By Ben Charny Staff Writer, CNET News.com January 27, 2003, 4:00 AM PT

Read more about VoIP

A group of telecommunications giants is quietly pushing a proposal that could create hang-ups for up-and-coming Internet-telephone rivals.

At stake are rules used to divvy up the 5.2 billion unassigned phone numbers set aside for use in North America, one of the biggest potential markets for Internet, or voice over IP (VoIP), telephone services.

VoIP technology allows people to make phones calls that travel over the Internet rather than solely across wires owned by long-distance phone companies. Such calls can be made from telephone systems that tap into the Internet, and from PCs.

The cost of making such calls is significantly less than that of basic long-distance service because the calls bypass the phone companies’ lines. As a result, many large corporations and tech-savvy consumers are using VoIP to make long-distance calls.

Net telephony providers such as Vonage and Net2Phone enjoy an unfettered stream of new numbers passed down from other carriers, which they can hand out to customers as they wish. Now, Verizon Communications, BellSouth and Qwest Communications International want federal regulators to tell the newcomers to heel.

Verizon and the others raised their concerns most recently at a meeting Wednesday of the North American Numbering Council (NANC). The industry group is chartered by the Federal Communications Commission and is charged with developing policies on how to distribute telephone numbers.

If successful, some observers warn, the lobbying push could dampen the market for Internet-telephone service in the United States.

“The results could choke off the industry before it really gets going,” according to a source familiar with the ongoing debate.

The looming fight over phone number allocations comes amid a supply crunch , just as VoIP services are shaping up as a significant new challenge to both local and long-distance carriers.

Once denigrated for spotty reception more similar to that of a CB radio than that of a phone, Internet calling has improved in quality to the point where analysts expect the industry to soar over the next few years. TeleGeography , a phone industry analysis firm, estimates that there were 18 billion minutes of VoIP phone calls in 2002, or about 10 percent of all the calls made.

As VoIP makes up a bigger proportion of the overall phone market, it is poised to join a growing field of competitors that are vying for an increasingly limited phone-number pool.

Your number’s up U.S. government reports estimate that the United States, Canada, Guam, Bermuda and Trinidad will run out of 10-digit numbers by the year 2025, driven by demand for cell phones, faxes and other devices. The coming crunch has led at least one industry organization to draw up a plan for a 12-digit future that could add some 640 billion new numbers to the pool.

In the meantime, the FCC composed two conservation measures, both opposed by the phone carriers. One, “number portability,” would let people keep their phone numbers even if they switch carriers. The second would force carriers to be assigned a smaller amount of telephone numbers at a time.

Against this backdrop, some carriers said they are concerned about what they see as unorthodox number allocation practices among VoIP providers.

At the Jan. 22 NANC meeting, proponents of VoIP phone number regulation said they want agencies including the FCC to examine the Internet-phone industry’s use of “designer numbers,” among other things. Because of the nature of the Web, computer phone providers can offer customers a choice of different area codes, regardless of where they live.

“The idea is not to choke this thing off, but to explore the issues and reach some agreements so we can go forward,” said Randy Sanders, BellSouth’s director of regulatory and external affairs.

NANC members were interested enough in the problems to order a subcommittee to come up with some of the possible technical problems involved with telephone numbers and VoIP.

Others, however, have dismissed the concerns as overblown for an industry that is barely getting its legs in North America.

In a white paper called “Much Ado About Nothing,” AT&T recently argued that Internet phone providers aren’t attracting enough customers now to even pose a possible problem to be addressed.

“The sky is not falling,” AT&T wrote to the NANC in a follow-up to the white paper.

Worldwide, there were around 2.93 million cable telephony subscribers in 2001, more than the 2.5 million most analysts were predicting, according to a study last year by Allied Business Intelligence, an Oyster Bay, N.Y.-based research firm. That number was expected to almost double by the end of 2002, reaching 5.2 million subscribers, the study predicted.

By contrast, only a handful of companies sell computer telephone service in the United States, with fewer than 100,000 people now using broadband connections to make phone calls. The leading computer phone provider is Vonage, which has about 10,000 customers.

NANC and the North America Numbering Plan Administrator (NANPA) distribute phone numbers in blocks to so-called incumbent local exchange carriers (ILECs), which then transfer some of those numbers to competitive local exchange carriers, or CLECs, that ride on their lines.

Vonage representative Brooke Shultz said the company gets its telephone numbers from CLECs, although she declined to name the suppliers or the terms of the transfer deals.

Shultz dismissed the lobbying effort as a competitive tactic.

“This is really the first sort of tactic to get us regulated,” said Shultz. “We’re not misusing numbers.”

Industrywide makeover Regardless of where the industry stands now, there is no doubt of the momentum behind a new way of delivering voice communications at a fraction of the cost of traditional phone networks.

VoIP providers generally require two things–a broadband connection and either an adapter for a landline phone or a microphone and speaker device for computers.

The calls travel mostly over the Web, avoiding the toll roads that are traditional phone lines. As a result, computer phone services can offer plans with unlimited dialing and no long-distance charges. The average monthly price is $40.

VoIP’s efficiencies come through its use of packet-switching technology, which breaks up communications into small bits that are dispersed to find the fastest path across the network and recombined at the end point. Traditional telephony, by contrast, is “circuit-switched,” creating a dedicated channel for the duration of the call.

Analysts have cautioned that traditional phone companies could get squeezed out of VoIP technology. Responding to the threat, big carriers, including Verizon and Qwest, have been inking billion-dollar deals with equipment makers such as Nortel Networks, to add packet-switching capabilities. Sprint began adding packet switching to its network in 2002, after a $1.1 billion deal with Nortel. Qwest has also announced that it will adopt packet-switching technology.

Norm Bogen, a communications infrastructure and services analyst with Cahners In-Stat, expects the sale of media gateways, the equipment needed to install VoIP systems, to increase from $883 million in 2003 to $2.74 billion in 2006.

Even as the big carriers race to get into this area, however, Bogen tipped the advantage to the upstart VoIP providers.

“They are replacing the local phone company,” Bogen said.

-Ian.

—— http://www.forbes.com/2002/02/15/0215qwest.html Telecommunications Qwest’s Two Halves Make A Hole Mark Lewis, Forbes.com, 02.15.02, 12:40 PM ET

Qwest Communications International’s business is composed of a half-full glass and a half-empty glass that theoretically add up to a full-to-the-brim convergence cocktail.

For investors still optimistic about broadband’s potential, the half-full glass is Qwest’s (nyse: Q – news – people) long-haul fiber network and the half-empty one is its Baby Bell local-service business. For investors who are more pessimistic about broadband, the equation is reversed. Either way you look at it, the two halves of Qwest’s business do not add up to anything that impresses the market–at least not these days, in the wake of Global Crossing’s (otc: GBLXQ – news – people) bankruptcy.

Actually, “halves” is too simplistic, since Denver-based Qwest has a wide range of telecommunications businesses beyond the fiber network and the old U.S. West local-service business. But those are the two primary components as far as investors are concerned. Qwest is a hybrid: an emerging long-haul carrier like Global Crossing and Level 3 Communications (nasdaq: LVLT – news – people), and also the smallest of the four remaining Baby Bells, providing local service in 14 states, mostly in the Rocky Mountain and Pacific Northwest regions.

Qwest, in short, can present itself as all things to all telecom investors: a nimble upstart or rock-solid incumbent, an aggressive convergence play or a safe, traditional carrier with steady revenue. This made for an appealing story, which helped keep Qwest from tumbling to the inky depths during the current telecom meltdown. As recently as Jan. 24, Qwest closed at $13–far below its 52-week high of $41.86, but far above some of its long-haul rivals, which were flirting with penny-stock status.

Then on Jan. 28, Global Crossing declared bankruptcy. This Bermuda-based long-haul carrier subsequently became the subject of a probe by the U.S. Securities and Exchange Commission, which soon was asking Qwest to supply documents relating to its transactions with Global Crossing. Qwest shares fell below the $10 level on Feb. 4.

Chairman Joseph Nacchio temporarily arrested the stock’s slide on Feb. 5 when he announced plans to reduce the firm’s long-term debt by up to $2 billion. But news stories began appearing that accused Qwest of overly aggressive accounting, à la Global Crossing. The firm vigorously rebutted these accusations, but the cloud hanging over Qwest grew darker, and soon it found the commercial-paper market closed to it. Qwest this week tapped its bank credit facility to meet its short-term obligations, which apparently prompted Standard & Poor’s to downgrade Qwest’s debt yesterday. Today Qwest shares fell below $7 in morning trading, amid continued investor concerns that many formerly high-flying telecoms may have used Enron-style accounting tactics in recent years to keep their share prices aloft.

On a conference call yesterday with reporters and Wall Street analysts, Nacchio put as good a face as he could on the situation. Using Qwest’s bank credit to pay off its commercial paper “takes us out of the need to worry about day-to-day fluctuations in the commercial-paper market,” he said, as quoted by Reuters. “Liquidity is not a concern for Qwest.”

Nacchio also reiterated his intention to reduce Qwest’s long-term debt, currently $24.9 billion, by issuing new shares or convertible securities, or by selling off assets. “We don’t think we need to do more than [$1.5 billion to $2 billion] to get to the kind of investment grade we’re comfortable with,” he told the analysts.

Investors clearly remain uncomfortable with Qwest, since the stock continued its swoon today. In troubled times, when the market is nervous, a hybrid firm like Qwest may simply present too complicated a story for some investors to tolerate, especially when that firm is about to shed some unspecified assets that could change the delicate balance of its equation. Qwest for years has been billed as a holy grail for telecom investors, overflowing with new-economy growth and old-economy security. But these days, not even an optimist would claim that Nacchio’s cup runneth over.

The site is a tad slow, but it truly could be the next Napster model that scares the crap out of the movie industry.

-Ian.

—- $1 films spook Hollywood By John Borland Staff Writer, CNET News.com February 7, 2002, 4:00 AM PT http://news.com.com/2100-1023-831383.html

A Taiwanese Web site is offering hundreds of videos on demand for just $1 each, trumping Hollywood’s plans to deliver similar services and raising the specter of a new round of international copyright battles.

Despite claims that their Movie88 site is following all local copyright laws, the owners of this new venture are drawing scrutiny from a skeptical Hollywood. Meanwhile, Web surfers drawn by free or cut-rate movies are flocking to the site, overloading servers and clogging data pipes.

Like Napster before it, the site is more than just an everyday pirate Web site: It’s a commercial video-on-demand service that’s comprehensive and easy to use. And it works. With the studios’ film services still in development, that’s a dangerous combination of features.

“It’s not a good sign,” said Ken Jacobsen, the Motion Picture Association of America’s director of worldwide piracy enforcement. “But we will deal with these sites rapidly.”

Movie88 and a handful of other sites and services popping up around the world offer growing proof that the movie industry cannot count on immunity from the digital forces that burst in on an unprepared record industry barely two years ago. Film studios had been insulated partly by the enormous size of high-quality digital video files, which made it relatively difficult to trade movie files over the Internet. But that barrier has been progressively falling thanks to improvements in digital video formats and streaming technology.

Such sites are also a sign that many of the most critical copyright battles are shifting overseas. Legal fights in the United States have laid down preliminary ground rules, even if those lawsuits aren’t over. That’s not yet the case in regions with different laws and different court systems, where broadband data pipes and programming talent abound.

That makes life considerably harder for copyright holders.

“There’s a law of diminishing returns in terms of pursuing and prosecuting these things overseas,” said Aram Sinnreich, a Jupiter Media Metrix analyst. “It’s a lamentable situation for studios, but I think the best thing they can do is develop their own legal alternative to draw people.”

Crossing borders Copyright battles overseas have been developing slowly but steadily, even as the most high-profile Internet copyright court cases have remained in the United States.

Some of the clearest signs have come from the names on the software used and distributed online: The author of the DeCSS program that allegedly can be used to make copies of DVDs was Norwegian. Many of the successors to that software program are distributed on German sites. Russian-language search engines provide a hub for people looking for copyrighted music, software and movies.

Only recently have overseas Net companies been targets in high-profile movie or record industry lawsuits, however. Kazaa, a Dutch company, and Bermuda-based Grokster were both sued by the entertainment trade associations last year for operating peer-to-peer file-swapping networks similar to Napster. But even in that case, the companies were sued in a Los Angeles court.

The problem is, international enforcement is tricky. Most developed nations are parties to international trade agreements that give copyright holders rights similar to what they have in the United States. But legal process, details of copyright registration or notification procedures, and even diplomatic pressures can make enforcement a thorny task.

Some of the groundwork for the new Internet battles has been laid. Several years ago, the MPAA conducted a legal survey predicting which 30 countries were most likely to be Net piracy problems, Jacobsen said. They then hired legal teams to start studying local copyright laws.

Now the MPAA and the record companies use search engines to track down Web sites and servers offering copyrighted materials; they use the legal channels they’ve developed to ask Internet service providers to take down the pirated material.

Kazaa and Grokster required taking this approach a step farther: into court. Movie88 may be the next test.

The next battleground Taiwan’s Movie88 appears to be the most ambitious commercial video service yet to hit the Net, with a huge catalog of English-language, Chinese and Japanese movies that can be streamed on demand at fairly high quality.

The site–whose owners declined to respond to e-mail questions, citing the advice of their lawyers–has jumped the gun on an idea already being pursued by the big movie studios. Movielink and Movies.com, each backed by a coalition of studio conglomerates, are preparing Internet-based video-on-demand services that would provide members with access to a large catalog of films for a relatively small fee.

Movie88’s service looks much like a video rental store. It offers a huge range of films that have been released to video, although it appears to lack the first-run films that are often available online or on pirated DVDs hawked on street corners in some Asian cities. The site says it will charge $1 per movie but give each customer a $5 credit for signing up. At least in its English version, it doesn’t yet appear to have the capability to accept credit cards and add more credit to an account.

The movies themselves are streamed in RealNetworks’ RealVideo format and cannot easily be saved or downloaded to a computer’s hard drive. Each movie is available for three days; afterward, it must be renewed with another $1 credit to be seen again.

Early use of the company’s service did display some serious glitches. One attempt by CNET News.com to set up an account and watch the Universal Pictures film “12 Monkeys” worked perfectly. The next day, the same account’s username appeared to be linked to a different account with more than $100 in credit.

The site claims it is operating legally under Taiwanese copyright law by allowing viewers access to the movies for just three days at a time.

“If you are a copyright owner of any materials, movies and films used in Movie88.com, and you feel that your copyright is protected in the Republic of China, kindly contact us,” a note on the site reads. But “the submission…is without our admission to any infringement and/or liability whatsoever.”

But copyright holders’ groups say they haven’t given their permission, and that means a fight is likely brewing. A spokesman for the International Intellectual Property Alliance (IIPA), whose membership list includes the MPAA, said Movie88.com was “clearly a pirate site.”

The MPAA itself stops short of that language, but spokeswoman Emily Kutner says the group is “looking into the site so we can take appropriate steps to deal with it.”

Taiwan has suffered considerable criticism from the United States and other Western countries for being a source of pirated CDs and videos, but it has changed its copyright laws several times in recent years to participate in international trade agreements. It now has essentially the same standards as the United States, and studios would gain full copyright protection there as soon as they release a movie in American theaters, copyright experts said.

Enforcement of copyright laws has been somewhat weaker on the street level, however. This issue goes to the heart of the difficulties copyright holders may see as they increasingly move overseas.

“You see an awful lot of problems, really on the level of local judges and prosecutors,” said Laura Young, a partner at San Francisco law firm Wang & Wang, who has extensive experience in Taiwan. Often “they don’t want to prosecute a local (citizen) for violating the rights of a multinational corporation.”