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Ben Charny

Staff Writer, CNET

John Rolff’s latest broadband phone bill contained three words he vowed never to see again: “regulatory recovery fee.”

The same charge was the reason he dumped his old phone provider, SBC Communications, in favor of Primus Telecommunications’ Lingo, which lets his broadband line double as his phone line. From all appearances, Lingo hadn’t been “adding these little nickel and dime charges,” he said.

But now, the 38-year-old software engineer–along with 755,000 others–is learning that this had never really been the case. Lingo, Vonage, Time Warner Cable and every other commercial provider of voice over Internet Protocol (VoIP) services have been collecting government fees for years. It’s only in recent months that most have been coming clean on their statements–to fend off critics, as the spotlight on Net phone services grows.

Some, notably state governments, have called for broadband telephone services to pay the same regulatory fees that the traditional local phone providers–known as the “Baby Bells”–do. The Federal Communications Commission has so far kept regulators’ hands off VoIP.

Hoping to counter calls for direct taxation and regulation, many of the Net phone operators now identify a “regulatory recovery fee” line item of 50 cents to $3 as part of their regular monthly service charges. They say they’re highlighting the portion of local phone fees the Bells have always charged them for completing calls on local lines.

“A lot of people were raising this concern that we weren’t funding telephone projects like the Bells were,” said Jeffrey Citron, CEO of VoIP provider Vonage Holdings. “That’s a red herring–I say ‘malarkey’ to it. We already fund part of it, and we wanted to show our customers and everybody else.”

Net phone companies insist that the fees are legitimate, merely offsetting the costs of taxes and regulatory fees passed on to them by the local phone companies for completing Net calls, they say. Nevertheless, some critics say the label is at best misleading–and at worst a misrepresentation with potential for abuse.

The line item attempt to soothe angry state regulators seems instead to have riled VoIP customers, many of whom admire the outsider stance of broadband phone services as well as the cheaper rates. Rolff said he no longer views his operator as a lovable underdog with a hot technology trying to topple the Bell Goliaths.

“Lingo was like this outsider trying to take on the big, bad phone industry,” he said Tuesday. “But now, they act just like them. Here I thought I’d found the answer, but it seems like they were just pretending all along. All of a sudden, SBC doesn’t look that bad.”

And that kind of harsh assessment is bad for an upstart industry in which the smallest operators, in particular, rely on word-of-mouth recommendations and “buzz” in lieu of large marketing budgets or longtime name recognition.

Follow the money–vaguely
VoIP providers say they have identified the longstanding fees in recent months without raising the cost of their services–no harm, no foul. But since it is unclear how, or even whether, the fees make their way to government coffers, the line items aren’t sitting well with some consumers.

“The money is first handed to any of the four major phone companies, who then hand it to the government,” said Janee Briesemeister, a senior policy analyst for the Consumers Union advocacy group.

How these sums are set and what’s done with them aren’t clear. “These charges, in the hands of the major phone companies, really amount to nothing–they’re for whatever. That means everybody should be worried about something called a regulatory recovery fee,” she said.

The billing controversy dates to September, when Vonage began breaking out the regulatory charges on its billing statements, a practice soon taken up by rivals, including Vonage, Lingo and BroadVoice. Net phone providers insist that their billing practices are legitimate because the charges directly offset fees passed on to them from the local phone companies, with nothing extra going into their own pockets.

Keith Cocozza, a spokesman for Time Warner Cable, said less than 2 percent of a typical bill for its Digital Phone offering contributes to a fund for rural telephone expansion and for a location-aware 911 service informally known as E911. His company must contribute to those funds, he said, despite the lack of government fees imposed directly onto VoIP firms.

“There really is an E911 service fee,” he said. “We really do contribute to universal service.”

True or not, listing the charges has struck a raw nerve among some customers and engendered new feelings of distrust.

“I would guess that the regulatory fee most people are seeing is related to the federal universal service,” opined one contributor to a Broadband Reports forum critical of the fees. “However, I would NOT be surprised if the providers were slipping in something extra there.”