The drumbeat is sounding for Internet telephony. From Washington to Tokyo, from AT&T to Microsoft, from multinationals to consumers, telecom regulators, carriers and customers are picking up the Internet voice vibe.

Competitive carriers are using VoIP to challenge incumbents. The incumbents are unsettling cable companies. IT firms sense an opportunity to occupy swathes of telecom vendor terrain.

The benefits of IP have been touted for years: it offers the prospect of a single, widely-supported platform for an infinite range of applications.

Evidence of its attraction to the corporate sector is clear, where for the last two years a steady stream of enterprises has been adopting IP-VPN platforms. And while most corporate data is still carried by frame, ATM or leased line, IP deployment will soon overtake all of those.

However, it is in the regular carrier voice market that VoIP is set to trigger the biggest transformation. Any fundamental change to the voice business is significant. VoIP will be especially disruptive because it changes the costs and the means of delivering phone calls, and severely lowers barriers to entry to the voice market.

Technically, packetized voice will for the first time separate the application from the transport. Put another way, telecom networks conventionally have been purpose-built for voice; the application is the network. But next generation networks will be built on IP, where voice will be but one--albeit the most important--application. Add in the dramatically different cost structure of IP and you have telecom's next revolution.

Even if VoIP is going to be the mother of all disruptive technologies--it's not going to happen any time soon.

Telegeography research director Stephan Beckert says despite the buzz, VoIP in the US is still "tiny"--representing some 200,000 lines, or about 0.2% of the total market. "We've had the view that it's not ready for prime time," he says.

He estimates it will be at least 12-18 months before IP telephony becomes a mainstream service.

VoIP to the regular phone user is very much a function of broadband--narrowband service just doesn't cut it--so it's no surprise to see much of the action taking place in two of the world's biggest broadband markets, U.S. and Japan.

AMERICAN LOVE STORY

U.S. developments are driven by the recast industry rules, which allow cable and long-distance carriers to compete in the local loop, as well as improvements in the cost and quality of VoIP gear. Half a dozen major carriers and cable companies have come to the market with a VoIP offering in the last three months, including Qwest, AT&T, and cable operators Time Warner, Cox and Comcast.

The best-known VoIP player is probably startup Vonage, which offers service via a regular handset over a consumer's cable connection, and call charges of as little as 6-cents to Tokyo.

Critics, from among carriers and utility regulators, have been quick to point out shortcomings with VoIP: it can't provide the location of emergency callers; it doesn't allow for the real-time wiretapping as required by law; it doesn't offer the same disability access or universal service as regular telcos. Indeed, its very existence threatens the whole universal service structure.

Such criticism from telcos is understandable. While state and federal laws mandate almost every aspect of their business, from M&A to interconnection to rural services. VoIP operators, who are targeting their core business, have no such obligations.

FCC chairman Michael Powell has made his position clear: "I believe that IP-based services such as VOIP should evolve in a regulation-free zone."

VoIP advocates like entrepreneur Jeff Pulver say the technical issues can be overcome, and that the industry should be allowed to forge its own solutions. For example, IP providers have already struck a deal with the National Emergency Number Association to deliver VoIP 911 calls to police and other services.

The FBI and the Drug Enforcement Administration said in a letter to the FCC in December that without mandatory access to IP voice traffic, "criminals, terrorists, and spies (could) use VoIP services to avoid lawfully authorized surveillance."

Indeed, they even went as far as arguing that the wiretaps were necessary to protect the privacy of Internet users; in the absence of tight laws they would be forced to scoop up huge chunks of extraneous traffic as they try to identify the voice packets of the targeted individuals.

The fundamental problem is that VoIP is regulated as an information service. As Vonage CEO Jeffrey Citron puts it, it might be possible to shoehorn it into the telecom regulatory framework, but where does that leave other applications, like voice-enabled email, NetMeeting and ICQ? He adds tellingly that if VoIP providers are treated like carriers they will also be caught in the "quagmire of inter-carrier compensation issues."

RISING BULLS