Remarks of Assistant Secretary Irving at the Fall '98 Voice on the Net (VON) Conference

Good afternoon. I want to thank Jeff Pulver for organizing this conference and inviting me here today.
 

It's a pleasure being back at the VON conference. I was last here a year ago April, and I think there were maybe one-third the number here, and many of you were Jeff's friends! Last year, we were impressed that Internet telephony actually worked. It was like the expression "It's not that the frog sings well, it's that it sings at all." Now I look around and see that VON has become a coalition of major players and important industries.
 

No industry that I know of has grown so quickly as Internet telephony, or voice over IP service. In fact, this conference reminds me of the line: "The world is so fast that there are days when the person who says 'it can't be done' is interrupted by the person doing it." You are, indeed, the people that are doing it, and with great speed.
 

It's hard to believe that only three years ago, in 1995, several of the men and women in this room today introduced the first software program that enabled people to use their PCs for telephone-like communications. When I last addressed VON, the new gateway servers, that allow people to use their phones to make calls over Internet, had only recently emerged. This year, it is clear that Internet telephony is poised to become a potential competitor to traditional telephone service.
 

IP telephony accounted for less than 1 percent of the total phone traffic last year. Nevertheless, all of us expect this figure to grow exponentially. Many predict that, by early in the next century, one-third to one-half of all voice communications will be carried over the Internet. As you know, even the long distance giants, such as AT&T, British Telecom, and Deutsche Telekom, are now experimenting with voice over IP.
 

The Promise: Fulfilling Consumer Needs
 

Given the rapid changes wrought by your industry, many in industry and government are wondering how to respond. The Administration is reluctant to do anything that would threaten the growth and vibrancy of the Internet or Internet telephony. In general, at this early stage, we believe the Internet is more likely to develop subject to careful self-regulation, not government regulation. This position is premised on the belief and recent experience that unfettered development is most likely to promote basic consumer benefits: growth, better service, choice, and lower prices.
 

And, indeed, when you look at the recent history of Internet and IP telephony, it's clear that consumers have benefitted from its unfettered development. The Internet's growth, for example, has been explosive. Four years ago, there were only 3,000 Web sites in the world; today, there are 2.5 million. Four years ago, there were only 30 million Internet users; today, there are almost 150 million. No other technology has taken hold of America so quickly. It took radio 25 years to become a household fixture, broadcast TV about 20 years, and the WorldWideWeb about 5 years.
 

Such growth has also spurred continual and striking innovations. Today, we have the gateway server. Tomorrow, we may have devices to even further facilitate consumer use of Internet telephony. A patent has just been filed in the United Kingdom, for example, for a Dedicated Automatic Internet Telephone that automatically logs into the Internet so the end user can make a call on-line.
 

With respect to computer technology, I have been told that over 80% of the products on display in a computer store didn't exist 18 months ago. And look at how quickly, and in how many different ways, we have absorbed Internet's capabilities in our daily lives. We now use Internet, not just to exchange text, but also to send graphics, audio and video files, and voice communications. According to a recent Pew survey, 20% of us now use Internet as a regular source of news.

Digital technologies will also enable us to get both voice and data over Internet at the same time. This combination has tremendous potential for the consumer. A student in a distance learning class will be able to look at a written assignment on the Web and discuss it with a professor at the same time. Colleagues in distant offices will be able to look at the same document, talk about it, and edit it jointly. A customer can look at a store's Web site, click a voice button, and talk to a sales agent who can view the same Web page -- all without having to pick up a phone. And in the health field, there may be more options for patients to stay at home if they can talk with a doctor or nurse on-line, while also looking at test results, charts, or X-rays.
 

The unfettered growth and innovation of Internet telephony has also generated greater competition in the telephone market. This, in turn, has helped lower prices for consumers - perhaps one of the most significant developments.
 

Those of you offering IP telephony offer a far more affordable alternative to traditional telephone service. Less than one month ago, for example, A+Net, a California Internet service provider, started offering Internet telephone service in four test cities at one cent a minute. That rate, of course, is an initial rate until the company removes the bugs from the system. But even once the kinks are out, the rate is still projected to be only be 5 cents a minute. You're going to drive the "dime lady" out of business!
 

These low prices will enable many in our country to make long-distance or international calls that they previously could not previously afford. NTIA issued a report in July in which we found that there were still pockets of Americans - particularly among blacks and Hispanics - who did not have telephones or personal computers. Some of these households might be encouraged to obtain or maintain phone service if they could obtain cheaper rates using Internet telephony. Many low income people have lost this service, not because they couldn't pay their local bills, but because they could not pay their long distance bills.
 

The lower rates offered by Internet telephony have also prompted traditional telephone providers to cut their prices. Last September, NTIA held a public forum on Internet telephony, which included members of the industry and government regulators. We heard from state and federal regulators, who said that Internet telephony could become a vital competitor to the traditional voice network. They hoped that this competition would drive down prices, not only in domestic, but also in foreign markets that have steep access rates.
 

The Challenges Ahead
 

The developments in Internet and related services are tremendously encouraging. But the success of this new medium has also raised new challenges and questions that we in government and industry must address jointly.
 

First, as you well know, we are now facing questions from all fronts regarding the appropriate regulatory treatment of Internet telephony. Some argue that Internet telephony should be treated no differently from traditional telephone service. According to U.S. West and Bell South, that means that Internet service providers should pay access fees for voice conversations transmitted on-line. BellSouth's philosophy is "If it functions like a phone and rings like a phone -- it's a phone."
 

The FCC, in its April report to Senator Stevens, refrained from making categorical determinations. In some cases, it found that IP telephony, where it uses "phone-to-phone" service, is functionally indistinguishable from traditional telephone service. In contrast, the FCC observed that "computer-to-computer" IP telephony does not appear to be providing telecommunications services to the customer. Ultimately, the FCC decided that it was better to determine on a case-by-case basis whether an Internet telephone provider should make such payments.
 

I believe that it is still too early for the federal government to take a strong pro-regulatory position. It's absolutely true that Internet telephony is poised to become a potential competitor to traditional telephone service. Nevertheless, this technology, this burgeoning industry, is still in its infancy. In 1998, Internet telephony is expected to generate $157 million. While that figure is substantial, it is still only 0.2% of the $55 billion generated on the public switched telephone network.
 

Until Internet telephony becomes a real and more viable threat to traditional telephony, we should do our utmost to promote its development rather than stifle its growth through over-regulation. Five years ago, Vice President Gore advocated five principles to assist the development of the National Information Infrastructure (NII) and the Global Information Infrastructure (GII). One key principle was the creation of a flexible regulatory framework that can keep pace with rapid technological change and market changes.
 

We need to treat Internet telephony with the same regulatory flexibility. This is a country founded on the traditional values of innovation, consumer choice, and universal service. We must promote the development of industries, such as Internet telephony, that offer new choices and services at lower prices. We must promote the tremendous investment that many of you have made in this new technology.
 

At the same time, government cannot turn a blind eye to the principle of universal service, the goal that all Americans have access to telephone service. Our treatment of Internet telephony will be a balancing act. While Internet telephony is still a fledgling industry, at some point it will become a major league player. When that time comes, we will need to assess whether our current regulatory framework still fulfills the goals of universal service, as well as innovation and consumer choice. In the meantime, government must remain open-minded and monitor the industry's development.

This vigilance is necessary whether we are dealing with new technologies or telecommunications mergers. I was pleased to see that the Administration's position is shared by Congress. In Tuesday's hearing on telecommunications mergers, Senator Kohl stated that any new merger must result in "better service, lower rates and real choice" to win approval. Senator DeWine's comments were in a similar vein. I commend Senators Kohl and DeWine for holding the hearing on mergers, for commissioning a GAO study to determine the level of competition in the telecom industry, and for encouraging the Department of Justice and the FCC to impose conditions when approving mergers that will provide competitive benefits to consumers. We cannot forget that, although mergers may bring economic benefits to industry, the ultimate goal is serving the consumer.
 

A second issue I'd like to address is bandwidth. Americans are increasingly using Internet, fax machines, and other information services. Yet these demands are overwhelming the traditional phone lines that connect to their home or office. We need to create the infrastructure that will enable Americans to obtain the services they want -- whether it's data, fax, voice, or audio. And Americans should be able to obtain these services over the medium of their choice -- whether it's cable, telephone, Internet, satellite, or wireless technologies.
 

The Administration has taken a number of steps to expand bandwidth. Recently, NTIA encouraged the FCC to consider, in its upcoming 706 proceeding, ways to spur investment in advanced telecommunications technologies. We suggested that the FCC encourage the deployment of broadband networks and services by all communications sectors, including incumbent local telephone companies and their competitors.
 

The Administration has also partnered with the private sector in two different projects to improve the power of Internet: the Next Generation Internet and Internet 2. These projects will partner hundreds of millions of dollars in private investments with federal investments to promote a faster and more reliable network. Internet 2, for example, is expected to transmit the entire Encyclopedia Britannica in under a second and the entire Library of Commerce in under a minute. Congress is now considering federal funding for technological standards to ensure the success of these projects.
 

But we need further efforts, from all segments of the industry, to increase bandwidth capabilities. Internet service providers can play a significant role to ensure that the World Wide Web does not become the "World Wide Wait." They can also play a significant role to ensure that consumers can access Internet voice services.
 

Finally, one last issue I'd like to highlight is the Administration's initiatives in addressing the Year 2000 problem and critical infrastructure protection. The Year 2000 problem, otherwise known as the "millennium bug," refers to potential disruptions in our computer systems when the clock strikes January 1, 2000. The Administration is encouraging private companies, trade associations, foreign governments and other organizations to take specific actions to guard against disruptions of services. A Gallup survey reported, for example, that 5 million small businesses are at risk of a computer meltdown come Year 2000. Of those surveyed, 80% of these businesses were aware of the problem, but only half of them intend to do something about it. We need to reverse these trends. I encourage you to talk to your vendors, your sellers, your partners, and your collaborators about this issue.
 

The work we are doing to prevent crises in year 2000 can also be applied to the Administration's broader challenge of protecting our critical infrastructures. In May 1998, the President issued a directive requiring that various agencies take steps to protect the nation's critical infrastructures against potential outside attacks. Such attacks could wreak havoc, not only on our information systems, but also on our economy and defense capabilities.
 

NTIA has been designated as the lead agency for information and communication infrastructure protection. Our success in developing a plan to protect these systems depends, however, on our ability to collaborate with the private sector. We need the help of companies, such as yours, to identify critical information systems and gauge their vulnerabilities before we can determine how to defend these systems. I hope to work with many of you as we begin this collaborative process.
 

Conclusion: One Year Later

We have a number of major issues on the table. I'd like to conclude by inviting VON members to meet with me and NTIA staff next month. It's been a year since NTIA held its forum on Internet telephony. It's time that we reexamine where we have been, and more importantly, where we are going. We need to assess how NTIA can work with you to continue to promote our core values: consumer choice, innovation, and universal service. I look forward to talking with you in depth about how we can move forward on these issues, and on the other issues I've mentioned.
 

And, to misquote Casablanca, I hope this session marks the beginning of a long and productive collaboration.
 

Thank you.