesses Changes to Telecom Policy in Ohio and Other States

WASHINGTON, D.C. - Technology continues to outpace the development of law and regulation in the technology and telecommunications sectors at the national and state levels. In fact, the phenomenon of Voice over Internet Protocol (VoIP) will soon have significant impacts in states, including squeezing cost recovery and changing pricing models for telecommunications services. Economist Joseph A. Schumpeter best described the force currently at work, according to Progress & Freedom Foundation President Raymond L. Gifford. Schumpeter called it creative destruction.

In a speech to the Buckeye Institute's Telecommunications Policy Forum today in Columbus, Ohio, Gifford, former chairman of the Colorado Public Utilities Commission, offered advice to policymakers. "T he legacy system of PUC administrative regulation of communications needs to change and be diminished rapidly," he said. "Technology and innovation will eclipse the current regulatory system no matter what. But states that take proactive steps to create a legal and regulatory structure that is attractive will have a comparative advantage over states that do not." He illustrated the coming impact of VoIP with a quotation from Schumpeter's Capitalism, Socialism and Democracy.

"But in capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance) - competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.It is hardly necessary to point out that competition of the kind we now have in mind acts not only when in being but also when it is merely an ever-present threat. It disciplines before it attacks."

According to Gifford, that 'discipline' may cause regulators some consternation as established ways of doing their 'business' are increasingly challenged. "Beware a vicious cycle, as is now happening with federal Universal Service Fund contributions," he told state experts. "VoIP will squeeze the ability to seek cost recovery from access and reciprocal compensation." It will also "force rebalancing, or better yet, deregulation of retail rates.forc[ing] a different pricing model toward flat, monthly charges, or tiers of bandwidth use." Moreover, Gifford said states will "lose [their] most profitable access-payers first" because "they have the most to gain by avoiding usage-based intercarrier compensation."

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