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The Showdown Over VoIP

By Kevin Ferguson Who ya gonna call if you're unhappy with your Internet phone service? Federal and state lawmakers are arm wrestling over that issue now. So far, the feds have the upper hand, though the match is far from over.

On Nov. 9, 2004, the Federal Communications Commission ruled that voice-over-Internet protocol, or VoIP, services are inherently interstate and cannot be governed by state public utility regulations. The FCC order preempted a move by the Minnesota Public Utilities Commission to subject New Jersey-based Vonage Holdings to Minnesota phone service regulations.

LAISSEZ-FAIRE APPROACH. By early January, four states - Minnesota, New York, Ohio, and California - had filed appeals in U.S. circuit courts. They were quickly followed by the Silver Springs, (Md.)-based National Association of State Utility Consumer Advocates, overseers employed by 42 states and the District of Columbia. Several other states, including Alabama and Washington, have been wrangling with the issue at the state level.

The point of contention is jurisdiction. While the FCC order doesn't yet give the agency responsibility to oversee certain tariffs, Internet-based emergency 911 calls, or other matters, it says ultimately they aren't matters for the states to decide.

"To subject a global network to disparate local regulatory treatment by 51 different jurisdictions would be to destroy the very qualities that embody the technological marvel that is the Internet," outgoing FCC Chairman Michael K. Powell said in a statement accompanying the Minnesota ruling. Still, the FCC plans to take a laissez-faire approach to promote growth in the nascent VoIP market.

PROTECT YOURSELF. The idea is simple: Let the more than 400 VoIP service providers now operating in the U.S. slug it out. The competition will yield strong service providers offering low rates (see BW SmallBiz, Spring, 2005, "Talk Gets Cheaper").

But what of the consumers and businesses caught in the brawl? The bruising will be minimal and won't require government intercession, the FCC says. "If you have problems with your VoIP service provider, what are you out, 50 bucks?" asks Jeffrey J. Carlisle, head of the FCC Wireline Competition Bureau.

Of course, small businesses may invest considerably more, but they can typically protect themselves by demanding strict service levels in their VoIP contracts, he says. "If someone were to jump off traditional telephony to go with a VoIP provider without some sort of service-level agreement, well then, they're not really doing their job," Carlisle says.

DEVILISH DETAILS. And if a VoIP service provider commits fraudulent or otherwise unsavory practices, businesses can still turn to their state attorney general's office. The FCC ruling doesn't preclude that, he says.

That's not enough, retort the states. "How do you provide important consumer protection?" asks Burl Haar, executive secretary of the Minnesota PUC, which is appealing the FCC ruling. "The details haven't been fully worked out. Clearly, there are state and fed jurisdictions that need to be resolved."

Among those consumer protections are an effective VoIP 911 system. Haar and other state officials argue that such services are public-safety issues and require strong state regulations. For now, though, the FCC is stepping aside and letting two telecommunications industry groups, the Voice On the Net Coalition and the National Emergency Number Assn., propose a VoIP 911 system. Ferguson is a contributor based in Boston

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