VOIP Fans Raise Regulatory Issues

As VOIP services enter more households, some service providers are pushing for national lawmakers to take a closer look at regulation.

Creating a national regulatory framework for VOIP will allow service providers to move ahead with technical innovation, say some industry players. Some VOIP providers say more predictable regulation could actually help develop the business, rather than hinder it.

“We lobby to encourage the national regulation of VOIP because, by doing that, you eliminate questions from a state level," says Jason Talley, CEO of startup Nuvio Corp. Talley also points out that there are major issues to be resolved such as 911 and the universal service charge.

VOIP providers are not governed by the same rules that control the incumbent carriers under the Telecommunications Act because the FCC has said that the digital phone providers are information service providers. This status makes VOIP providers exempt from such obligations as paying access charges to terminate calls at offices and residences.

VOIP providers do not have to put money into the Universal Service Fund, a tax imposed on carriers to help pay for phone service in rural and lower-income communities. They are not required to provide 911 services to their customers as well (see VOIP 911 Still Trails Wireline).

VOIP providers would likely have to charge their customers more money to provide such services as 911 and contribute to the Universal Fund. This is a drawback because many VOIP service providers have roped in customers by offering a relatively inexpensive service. But some VOIP providers say added costs for social services would have little impact on consumer subscriptions.

“There are many facets to VOIP regulation," says panelist Kevin Dundon, senior vice president of wholesale VOIP services at Level 3 Communications Inc. (Nasdaq: LVLT). "VOIP providers need to find a way to meet the social obligations that have been built into the phone system, such as providing 911.”

Talley says Nuvio and other startups providing VOIP services are not trying to shirk their social obligations. Providing 911 and contributing to the Universal Service Fund will become more important as VOIP enters the mainstream.

Thus far, the FCC has taken a hands-off approach to regulating VOIP.

The FCC has issued a notice of proposed rulemaking that suggests that if VOIP providers continue to be lightly regulated, they would be required to provide 911 services.

Regulators know they must decide soon how to regulate VOIP as more providers begin offering the service. While startups such as Vonage Holdings Corp., incumbent phone companies, and cable companies are already providers of VOIP services, industry insiders expect a slew of other players to walk onto the field.

“Don’t be surprised if you see new providers -- those that are good at marketing and branding -- get into VOIP. You have Microsoft, Yahoo, Dell, Best Buy...,” says Dundon.

— Joanna Sabatini, Reporter, Light Reading