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FCC Ruling Limits States' Jurisdiction

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Internet Phone Service Boosted; FCC Ruling Limits States' Jurisdiction

November 10, 2004

By Marilyn Geewax

Washington --- Federal regulators ruled Tuesday that states have limited jurisdiction over Internet-based phone service, a decision that could spark a rush to offer consumers and businesses the high-tech, low-cost option.

The Federal Communications Commission's 5-0 decision will help keep the emerging technology, known as Voice over Internet Protocol, or VoIP, relatively free of government oversight.

"It completely changes the ballgame," said Glenn Reynolds, vice president for federal regulatory affairs for BellSouth, one of the regional Bell companies that trace their roots back more than a century.

Such companies have long been heavily regulated by state utility commissions. Having a type of phone service that is much less regulated could create a gold-rush mentality, bringing the regional phone giants and huge cable TV companies into the business in a big way alongside small start-up companies.

"It is scary" because the changes could be so revolutionary, Reynolds said. "But at the same time, it provides us with an opportunity to begin to compete for new services."

The FCC voted to pre-empt states from regulating Vonage Holdings Corp. as a traditional telephone company. The company, based in Edison, N.J., provides about 300,000 customers with a dial tone via broadband cable modems and digital subscriber lines.

Because the company transmits calls over high-speed data networks, not traditional phone switches, the messages move like e-mail. A customer placing a call via a laptop computer could be at home or in India, with no apparent difference in service.

FCC Chairman Michael Powell said the decision was a "landmark order," but it was "merely affirming the obvious" fact that Voip can't be penned in by traditional borders.

"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 said.

Supporters of the FCC decision say it will lead to cheaper phone service for businesses and consumers.

Voip often has a pricing advantage over traditional service, thanks to lower regulation and the fact it uses the Internet rather than expensive proprietary copper-wire networks.

"Our customers pay less for the combination of high-speed Internet and Vonage phone service than they do for traditional phone service plus clunky dial-up Internet," Vonage Chief Executive Jeffrey Citron said in a statement. "It's an upgrade that saves consumers money, simplifies their lives, and gives them features they can't get from traditional phone service."

Depending on their carrier, Voip subscribers can make calls from anywhere they find a broadband Internet connection and enjoy a broad range of sophisticated calling options, such as checking voice mail from the Web and attaching the messages to e-mails.

Businesses using Voip have praised the fact that they can quickly update their phone systems using in-house personnel rather than phone company technicians.

But while the FCC's ruling will encourage VoIP's spread, some consumer advocates fear that restricting the role of state regulators will widen the gap between wealthy, sophisticated Americans who can afford the latest gadgets and poorer people who need basic phone service.

"What's at stake is whether Voip service addresses the needs of low-income communities, spurs economic growth, and assists civic expression," Jeff Chester, executive director of the Center for Digital Democracy, an advocacy group, said in a statement. "To do so requires having states and local government be able to make essential decisions about the welfare of their citizens."

Vonage had been trying to avoid state supervision in Minnesota, where regulators wanted the company to register as a telecommunications service, subject to rate regulation and other rules.

But the FCC's decision largely protects Vonage, as well as cable, phone and other potential Voip providers, from having to meet stricter 911 calling standards and other state requirements.

Tuesday's FCC decision did not address the issue of state access charges, the fees that must be paid to local phone companies for completing Voip calls to conventional phones. It also let states continue to enforce tax, fraud, advertising and other laws involving the service.

Still, Tuesday's decision was just the first in a series that will have to be made about access charges, the Universal Service Fund that helps make phone service available to poor and rural Americans, and other issues. Traditional phone companies want to be freed from many of the existing regulatory requirements.

"We're pleased the FCC has taken a progressive view of this [VoIP] service, and hope regulators would apply the same light touch to outdated regulations governing traditional telephone service," Richard Notebaert, chief executive of regional Bell company Qwest Communications International Inc., said in a statement.

The National Association of Regulatory Utilities Commissioners, a group that represents state regulators, issued a statement saying the FCC has left many urgent questions unanswered.

The group's president, Stan Wise, a member of Georgia's Public Service Commission, urged the FCC "to expeditiously work out the larger implications of this decision with respect to universal service, intercarrier compensation, public safety and consumer protection."

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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.

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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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