November 9, 2004 4:03 PM PST

FCC further deregulates Net calls

In a major win for the burgeoning Internet phone industry, a federal agency ruled Tuesday that some state telecommunications regulations do not apply to Vonage Holdings and similar providers.

The Federal Communications Commission ruled 3-2 that states are now barred from imposing telecommunications regulations on Internet phone providers, which treat calls no differently than any other application on the Internet. That class of operators includes Vonage Holdings, which asked the FCC for just such a designation in May, plus Verizon Communications, AT&T and dozens of other commercial Internet providers, according to those familiar with the FCC's thinking.

If anything emerged Tuesday from that decision, it was, as FCC Chairman Michael Powell put it, that "distance is dead." Existing federal, state and city phone regulations have one thing in common: each relies on where a call begins and ends, which reflects the dominant phone technology at the time these rules were written. But Vonage, ATT, and other phone service providers use the unregulated Internet, and history is replete with failed attempts to apply geographic-based rules. On Tuesday, when a divided commission was voting 3-2 on an Internet phone issue, the five members did agree on one thing: that geography should play a limited role in future decisions involving VoIP--voice over Internet Protocol technology.

"This landmark order recognizes a revolution has occurred," Powell said at the meeting in Washington, D.C.

In it decision, the FCC said that any number of various different state regulations would be "conflicting with our commission's policies" and also violate federal commerce laws.

The FCC foreshadowed how it might operate in President Bush's second term. Tuesday's vote was along party lines, with the three Republican commissioners embracing the decision as a way to protect VoIP, while commission Democrats concurring, but with objections. The decision fails "to account in a meaningful way for essential policy issues, including universal service, public safety (and) law enforcement," said FCC Commissioner Jonathan Adelstein, a Democrat.

The FCC's decision was a general one, was widely anticipated, and answers just one of dozens of questions about how regulators will ultimately treat VoIP. "What I see coming out of this is more questions," FCC Commissioner Michael Copps said at the meeting.

Much of the nitty-gritty of policymaking--and an actual written policy--is also still to come, as the FCC plods away at drafting a set of rules for new services like Vonage's that rely on Internet Protocol, the backbone of the Internet.

For instance, Vonage had also asked in its May petition whether it would be considered a telephone or information service, a designation that means the difference between a draconian regulator regime or a much lighter governmental hand. The commission did not answer that question Tuesday.

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