*STOCKHOLM At this week's VON Europe conference on Internet phone service, there has been no shortage of accolades for Skype, the unparalleled poster child of this fledgling business. It is being called "the iPod of IP communications," and its chief executive, Niklas Zennström, was mobbed like a pop star by news media and admirers.
But just as Skype is setting off on its victory lap, storm clouds are gathering. As phone calling over the Internet takes off around the world and as the services become richer and more complex, regulators are beginning to give it a harder look.
With the rapid development that characterizes the field - which uses the Internet instead of ..........
.......... land-line copper phone wires to transmit voice calls between computers, usually for free or for cut-rate prices - few observers doubt that the next year or two will bring a host of regulations down not only on Skype, but on Internet telephony as a whole.
"Right now, at the dawn of this new world, we can make sure it goes as much our way as possible," said Eli Katz, chief executive of XConnect and co-founder of the Internet Telephony Services Providers' Association, one of a plethora of new but comparatively weak industry organizations that have sprung up around this nascent technology.
"Or," Katz said, "we can be involved in years worth of regulation mess and pain."
Alain Van Gaever, who works with the issue at the European Commission, told the conference, which ends Thursday, that the industry has nothing to worry about. Generally, the European Union's central bureaucracy seems to view as positive the innovative and disruptive nature of Internet telephony, which is also called voice over Internet protocol, or VOIP.
"Our approach is a light regulatory touch, to be pragmatic," he said in an interview.
"You want to provide a space where the industry can innovate, while at the same time providing some protection for consumers."
But much of the regulatory power in Europe remains on the national level, and the situation differs dramatically among the 25 EU countries. Some national regulators have welcomed VOIP - Britain and the Nordic countries are most often mentioned. Others seem to see their role as protectors - of both consumers and incumbent phone companies - as more important.
For example, nomadic services - that is, allowing Internet calling from locations other than a user's home base - are allowed in Finland but not in Spain, while they are partly allowed in France and under review in Germany.
To use Internet phone services for emergency services - a highly regulated service of land-line phones - Portugal does not mandate that the location information of the caller be provided, while the Czech Republic does, and so does Britain - but only if technically feasible.
And while most countries in Europe have a law requiring that emergency phone calls be routed to an appropriate emergency response center, Estonia, Hungary and Britain do not.
"One of the main reasons we came into the UK was the accommodating regulatory situation," said Kerry Ritz of Vonage, the biggest phone-replacement VOIP provider in the United States, which so far has expanded only to Britain.
"For example, we're allowed to offer geographic numbers to people anywhere in the U.K., so that someone living in London can have an Edinburgh number," he said.
Elsewhere, he added, "we see a lot of protection of the local incumbents. Germany is a good example of this, with Deutsche Telekom controlling the voice business, the long-distance business and the broadband connectivity business."
The European Commission, which has the power to influence regulation across Europe through both guidelines and a kind of veto power, is waiting to see what steps the national regulators take first, according to Van Gaever. There is a possibility that the commission will issue new guidelines "if needed," he said.
National regulators in the EU are supposed to report to the commission by the end of the year on whether they intend to regulate VOIP in the same way as traditional telephone services. That decision that will have a great impact on the market conditions for new entrants.
If the commission vetos any of these reports, that would send a strong signal to national authorities about the commission's desire to keep markets open and competition alive, according to Sandro Bazzanella, director of regulatory affairs at the European Competitive Telecommunications Association, an industry group.
Meanwhile, Skype claims that its software is the fastest growing downloadable product on the Internet ever, with 39 million registered users and growth of more than 150,000 per day. Because of the hazy regulatory picture, some industry observers are suggesting that Skype's honeymoon might be over.
"Well, I don't know if we ever had a honeymoon," Zennström said in an interview at the conference. "But it's true, regulators have up until now had a hands-off approach. What I've noticed in the last month or so is that regulators in Europe and elsewhere have started to look much more closely at what we do. We're definitely on their agenda."
Last week, the U.S. Federal Communications Commission gave certain VOIP telephony providers 120 days to include emergency calling capabilities in their services.
The decision apparently doesn't apply to Skype, since Skype's software-based service is difficult to confuse with regular telephone service, which was one of the FCC's criteria.
Regulators are also looking at how VOIP services interact with the traditional phone networks, and at such basic questions as how to define these services: Are they regular phone services, electronic communication services, or something else altogether?
Throughout this process, regulators are supposed to achieve a balance between the often differing interests of consumers, the VOIP industry and the traditional phone industry.
"It's hard, because I don't think regulators really understand the new environment," Ritz said. "A lot of them have been regulating the telecom circuit-switched world for decades. They're trying to impose that way of thinking on a new world. I think an educational process is necessary."
But some observers think the debate over regulatory issues will make little difference in the long run. They see Internet telephony as disruptive enough to break down all attempts to stop it.
"As with all political struggles you will see bloodless coups, some very bloody fights, and those who realize there is no need to fight at all," said Jeff Pulver, chief executive of the U.S. consulting firm Pulver.com and a leading analyst of the VOIP business.
"Some countries that are more forward-thinking than others might become havens for VOIP. And if certain countries become hostile to innovation, business will simply leave," Pulver said.
Ritz added : "In Europe as a whole, it's a very complex situation that will keep lawyers busy for years and years."