Cheap phone calls hang in the balance in tug-of-war between FCC, cable giants


Francisco Cocson calls his mom every week using free VoIP voice and video services. Photo by Christi Morales/SF Public Press.

Voice-over-Internet calling is steadily growing in popularity, replacing costly long distance phone services with free or cheap options that are affordable for many low-income and immigrant communities. Francisco Cocson, a Filipino immigrant who lives in Daly City, talks to his mom and siblings in the Philippines every week with free voice and video VoIP calls through Yahoo and Skype.

“It’s more cheaper than to use the phone card or the phone line,” Cocson said.

But Cocson and other Bay Area residents could see cheap calls become a thing of the past depending on the outcome of a battle being waged in the halls of Washington D.C.

Federal Communications Commission Chairman Julius Genachowski wants to reclassify broadband from an information service to a telecommunications carrier with the goal of gaining some authority to regulate providers such as Comcast, AT&T and Verizon, which the companies fiercely oppose. On Thursday the FCC voted to begin the process to decide whether to reclassify broadband. The public and members of the industry can submit comments to the FCC until Aug. 12.

The FCC’s effort is one of the key battlegrounds in the pursuit of net neutrality or open internet. Net neutrality is the principle that all online services should be treated equally without interference. Aside from potential lawsuits from broadband companies, a congressional review of the Communications Act could alter those plans, further delaying the FCC’s implementation of the National Broadband Plan and its key net neutrality components.

Without net neutrality, proponents say Internet providers — especially cable and telecoms — could make or break stand-alone Voice-over-Internet Protocol services, like Skype. Since the FCC has no control over broadband providers after a court ruled the agency had no right to sanction Comcast for blocking BitTorrent users, these corporations can decide which traffic gets slowed or not, potentially whittling away competition and options for consumers, said proponents of net neutrality.

“Once you allow networks to discriminate against certain types of services, you will have less services in the market, less competition and ultimately less consumer choice,” said Thilo Salmon, chief executive officer of San Francisco’s Sipgate Inc., a European Voice-over-Internet Protocol — or VoIP — company that entered the United States last June.

VoIP calls flow through the pipes of Internet providers and are susceptible to sound quality loss or failure, if slowed or blocked.

In 2005, Madison River Communications, a North Carolina-based telecom and DSL Internet provider, was caught blocking Vonage’s VoIP service and ordered to stop. More recently, Free Press, a staunch net neutrality advocate, urged the FCC in January to look into Comcast practices that possibly give network preference to its own “Digital Voice” VoIP service over competitors.

Digital Voice is not routed through the “public” Internet, but over a separate company network line and in this set-up cannot affect the traffic of other VoIP providers, said Sena Fitzmaurice, Comcast vice president of government communications.

“There has been a question about the regulatory treatment of Voice-over-Internet that has been an open question for a couple of years, and the FCC has had open proceedings on that and those still remain open,” she added.

Fitzmaurice said regulatory discussions about VoIP management do not focus on Comcast, but are aimed at all Internet providers.

FCC spokesman Mark Wigfield confirmed this via email and said the issue “was raised in the Open Internet proceeding that is pending before the commission.”

Meanwhile, VoIP-only companies continue to clamor for open Internet rules to protect their business interests. For Sipgate, new to the U.S. VoIP market, the stakes are high. If Internet providers interfere with competing VoIP traffic, that “could kill our service,” said Salmon.

Impact on low-income consumers, immigrants

Some argue that traffic discrimination will impact low-income consumers by reducing affordable options.

VoIP quality is vulnerable to interference so a service whose traffic is degraded, could lose customers and go out of business, said Sameer Vaerma, associate professor in the college of business at SF State.

Such practices reduce competition, thus decreasing affordable choices for low-income immigrants who may not be able to afford access to VoIP, said Malkia Cyril from the Center for Media Justice, a public interest group in Oakland.

VoIP has become an alternative for immigrants who regularly call abroad, said Cyril.

A study by The Tomas Rivera Policy Institute at the University of Southern California said many Latinos are familiar with the service and “positively associate VoIP with a lower cost to telephone.”

Cable and telecom interest in certain populations implies VoIP use is in fact prevalent among immigrants. Comcast has service plans to Asia, Latin America and Mexico. AT&T doesn’t have special VoIP plans for certain countries, but did say in an investor briefing that “Mexico is AT&T’s most popular international calling destination.”

In the Bay Area, almost 30 percent of all residents are foreign-born migrants, according to 2008 U.S Census Bureau data.

In San Francisco, Ayad Kholaifat from Jordan also uses VoIP to contact family back home.

“I use [Skype] like every other day, sometimes every day,” he said.

Skype’s fee-based unlimited international plan costs about $13.99 a month, but Kholaifat utilizes the free service that allows anyone with a web connection to sign up and make no-cost calls to other Skype users.

Meanwhile, Comcast’s VoIP with unlimited U.S. calling and its best international add-on plan costs $55 a month, according to San Jose-based Infonetics Research. The report listed other key providers with comparable monthly packages at $53 for AT&T and $25 for Vonage.

“If [Internet] providers have the authority to slow or block any traffic that they don’t like, then that means Comcast, AT&T, etc., could crush somebody like Skype,” said Brian Carver, assistant professor in the School of Information at the University of California, Berkeley.

Kholaifat and Cocson said a lack of cheap VoIP options would have a negative financial impact on them, especially Cocson. After being laid off and now working for minimum wage, he’s responsible for living expenses, a student loan, support for his disabled father, as well as his mother and siblings.

Cable and telecom advantage

Comcast and AT&T have similar strengths because they offer other core services in addition to broadband – cable for Comcast and landline and mobile for AT&T. Vonage, Skype and Sipgate are independent VoIP-only services that run using the Internet.

“Those who offer Internet access these days actually have a phone service of their own — pretty much everyone – so they have a vested interest in trying to actually keep competition down,” said Sipgate’s Salmon.

Fewer competitors mean cable and telecoms are poised to capture VoIP customers, said SF State’s Verma, because of existing relationships with customers who subscribe to their Internet or digital television services.

Several market reports said future VoIP growth would come from broadband providers who bundle the service with high-speed Internet and digital television, referred to as “triple-play” or “double-play” depending on the combination of services. Analysis by financial website Trefis said bundles appeal to customers because they’re cost-effective and all services are on a single bill.

At present, Comcast is one of the most popular VoIP services in the nation with 7.9 million voice subscribers, as well as 23.6 million cable customers, according its financial highlights online. AT&T has 23 million TV subscribers with 70 percent of those customers opting for service bundled with VoIP. In 2008, global communications researcher TeleGeography found that out of 14.4 million new VoIP customers, 80 percent of them subscribed through cable companies.

Trefis estimated last year that VoIP penetration in the U.S. was about 31 percent among broadband customers, translating to a subscriberbase of close to 25 million. Meanwhile, Dell’Oro Group, a telecom market research firm, forecasts the number of VoIP subscriptions among global broadband subscribers, which was at 24 percent in 2009 worldwide, will grow by 52 percent by the end of 2014, according to its five-year Carrier IP Telephony Report.

Trefis forecasts that stand-alone VoIP cannot match bundled offerings and “are thus likely to lose out.”

FCC action is particularly critical to curb practices such as traffic discrimination, said Catherine Sandoval, assistant professor at the Santa Clara University School of Law.

With Congress set to review and update the Communications Act, which could take more than a year, and broadband providers mulling over possible litigation, the FCC’s plans to reclassify broadband and enforce its net neutrality agenda would be put on hold.

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This story was produced under the Open Internet Reporting Fellowship, a program sponsored by the G.W. Williams Center for Independent Journalism, a project of Tides Center, in collaboration with New America Media. A version of this article was published in the summer 2010 pilot edition of the San Francisco Public Press newspaper. Read select stories online, or buy a copy.