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Internet Phone Rules Curbed


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Internet Phone Rules Curbed
States Can't Regulate Services, FCC Rules


November 10, 2004

By Leslie Brooks Suzukamo

States cannot regulate the rapidly growing, significantly cheaper Internet telephone services that are luring away the nation's telephone customers from traditional phone lines, the Federal Communications Commission ruled Tuesday.

The ruling does not answer all questions about what's widely considered to be the next big thing in telecommunications. But it opens the gates a little wider to an expected flood of offerings from major phone companies like Qwest Communications International as well as new competition from cable companies.

West metro's cable provider Time Warner Communications, in fact, will announce its own Internet phone service today for Minneapolis and some Twin Cities suburbs. Qwest, which began a trial Internet phone service in Minnesota last January, has promised residential service in its entire 14-state territory by the end of this year, while Comcast cable is testing its own service outside of Minnesota.

The FCC's unanimous ruling reserves regulation of "voice over Internet Protocol" services or Voip to the federal government. It also pre-empts a request by the Minnesota Public Utilities Commission and other state regulators from overseeing these new services the same way they watch over regular phone companies.

It was unclear Tuesday whether the decision would cause the Minnesota PUC to abandon a chance next week to appeal a federal court ban on its desire to regulate a New Jersey Internet phone service called Vonage.

The 8th U.S. Circuit Court of Appeals is to hear oral arguments Nov. 17 in St. Paul. Minnesota is appealing a lower court order forbidding it from requiring Edison, N.J.-based Vonage, which offers Voip nationwide on high-speed Internet lines, to register as a telephone company here like other phone providers.

The PUC will study the FCC's written order, which should arrive in a few days, and then make a decision on its appeal, PUC executive secretary Burl Haar said Tuesday.
Vonage, which brought its Minnesota dispute to the FCC last spring to head off Minnesota and other state regulators, was pleased with the federal decision.

"This (ruling) gives us the clarity we need to make additional investments and expand," Vonage CEO Jeffrey Citron said. Vonage is the nation's market leader with 300,000 Internet phone lines.

FCC Chairman Michael Powell, a cheerleader of Voip services, said the decision eliminates a patchwork of state regulations, which could squeeze the life out of Internet telephone service before it takes hold.

Less than 1 percent of phones use Voip now — it requires high-speed Internet access and some consumer comfort hooking up a phone to a computer — but competitors like Vonage and AT&T have cut prices several times already, Powell noted in a statement.

"If we let competition and innovation rage, unencumbered by the high cost of regulation, consumers can expect more of the same — lower prices, more choice and more innovative offerings," Powell said.

However, the FCC did not tackle larger questions of classifying Voip service, and that could significantly affect its price, said Kate Griffin, a senior analyst at Boston technology research firm Yankee Group.

If the FCC decides that Internet voice is a data service no different from sending e-mail or MP3 music files, it would be free of paying the taxes and fees that weigh down traditional phone service, she said.

Those taxes and fees subsidize affordable local phone services to the poor, elderly and rural users, and states worry what will happen to them if traditional phone service shrinks.

Last year, the United States had 131,000 Internet phone users out of more than 100 million telephones. By the end of this year, that number should climb to close to 1 million, and by 2008, as many as 17.5 million Internet phones will be in use, Griffin estimated.



 
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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 www.vonage.com/911 for details.

** Certain call types excluded.

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