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Debating The Pros And Cons Of Online Phone Services

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Tough Call To Make

November 28, 2003

By Harry Berkowitz

As many more consumers turn to Internet services to make phone calls, policy makers are debating whether the companies providing those connections should be treated like traditional phone companies.

Should those providers, which offer cut-rate prices, be required to pay the same access fees and taxes that load up traditional phone bills? Should they be subject to the same wiretapping rules and provide the same kind of backup power that guarantees service through a blackout? Courts and state and federal regulators have been wrestling with the issues, in some cases coming up with starkly different answers.

On Monday, the Federal Communications Commission, trying to jump ahead of the courts, takes a crack at the controversy as it holds a public hearing in Washington, D.C., with witnesses from industry and government. In the next year, the FCC hopes to produce rules governing the new phone services, which are generally called Voice over Internet Protocol.

The outcome of the debates will help decide how strong a competitive force the new phone services become and what kinds of new choices consumers get. Among the entrants are cable companies, with Cablevision Systems Corp. and Time Warner Cable leading the way and trying to become major competitors to phone giants such as Verizon Communications, AT&T and MCI.

"There is universal agreement that these Internet services hold great promise for the American people,"

FCC chairman Michael Powell said in a letter to Sen. Ron Wyden (D-Ore). "Imposing regulatory burdens on these new and emerging Internet services, before the FCC fully engages the public and develops a comprehensive record, may have the unintended consequence of stifling its growth and denying the public benefits of that growth."

That does not mean Voip should be totally unregulated, Powell contends.

In October, a federal judge in Minnesota ruled that the state public utilities commission could not impose telecommunications regulations on Vonage Holdings, which provides Voip service to 72,000 customers across the country. He said that VoIP, since it uses the Internet to transmit voice "packets,"

is a provider of information service, which Congress has said should not be regulated, rather than a telecommunications service.

In a ruling in San Francisco, however, the U.S. Court of Appeals, said Internet service over cable lines is partially a telecommunications service, which could mean that Voip is subject to regulations. Without regulations, data companies would not be required to provide 911 service.

That could leave users of Voip in trouble in an emergency. Time Warner and Cablevision, however, provide 911 service. Vonage, which allows customers to use any area code no matter which state they live in, is able to route calls to the proper 911 service but is not able to automatically inform the 911 operator of the caller's address.

"These are technological issues that need to be solved," said John Rego, chief financial officer of Vonage, which is based in Edison, N.J. To complicate matters, Verizon plans to start offering Internet phone service to homes over DSL lines next year and says that such new technologies should not be regulated but that companies providing them should pay fees for access to traditional phone lines.

"These companies use the wires that are out there," said Mark Cooper, research director for the Consumer Federation of America, a consumer advocacy group. "Therefore they ought to make a reasonable contribution to the support of the facilities they use."

Vonage says it adds a federal excise tax of 3 percent to its $34.99 per month flat fee, plus a $1.50 "regulatory recovery fee" to reflect payments it makes to phone companies that complete its connections and that do pay fees.

If the Minnesota judge's view became widespread, companies such as Time Warner Cable and Cablevision, whose phone services are subject to state regulations, could be freed of requirements and fees, which they fold into their flat rates of $39.95 per month charged by Time Warner for unlimited calls and $34.95 charged by Cablevision.

Time Warner Cable has voluntarily filed as a competitive phone service subject to regulations in three states, including New York, but with the caveat that it would drop that status and stop paying fees if rulings free Voip providers from regulation.

In Washington, Oregon and Florida, phone companies have filed lawsuits against Voip providers, trying to force them to pay access fees. California is among states insisting that Voip services, which use the public phone networks to complete most of their connections, should be treated like conventional phone companies. Florida says Voip should not be regulated. New York State officials are still reviewing the matter.

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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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