PLANS by the telecoms regulator to introduce tough new rules for the internet phone sector were condemned by Skype, the internet telephony company, yesterday as discriminatory and damaging to innovation.

Ofcom has proposed a mandatory code of practice for providers of internet calls (VoIP — voice over internet protocol) that would force them to alert consumers to possible limitations. Customers could be warned, for example, that if their power cuts out then their phone line will go dead. Under the plans, internet phone companies could also be forced to pay an effective charge of £1 per customer to put labels on to their hardware detailing possible problems.

But in a statement to Ofcom, Skype, which has 120 million registered users, condemned the proposals as a form of “super consumer protection” that no other telecoms provider had to contend with.

Skype said that forcing internet phone companies to focus on the possible deficiencies of their services suggested that Ofcom was “in favour of the status quo” of mobile and traditional fixed-line players.

A move to focus on the negative aspects of services also “unduly undermines the innovation potential offered by VoIP”.

The cost of providing “safety” labels for internet phone call kit was likely, it said, to stifle competition by excluding VoIP providers from the market.

Stephen Collins, director of regulation at Skype, told The Times: “It seems disproportionate. Of course there are legitimate consumer concerns but we feel they can be met with existing consumer protection laws.”

Nearly two million British households now have services that allow them to make calls over the internet and Ofcom believes that the conditions are ripe for a significant increase in uptake over the coming years.

The services, under which calls are sent over the internet as data, rather than over the traditional phone line, allow users to make calls across the globe much more cheaply or even for free. Although there is a voluntary industry code of practice in place Ofcom has so far stood back and allowed the nascent industry freedom to develop.

However, as the services take off and move towards becoming a mass-market proposition — even Tesco now sells a VoIP product — the regulator is now keen to ensure that consumers fully understand the service and how it differs from a traditional phone service.

In a separate statement to Ofcom, Yahoo!, another internet phone provider, pointed out that mobile phone operators are not forced to notify their customers that their handsets will fail if the battery runs down.

Another leading industry player said “it is like having to put a sticker on a knife saying ‘be careful, sharp!’” Ofcom is expected to announce its final proposals in the autumn and yesterday would not comment.

Look who's talking

UK VoIP users
1.8 million households

Size of market
£77.6m
(Source: Ovum 2006 forecast)

Market share of key players by household
BT 17%
Orange 8%
Skype N/A
Vonage N/A
(Source: Ofcom)

Ofcom proposals
1. A legal code of practice to ensure VoIP providers alert consumers to possible “deficiencies” in the service

2. Labels on VOIP kit warning of possible problems. eg that loss of power will kill phone line — at a cost of about £1 per consumer

3. Providers forced to warn consumers about lack of facilities ‘which they have come to expect from a telephone service.’ eg lack of answering machine facility

Providers' response
1. Proposals represent a form of “super consumer protection” not applicable to other phone products. eg mobile

2. Enforced £1 cost could stifle competition by deterring new players from entering the market

3 . Discriminatory. Suggests bias towards old-style telephony. Innovation and benefits of VoIP — not its problems — should be highlighted