F.C.C. Rules on Internet-Based Phone Services

November 9, 2004
By THE ASSOCIATED PRESS

WASHINGTON (AP) -- U.S. regulators ruled Tuesday that
providers of Internet-based phone call services fall under
the jurisdiction of the federal government, exempting them
from some key regulation by states.

The Federal Communications Commission voted 5-0 in favor of Vonage Holdings
Corp. of Edison, N.J., which had asked the agency to declare the company's
product an interstate service, giving the FCC regulatory control.

Vonage has been battling public utilities officials in Minnesota who want
the company to register in the state as a telecommunications service,
subjecting it to rate regulation and other state rules.

The FCC ruling applies to cable, phone and other companies offering an
Internet phone service similar to the one Vonage provides. The decision does
not, however, preclude states from imposing some taxes and fees. It also
does not address access charges, which are fees paid to local phone
companies for completing calls sent via the Internet to conventional phones.

Vonage also had asked the commission to certify it as an information
service, instead of a telecom company. Such a move would have a profound
impact on the industry because it would mean providers of Voice over
Internet Protocol, known as VoIP, wouldn't have to pay the taxes and fees
that traditional phone companies do. The commission did not rule on that
request.

FCC chairman Michael Powell said streamlining regulation of VoIP companies
is key to growth of the fledgling industry.

To subject a global network to disparate local
regulatory treatment by 51 different jurisdictions would be
to destroy the very qualities that embody the technological marvel that is
the Internet, Powell, a Republican, said.

The two Democratic commissioners on the panel expressed concerns the
decision didn't go far enough to address other issues facing VoIP providers.
Among them: universal service fees for bringing telephone service to rural
areas and emergency 911 services.

The commission's constricted approach denies consumers, carriers,
investors and state and local officials the clarity they deserve, said
Commissioner Michael Copps. These issues can't be ducked and they can't be
dodged if we are truly serious about these technologies.

There are more than 600,000 subscribers to VoIP services in
the United States, up from about 130,000 last year,
according to The Yankee Group. The Boston-based
communications research firm projects about 1 million subscribers by year's
end.

VoIP technology shifts calls away from wires and switches
and instead uses computers to convert sounds into data and transmit them via
the Internet.

With a special box, Vonage subscribers can use their conventional phones and
existing broadband connection to make calls over the Internet. The company
offers unlimited calls in the United States and Canada for $25 a month and
has more than 300,000 subscribers.

Vonage argued its service is interstate because it lets customers make calls
from any place that has a high-speed Internet connection. That means there's
no way to tell if a customer who has a billing address in Minnesota is
making a call from that state or another one, the company said.

In February, the FCC exempted pulver.com's Free World
Dialup from regulation. The service lets consumers make
calls to other members without using a regular telephone. Special numbers
rather than 10-digit phone numbers route the calls.

A few months later, the FCC ruled that an AT&T Corp.
service in which some calls were routed over the Internet resembled a
traditional telephone service more than a VoIP service and therefore should
pay access fees.