September 30, 2003 7:12 PM PDT

California to regulate VoIP providers

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California regulators have begun forcing Internet telephone service providers to apply for telephone operator licenses, a state official said Tuesday.

The Golden State is the largest state to decide that voice over Internet Protocol (VoIP) providers are subject to the same rules and regulations as all other telephone service providers. In recent weeks, Wisconsin and Minnesota decided the same thing.

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VoIP providers argue that a state's rules govern only telephone calls made over traditional telephone networks. VoIP calls use the Internet and should be excluded, the providers argue.

But that distinction is becoming irrelevant, said John Leutza, director of the California Public Utilities Commission's telecommunications division. "They sure look like a phone company in nearly every regard," he said in an interview Tuesday. "This will be California's policy, going forward."

Because of its size and national stature, California's decision to bring VoIP providers into the regulatory fold could have enormous sway on the dozens of other state's now investigating a similar step. Representatives from Vonage and several of the other net telephony providers subject to California's request were not immediately available for comment.

This is a 180-degree swing in thinking by the nation's telephone regulators. State and federal officials were once happy to Net telephony providers operate outside of ordinary telephone regulations. After all, the young companies had a tough enough task selling a little-known but promising new technology to make phone calls over the Internet. They didn't need regulations--or the extra costs and technical problems that go with them.

But with U.S. IP telephony subscriber totals nearing the 2.5 million mark, and VoIP generating some 10 percent of all calls, a growing number of states and the FCC have begun exploring whether to put VoIP providers on their regulatory radar. Analyst group In-Stat/MDR believes there will be 7 million VoIP phones in circulation by 2007.

Leutza said the state had asked VoIP providers Vonage, VoicePulse, SBC Communications, Net2Phone and Packet8 to apply for the same license that landline phone companies need to operate in California. "There could be discipline, but we haven't decided on what yet," should they miss the Oct. 22 deadline for the application to be submitted, he said.


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