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N.D. Phone Cos. Challenge Web Phone Co

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N.D. Phone Cos. Challenge Web Phone Co

December 10, 2003

By Dale Wetzel

BISMARCK, N.D. -- North Dakota's small telephone companies are challenging a business that advertises cheap Internet phone calls, saying the company's pitch cheats local phone providers of customer access fees.

The complaint is part of a mushrooming national debate over how the industry should be regulated.

Thirteen rural telephone cooperatives and small independent companies are asserting that SmartNet Inc. of Dickinson, N.D., which operates as CallSmart, is using their networks to connect long-distance calls.

The companies want to force CallSmart to stop doing business until it is licensed as a telecommunications carrier, and to pay them fees for access to their local customers. Traditional long-distance companies, including Sprint and AT&T, already pay the access fees.

"The services offered by ... (CallSmart) and its method of operations are a scheme to avoid legal obligations of paying access charges," the companies' attorney, Don Negaard, said in a state Public Service Commission filing.

CallSmart president Bruce Burke said his company handles data and is an Internet service provider, not a phone company. Most of CallSmart's customers live outside North Dakota, he said. He declined comment on the complaint, which the Public Service Commission accepted last week.

On its Web site, CallSmart advertises unlimited residential long-distance calling for $39.99 a month. Users dial a local number to connect to CallSmart, and a message instructs callers to dial the numbers they want to call. The company lists local numbers in Bismarck, Fargo and Dickinson.

CallSmart customers do not need extra equipment to use the service, and it can be used with conventional or cellular telephones, the company's advertising says.

CallSmart obtained a state license as a long distance telephone reseller in August 2002. Resellers typically do not have their own equipment in North Dakota, but buy usage rights from other companies that do, and resell the service.

The rural and independent phone companies contend CallSmart should be treated as a business that uses its own North Dakota facilities.

Should CallSmart be forced to register as a "facilities-based" long-distance phone company, it would have to pay local companies access fees to reach their customers.

It would also inherit other state regulatory obligations, including collecting taxes to pay for emergency 911 service, and a separate relay service that helps deaf people to use the telephone.

State regulators in California, Wisconsin, Illinois and Minnesota are among those exploring whether to treat businesses that provide voice service over the Internet as traditional phone companies.

The technology is called "voice over Internet protocol," or VoIP. It converts a person's voice into small packets of data, which are carried over the Internet and reassembled into sound on the other end of the call.

Generally, Voip provides poorer sound quality, along with conversation gaps -- caused by loss of voice packets -- that can make a speaker's speech sound occasionally jerky and clipped. It is, however, much less expensive.

In September, the Minnesota Public Utilities Commission ordered Vonage, an Internet voice provider based in Edison, N.J., to apply for certification as a traditional telephone company. Vonage has built its business with help from advertising on Yahoo! and other large Internet portals.

Vonage argued it was a provider of information services, not a telecommunications company. But the PUC ruled that Vonage "is offering two-way communication that is functionally no different than any other telephone service."

However, U.S. District Judge Michael Davis in Minneapolis permanently barred the PUC in October from regulating Vonage as a phone company, saying its order conflicted with federal law and could inhibit the development of the Internet.

The Federal Communications Commission held a public forum on Internet telephony in Washington, D.C., last week, listening to testimony from California and Florida regulators and executives of Internet telephone companies, including Vonage's chief executive, Jeffrey Citron. The FCC has formed an Internet policy working group to look into the issue.

"This is truly transformative technology," FCC commissioner Michael Copps said. "Consumers and entrepreneurs need to know how it is going to be treated going forward ... The long-awaited convergence of voice, data and video onto Internet-based networks is on the verge of turning the pipe dreams of just a few years ago into new commercial reality."

This story was also included in:
  • Newsday, 12/10/03
  • Seattle Post Intelligencer, 12/10/03
  • Ocala Star-Banner, 12/10/03
  • Times Daily, 12/10/03
  • Miami Herald, 12/10/03
  • Sarasota Herald-Tribune, 12/10/03
  • Atlanta Journal Constitution, 12/10/03
  • Springfield News Sun., 12/10/03
  • Fort Worth Star Telegram, 12/10/03
  •, 12/10/03
  • Rapid City Journal, 12/10/03
  • North County Times, 12/10/03
  •, 12/10/03

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