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FCC To Protect Net Phone Services

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FCC Chief Pushes To Protect Net Phone Services
Keep Subscribers Free Of State Rules, Taxes, Powell Says

October 20, 2004

By Peter J. Howe

The nation's top telecommunications regulator said yesterday he will push -- before the next president is inaugurated -- to protect fledgling Internet telephone services from getting taxed and heavily regulated by the 50 state governments.

Federal Communications Commission chairman Michael K. Powell, in a Boston appearance, said he hopes before Jan. 20 to get the five-member commission to agree that only the FCC can regulate Net phone plans like those offered by Vonage Holdings Corp., AT&T Corp.'s CallVantage, and a host of other services offering low-priced, unlimited phone calls.

Powell said his goal is to keep Internet phone subscribers from having to pay the fees and taxes levied on conventional phone service offered by companies like Verizon Communications Inc. He also wants to prevent state price and service regulation from squelching a fast-growing but still small industry that counts just under 1 million US subscribers.

''We cannot avoid this question any longer," Powell said. ''To hold that packets flying across national and indeed international digital networks should be subject to state commission economic regulatory authority is to dumb down the Internet to match the limited vision of government officials. That would be a tragedy."

Asked by reporters whether he hopes to get the policy in place before Jan. 20, when depending on next month's election President Bush could be replaced by John F. Kerry, Powell said, ''I hope so." US Senator John Sununu, a New Hampshire Republican, has been pushing legislation to keep Net phone service unregulated by states and only narrowly regulated by the FCC.

In Net phone service, calls move in the same format as e-mail and Web pages, which slashes the cost and lets providers offer innovative call-forwarding and voice-mail plans that let subscribers listen to messages from a website.

States including Minnesota and New York have tried to argue that since services like Vonage are ''functionally equivalent" to Bell System phone service, there is no reason for them to avoid facing the same regulatory requirements as Bell companies like Verizon. Federal courts, however, have thwarted states from regulating Internet phone service while the FCC tries to decide how to handle the service.

The chairman of the Massachusetts Department of Telecommunications and Energy, Paul G. Afonso, said he thinks Powell ''in general is on the right track. I think we've got to be careful about having 50 different rules of engagement for this new technology. We need to be measured in our regulatory approach and have a light regulatory touch at the beginning."

However, Afonso said, ''There is an important role for the states to play in consumer issues" and enforcing rules requiring all phones, including Net phones, show the location of someone making a 911 emergency call.

Cherie Kiser, a top Washington telecommunications lawyer with Mintz Levin Cohn Ferris Glovsky and Popeo P.C., said despite Powell's call for the FCC to supersede states in regulating Net phone service, ''There's no way that chairman Powell's going to totally oust the states. A total preemption would be a very aggressive and very unusual stance."

Kiser predicted any Powell plan that gets majority support from FCC commissioners would likely give states the kinds of consumer-protection and 911 responsibilities cited by Afonso.

Kiser added that for years, ''Powell's been getting a lot of criticism for not doing anything on this issue. A lot of people are concerned about investing in this technology and these companies because they don't know how these federal fees might apply."

Powell said he wants Internet phone service to flourish with minimal regulation because it ''holds great promise for the communications sector. It means lower prices, greater value, more competition, and more innovative services."

Powell's push could save consumers money by thwarting states from imposing taxes and fees on Net phone service. But it would also preempt efforts by some states that have sought to prevent Bell carriers like Verizon and BellSouth Corp. from requiring people buying high-speed digital subscriber line Internet access to also pay for conventional local phone service.

Powell backs the right of consumers to ''attach any devices they choose" to their DSL or cable modem connections, including units that enable Internet calling, but industry analysts said the Bells might find it easier to lobby one FCC rather than 50 state commissions to win limits on consumers using DSL connections for cheaper Net phone calls.

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†AK and HI residents pay $29.95 shipping. ††Limited time offer. Valid for residents of the United States (&DC), 18 years or older, who open new accounts. Offer good while supplies last and only on new account activations. One kit per account/household. Offer cannot be combined with any other discounts, promotions or plans and is not applicable to past purchases. Good while supplies last. Allow up to 2 weeks for shipping. Other restrictions may apply.

1Unlimited calling and other services for all residential plans are based on normal residential, personal, non-commercial use. A combination of factors is used to determine abnormal use, including but not limited to: the number of unique numbers called, calls forwarded, minutes used and other factors. Subject to our Reasonable Use Policy and Terms of Service.

2Shipping and activation fees waived with 1-year agreement. An Early Termination Fee (with periodic pro-rated reductions) applies if service is terminated before the end of the first 12 months. Additional restrictions may apply. See Terms of Service for details.

HIGH SPEED INTERNET REQUIRED. †VALID FOR NEW LINES ONLY. RATES EXCLUDE INTERNET SERVICE, SURCHARGES, FEES AND TAXES. DEVICE MAY BE REFURBISHED. If you subscribe to plans with monthly minutes allotments, all call minutes placed from both from your home and registered ExtensionsTM phones will count toward your monthly minutes allotment. ExtensionsTM calls made from mobiles use airtime and may incur surcharges, depending on your mobile plan. Alarms, TTY and other systems may not be compatible. Vonage 911 service operates differently than traditional 911. See for details.

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