Copyright 2004 Globe Newspaper Co.

The Boston Globe

November 10, 2004, Wednesday THIRD EDITION

Federal regulators decided yesterday to prevent states from heavily regulating companies that provide Internet-based phone service.

Those likely to benefit include Vonage Holdings Corp.; AT&T Corp. and its CallVantage service; Verizon and its VoiceWing service; and other telephone and cable television companies.

The unanimous Federal Communications Commission ruling failed to address some lingering disputes, including whether Internet phone subscribers should pay the same federal "universal service" charges as conventional landline subscribers pay to subsidize phone service in rural and low-income areas. The ruling also leaves up to each provider whether and how it will provide 911 emergency calling coverage.

Many industry officials said that by thwarting a 50-state patchwork of rules, the FCC vote would help accelerate momentum for Internet phone plans, which help consumers with broadband Internet connections save money and enjoy extra calling features, such as voice mail merged into e-mail and simpler call forwarding, set up from a Web page.

So far, the FCC has chosen to leave Internet calling virtually unregulated. A handful of states, including New York and Minnesota, have tried to subject Net phone firms to the regulations that apply to Bell companies.

With Internet phone service, voice calls move in the same format as e-mails and Web pages, which cuts the cost and makes it easier for carriers to add services.

Analysts such as the Yankee Group forecast that the number of subscribers to what is formally known as "voice over Internet protocol," or VoIP, will soar from 1 million at the end of this year to 17.5 million by the end of 2008.

"This forward-thinking decision from the FCC assures that competition from VoIP is here to stay," said Jeffrey Citron, chief executive of Vonage, the industry leader with nearly 300,000 subscribers. He said a robust Net phone market "will also drive broadband penetration [because] our customers pay less for the combination of high-speed Internet and Vonage phone service than they do for traditional phone service plus clunky dial-up Internet."

As cable giants including Comcast Corp. move into offering Net phone plans, the FCC decision "will further incent companies to invest in this exciting new technology," predicted Robert Sachs, president of the National Cable & Telecommunications Association.

Though the FCC voted 5-0 that services like Vonage's are purely interstate services that only the FCC can regulate even when people use their broadband Internet phone to make local calls, Democratic commissioner Michael Copps said the ruling did not go far enough to clear up issues like universal service fees and 911.

"The commission's constricted approach denies consumers, carriers, investors, and state and local officials the clarity they deserve," Copps said.

Janee Briesemeister, senior policy analyst for Consumers Union, said, "The FCC tied the hands of state regulators who have asserted that VoIP is no different than traditional phone service . . . Companies are now free to market VoIP as an alternative to traditional phone service, while consumers are left in limbo over vital issues, such as whether E911 will work on their Internet phone."