VoIP growth gives regulators a new target

Regulators across the country are struggling to figure out what the emerging technology known as voice over Internet protocol (VoIP) might mean for consumers and the regulated phone industry.

The Washington Post reports that cable companies are coming after telephone companies with Internet phones that look and behave like regular phones, but the service generally costs less. A technology for transmitting ordinary telephone calls over the Internet using packet-linked routes — also called Internet Protocol or IP telephony — VoIP is becoming a key driver in the evolution of voice communications. The main difference is that voices get chopped into digital packets, which travel over the Internet and are reassembled at the other end.

Though Internet and traditional phones serve similar purposes, current regulations treat them differently. VoIP technology promises to integrate data and voice communication traffic into a single network, reducing the total cost of ownership associated with a combined voice-data network. VoIP technology is useful not only for phones but also as a broad application platform enabling voice interactions on devices such as PCs, mobile handhelds and many vertical-specific application devices where voice communication is an important feature.

A federal judge in Minnesota ruled last month that the state’s Public Utilities Commission could not regulate Internet phone companies because they send calls over the Internet and are more properly classified as “information services.” The judge said that Congress has expressed a clear intent to leave the Internet free from regulation to encourage growth and exploration, and that state regulation would decimate the congressional mandate that the Internet remain unfettered by regulation.

With improvements in the technology and a recent push from start-ups and cable operators, Internet telephony appears ready to go mainstream, with analysts predicting that this will mean lower costs for consumers and price competition for phone companies.

According to estimates, there are now 2.5 million U.S. VoIP subscribers, and that number is expected to grow to more than 7 million by 2007. Nearly 10 percent of businesses have replaced their old systems with some form of VoIP, and that transition is apparently accelerating. In North America, wholesale VoIP sales were estimated to approach well over $400 million in 2002. Total equipment purchases of VoIP gateways, soft switches such as IP Private Branch Exchange and VoIP application servers are expected by some analysts to reach almost $12 billion by 2006 — a six-fold increase over 2001.

Most major cable operators hope to sell Internet phone service to their residential customers, bundled with television programming and Internet access. Cablevision Systems Corp. started selling Internet phone service in Long Island last month, offering unlimited local and long-distance calling for $35 a month. Time Warner Cable Inc. has signed up 5,500 customers for a similar Internet service it rolled out five months ago in Portland, Maine. Comcast Corp., the largest cable company, is testing a version with 200,000 homes in Coatesville, Pa.

Newcomers such as Vonage Holdings Inc., 8×8 Inc. (also known as Packet8), Free World Dialup and Skype also are selling Internet calling plans, at prices ranging from free to about $40 a month. Even traditional phone companies are using the Internet to reduce their transmission costs, because it doesn’t require expensive routing equipment. Also, a call takes up more space on a traditional network than it does in its chopped-up format on an Internet network.

Verizon Communications Inc. and AT&T Corp. use a version of the technology to transport calls within their networks.

FCC Chairman Michael K. Powell has said that the FCC will begin to look at voice-over-Internet-protocol through a notice of inquiry, as opposed to a notice of proposed rulemaking, which would have indicated a desire to act more quickly.

Meanwhile, California, Wisconsin, Minnesota, Oregon and Washington have raised questions about the regulatory regime for VoIP providers.

The issues confronting VoIP service include, among others, how it fits with intercarrier compensation provisions, whether it needs to pay into the universal service fund, 911 service and whether it can reach emergency operators, impact on the numbering pool, and potential portability issues, in other words whether a customer can maintain the same phone number when he switches carriers.

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F. Anne Ross of Salisbury, an attorney in the Office of Consumer Advocate, was confirmed Nov. 5 as the consumer advocate, replacing succeed Michael Holmes, who has retired after 20 years in the post.

Ross, who has worked at the office for the last few years, had a prior stint with the office and has practiced law in New Hampshire in the private sector. She was nominated by the Residential Ratepayers Advisory Board. By law, the consumer advocate must be a New Hampshire lawyer and serve a term of four years. The Office has five employees and advocates before the Public Utilities Commission on behalf of residential ratepayers.

Doug Patch, former chairman of the New Hampshire Public Utilities Commission, is with the Concord law firm of Orr & Reno.