John Lalley couldn't get anyone interested in making telephone calls through the computer seven years ago. The idea seemed too futuristic, too complicated, too costly.
But these days, all sorts of people are calling him to see how much the new technology can save them on their phone bills. His client list reflects the widening interest: Valley Motors, Mackenzie Cos. commercial Realtors, St. Paul's Schools, the Baltimore City Parking Authority, the Washington chapter of the NAACP and the city of Laurel, to name a few.
"When we first started, only the high-tech firms knew about it and wanted to try it," said Lalley, owner of Spalding Communications in Towson. "It's going to replace classic communications as we know it."
Internet-based calling is posing a new challenge to traditional telephony, which has been shrinking in recent years because of the boom in wireless telecommunications.
About 1 million customers use Internet telephones, compared with 104 million household wire-line phone users and 155 million wireless customers, but the field is attracting start-ups and big companies such as Nortel Networks Corp. and Qwest Communications International Inc.
Yesterday, the Federal Communications Commission began a yearlong evaluation of new rules to govern the emerging technology without impeding its growth.
FCC Chairman Michael K. Powell said his agency will resist the impulse to apply old regulatory structures to the new world of the Internet. The agency backed that up by ruling that pulver.com, a Long Island, N.Y.-based Internet-phone provider, should be classified as an information service and, like the Internet, be minimally regulated.
"Today we affirm our commitment - and fulfill our statutory obligation - to keep the Internet free from unnecessary government regulation," Powell said during a hearing in Washington.
IDC, a market research firm in Framingham, Mass., predicts that equipment revenue at companies that serve the technology known as voice-over Internet protocol, or VoIP, could balloon to $15.1 billion in 2007 from $3.3 billion last year. Revenue from VoIP service won't grow as quickly but will be substantial, IDC said.
With the 20 million U.S. homes equipped with high-speed Internet access as a huge potential market, the battle has begun over how regulators should handle the new service.
Unlike wire-line or wireless phones, Internet phone service is free of government fees such as the ones that support 911 emergency calling. Some states, including Minnesota and California, are eagerly anticipating the revenue that can be gained from taxing VoIP.
"The FCC is in a very difficult position," said Tom Valovic, program director for Internet protocol telephony at IDC. "They need to come up with some King Solomon-type decision, because this technology, it's been described as a ticking time bomb in the heart of the traditional telephone system."
VoIP systems record the sound, compress the recording and break it into small packets of data that are sent over the Internet. The receiving phone reassembles the recorded packets in proper sequence instantaneously. Unlike traditional phones, the system does not use circuit switches to connect calls.
Regulatory policy has long governed telecommunications by geography. Fees and taxes have been charged based on connecting calls through circuit switches from one network to another.
Forget the map
Internet telephony ignores maps. With VoIP, a person can be in Baltimore, place a call through his computer using a California number and connect to a San Diego number, bypassing long-distance charges and circuit switches if the call is completed online.
Yesterday's ruling to classify pulver.com as information service will affect how the FCC treats other issues. Federal regulators must decide the balance of authority between federal and state agencies on VoIP, how companies would charge each other to complete each other's calls, as do they with telephone "access fees," how emergency calls would be traced and whether VoIP customers will contribute to the universal service fund designed to make phone service available and affordable to under-served areas.
The issue of access fees could have an enormous impact on the infant market's growth.
Verizon Communications, for example, pays about half a cent a minute in access fees for each call made on its network and another half a cent a minute to a local carrier to have that call connected on a different network, said Link Hoewing, vice president for Internet and technology policy for Verizon.
That could translate into millions of dollars in access fees that VoIP providers would have to collect from customers to pay to connect calls from the Internet to traditional phone lines. The large telecommunications carriers already use the Internet to carry parts of regular phone calls.