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Vonage Holdings Corp. Reports Fourth Quarter and Full Year 2013 Results

Carolyn Katz Elected to Board of Directors of Vonage Holdings Corp.


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FCC Frees Internet Phone Calls From State Rules

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U.S. FCC Frees Internet Phone Calls From State Rules

November 9, 2004

By Scott Lanman

Nov. 9 (Bloomberg) -- Internet-telephone services sold by companies such as AT&T Corp. and Vonage Holdings Corp. should be free from the rules each state imposes on regular phone companies, the Federal Communications Commission ruled.

FCC Chairman Michael Powell said limiting regulation will spur the growth of the service, which researcher In-Stat/MDR predicts will increase to $776.9 million in two years from $34.5 million in 2003.

``The industry as a whole can move forward,'' Vonage Chief Executive Officer Jeffrey Citron said in an interview. ``This benefits everyone.''

Providers of Internet phone services, or Voice over Internet Protocol, won't have to spend time and money complying with state requirements such as gaining certification and adhering to 911- dialing rules. Vonage, a pioneer in the market and the biggest provider with 300,000 customer lines, AT&T, Verizon Communications Inc. and Comcast Corp. are expanding Internet calling, routing voice calls over networks and giving more features at a lower cost.

In-Stat analyst Daryl Schoolar estimates that Internet-phone lines, including those from cable companies, will rise more than six-fold this year to 905,980 and surge 12-fold to 10.9 million in 2008.

`Global Scope'

``Today's decision lays a jurisdictional foundation for what consumers already know: that the Internet is global in scope,'' Powell said at an agency meeting. Internet calling is rightly classified as interstate, similar to long-distance calling and mobile-phone service, Powell said.

The FCC issued the unanimous ruling in response to a September 2003 request by Edison, New Jersey-based Vonage.

Two states, Minnesota and New York, tried to impose phone rules on Vonage, and 12 or 13 more states are considering a move, William Wilhelm, a Washington attorney representing Vonage, said.

The decision is the third this year by the FCC that put limits on Internet-phone regulations. The agency in February exempted's computer-to-computer calling from traditional phone rules.

``This and the Pulver decision are two key decisions that set a deregulatory path for VoIP,'' said Scott Cleland, chief executive of Precursor, a Washington researcher that follows telecommunications policy.

`Clouding Future'

The agency's two Democratic commissioners said they were concerned today's decision was too narrow and that it may hurt states' ability to collect $1.9 billion in annual fees to subsidize phone service for rural and low-income customers.

Democratic Commissioner Jonathan Adelstein said he was also concerned that the order would override states' public-safety objectives for phone service.

``By not supplying answers we are clouding the future,'' said Michael Copps, the FCC's other Democratic commissioner. ``We need a clear and comprehensive framework for addressing this new reality.''

The order doesn't preclude state and local governments from imposing taxes on Internet calling, said Jeffrey Carlisle, the FCC's top wireline-phone official. The decision also does not deal with the issue of how much Internet-phone companies need to pay local carriers to connect calls. The FCC will address that next year, Carlisle said.


Brad Ramsay, general counsel at the National Association of Regulatory Utility Commissioners, a Washington lobbying group for state regulators, said the decision ``has a lot of implications going forward for the state role in telecommunications regulation.''

``Vonage and Vonage customers continue to be subsidized by people that use the public switched network,'' Ramsay said.

``The more traffic that migrates to this, the more upward pressure on local rates.''

Vonage and Minnesota regulators are scheduled to square off Nov. 17 in arguments before a federal appeals court over whether the state can regulate Vonage's service. Vonage asked the FCC last year to overrule Minnesota's attempt to apply phone rules to the company. States have authority to regulate traditional phone service.

Mark Oberlander, telecommunications manager at the Minnesota Public Utilities Commission, didn't immediately respond to a request for comment today.

Powell said in February that while data services ``should remain free from traditional monopoly regulation,'' the FCC should write rules to ensure that Internet-based calls support law-enforcement access, rural subsidies, access for people with disabilities and 911-emergency service.

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