Networking

States battle FCC Internet phone ruling

Minnesota and California to appeal federal regulatory ruling that bars them from taxing Net phone service providers.

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By Ben Charny
CNET News.com

Minnesota utility regulators will try to overturn a recent federal decision barring states from imposing many of their telecommunications regulations on Internet phone providers, a sign states haven't backed down from their fight to lord over this new, cheaper breed of phone service.

Burl Haar, executive secretary of the Minnesota Public Utilities Commission, said Tuesday the commission is acting chiefly out of concern over whether Vonage and others Net phone providers can offer emergency 911 calling, which only a few elite operators are capable of providing. "There is a lot of uncertainty about how that will be resolved," Haar said.

Minnesota is the second state, so far, to decide to appeal the Federal Communications Commission's November decision, which was hailed as a victory for providers of the relatively new commercial phone service using voice over Internet Protocol (VoIP). In late December, California utility regulators filed an appeal of the decision in the 9th U.S. Circuit Court of Appeals. The Minnesota filing will take place within the 8th U.S. Circuit Court of Appeals.

States fear that more calls travel over the unregulated Net will mean fewer over the heavily taxed regular telephone network—reducing tax revenue that supports crucial public services, such as rural phone expansion and emergency call services. The FCC and VoIP providers counter that a very light regulatory approach is needed to coddle the developing industry.

Vonage, which asked the FCC for just such a designation in May, plus Verizon Communications, AT&T and dozens of other commercial Internet providers, have so far enjoyed limited regulation. This lets them charge up to 50 percent less for unlimited phone calls than their chief competitors, the four regional Bell operating companies. Additional regulation would crush the young industry, these operators claim.

By most estimations, VoIP dialing, which requires a special phone adapter and a broadband connection, will one day become the predominant way a phone call is made, given that its not only cheaper, but comes with features that traditional phone services can't match. Telephone providers already use VoIP to cut down on their own costs, and use is expected to explode from the current 1 million U.S. subscribers to about 18 million by 2008.

Jeff Citron, Vonage chief executive, on Tuesday all but predicted Vonage will prevail not only in California and Minnesota, but also in New York, where a federal judge temporarily barred regulators from forcing Vonage to follow telephone rules, and will rehear the matter later this month.

There may be only one question left to settle, to hear Citron tell it.

"When will states call it quits?" he said.

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