The VoIP Backlash

Internet-based telephony saves consumers money by bypassing traditional carriers--but new software lets the carriers block those pennies-per-minute calls

ILLUSTRATION: DAVID PLUNKERT

The convergence of telephony and the Internet is a great thing for consumers. It makes voice-over-Internet-Protocol (VoIP) services, such as Vonage, Packet8, and Skype, possible.

In particular, Skype Technologies SA, in London, looms as a dagger poised to cut your phone costs--and your local phone company's profits. With its SkypeOut service, a call anywhere in the world costs about 3 US cents per minute. And when the recipient is also a Skype user, the call is absolutely free.

In some countries, such as Saudi Arabia, regulations protect a phone company's revenues, prohibiting customers from saving money by making phone calls using any service other than the national carrier, Saudi Telecom, based in Riyadh. Skype users there have gleefully flouted those regulations, paying cheap local tariffs to access the Internet and use it for their calls, instead of directly using Saudi Telecom's expensive long-distance and international calling services.

Although these Skype calls travel along Saudi Telecom's network, the national carrier had been helpless to prevent the practice--VoIP phone calls were just ordinary data packets, indistinguishable from Web and e-mail traffic. Until now.

A seven-year-old Mountain View, Calif., company, Narus Inc., has devised a way for telephone companies to detect data packets belonging to VoIP applications and block the calls. For example, now when someone in Riyadh clicks on Skype's "call" button, Narus's software, installed on the carrier's network, swoops into action. It analyzes the packets flowing across the network, notices what protocols they adhere to, and flags the call as VoIP. In most cases, it can even identify the specific software being used, such as Skype's.

Narus's software can "secure, analyze, monitor, and mediate any traffic in an IP network," says Antonio Nucci, the company's chief technology officer. By "mediate" he means block, or otherwise interfere with, data packets as they travel through the network in real time.

Another of Narus's Skype-blocking customers is Giza Systems, a consulting company that specializes in information technologies. Giza, which is based in Cairo, Egypt, installed Narus's software on the network of a Middle Eastern carrier in the spring. Nucci wouldn't say which one, but presumably it is Telecom Egypt, the national phone company. Narus already has a close relationship with the carrier, having written the software for its billing system.

The desire to block or charge for VoIP phone calls extends far beyond the Middle East. According to Jay Thomas, Narus's vice president of product marketing, it can be found in South America, Asia, and Europe. International communications giant Vodafone recently announced a plan to block VoIP calls in Germany, Thomas says. A French wireless carrier, SFR, has announced a similar plan for France.

Nor is it just Skype that's at risk. Most international telephone calling cards also use VoIP technology.

In the United States and many other countries, a phone company's common carrier status prevents it from blocking potentially competitive services.

"But there's nothing that keeps a carrier in the United States from introducing jitter, so the quality of the conversation isn't good," Thomas says. "So the user will either pay for the carrier's voice-over-Internet application, which brings revenue to the carrier, or pay the carrier for a premium service that allows Skype use to continue. You can deteriorate the service, introduce latency [audible delays in hearing the other end of the line], and also offer a premium to improve it."

U.S. broadband-cable companies are considered information services, which by law gives them the ability to block VoIP calls. Comcast Corp., in Philadelphia, the country's largest cable company, is already a Narus customer; Thomas declined to say whether Comcast uses the VoIP-blocking capabilities.

In August, a Federal Communications Commission ruling gave phone companies the same latitude for DSL.

Narus's software does far more than just frustrate Skype users. It can also diagnose, and react to, denial-of-service attacks and dangerous viruses and worms as they wiggle through a network. It makes possible digital wiretaps, a capability that carriers are required by law to have.

However, these positive applications for Narus's software may not be enough to make Internet users warm to its use. "Protecting its network is a legitimate thing for a carrier to do," says Alex Curtis, government affairs manager for Public Knowledge, a consumer-interest advocacy group in Washington, D.C. "But it's another thing for a Comcast to charge more if I use my own TiVo instead of the personal video recorder they provide, or for Time Warner, which owns CNN, to charge a premium if I want to watch Fox News on my computer."

Public Knowledge advocates a set of principles of "network neutrality." One is open attachment--the right to connect that TiVo, or any Internet-enabled hardware, to a network. Another is a right of openness to all application developers, such as Skype, and information providers. "Consumers have come to expect a lot from the Internet--to be able to get to any site, for example, or any service, like VoIP," Curtis says. "Without Net neutrality, that goes out the window."

Such concerns used to be largely academic, because carriers had no way of restricting the activities of their customers anyway. Software such as Narus's, with its ability to do what the company euphemistically calls "content-based billing," puts the issue front and center.

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