St. Louis Post-Dispatch, November 12, 2004

At one level, the Federal Communications Commission's ruling this week on Internet telephony was just another turf battle between state and federal governments. But it also was much more than that.

"It's the prelude to a series of very important orders that will change the way phone service is regulated in this country," said Jim Falvey, senior vice president of regulatory affairs at Xpedius Communications in O'Fallon, Mo.

The FCC pre-empted an attempt by Minnesota to regulate Vonage, which offers phone service using voice over Internet protocol, or VoIP. Essentially, the FCC decided that because Internet calls can't easily be categorized as local or long-distance, they should be regulated only at the federal level.

The FCC has much rulemaking left to do on VoIP, but it's clear that this technology has the potential to shake up the telecommunications industry. If enough consumers embrace it, traditional phone companies like SBC Communications will step up the pressure on states and on Congress to free them from regulations they consider burdensome.

Sonia Arrison, director of technology studies at the Pacific Research Institute in San Francisco, favors deregulation. "This is really a step in the right direction," she said of the FCC's decision. "In some ways, it's proof of what a lot of the Bell companies have been saying all along. They really do have competition."

She said the spread of Internet phone service could be "bad for the phone companies and good for consumers, as long as the government doesn't step in and over-regulate it."

For consumers, the most obvious advantage is the price. Vonage offers unlimited calls in the United States or Canada for $24.99 a month. AT&T's CallVantage, a similar VoIP plan, costs $29.99 a month.

Of course, you also must have a broadband connection. Vonage, which has 300,000 subscribers, says the total cost can be less than paying for traditional phone service and slow, dial-up Internet access.

We're likely to end up with a patchwork system where some people have traditional land lines, others have only an Internet phone and still others have only a wireless phone. An estimated 14 percent of consumers are wireless-only.

Choice is great, but it raises a lot of questions for a regulatory system built around the ubiquitous land-line phone.

Will providers of VoIP be required to contribute to the Universal Service Fund, which subsidizes service to schools and rural residents? Should they pay an access fee when their customers call a customer of one of the land-line companies?

And how will these companies provide enhanced 911 service, which tells an operator where the emergency call is coming from? This is a big technical hurdle, because an Internet phone can be plugged into any broadband connection anywhere. In fact, you can subscribe to VoIP service at your office in St. Louis but choose a Los Angeles area code.

Mike Dandino, senior public counsel at the Missouri Office of Public Counsel, says he's worried about many important issues, from emergency service to consumer fraud, now that the FCC has decided to shut states out of the regulatory process.

"They want to deregulate without having any kind of consumer protection or protection of the public interest," Dandino said of the federal agency.

Clearly, the FCC is right to encourage the spread of a new technology. And the states might have to re-examine some of their phone regulations. But with technology changing so fast, the biggest question is whether any regulator can keep up.

dnicklaus@post-dispatch.com