LAS VEGAS – The pace of technical innovation in the telecom industry is much faster than the speed at which regulators can set up rules to ensure fair competition among carriers. At least, that's the view embraced by Federal Communications Commission (FCC) chairman Michael Powell.

"If you think the regulatory system can keep pace with Moore's Law, you're drinkin' something," Powell told the United States Telecom Association (USTA) annual conference here in Gomorrah West.

Though many carriers clinked their glasses in agreement, they still wanted answers from Powell as to why the rule-making process is such a mess and what they can do about it. The latter question was avoided entirely, but Powell did offer insight into what he dubbed the "sideshow" that has the FCC split on how much regulation is too much for incumbent carriers (see FCC Rumbles on the Rules ).

As Powell explained, the commissioners have a common goal in mind: to let market forces decide who stays in business and who doesn't, while still making sure that all Americans are afforded with some basic communications services. The problem is: Some are in favor of wiping the regulatory slate clean and adding rules where appropriate, while others want to take the existing rules and go line by line to see what should be kept and what should be tossed.

"Real change is never comfortable," said Powell. "It will produce anxiety for the incumbents, for regulators, for politicians, and for the consuming public."

Powell's "real change" aptly contrasts with the holding pattern the industry seems to be in as investment stalls while everybody awaits the decipherment of the FCC's Triennial Review in the state courts.

So what's next? The crossroads, it seems, comes in finding consensus on what should stay and what should go.

"Where we haven't been seeing as much competition, the Commission has left regulations in place," offers FCC Commissioner Kevin Martin. In the instance of landline voice competition, Martin says it's "unclear" whether wireless phones are a substitute or a supplement to wireline services, and that's what keeps the rules governing some parts of the public telephone network the same as they were under the Telecom Act of 1996 (see RBOCs Appeal Directly to FCC and Bells Challenge FCC Ruling). In other instances, Martin says, carriers are free to innovate. If they want to change their voice switches to packet switches, for instance, they could do so without regulatory interference.

As Powell sees it, the choice lawmakers face now is whether the "child" of Internet-based communications services will be fitted with its own "regulatory clothing" or whether "it will be forced to wear Ma Bell's hand-me-downs." He opines that, rather than having "discourse, thought, and careful decision making," the rules governing the telecom world today are a product of "accidental regulation," where new services are shoehorned into old rules.

"We do not yet have the Communications Act of the IP world," Powell says. He grouses that companies often have to endure arcane labeling even though "there's very little difference between communications providers other than from whence they hailed."

"One day... the [old telecom] statute will break," Powell warns. In the meantime, he says, the Commission is "trying to look at the Internet from the cleanest slate possible" and not as something that's been around for 100 years.

The telecom industry is left with two paths: Either lawmakers will wipe the slate clean and make new telecom rules that take into account Internet services; or they'll gradually ease the old rules as competition manifests itself in the market.

In either scenario, attendees here agree that regulations can't catch up with technology's pace and, while they try, things will likely get worse before they get better. "I think we're in for more regulation," says Randy Browning, a partner at PricewaterhouseCoopers. "It won't be long before the states are saying, 'Hey, why can't I make a buck on these VOIP calls?' "

— Phil Harvey, Senior Editor, Light Reading