Subject: [NEXTEL-1] Free ride over for VoIP?

From: [email-masked]
Date: Mon, 25 Aug 2003 10:50:41 -0400

Free ride over for VoIP?
By Ben Charny
Staff Writer, CNET News.com
August 25, 2003, 4:00 AM PT

A cheap, Internet-based alternative to traditional telephone service is facing a
sudden regulatory backlash that could slow adoption of the fast-growing
technology, raise prices and put financially shaky start-ups out of business.
Two weeks ago, Minnesota drew first blood. It ordered so-called VoIP (voice over
IP) provider Vonage Holdings to file for a telephone operator's license. Many see
the move, the first attempt by a state public utilities commission to regulate an
Internet telephony provider, as the beginning of a new regulatory framework for
Internet telephone operators in the state.

Telephone regulators in Alabama, North Carolina, Michigan, Colorado, Illinois,
Virginia, Pennsylvania and Ohio are all at various stages of drafting some IP
telephony regulations. The Federal Communications Commission could also adopt new
rules for VoIP operators soon, signaling the end of the honeymoon for an industry
that's operated to date with no official oversight.
"If it's a company operating as a phone company, then there are requirements they
must follow," said Beth Bosch, a spokeswoman for the Illinois Commerce Commission,
which, along with other states, has raised concerns over VoIP emergency 911
services.

This is a 180-degree swing in thinking by the nation's telephone regulators. State
and federal officials were once happy to Net telephony providers such as
Net2Phone, deltrathree and Packet8 operate outside of ordinary telephone
regulations.
After all, the young companies had a tough enough task selling a little-known but
promising new technology to make phone calls over the Internet. They didn't need
regulations--or the extra costs and technical problems that go with them.
But as U.S. IP telephony subscribers near the 2.5 million mark, and some 10
percent of all calls are VoIP generated, a growing number of states and the FCC
have begun exploring whether to put VoIP providers on their regulatory radar.
Analyst group In-Stat/MDR believes there will be 7 million VoIP phones in
circulation by 2007.

The regulatory activity has Internet telephony's earliest supporters believing the
Wild West days are over now that the technology has progressed from its early
1990s geek-chic reputation to a mainstream service, although its use is still
relatively tiny by comparison with traditional phone dialing. Although regulations
may finally force VoIP providers to offer essential services such as 911, many
VoIP operators say consumers should brace themselves for higher prices, slower
introductions of new Internet telephony services and the demise of some of the
same start-ups that are just beginning to win customers.
Michigan has gone so far as to begin demanding that Internet service providers,
which sell the broadband connections VoIP dialers use, pay the same property taxes
charged to telephone companies, a move being battled by most ISPs in the state.
IP telephony providers are digging in their heels to fight the trend toward
regulation, but they face an uphill effort against the well-oiled lobbying
machines of the local-telephone companies.

Vonage recently indicated it will fight the Minnesota decision. "We believe the
Minnesota PUC (public utilities commission) is incorrect in its findings," Vonage
attorney Bill Wilhelm said.

Michigan Web provider Gateway Online is among those fighting the state's taxation
effort. "Not that the amount that my company pays is going to break the local
budget," Chief Financial Officer David DeFord wrote in an e-mail. "But if you
combine my tax bill with the tax bill of all of the other ISPs and other
nontelephone-company telecommunications providers in the state, there is likely a
several-million-dollar shift."

The FCC is moving much slower than the states are, although it too has begun
investigating the regulation question. FCC staffers recently met with various
major telephone and VoIP providers, a sign that the commission has "begun to more
seriously consider" applying its decades-old telephone regulations to VoIP
newcomers, said Jeff Pulver, founder of Net telephony provider Free World Dial-Up,
who attended some of the meetings.

In addition, the FBI has recently put pressure on regulators to seek rules
requiring VoIP and broadband ISPs to ensure the ability of law enforcement to
conduct wiretaps on VoIP subscribers.

Dialing in some surprising partners

The ongoing efforts have divided the telecommunications industry along predictable
lines, but with two surprising twists.
Among those supporting state and federal regulations are, unsurprisingly, major
phone companies Verizon Communications, BellSouth and SBC Communications, which
have the most to lose from VoIP's success. Because VoIP calls use the Internet,
dialers can avoid paying for access to the toll roads of a telephone network.
VoIP services "are plainly telecommunications," Verizon told the FCC.

The three phone companies argue that it's time for regulators to level the
competitive landscape, especially now that cable providers are taking serious
steps toward launching VoIP telephone services and are considered a major
challenge to the dominance of phone companies. "Do you think if we took a lot of
Verizon's traffic the FCC wouldn't say it's time for regulation?" said Sarah
Hofstetter, a senior vice president with VoIP provider Net2Phone.

But one of the nation's top four phone companies, Qwest Communications
International, has broken ranks with the other Bells. It still wants Net telephony
to be regulated but believes the FCC should draft separate, lighter rules for the
upstart services compared with what traditional telephone companies must follow.
In a recent FCC filing, the company argued that the agency should "balance the
competing interests of fostering a nascent technology and creating a level playing
field among all providers of voice transmission." This fractured front line might
actually be helping VoIP providers, according to Michael Smith of the University
of Maryland Graduate School of Management and Technology.  The major phone
companies "are not united behind a single position," he wrote in a report on VoIP
regulation earlier this year.

Meanwhile, those against Internet telephony regulations include the growing number
of VoIP providers, which have begun winning converts to their cheaper dialing
plans.  Networking-gear manufacturer Cisco Systems, which makes a converter that's
needed to turn traditional landline phones into VoIP dialers, is also against
imposing regulations.
Pulver counts long-distance provider AT&T among those rallying against VoIP
regulations as well, a second major phone company to break ranks.

In 2002, AT&T asked the FCC to decide whether "phone to phone" calls using the
Internet are exempt from access charges AT&T would normally have to pay."With so
many issues and petitions simmering, the FCC may just let the petitions simply sit
in the docket," Smith writes. "That in itself is a decision because it continues
the regulatory limbo."

http://news.com.com/2100-1037_3-5067465.html?tag=fd_lede2_hed

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